WASHINGTON — The U.S. Merchant Marine would take another hit if the proposed bipartisan federal budget deal is passed with language that would stop reimbursing agencies for the additional cost of shipping food aid on U.S.-flag vessels.
The ocean freight differential, or OFD, would be repealed through the two-year budget deal proposed by Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wis. The budget offset, or “pay for,” would save $731 million in the bill, which includes $85 billion in spending cuts and new fees. The federal sequestration cut the OFD budget of $100 million by 7.3 percent, or $7 million, in fiscal 2014, according to the Obama administration.
There are two types of OFD, but it's not clear whether one or both would be cut if the budget deal passes. Through an “incremental OFD,” the Maritime Administration reimburses U.S shipper aid agencies for the extra amount it costs them to use a U.S. flag-vessel rather than a foreign flag vessel, according to a position paper by USA Maritime, a coalition of carriers and maritime unions.
The other type, the “excess OFD,” is the amount Marad reimburses food aid programs when the transportation costs exceed the cost of food commodities by 20 percent. The calculation of the “excess OFD” goes beyond using U.S.-flag shipping costs, with non-ocean shipping costs, such as fumigation and inland transport, being included in the formula.
Because of the comparably low costs of transportation in relation to commodity prices in recent years, the “excess OFD” apparently hasn’t been tapped by aid agencies, according to James Caponiti, executive director at the American Maritime Congress. But if freight rates do rise in relation to commodity costs, then aid agencies wouldn’t receive reimbursement for the additional costs of shipping via U.S.-flag ships instead of foreign-flag carriers.
The question is whether stripping the OFD would deter agencies from using U.S.-flag vessels, since they are federally required to guarantee a share of volume to such vessels. That share was reduced from 75 percent to 50 percent through surprise backroom dealing in the last surface transportation bill, Moving Ahead for Progress in the 21st Century, or MAP-21. U.S. food aid agencies won’t use U.S.-flag ships if they don’t get the OFD, said Denise Krepp, a consultant and former Maritime Administration chief counsel. Nine dry bulk ships, 51 container ships and four general cargo ships handle U.S. food aid.
The proposal to scrap the OFD comes as lawmakers determine whether to overhaul the foreign food aid program through the new farm bill. Language in the Senate’s version of the bill would give more money directly to needy countries, reducing the amount of U.S-produced food aid that would need to be shipped on U.S.-flag vessels. The federal sequestration reduced the Food for Peace program, the major U.S. food aid program, by 5 percent, or $74 million, in fiscal 2013.
Critics, including the Obama administration, say the government spends too much money for U.S.- and foreign-flag carriers to ship the roughly $1.5 billion worth of food aid to recipient countries. A 2011 report from the Government Accountability Office, the watchdog arm of Congress, found ocean transportation made up two-thirds of the cost to deliver food aid. Further, transportation costs are rising because a dwindling number of U.S.-flag carriers is dampening competition, the report stated.
Proponents counter that the aid programs support more than 33,000 American transportation jobs and U.S. agriculture. Sourcing the aid domestically also cuts down on corruption, they add.
The concern over the proposed reshaping of the food aid program goes beyond just those U.S.-flag carriers that haul the grain. The greater threat is that the U.S. Merchant Marine will shrink in terms of vessels and mariners to the point that it can’t support military operations during times of crisis, according to the AMC. The ocean fleet, comprising commercially owned and operated vessels, numbers about 200 ships and provides job to more than 11,000 mariners.
The House is slated to vote on the budget deal today. If passed as expected, the Senate will vote on the deal soon after.