U.S.-flag ocean carriers hit an uncharted reef in the transportation spending bill Congress approved and the president signed this month.
Buried deep inside the bill’s final version was an unexpected surprise: a one-third cut in U.S.-flag carriers’ food aid shipments booked by the Agriculture Department and U.S. Agency for International Development. Since 1985, U.S.-flag ships have had access to 75 percent of aid cargoes. Now their share drops to 50 percent.
“It’s an economic disaster for the U.S.-flag industry,” said Charlie Papavizas of the Washington law firm Winston & Strawn, which represents USAMaritime, a coalition of U.S.-flag interests. “Less cargo means fewer ships and fewer mariners.”
The Maritime Administration estimates the change will reduce U.S.-flag aid shipments by 500,000 tons a year and eliminate the need for up to 16 U.S.-flag ships — six bulk carriers and 10 container ships — and 640 seafarer jobs.
Some of those ships are part of the Maritime Security Program, which subsidizes 60 U.S.-flag ships that are available to carry military cargoes when needed. However, most carriers that fly the U.S. flag do so not because of subsidies but in order to carry cargo preference shipments.
A 1985 agreement boosted U.S.-flag participation in food aid shipments from 50 percent to 75 percent. That agreement also allowed the Transportation Department to reimburse the USDA for the higher cost of U.S.-flag carriage, so that the higher cost of U.S.-flag shipping didn’t come out of the food aid budget.
“It was a bipartisan, bi-industry compromise,” Papavizas said. “Bipartisan because it was supported by Democrats and Republicans, bi-industry because it had support from the agriculture and maritime industries.”
The compromise was undone by this year’s transportation bill. An estimated $15 million reduction in U.S.-flag shipping costs for food aid became an eleventh-hour budget offset to compensate for higher spending on other programs.
Marad estimates the reduction in U.S.-flag shipments will cut carrier revenues by $90 million a year. Papavizas said the loss of U.S. income and taxes for carriers and seafarers will more than offset any governmental savings. “Is there a real savings? The answer is no, when the loss of economic benefit is factored in,” he said.
And there are indirect costs, notably for the Defense Department. Eliminating 640 seafaring jobs will further thin the ranks of civilian mariners the U.S. Transportation Command uses to help with its sealift requirements.
U.S.-flag advocates hope to persuade Congress to revisit the issue. Meanwhile, they’re trying to figure out how the changes to cargo preference found their way into the transportation bill’s final version, which was subject to an up-or-down vote without amendments.
“It caught everyone by surprise,” said Lee Kincaid, president of the American Maritime Congress. “No one has owned up to putting it into the bill.”