a

GAO

United States Government Accountability Office

Report to Congressional Committees

September 2004 MARITIME 

SECURITY FLEET

Many Factors 

Determine Impact of 

Potential Limits on 

Food Aid Shipments

GAO-04-1065
www.gao.gov/cgi-bin/getrpt?GAO-04-1065.

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and methodology, click on the link above. 

For more information, contact Celia Thomas 

at (202) 512-8987 or thomasc@gao.gov. 

Highlights of GAO-04-1065, a report to 

congressional committees 

September 2004

MARITIME SECURITY FLEET 

Many Factors Determine Impact of 

Potential Limits on Food Aid Shipments 

Food aid cargo must generally be 

carried on U.S.-flag ships under 

requirements set by the cargo 

preference program. Two groups 

of carriers compete for this cargo: 

(1) those that participate in the 

Maritime Security Program and 

receive an annual government 

subsidy—generally liners operating 

on scheduled routes and (2) those 

that do not—generally carriers 

operating on a charter basis. 

Congress directed GAO to study (1) 

how the cargo preference and 

Maritime Security programs are 

designed and who participates;(2) 

the nature and extent of MSF and 

non-MSF carrier participation and 

competition in the food aid 

program; and (3) how a tonnage 

limitation on bagged preference 

cargo for MSF vessels could affect 

MSF, other U.S.-flag ships, the 

cargo preference food aid program, 

and the ports servicing these ships. 

While GAO makes no 

recommendations in this report, 

we observe that a decline in bulk 

food aid shipments since 2000 

suggests greater competition for 

bagged food aid, but clear trends in 

how industry segments are 

responding cannot yet be 

determined. Our analysis suggests 

that under certain conditions a 

tonnage limit would not lead to 

large shifts in food aid to non-MSF 

carriers, and could result in lower 

levels of subsidy payments and 

increased agency burdens. We 

note significant limits of efforts to 

predict the future course of events 

where key factors are so volatile. 

The cargo preference program and the Maritime Security Program provide 

incentives to retain privately owned U.S.-flag ships and their U.S. citizen 

mariners for commercial and national defense purposes. The cargo 

preference program is open to all U.S.-flagged vessels, while the Maritime 

Security Fleet (MSF) subsidy is only available to certain militarily useful 

vessels. Of the 47 ships currently in the MSF, 37 have participated in cargo 

preference food aid shipments. 

MSF and non-MSF carriers compete for food aid shipped as bagged cargo, 

which averaged 33 percent of food aid shipments by tonnage from fiscal 

years 1999 to 2003. There is no competition for bulk food aid shipments 

because MSF carriers do not carry bulk cargo. Changes in food aid spending 

have contributed to a shift from bulk to bagged cargo and increased reliance 

on bagged cargo by some non-MSF carriers. From 1999 to 2003, MSF 

carriers shipped about 45 percent and non-MSF carriers 55 percent of 

bagged food aid cargo. Competition between MSF and non-MSF carriers for 

bagged food aid is affected by certain cargo preference requirements. 

Establishing a tonnage limitation on MSF vessels would likely reduce their 

share of food aid shipments, but the extent would depend on factors such as 

the level of the limit and the options MSF carriers have in responding to it. 

We examined three proposed limits and found that the percentage of food 

aid voyages carrying more than the proposed limit rises from 3 percent with 

a limit of 7,500 tons to 19 percent above 2,500 tons, according to fiscal year 

2001 to 2003 data. The actual impact on MSF carriers will be smaller if they 

are able to (1) carry some food aid up to the limit, (2) replace some food aid 

above the limit with other cargo, and/or (3) elect to carry food aid even 

without the subsidy. Food aid agencies are concerned about the impacts of 

a tonnage limit, including increased delays in providing food aid, 

administrative burdens, and higher shipping costs. Major ports would 

generally experience a limited overall impact of a tonnage limitation, but 

specific food aid terminals could be affected. 

Non-MSF and MSF Bagged Food Aid Shipments, Fiscal Years 1999-2003 

Tons in thousands

MSF

Non-MSF

Source: GAO analysis of USDA data.

1999 2003a 2000 2001 2002

0

200

400

600

800

1,000

Year

a

2003 data are estimated. 
Page i GAO-04-1065 Maritime Security Fleet

Contents

Letter 1

Results in Brief 3

Background 5

Cargo Preference and Maritime Security Programs Provide 

Incentives to Retain U.S.-Flag Ships and Mariners 11

MSF and Non-MSF Carriers Compete for Bagged Food Aid 

Shipments 16

Multiple Factors Determine How Tonnage Limit Changes Would 

Impact Food Aid Carriers 26

Observations 38

Agency Comments and Our Evaluation 39

Appendixes

Appendix I: Objectives, Scope, and Methodology 45

Appendix II: Simulating Potential Impacts of a Bagged Tonnage 

Limitation 49

Appendix III: Profile of Maritime Security Fleet 56

Appendix IV: Comments from the U.S. Agency for International 

Development 59

Appendix V: Comments from the Department of Agriculture 64

Appendix VI: Comments from the Department of Defense 66

Appendix VII: GAO Contacts and Staff Acknowledgments 67

GAO Contacts 67

Acknowledgments 67

Tables Table 1: Characteristics of U.S.-Flag Vessels Participating in Cargo 

Preference Food Aid, Fiscal Years 1999-2003 6

Table 2: Tonnage of Bagged Food Aid Cargo Loaded by MSF and 

Non-MSF Vessels at Major Food Aid Ports, Fiscal Years 

1999-2003 25

Table 3: GAO Simulation of MSF Voyages with Food Aid above a 

2,500 Tonnage Limit, 3-Year Annual Average for Fiscal 

Years 2001-2003 32

Table 4: Assumptions in the Simulation Model and the Probability 

Distributions Reflecting Those Assumptions 51
Contents

Page ii GAO-04-1065 Maritime Security Fleet

Table 5: GAO Simulation of MSF Voyages with Food Aid above a 

5,000 Ton Limit, 3-Year Annual Average for Fiscal Years 

2001-2003 54

Table 6: Maritime Security Fleet, as of December 2, 2003 56

Figures Figure 1: A Bulk Vessel 7

Figure 2: A Containership 8

Figure 3: USDA Purchases of Bulk and Bagged Agricultural 

Commodities for the Food Aid Program, Fiscal Years 

1996-2003 17

Figure 4: Non-MSF Total Food Aid Shipments, Fiscal Years 

1999-2003 19

Figure 5: Non-MSF and MSF Bagged Food Aid Shipments, Fiscal 

Years 1999-2003 20

Figure 6: Criteria for MARAD’s Prioritization of U.S.-Flag Vessel 

Service for the Cargo Preference Program 21

Figure 7: Estimated Share of Title II Food Aid Shipments by 

U.S.-Flag Liner Carriers at Each Priority Level, Fiscal 

Years 1999-2003 23

Figure 8: Number of MSF Food Aid Voyages at Different Tonnage 

Levels, Fiscal Years 2001-2003 28

Figure 9: Percentage of MSF Food Aid Revenues from Voyages 

with Tonnage above a Potential Limitation, Fiscal Years 

2001-2003 29
Contents

Page iii GAO-04-1065 Maritime Security Fleet

Abbreviations

DOD Department of Defense 

LASH Lighter Aboard Ships

MARAD Maritime Administration

MSF Maritime Security Fleet

TEU Twenty-foot Equivalent Unit

USAID U.S. Agency for International Development

USDA U.S. Department of Agriculture

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Page 1 GAO-04-1065 Maritime Security Fleet

United States Government Accountability Office

Washington, D.C. 20548

A

September 13, 2004 Letr

Congressional Committees:

Food aid shipments must generally be transported on U.S.-flag ships under 

the requirements set by the cargo preference program.1 Two broad groups 

of U.S.-flag carriers compete for these food aid shipments: 

1. those that participate in the Maritime Security Fleet (MSF)2 (generally 

liners that carry containers on scheduled routes) and receive a $2.1 

million annual subsidy from the federal government and

2. those that do not (generally carriers of bulk and bagged cargo that 

operate on a charter basis). 

During the debate on renewing the Maritime Security Program and MSF, 

the non-MSF carriers complained that the MSF subsidy put them at a 

competitive disadvantage, particularly for bagged food aid cargo. They 

supported a provision to limit the amount of bagged cargo that MSF ships 

could carry so that, on days when the limit was exceeded, MSF ships would 

have to forfeit their subsidy. Since no analysis had been conducted on the 

effects of such a change, the Maritime Security Program was authorized 

without this provision, and we were directed to study the impact of placing 

a limitation on MSF transportation of bagged food aid preference cargo.3

1

Cargo preference is the reservation, by law, for transportation on U.S.-flag vessels, of all or 

a portion of all ocean borne cargo that moves in international trade, either as a direct result 

of the federal government’s involvement or indirectly because of the financial sponsorship 

of a federal program or guarantee provided by the federal government. These preference 

cargoes include agricultural, military, and Export-Import Bank cargoes. This report focuses 

only on cargo preference food aid shipments; cargo preference shipments of military or 

other cargo were outside the scope of our review. Agricultural preference cargoes 

accounted for about a quarter of all preference cargoes, by tonnage, according to Maritime 

Administration data for 2002.

2

MSF comprises vessels that participate in the Maritime Security Program, a program 

established by the Maritime Security Act of 1996 that provides funding to U.S. vessels 

participating in international trade, to support the Department of Defense (DOD).

3

Section 3535 of the National Defense Authorization Act for fiscal year 2004, P.L. 108-136, 

117 Stat. 1818-19.
Page 2 GAO-04-1065 Maritime Security Fleet

As discussed with representatives of the House and Senate Committees on 

Armed Services and the Senate Committee on Commerce, Science, and 

Transportation, we have focused on answering the following questions:

1. How are the cargo preference and Maritime Security Programs 

designed to meet their objectives and who participates in them?

2. What are the nature and extent of MSF and non-MSF carrier 

participation and competition in the food aid program?

3. How would establishing a bagged cargo preference tonnage limitation 

on MSF vessels be expected to affect MSF, other U.S.-flag ships, the 

cargo preference food aid program, and the ports servicing these ships?

To answer these questions, we gathered and analyzed food aid shipment 

data for fiscal years 1999 to 2003 from the U.S. Agency for International 

Development (USAID), the Department of Agriculture (USDA), and the 

Maritime Administration (MARAD), as well as MSF and cargo preference 

vessel data from MARAD and military contingency participation data from 

MARAD and the Department of Defense (DOD).4

 Through electronic data 

testing, verification of data against other sources, and interviews with 

agency officials managing the data, we found the data to be sufficiently 

reliable and appropriate for our purposes. We conducted interviews and 

obtained financial data for fiscal years 2001 to 2003 from representatives of 

15 carriers that transported the majority of cargo preference food aid, 

including 5 MSF and 10 non-MSF carriers.5

 We also conducted interviews 

with representatives of eight ports through which a major share of food aid 

shipments were shipped. Consistent with the terms of our mandate, we 

analyzed the potential impact of daily tonnage limits on MSF vessels of 

2,500, 5,000, and 7,500 tons.6

 While our analysis provides a range of impact 

estimates based on data in recent years and several additional 

assumptions, if future market conditions differ from those reflected in this 

recent data, impacts may differ from those illustrated by our analysis. We 

conducted our work in accordance with generally accepted government 

4

We did not conduct an evaluation of programs related to this study, including the cargo 

preference program and the Maritime Security Program.

5

Self-reported financial data is subject to limited verification. Heightened uncertainties in 

our analysis relating to financial data are discussed in appendixes I and II.

6

Our analysis and findings are expressed in terms of metric tons.
Page 3 GAO-04-1065 Maritime Security Fleet

auditing standards. (See app. I for details about our scope and 

methodology.) 

Results in Brief The cargo preference and Maritime Security Programs both provide 

incentives to retain privately owned U.S.-flag ships and their U.S.-citizen 

mariners for commercial and national defense purposes. By allocating a 

percentage of federal cargoes to U.S.-flag vessels, the cargo preference 

program creates a protected market that provides an economic incentive 

for vessel owners to pay the higher costs associated with U.S.-flag registry 

and employ U.S.-citizen crews. We found that a total of 190 privately owned 

U.S.-flag vessels carried cargo preference food aid shipments at some point 

during the fiscal year 1999 to 2003 period. In addition, the Maritime 

Security Program provides a subsidy for MSF carriers with particular types 

of militarily useful vessels. MSF currently has 47 participating ships, of 

which 37 have also participated in cargo preference food aid shipments. 

DOD strongly supports both programs and said it has benefited from both 

during the recent wars in Afghanistan and Iraq.

MSF carriers compete with non-MSF carriers for the 33 percent of the food 

aid tonnage that is currently shipped as bagged cargo. However, MSF 

carriers do not compete with non-MSF carriers for the 67 percent of food 

aid tonnage that is shipped as bulk cargo because MSF vessels do not carry 

bulk cargo. Changes in the amount of bulk and bagged commodities 

purchased for food aid programs have contributed to a decline in bulk 

shipments and a relative increase in bagged shipments from fiscal years 

1999 to 2003. The reduction in bulk food aid shipments has caused some 

non-MSF bulk carriers to rely more on bagged food aid shipments in recent 

years. From fiscal years 1999 to 2003, MSF carriers shipped about 45 

percent and non-MSF carriers 55 percent of bagged food aid cargo. 

Competition between MSF and non-MSF carriers for bagged food aid is 

affected by certain cargo preference requirements. For example, MARAD’s 

priority system for U.S.-flag service guarantees preference for carriers that 

use only U.S.-flag vessels to transport food aid cargo. This system has 

tended to favor non-MSF carriers because they provide charter service 

from the port of origin to the port of destination solely on a U.S.-flag vessel, 

whereas MSF liners may use a foreign-flag vessel on one leg of their 

scheduled service route. However, a provision of the Maritime Security Act 

of 1996 allocates a certain amount of bagged food aid cargo to Great Lakes 

ports, which has favored MSF carriers and other carriers that offer 

intermodal services. MSF and non-MSF carriers ship most of the bagged 

food aid cargo from U.S. ports in the Gulf of Mexico.
Page 4 GAO-04-1065 Maritime Security Fleet

Establishing a bagged cargo tonnage limitation on MSF vessels would likely 

reduce their market share in food aid, but the extent will depend on factors 

such as the level of the limit and the options MSF carriers have in 

responding to it. Recent data show that only 3 percent of MSF food aid 

voyages would be affected by a 7,500-ton limit; 19 percent of MSF food aid 

voyages would be affected by a 2,500-ton limit. Almost all MSF voyages 

during fiscal years 2001 to 2003 with more than 7,500 tons were on a small 

number of noncontainership, specialized vessels that are being phased out 

of MSF. If MSF vessels were to lose all food aid shipments on 

containership voyages with more than 2,500 tons, the MSF would carry on 

average 160,000 tons less food aid per year—out of their average total of 

324,000 tons of food aid per year. However, setting a limit at this level may 

not mean a reduction of 160,000 tons of food aid cargo for MSF vessels, to 

the degree they are able to respond in the following ways: (1) carrying 

some food aid up to the limit, (2) replacing some food aid above the limit 

with other cargo, and (3) continuing to carry food aid above the limit when 

they determine that is the most profitable decision. Under a scenario in 

which these options are considered, for a limit of 2,500 tons for example, 

we estimate that under certain assumptions the total annual decline in food 

aid carried by the MSF would range from 17,000 tons to 63,000 tons. We 

estimate that the total annual decrease in MSF net revenues over all 

carriers would then range from around $2 million to $5 million.7

 While this 

analysis reflects some range of probabilities in the flexibility MSF carriers 

have in responding to a tonnage limit, it may not fully reflect certain 

logistical challenges that MSF carriers have identified, such as agreements 

between carriers to share vessel space. Food aid agencies and MARAD are 

also concerned that tonnage limits would create increased delivery delays, 

administrative burdens, and higher shipping costs. Food aid agencies 

emphasized concerns that these potential impacts could impede their 

ability to meet critical humanitarian needs. The major food aid ports would 

generally experience a limited impact on their overall port activity if a 

bagged food aid tonnage limit were established, although some terminals 

within the ports that service MSF vessels could potentially be affected, 

depending on the degree to which MSF participation in food aid were 

decreased. 

USAID, USDA, and DOD provided written comments on a draft of this 

report, which are reproduced in appendixes IV, V, and VI. These agencies 

generally stated that our report appropriately identified issues and 

7

We use the term net revenues to reflect revenues minus costs.
Page 5 GAO-04-1065 Maritime Security Fleet

concerns regarding food aid shipments and potential tonnage limits. They 

expressed concerns that tonnage limits could negatively impact their 

program or mission. DOT provided oral comments, which we summarize in 

the agency comments section below. DOT said that the draft report 

provided a thoughtful analysis of the potential impact of tonnage 

limitations. However, it identified issues with some factors in our 

simulation model and emphasized its view that MSF carriers would face 

constraints in responding to a tonnage limitation. We agree that MSF 

carriers would face such constraints and explicitly included these 

considerations in our analysis. We modified our report language in several 

places to clarify our discussion of these constraints and the uncertainties 

regarding potential tonnage limitation impacts. In addition, USAID and 

DOT provided technical comments, which we incorporated in the report as 

appropriate.

Background U.S.-flag fleet participants in cargo preference food aid shipments comprise 

two general categories of carriers: charter service and liner service. The 

cargo preference and Maritime Security Programs are intended to support 

both as part of the U.S.-flag fleet. These programs are administered by 

MARAD, while the food aid programs are administered by USAID and 

USDA. 

U.S.-Flag Fleet Generally 

Comprises Charter and 

Liner Service Carriers

Vessels in the privately owned U.S.-flag fleet engaged in international 

commerce can be placed into two general categories: charter service and 

liner service. While most non-MSF carriers provide charter service, most 

MSF carriers provide liner service, as shown in table 1 below. 
Page 6 GAO-04-1065 Maritime Security Fleet

Table 1: Characteristics of U.S.-Flag Vessels Participating in Cargo Preference Food 

Aid, Fiscal Years 1999-2003

Source: GAO analysis of data from USDA and MARAD.

a

This table is a simplification that places vessels into two broad categories. There are exceptions such 

as some non-MSF vessels that offer liner service and some containerships and LASH vessels, 

operated by MSF carriers, that are not enrolled in MSF. 

b

LASH, or Lighter Aboard Ships, are barge-carrying vessels that use barges like containers.

c

This number reflects 42 containerships and 5 LASH vessels that participated in MSF over a 5-year 

period and carried food aid. Currently, MSF comprises 36 containerships and 1 LASH vessel that 

carried food aid.

Most charter service vessels are operated by non-MSF carriers. Charter 

service means that vessels are hired to carry a cargo to specific ports at a 

specific time; these vessels do not provide regularly scheduled service on a 

fixed route but typically carry a shipload of cargo for only one or a few 

customers at a time. Charter service is primarily provided by bulk, breakbulk, and tug-barge vessels that can carry either bulk or bagged cargo. Bulk 

vessels are designed to carry dry bulk commodities, such as rice or wheat, 

in large interior holds. The benefit of bulk shipments is the economies of 

scale that can be gained from shipping large amounts of a single 

commodity. Figure 1 shows a photograph of a bulk vessel. Break-bulk 

vessels are general cargo ships that are designed to carry nonuniform items 

packaged as single parcels or assembled together on pallet boards. Bagged 

commodities are stacked and secured within interior holds of the ship. Tugbarge vessels have a tugboat or towboat that propels a separate barge by 

pushing or towing it. Barges generally carry bulk or break-bulk cargo, 

although some also carry containerized cargo.

MSF vessels Non-MSF vessels

Major type of servicea Liner vessels with regularly 

scheduled sailings on a fixed 

route

Charter vessels hired to 

carry cargo to specific ports 

at a specific time

Major types of vesselsa Containerships and LASH 

vesselsb

Bulk vessels, break-bulk 

vessels, and tug-barge 

vessels

Types of food aid that are 

carried

Bagged Bulk and bagged

Number of vessels 47 vesselsc 143 vessels

Number of companies 5 companies 38 companies
Page 7 GAO-04-1065 Maritime Security Fleet

Figure 1: A Bulk Vessel 

Most MSF vessels are liner service vessels. Liner service means that vessels 

have regularly scheduled sailings on fixed routes. These vessels typically 

carry small amounts of cargo for many customers at one time and will sail, 

even if not completely full. Liner service is primarily provided by 

containerships that carry bagged cargo; they do not carry bulk cargo. 

Containerships are designed to carry cargo in standard-size, preloaded 

containers that are stacked next to and on top of each other on the ship. 

The benefit of containers is that they permit rapid loading and unloading 

and efficient transportation of cargo to and from the port area. Containers 

facilitate intermodal transportation because they can be loaded by the 

supplier and sealed, taken by truck or railcar to the port, then loaded onto 

the containership without the cargo being handled. In the case of food aid, 

generally the suppliers do not load the containers but instead ship bagged 

commodities by rail or truck to the port of loading, where they are loaded 

into the containers. Figure 2 shows a photograph of a containership. Liner 

service is also provided by Lighter Aboard Ships (LASH), which are bargecarrying vessels that use barges like containers. They are also intermodal 

because the barges can use rivers and canals to pick up and drop off cargo 

at interior loading docks.

Source: MARAD.
Page 8 GAO-04-1065 Maritime Security Fleet

Figure 2: A Containership

Source: MARAD.
Page 9 GAO-04-1065 Maritime Security Fleet

Cargo Preference and 

Maritime Security Programs 

Intended to Support U.S.-

Flag Fleet

The cargo preference and Maritime Security Programs are both intended to 

bolster the U.S.-flag market share in international commerce, as well as to 

ensure the availability of an adequate number of U.S.-flag ships and U.S.-

citizen mariners in the event of a national defense need. The cargo 

preference laws are part of the overall statutory program to support the 

privately owned and operated U.S.-flag commercial fleet, or merchant 

marine.8

 DOD and MARAD consider the merchant marine vital to U.S. 

national security, providing essential sealift capability in wartime. The 

ships that carry these cargoes also provide jobs for American seafarers 

who are available in time of national emergency to crew the sizable fleet of 

reserve government vessels. As an agency of the Department of 

Transportation, MARAD’s responsibilities include promoting the 

development and maintenance of the U.S. merchant marine. It administers 

both the cargo preference and Maritime Security Programs.9

 

The Maritime Security Program is more targeted than the cargo preference 

program in terms of the vessels that can participate. It is intended to 

guarantee that certain kinds of militarily useful ships and their crews will 

be available to DOD in a military contingency. Under the renewed program 

starting in 2005, DOD must approve the proposed vessels as militarily 

8

A 1954 amendment to the Merchant Marine Act of 1936 (P.L. 83-664), requires that at least 

50 percent of the gross tonnage of all government-generated cargo be transported on 

privately owned, U.S.-flag commercial vessels to the extent such vessels are available at fair 

and reasonable rates. In 1985, the Merchant Marine Act of 1936 was amended to require that 

the percentage of certain agricultural cargoes to be carried on U.S.-flag vessels be increased 

from 50 to 75 percent. The Cargo Preference Act of 1904 requires 100 percent of supplies 

bought for U.S. military departments to be carried on U.S.-flag vessels available at rates that 

are not excessive or otherwise unreasonable. Finally, Public Resolution 17 of the 73rd

Congress calls for all cargoes, resulting from loans from federal government agencies, such 

as the Export-Import Bank of the United States, to be shipped exclusively on U.S.-flag 

vessels, unless MARAD grants a waiver.

In addition, Section 901(b) of the Merchant Marine Act of 1936, as amended, prohibits 

vessels built or rebuilt outside the United States or under foreign registry from carrying 

preference cargo subject to the Act for 3 years, unless the vessel is in MSF.

9

For cargo preference, MARAD establishes the regulations governing how the cargo 

preference laws are to be implemented by federal agencies. MARAD also exercises 

oversight over how these regulations are carried out in practice by federal agencies, such as 

when USAID and USDA determine ocean transportation for food aid shipments. It also 

reimburses USAID and USDA for a portion of the higher costs related to using U.S.-flag 

vessels. For the Maritime Security Program, MARAD screens applicants to MSF, establishes 

operating agreements with the carriers that are selected, and provides their monthly subsidy 

payment.
Page 10 GAO-04-1065 Maritime Security Fleet

useful. The program’s main focus has been to enable globally competitive 

carriers that operate militarily useful vessels to enter or keep U.S.-flag 

status. Most MSF vessels are containerships, operated by some of the 

largest containership carriers in the world. For instance, MSF carriers 

Maersk Sealand, P&O Nedlloyd, and APL were ranked among the top four 

containership carriers by volume as of May 2001, according to the Bureau 

of Transportation Statistics. These containership carriers have intermodal 

systems that also come as part of the package, allowing DOD to benefit 

from private sector global transportation and communication networks. 

According to MARAD, these networks include not only vessels, but also 

logistics management services, infrastructure, terminals and equipment, 

communications and cargo-tracking networks, and thousands of trained, 

professional U.S.-citizen mariners and shoreside employees located 

throughout the world.

The Maritime Security Program also results in the reflagging of new and 

more efficient vessels to U.S. registry for participation in MSF. The program 

requires that vessels be less than 15 years old to participate (except that 

LASH vessels can be 25 years old). From its implementation in 1996 

through 2002, a total of 18 modern commercial liner vessels, with an 

average age of less than 9 years, were reflagged to U.S. registry for 

participation in MSF, according to MARAD.
Page 11 GAO-04-1065 Maritime Security Fleet

Food Aid Programs 

Administered by USAID and 

USDA

USAID and USDA’s Foreign Agricultural Service are responsible for 

administering the food aid programs that provide humanitarian food 

assistance to countries in need. The food aid programs had an annual 

average budget of $1.97 billion during fiscal years 1999 to 2003, according 

to USDA. The primary mechanism through which the U.S. government 

implements its international food assistance initiatives is P.L. 480.10 Food 

assistance provided under P.L. 480 is delivered to foreign countries through 

three separate programs: Titles I, II, and III. USDA administers Title I, 

which provides for government-to-government sales of agricultural 

commodities to developing countries on credit terms or for local 

currencies. USAID administers Titles II and III. Title II provides for 

donation of U.S. agricultural commodities to meet emergency and 

nonemergency food needs in other countries, and it is by far the largest of 

the food aid programs. Title III provides for government-to-government 

grants to support long-term growth in the least developed countries but has 

been inactive in recent years. In addition to P.L. 480, food aid is provided 

through three smaller programs administered by USDA’s Foreign 

Agricultural Service: Food for Progress, section 416(b), and the McGovernDole International Food for Education and Child Nutrition Program.11

Cargo Preference and 

Maritime Security 

Programs Provide 

Incentives to Retain 

U.S.-Flag Ships and 

Mariners

The cargo preference and Maritime Security Programs both provide 

incentives to retain privately owned U.S.-flag ships and their U.S.-citizen 

mariners for commercial and national defense purposes. Cargo preference 

makes available a protected market that provides the economic incentive 

for vessel owners to pay the higher costs associated with the U.S. flag and 

employ U.S.-citizen crews. We found that a total of 190 privately owned 

U.S.-flag vessels carried cargo preference food aid shipments at some point 

during the fiscal year 1999 to 2003 period. In addition, the Maritime 

Security Program provides a subsidy for MSF carriers with particular 

militarily useful vessels. MSF currently has 47 ships, of which 37 have 

participated in cargo preference food aid shipments. DOD strongly 

10The Agricultural Trade Development and Assistance Act of 1954, P.L. 83-480, 68 Stat. 454.

11Food for Progress provides for the donation or credit sale of U.S. commodities to 

developing countries and emerging democracies to support democracy and an expansion of 

private enterprise. Section 416(b) provides for overseas donations of surplus USDA 

commodities. The McGovern-Dole International Food for Education and Child Nutrition 

Program provides for donations of U.S. agricultural products, as well as financial and 

technical assistance, for school feeding and maternal and child nutrition projects in lowincome, food-deficit countries that are committed to universal education.
Page 12 GAO-04-1065 Maritime Security Fleet

supports both programs and said it has benefited from both during the 

recent wars in Afghanistan and Iraq. 

Cargo Preference Program 

Provides Protected Market 

as Incentive for U.S.-Flag 

Registry

Preference cargoes are intended to provide the economic incentive for 

vessel owners to pay the higher costs associated with U.S.-flag registry and 

employ U.S.-citizen crews. According to MARAD, due to high U.S. labor 

costs; safety, health, and environmental regulations; and taxes, it is more 

expensive for vessels to be U.S.-flagged. For instance, U.S.-flag vessels 

generally incur higher labor costs due to higher manning level 

requirements, as well as higher wages and benefits for U.S.-citizen 

mariners.

The cargo preference laws, by guaranteeing the availability of cargo to U.S.-

flag ships, contribute to the financial viability of U.S.-flag vessel operating 

companies, thereby helping to ensure that the vessels, trained crews, and 

vessel service industries continue to exist, according to MARAD.12 The 

cargo preference program provides this incentive by reserving a portion of 

the U.S. market for U.S.-flag vessels, despite the higher prices they typically 

charge. In the food aid transportation market, a minimum of 75 percent of 

food aid shipments must be shipped on U.S.-flag vessels.13

The U.S.-flag vessels (both MSF and non-MSF) participating in cargo 

preference food aid shipments during fiscal years 1999 to 2003 comprised a 

variety of vessel types. According to our analysis of USDA data, a total of 

190 individual vessels participated in food aid shipments at some point 

between 1999 and 2003.14 This included 111 bulk, break-bulk, tug-barge, and 

12One reason for MARAD support of the U.S.-flag fleet is concern about its continuing 

decline. From 1983 to 2003, the number of active privately owned ships in the U.S.-flag fleet 

declined by about half and their carrying capacity fell by about 25 percent, according to 

MARAD data. Another concern is related to the declining size of the U.S.-citizen mariner 

pool.

13However, cargo preference has also meant that U.S. government-sponsored cargoes, 

including food aid, have been required to be shipped on higher-cost vessels, resulting in 

historically higher government transportation costs. See GAO, Cargo Preference 

Requirements: Objectives Not Significantly Advanced When Used in U.S. Food Aid 

Programs, GAO/GGD-94-215 (Washington, D.C.: Sept. 29, 1994) and GAO, Maritime 

Industry: Cargo Preference Laws—Estimated Costs and Effects, GAO/RCED-95-34

(Washington, D.C.: Nov. 30, 1994).

14There was an annual average of 108 U.S.-flag vessels that carried food aid during these 

years.
Page 13 GAO-04-1065 Maritime Security Fleet

tanker vessels that provided charter service and 79 containership, LASH, 

and other vessels that provided liner service. These vessels were operated 

by 38 carrier companies.

We found that the level of dependence on food aid varied significantly 

among carriers. We interviewed representatives of 15 of the top carriers 

that participated in U.S.-flag cargo preference food aid shipments during 

1999 to 2003, comprising 77 percent of food aid revenues. Of the 10 nonMSF carriers we interviewed that generally provided charter service, 4 said 

that 60 percent or more of their annual revenues came from food aid 

shipments, 3 said between 20 and 50 percent, and 3 said less than 10 

percent came from these shipments. Most of the five MSF carriers we 

interviewed that provided liner service said that food aid revenues 

comprised a small percentage of their total revenues.

Maritime Security Program 

Provides Subsidy for MSF

The Maritime Security Program was authorized for fiscal years 1996 to 

200515 and provides about $100 million in annual funding for up to 47 

vessels to participate. Each participating vessel receives an annual subsidy 

payment of $2.1 million,16 intended to partially offset the higher operating 

cost of keeping these vessels under U.S.-flag registry. In November 2003, 

Congress passed another 10-year authorization for the Maritime Security 

Program,17 starting in fiscal year 2006, that would expand the program from 

47 to 60 vessels. Annual subsidy payments were increased from a flat $2.1 

million payment to an escalating payment of $2.6 million for fiscal years 

2006 to 2008, $2.9 million for fiscal years 2009 to 2011, and $3.1 million for 

fiscal years 2012 to 2015, always subject to the availability of congressional 

appropriations.

According to MARAD officials and MSF carrier representatives we 

interviewed, the combination of MSF subsidy and access to cargo 

preference shipments, including food aid shipments, enables these 

containership carriers to stay in MSF and creates incentives to reflag newer 

vessels. While most MSF carriers primarily carry commercial cargo, MSF 

15Maritime Security Act of 1996, P.L. 104-239, 110 Stat. 3118.

16The exception was that the subsidy payment was $2.3 million for the first year of the 

program, 1996. However, according to MARAD, the Act was not signed until the end of the 

first year, so the $2.3 million was never paid.

17P.L. 108-136, 117 Stat. 1803.
Page 14 GAO-04-1065 Maritime Security Fleet

carrier representatives said that they need both MSF subsidy and cargo 

preference food aid shipments to offset the higher costs of operating as a 

U.S.-flag vessel. MARAD stated in its 2002 annual report that the current 

$2.1 million subsidy represents about 13 percent of the cost of operating a 

U.S.-flag vessel. According to a MARAD official, the subsidy only partially 

offsets the higher cost of employing U.S.-citizen mariners. However, during 

the interviews, MSF carrier representatives said that the subsidy was 

important to them because it was a guaranteed monthly payment that 

provided a level of financial stability.

MSF currently comprises 47 vessels operated by 12 companies, based on 

data as of December 2003.18 These vessels include 38 containerships, 1 

LASH, and 8 roll-on/roll-off vessels.19 Of the vessels currently participating 

in MSF, 36 containerships and 1 LASH vessel participated in cargo 

preference food aid shipments during fiscal years 1999 to 2003. 

Approximately 2,162 mariners are employed on these ships, according to 

MARAD.20 (See app. III for a profile of the current MSF participants.) 

DOD Supports Both Cargo 

Preference and Maritime 

Security Programs

DOD strongly supports both the cargo preference and Maritime Security 

Programs. DOD officials said that DOD’s priority is to maintain or increase 

the current level of U.S.-flag ships and mariners and, therefore, it strongly 

supports both programs. Through the cargo preference and Maritime 

Security programs, an additional manpower pool is maintained that DOD 

can draw on to crew the reserve fleet.21 DOD officials said that the 

Maritime Security Program, in addition to guaranteeing militarily useful 

18These 12 operating companies were owned by 8 carriers. Of these 8 carriers, 5 had 

participated in cargo preference food aid shipments.

19Roll-on/roll-off ships are vehicle carriers that allow vehicles such as cars, trucks, or tanks 

to drive on and off the ship. They do not participate in food aid shipments.

20According to MARAD, MSF ships have approximately 940 mariner billets. MARAD 

calculates that each billet supports 2.3 mariners based on current industry ratios, so that the 

number of employed mariners would total 2,162. However, DOD calculates that each billet 

supports 2 mariners in its contingency planning, which would result in a total of 1,880 

mariners.

21The reserve fleet comprises (1) the Ready Reserve Force, 59 standby reserve ships 

maintained by MARAD and (2) DOD’s Surge Force, 8 fast sealift ships and 11 large, mediumspeed roll-on/roll-off ships. Reserve fleet vessels are kept ready with a skeleton crew but 

need additional mariners to make a full complement when activated for service.
Page 15 GAO-04-1065 Maritime Security Fleet

U.S.-flag ships and trained U.S.-citizen mariners, provides access to MSF 

liner carriers’ intermodal systems, which is important to DOD.

In testimony before the House Armed Services Committee on October 8, 

2002, General John W. Handy, Commander of the U.S. Transportation 

Command, strongly supported reauthorization of the Maritime Security 

Program. He stated that DOD limited its sealift fleet22 to those assets that 

the commercial sector could not provide, so that only 33 percent of the 

vessels DOD may require resided in its own fleet. The remainder of the 

sealift capacity, needed to transport military equipment and supplies, came 

from the commercial sector. 

DOD officials said that it had benefited from both programs during the 

Afghanistan and Iraq wars. For example, during Operation Iraqi Freedom, 

DOD did not need to pull MSF vessels out of their normal commercial 

service. Instead, it chartered two MSF roll-on/roll-off vessels for DOD use 

and used the other MSF vessels in their normal commercial routes, where 

appropriate, to meet its needs, according to a DOD official. This official 

said that DOD preferred to leave MSF vessels in their normal commercial 

service because then DOD would also be able to benefit from use of their 

global intermodal systems. MSF carriers may have had to displace some 

commercial cargo but otherwise continued business as usual. During the 

period January 1 to October 14, 2003, MSF vessels made 135 vessel voyages 

of cargo to sustain the Iraqi deployment. This effort included 35 MSF 

containerships. These vessels transported a total of 8,668 twenty-foot 

equivalent units (TEU),23 according to DOD data. According to MARAD, 

more than 7,500 merchant mariners served in Operation Iraqi Freedom. Of 

these, about 1,470 mariners served on MSF vessels, based on a DOD 

estimate.

22DOD prepositioned sealift ships are kept fully loaded with military material and fully 

crewed at all times to be ready to embark immediately to a war zone in the initial surge of a 

deployment. 

23A TEU is the unit of measure for containerized cargo. One 20-foot container would be one 

TEU, while one 40-foot container would be two TEUs. 
Page 16 GAO-04-1065 Maritime Security Fleet

MSF and Non-MSF 

Carriers Compete for 

Bagged Food Aid 

Shipments

MSF and non-MSF carriers compete only for bagged food aid shipments 

because MSF vessels do not carry bulk food aid. Although the majority of 

food aid continues to be shipped as bulk cargo, bulk food aid shipments 

decreased from fiscal years 1999 to 2003, partly because of changes in food 

aid spending. The recent decline in bulk cargo has caused some non-MSF 

bulk carriers to rely more on bagged cargo. Non-MSF carriers transported 

about 55 percent and MSF carriers 45 percent of bagged food aid shipments 

from fiscal years 1999 to 2003. Cargo preference requirements affect 

whether agencies award bagged food aid shipments to MSF or non-MSF 

carriers. Most of the bagged food aid cargo carried by MSF and non-MSF 

vessels is loaded for export at U.S. ports in the Gulf of Mexico.

Increasing Share of Food 

Aid Is Shipped as Bagged 

Cargo

Although on average approximately 67 percent of food aid was shipped as 

bulk cargo and 33 percent as bagged cargo24 from fiscal years 1999 to 2003, 

the share of food aid shipped as bagged cargo generally increased during 

these years. This change was due mostly to a decline in USDA’s purchases 

of bulk agricultural commodities for the food aid program. Although USDA 

purchases of bulk commodities remained relatively stable from 1996 to 

1998, they increased dramatically in 1999 and then declined steadily from 

1999 to 2003.25 As the procurement data in figure 3 show, purchases of bulk 

commodities decreased from 5.76 million tons in 1999 to 2.39 million tons 

in 2003. However, purchases of bagged commodities equaled about 2 

million tons each year during this period. Thus, the percentage of 

commodities procured that were bagged increased from 26 percent in 1999 

to 46 percent in 2003. 

24Bagged cargo includes agricultural commodities that are packaged or processed. 

Processed commodities are packaged in bags, tins, or other containers.

25In 1999, bulk commodity purchases were augmented to provide food aid to Russia. This 

donation to Russia was one of the largest single food aid transfers in U.S. history.
Page 17 GAO-04-1065 Maritime Security Fleet

Figure 3: USDA Purchases of Bulk and Bagged Agricultural Commodities for the 

Food Aid Program, Fiscal Years 1996-2003

Note: Figure is based on procurement data. USDA shipment data are available from fiscal years 1999 

to 2003. They show the same pattern as the procurement data for those available years. However, the 

shipment amounts are generally smaller than the procurement amounts primarily because food aid 

cargo is often damaged while it is being handled in preparation for export shipment, according to 

USDA officials.

Tons in millions

Year

Bulk commodities

Bagged commodities

Source: GAO analysis of USDA data.

1996 1997 1998 1999 2000 2001 2002 2003

0

1

2

3

4

5

6
Page 18 GAO-04-1065 Maritime Security Fleet

Changes in food aid spending from fiscal years 1999 to 2003 have 

contributed to this shift from bulk to bagged cargo. The largest food aid 

program is administered under P.L. 480 Title II, which experienced an 

increase in funding from 2000 to 2003. The P.L. 480 statute requires that at 

least 75 percent of agricultural commodities donated for development, or 

nonemergency, purposes be value-added. Value-added commodities are 

shipped as bagged cargo, as opposed to bulk.26 Aside from Title II 

development assistance, many of the commodities donated by the Food for 

Education and section 416(b) food aid programs also have been shipped as 

bagged cargo in recent years, according to USDA officials. However, 

spending for the P.L. 480 Title I food aid program generally declined from 

1999 to 2003.27 Most commodities sold under the P.L. 480 Title I program are 

shipped as bulk cargo, such as wheat, corn, and soybeans. 

Reduction in Bulk Food Aid 

Cargo Leads to Increased 

Reliance on Bagged Food 

Aid Cargo

Many non-MSF carriers depend on cargo preference food aid shipments for 

a large share of their business; therefore, the decline in bulk cargo has 

meant increased reliance on bagged cargo shipments. According to the 

interviews we conducted with non-MSF carriers, some non-MSF carriers 

that traditionally ship bulk food aid reacted to the decline in bulk food aid 

shipments by increasing their participation in bagged food aid shipments. 

Figure 4 shows that while total shipments of food aid by non-MSF vessels 

decreased over the fiscal year 1999 to 2003 period, the decline in bulk food 

aid shipments was partially offset by an increase in bagged food aid 

shipments. Among non-MSF carriers that have shipped bulk food aid, 43 

percent have also shipped bagged food aid. 

26Value-added commodities are processed, fortified, or bagged, and include such food 

products as wheat flour, cornmeal, corn-soy blend, and vegetable oil.

27Title I spending also declined from 1992 to 1998, before the spike in 1999 when food aid 

was provided to Russia.
Page 19 GAO-04-1065 Maritime Security Fleet

Figure 4: Non-MSF Total Food Aid Shipments, Fiscal Years 1999-2003

a

2003 data are estimated.

MSF and non-MSF vessels combined carried a total of 6.73 million metric 

tons of bagged food aid cargo and earned an average of $430 million each 

year from bagged food aid shipments from 1999 to 2003.28 MSF vessels 

carried about 45 percent of this cargo and non-MSF vessels carried 55 

percent. However, non-MSF carriers’ share of the bagged food aid market 

was clearly greater in 2002 and 2003 than in the previous 3 years, as shown 

in figure 5.

28If foreign-flag vessels are included, the total is $499 million. 

0

1

2

3

4

5

1999

Year

2000 2001 2002 2003a

Tons in millions

Bagged cargo

Bulk cargo

Source: GAO analysis of USDA data.
Page 20 GAO-04-1065 Maritime Security Fleet

Figure 5: Non-MSF and MSF Bagged Food Aid Shipments, Fiscal Years 1999-2003

a

2003 data are estimated.

The MSF cargo was shipped by five companies: four operating 42 

containerships and one operating 5 LASH vessels. Each MSF containership 

carried an average shipment of 950 tons per voyage, and each MSF LASH 

vessel carried an average shipment of 22,440 tons per voyage. The non-MSF 

cargo was shipped by 38 companies that operated 143 vessels. Each nonMSF vessel carried an average shipment of 1,750 tons of bagged cargo per 

voyage, almost twice the average shipment of each MSF containership.

Cargo Preference 

Requirements Affect 

Whether Food Aid 

Shipments Are Awarded to 

MSF or Non-MSF Carriers

Cargo preference requirements affect the results of competition between 

MSF and non-MSF carriers for food aid shipments. One requirement that 

has tended to favor non-MSF carriers is MARAD’s interpretation of U.S.-flag 

service for the cargo preference program. Figure 6 outlines the criteria 

agencies are required to follow when awarding shipments subject to cargo 

preference laws. As the figure indicates, an ocean carrier that offers to 

carry preference cargo on a U.S.-flag vessel can be counted as either 

Tons in thousands

MSF

Non-MSF

Source: GAO analysis of USDA data.

1999 2003a 2000 2001 2002

0

200

400

600

800

1,000

Year
Page 21 GAO-04-1065 Maritime Security Fleet

Priority 1 or Priority 2 service. For example, a U.S.-flag vessel qualifies for 

Priority 1 service if it offers to transport preference cargo on a U.S.-flag 

vessel or transship the cargo to U.S.-flag vessels for the entire portion of 

the waterborne voyage. However, a U.S.-flag vessel would qualify for 

Priority 2 service if it transshipped the cargo to a foreign-flag vessel for any 

leg of the voyage. In the absence of Priority 1 service availability, agencies 

may also count Priority 2 as Priority 1 service by default.

Figure 6: Criteria for MARAD’s Prioritization of U.S.-Flag Vessel Service for the 

Cargo Preference Program

Direct U.S.-flag vessel service

U.S.-flag vessel service with transshipment to another U.S.-

flag vessel to the final discharge port

Intermodal services to the final destination from the point or 

port of origin utilizing only U.S.-flag vessels for any 

waterborne portion of the voyage.

U.S.-flag vessel service with transshipment via a foreign-flag 

vessel to the final discharge port.

Foreign-flag vessel service.

A

B

C

Priority 1

Priority 2

Priority 3

Source: MARAD.

The following U.S.-flag vessel services have equal status in the 

selection by shippers of preference cargoes:
Page 22 GAO-04-1065 Maritime Security Fleet

Most non-MSF vessels qualify for Priority 1 service because they offer the 

food aid program charter service entirely on a U.S.-flag vessel. However, 

vessels that operate in liner service, such as MSF containerships, often 

qualify for Priority 2 service because they transfer shipment of (transship) 

food aid cargo to a foreign-flag vessel for a leg of the voyage. In some 

locations, however, some MSF carriers have started to transship food aid 

cargo to prepositioned U.S.-flag vessels instead of foreign-flag vessels so 

that they can qualify as Priority 1 service. In fact, as figure 7 shows, liner 

vessels that carried Title II food aid cargo from fiscal years 1999 to 2003 

qualified for Priority 1 service about 48 percent of the time.29 Liner vessels 

counted as Priority 1 service by default about 23 percent of the time and 

Priority 2 or 3 service about 29 percent of the time. Under the cargo 

preference program, agencies are required to award food aid shipments to 

carriers that offer Priority 1 service over carriers that offer Priority 2 or 3 

service, even if the freight rate charged by the carrier offering Priority 1 

service is higher, unless the rate exceeds MARAD’s fair and reasonable rate 

calculation.

29This estimate is for food aid shipments by tonnage from both containership and LASH 

carriers with U.S.-flag liner service and consequently includes shipments from some nonMSF carriers. Title II food aid data only records the carrier rather than the vessel name.
Page 23 GAO-04-1065 Maritime Security Fleet

Figure 7: Estimated Share of Title II Food Aid Shipments by U.S.-Flag Liner Carriers 

at Each Priority Level, Fiscal Years 1999-2003

48%

Priority 1 service

29%

Priority 1 service by default

23% Priority 2 or 3 service

Source: GAO analysis of USAID and USDA data.
Page 24 GAO-04-1065 Maritime Security Fleet

Other cargo preference requirements tend to favor MSF carriers. An 

example of a requirement that has benefited MSF carriers is section 17 of 

the Maritime Security Act of 1996.30 This provision allocates up to 25 

percent of the total tonnage of Title II bagged food aid cargo each month to 

Great Lakes ports. Moreover, shipments of this cargo are awarded to 

carriers without regard to the flag of the vessel offering service and 

therefore are not subject to MARAD’s priority rules.31 From fiscal years 

1999 to 2003, MSF vessels and foreign-flag vessels carried an estimated 

total of 221,000 tons and 379,000 tons of this cargo, respectively.32 MSF 

carriers have shipped much of this cargo because they have incorporated 

certain Great Lakes ports facilities into their intermodal networks. They 

have created a system for transporting this cargo intermodally in 

containers by rail to U.S. ports on the East and West Coast, where the cargo 

is ultimately exported.33 MSF carriers have been successful in winning 

much of this cargo because these intermodal shipments allow them to offer 

competitive freight rates, according to USAID and USDA officials. 

However, non-MSF carriers ship this cargo less often than MSF carriers 

because they generally lack access to the intermodal infrastructure that 

enables MSF carriers to move this cargo efficiently.34

MSF and Non-MSF Carriers 

Load Most Bagged Food Aid 

Cargo from U.S. Gulf Ports

U.S. Gulf ports handled about 70 percent of the average annual tonnage of 

bagged food aid cargo carried by MSF and non-MSF vessels from fiscal 

years 1999 to 2003. Table 2 shows the tonnages of bagged food aid cargo 

loaded by MSF and non-MSF vessels at major food aid ports. As the table 

indicates, the ports of Lake Charles and Jacintoport handled 1.72 million 

tons and 1.43 million tons of bagged food aid cargo from 1999 to 2003, 

respectively. These two ports handle bagged food aid mostly as break-bulk, 

30P. L. 104-239, 110 Stat. 3138.

31Agencies are required to count all vessels that carry this cargo as Priority 3 service, or 

foreign-flag vessel service, according to USDA and USAID officials.

32These data reflect an estimate because USDA’s food aid shipment database does not 

designate this cargo differently from other food aid cargo that is shipped from Great Lakes 

ports.

33Few U.S.-or foreign-flag carriers offer to transport food aid cargo by sailing on the Great 

Lakes.

34According to USAID, non-MSF carriers also indirectly benefit from this cargo because it is 

treated as foreign flag, even though it is mostly carried by U.S.-flag vessels, thereby leaving a 

higher proportion of U.S.-flag cargo available for the non-MSF carriers. 
Page 25 GAO-04-1065 Maritime Security Fleet

or noncontainerized, cargo. Lake Charles is an agricultural port that is also 

the only U.S. port approved by USDA to store prepositioned commodities 

for the food aid program. Jacintoport has an automated cargo handling 

system capable of loading large tonnages of bagged food aid into breakbulk vessels and bulk vessels at a high rate of speed. Lake Charles will soon 

have a similar machine with like capabilities. MSF carriers do not load food 

aid directly into their vessels from these two ports. Instead, they hire 

stevedores to stuff the food aid cargo into containers and then move the 

containers intermodally by barge or rail to nearby ports that have container 

terminals where they have regularly scheduled service, such as the ports of 

New Orleans and Houston. MSF carriers run a similar operation from the 

Port of Chicago, where most of the Title II bagged food aid cargo subject to 

section 17 of the Maritime Security Act of 1996 is loaded. The Port of 

Chicago handled on average an estimated 35,000 tons of bagged food aid 

cargo for MSF carriers each year from 1999 to 2003. Much of this cargo was 

transported intermodally by rail to major U.S. container ports, such as 

Charleston, South Carolina; Norfolk, Virginia; and Seattle, Washington. 

Table 2: Tonnage of Bagged Food Aid Cargo Loaded by MSF and Non-MSF Vessels 

at Major Food Aid Ports, Fiscal Years 1999-2003

Source: GAO analysis of USDA data.

Note: Table does not include estimated data for 2003. Percentages do not add up to 100 due to 

rounding.

a

Litco Memphis is a facility owned by the company that operated the five LASH vessels in MSF that 

carried food aid from 1999 to 2003.

Port Tonnage Percent of total

Lake Charles, Louisiana 1,716,035 27

Jacintoport, Texas 1,432,957 23

New Orleans, Louisiana 799,382 13

Houston, Texas 346,228 6

Charleston, South Carolina 341,118 5

Litco Memphis,a Tennessee 276,057 4

Norfolk, Virginia 270,411 4

Chicago, Illinois 264,121 4

All other ports 819,402 13

Total 6,265,711 100
Page 26 GAO-04-1065 Maritime Security Fleet

Multiple Factors 

Determine How 

Tonnage Limit Changes 

Would Impact Food 

Aid Carriers

Our analysis of data from program agencies and carriers suggests that 

establishing a bagged tonnage limitation could reduce MSF vessels’ market 

share in food aid, but the extent will depend on the limitation level and the 

options MSF carriers have in responding to it.35 Using recent data, we 

examined daily limits of 7,500, 5,000, and 2,500 tons and found that the 

percentage of MSF food aid voyages affected rises from 3 percent at a limit 

of 7,500 tons to 19 percent at a limit of 2,500 tons. Almost all voyages above 

7,500 tons were on the specialized LASH vessels, of which only one remains 

in MSF. Total annual food aid for MSF containerships on voyages above a 

2,500-ton limit was around 160,000 tons. However, setting a limit at this 

level may not mean a reduction of 160,000 tons that MSF vessels carry, to 

the extent they are able to continue to carry some food aid on affected 

voyages, replace some food aid with other cargo, and forfeit their subsidy 

for food aid shipments that are sufficiently profitable. A simulation analysis 

we performed for MSF containerships suggests that, at a limit of 2,500 tons 

for example, the total annual decrease in food aid carried by these vessels 

could, under certain assumptions incorporating those options, range from 

about 17,000 to about 63,000 tons. Structured interviews with the carriers 

suggest that considerations such as vessel sharing arrangements could also 

affect the outcome and impacts on non-MSF carriers may depend on their 

market niche. Further, if the terms of MSF and non-MSF carriers’ 

participation in cargo preference change, program agencies are concerned 

that they could face increased delivery delays, administrative burdens, and 

shipping costs. The major food aid ports would generally experience a 

limited impact on their overall port activity from a bagged tonnage limit, 

although specific food aid terminals could potentially be affected, 

depending on the extent of any limitation and the MSF carriers’ responses 

to it.

35Increasing or decreasing a bulk tonnage limitation on current MSF vessels will have no 

effect because these vessels currently do not carry bulk cargo. However, according to 

MARAD, the new Maritime Security Program allots space for five tanker vessels that would 

be impacted by a bulk tonnage limitation, and would therefore have a disincentive to join 

MSF.
Page 27 GAO-04-1065 Maritime Security Fleet

Share of MSF Food Aid 

Voyages Affected Would 

Increase Substantially as 

Limitation Level Decreases

While more than 80 percent of MSF food aid voyages fall below a 2,500-ton 

limit, establishing a limit at 2,500 tons would be substantially more 

constraining for the majority of the fleet than limits at 5,000 or 7,500 tons. 

According to USDA data from fiscal years 2001 to 2003, only 3 percent of 

MSF food aid voyages carried more than 7,500 tons, almost all of which 

occurred on the five LASH vessels that have participated in the MSF. 36 

However, another 16 percent of MSF food aid voyages carried food aid 

tonnage between 2,500 and 7,500 tons. All of these voyages occurred on 

containerships, which comprise the majority of current MSF vessels. 

Figure 8 shows the number of MSF food aid voyages at different tonnage 

levels. The average annual tonnage carried by both MSF LASH vessels and 

containerships on voyages in excess of 2,500 tons was around 322,000 tons, 

of which around 160,000 tons were carried on the containerships.37 

36Almost all LASH voyages carried in excess of 7,500 tons of food aid such that establishing a 

tonnage limitation at any of the proposed levels would affect these vessels. However, only 

one LASH vessel remains in MSF.

37This figure represents a 3-year annual average for data from fiscal years 2001 through 2003.
Page 28 GAO-04-1065 Maritime Security Fleet

Figure 8: Number of MSF Food Aid Voyages at Different Tonnage Levels, Fiscal Years 2001-2003

Similar to the percentage of MSF food aid voyages, the share of MSF food 

aid revenues affected by a tonnage limit rises substantially as the level is 

decreased. As shown in figure 9, 37 percent of MSF total food aid revenues 

were earned on voyages carrying more than 7,500 tons of food aid while 68 

percent of MSF total food aid revenues were earned on voyages with more 

than 2,500 tons of food aid. In comparison to the percentage of voyages 

affected, these revenue shares reflect that MSF voyages above a potential 

tonnage limit are earning proportionally more food aid revenues than those 

with smaller cargo volumes. MSF food aid revenues earned on the 

primarily LASH vessels that carried more than 7,500 tons were around $26 

million annually, or $8.5 million per vessel. Not including LASH vessels, 

MSF food aid revenues earned on containerships that carried more than 

2,500 tons were around $22 million annually, or $1.3 million per vessel. 

Nonetheless, while these data indicate how often an MSF vessel could be 

restricted by a tonnage limitation, they indicate the potential loss in 

0

50

100

150

200

250

300

Tonnage

Number of voyages

Source: GAO analysis of USDA food aid data.
Page 29 GAO-04-1065 Maritime Security Fleet

revenue from food aid only under the assumption that MSF carriers were to 

no longer carry any food aid on these voyages. 

Figure 9: Percentage of MSF Food Aid Revenues from Voyages with Tonnage above 

a Potential Limitation, Fiscal Years 2001-2003

Various Factors Will Affect 

Actual Impact on MSF 

The actual food aid tonnage and net revenue impact for MSF vessels under 

a tonnage limitation will depend on options available to the carriers and 

how they respond to them. Numerous considerations relating to market 

conditions, food aid logistics, and carrier characteristics would ultimately 

shape the impact of any tonnage limitation. We identified three factors to 

explicitly consider in an analysis of a tonnage limitation. Each of these 

factors, under certain assumptions, has the potential to make the impact of 

a tonnage limit on MSF vessels smaller than suggested by the share of MSF 

voyages affected. 

Potential tonnage limitation level

Percentage of revenues

Source: GAO analysis of USDA food aid data.

0

10

20

30

40

50

60

70

80

 2,500 5,000 7,500

$47m

$31m

$36m
Page 30 GAO-04-1065 Maritime Security Fleet

First, affected MSF vessels might be able to carry some food aid, 

potentially up to the level of the limit, and may not have to give up the 

entire tonnage for that voyage to keep their subsidy. This situation can 

occur if a carrier can bid on a portion of an offered shipment or if the food 

aid tonnage on a voyage comprises multiple shipments, such that the 

carrier could bid on those shipments providing tonnage under the limit.38 

For example, a carrier that would normally have a voyage with 3,700 tons 

of food aid may be able to carry two food aid contracts for 1,000 tons each 

and, under a tonnage limit of 2,500 tons, face a potential loss of food aid 

cargo of only 1,700 tons.

Second, depending on market conditions, affected MSF carriers may be 

able to replace a portion of the food aid above the limit with commercial or 

nonfood preference cargo, diminishing their loss in total revenues. For 

example, if an MSF vessel were to carry 1,700 tons less food aid due to a 

tonnage limit, the carrier may be able to replace a portion of that tonnage 

with nonfood aid cargo.

Third, there may be occasions when carrying food aid cargoes above a 

tonnage limit is more profitable than reducing food aid to receive the 

subsidy for a voyage, thus providing an incentive to carry food aid above 

the limit. This may occur for food aid shipments that are particularly large 

or earn a particularly high freight rate such that an affected MSF carrier 

might choose to carry the food aid, even if it entailed forfeiting the subsidy 

otherwise earned during the days of that voyage, as well as forgoing any net 

revenues from available replacement cargo.39 For example, if an MSF 

vessel were to normally carry 7,000 tons of food aid on a voyage that lasted 

15 days, the carrier would have to give up a subsidy payment of around 

$107,000 to carry that entire tonnage. The carrier might choose to forfeit 

38According to USDA and USAID, the food aid tonnage on both MSF and non-MSF vessel 

voyages is often comprised of multiple food aid contracted shipments, often from different 

agencies and programs, such that a carrier could decrease the food aid tonnage carried on a 

voyage. With regard to carriers’ ability to bid on a portion of a contract, program agencies, 

carriers, and industry representatives had different opinions. MARAD officials stated that 

contracts are typically structured to require carriage of the total tonnage with specific 

arrival dates, which prevents the splitting of cargoes. USAID and USDA noted that carriers’ 

flexibility is limited because contract terms are primarily determined by the private 

voluntary organizations that seek the food aid grants, however, they acknowledged that 

bidding on a portion of a contract was possible.

39The five MSF carriers reported that they would not give up their subsidy to carry food aid 

on any voyage –a view that was corroborated by MARAD. However, USDA acknowledged 

that this practice could be financially beneficial for large voyages. 
Page 31 GAO-04-1065 Maritime Security Fleet

the subsidy payment if the net revenues from the food aid effectively above 

the 2,500-ton limit exceeded the $107,000 plus potential net revenues from 

replacement cargo. 

To illustrate the impact of a tonnage limitation when accounting for these 

three factors, we created a simulation model that suggests ranges of 

possible tonnage and net revenue changes for MSF vessels at different 

tonnage limits. The model uses estimates of average freight rates, average 

cargo volumes, and average vessel costs for voyages from fiscal years 2001 

to 2003, and includes probability distributions that reflect certain 

assumptions about carrier options and behavior.40 Table 3 provides the 

annual average simulation estimates for MSF containership voyages that 

carried more than 2,500 tons of food aid.41 

40See appendix II for a more detailed discussion of the model’s probability distributions, 

assumptions that are used to assign the probabilities, and the limitations in financial data 

that heighten the model’s uncertainties. 

41Simulation results for a tonnage limit at 5,000 tons are included in appendix II. We did not 

perform the simulation on a tonnage limit at 7,500 tons, given that so few containership 

voyages carried cargo at that level and that only one LASH vessel remains in the MSF.
Page 32 GAO-04-1065 Maritime Security Fleet

Table 3: GAO Simulation of MSF Voyages with Food Aid above a 2,500 Tonnage Limit, 3-Year Annual Average for Fiscal Years 

2001-2003

Source: GAO analysis using USDA data and MSF vessel data.

a

Ranges provided are based on probability distributions and the range of probable results given the 

assumptions at a 90 percent confidence interval. See appendix II for a more detailed discussion.

b

This tonnage does not include LASH vessels.

c

We assume carriers are not able to carry food aid tonnage exactly up to the limit in every case, so that 

the food aid tonnage effectively above the limit is greater than the difference between the tonnage and 

the limit. 

d

This tonnage is calculated by subtracting the food aid tonnage above the limit that is carried from the 

total food aid tonnage effectively above the limit.

e

This decline includes the revenue loss from carrying less food aid, the revenue gain from carrying 

additional other cargo, the forfeited subsidy payments, and cost savings from altering the cargo 

tonnages carried of food aid and other goods. 

The estimates illustrate that, under the assumption that carriers could 

respond to a tonnage limit in the ways we have discussed, impacts on MSF 

vessels could be reduced. While the total food aid tonnage on voyages 

affected by the limit is around 160,000 tons, to the degree that carriers can 

keep some food aid on voyages where the total food aid tonnage has been 

above the limit, the amount of food aid that they could lose due to the limit 

would, under certain assumptions, range from around 61,000 to 138,000 

Dollars in millions

Estimated range of valuesa

Low value

Average 

value High value

Total food aid tonnage on voyages affected by the limit b 160,000

Factor 1: MSF vessels may carry some food aid up to the limit, depending on number and 

terms of food aid shipments:

Food aid tonnage effectively above the limitc 61,000 92,000 138,000

Food aid net revenues associated with this tonnage $6.7 $10.4 $15.6

Factor 2: MSF vessels may replace some food aid above the limit with other cargo:

Estimated tonnage of additional other cargo 3,000 24,000 49,000

Net revenues earned from additional other cargo $0.2 $1.8 $4.0

Factor 3: MSF vessels may continue to carry some food aid above the limit and forfeit the 

subsidy if sufficiently profitable:

Food aid tonnage above the limit that is carried 24,000 53,000 102,000

Net Revenues earned from food aid above the limit minus forfeited subsidy payments $2.6 $5.1 $9.4

Simulation estimates with factors 1-3 combined

Decline in MSF food aid tonnaged 17,000 39,000 63,000

Decline in MSF net revenuese $2.2 $3.5 $4.8
Page 33 GAO-04-1065 Maritime Security Fleet

tons. This food aid tonnage that is effectively above the limit would 

correspond to estimated net revenues of around $7 million to $16 million. 

Based on our assumptions about how much other cargo MSF carriers are 

able to secure to replace the food aid, MSF net revenues from additional 

cargo might range from an estimated $200 thousand to an estimated $4 

million. Based on our assumptions about net revenues for food aid and 

other cargo, the food aid tonnage above the limit that MSF vessels continue 

to carry might range from an estimated 24,000 to an estimated 102,000 tons. 

The net revenues from this food aid tonnage minus the forfeited subsidy 

payments would then range from around $3 million to $9 million. Taking all 

three factors into account, the total decline in MSF net revenues under a 

limitation of 2,500 tons of food aid might range from around $2 million to $5 

million a year. On a per vessel basis, this amounts to roughly $120,000 to 

$270,000. By estimating the food aid tonnage effectively above the limit and 

subtracting the tonnage that MSF vessels might continue to carry while 

forfeiting their subsidy payments, the annual food aid tonnage available to 

non-MSF carriers might range from around 17,000 to 63,000 tons. 

Impacts on carriers could fall toward the ends of the simulation ranges 

reported in table 3 or, in some cases, outside those ranges if carrier options 

and responses differ from those simulated. An important consideration is 

that certain key assumptions in the simulation are based on information 

from fiscal years 2001 to 2003. To the extent that future market conditions 

differ from those reflected in recent years, or carriers respond in different 

ways than we have considered, the impacts of a tonnage limitation could be 

affected. For example, if future food aid program levels decline, then the 

overall tonnage and revenue changes from a shift in MSF’s food aid market 

share would also likely decline. If, however, future nonfood preference 

cargo levels decline, then MSF may be able to replace a smaller share of the 

food aid tonnage above a limit with other cargo, and the revenue impacts 

from a tonnage limit would be greater. If MSF carriers decide never to carry 

food aid above a limit—even when it is profitable to do so, net of a forfeited 

subsidy payment—then the total decline in food aid tonnage they carry and 

the revenue loss to MSF vessels would increase.

Carriers Reported that 

Structural Challenges Would 

Impede Their Ability to 

Adapt to Tonnage Limits 

MSF carriers told us they face certain logistical constraints that challenge 

them in being able to effectively respond to a tonnage limit at any level. 

• One challenge is the difficulty in planning vessel tonnages around a 

limit. The MSF carriers cited their lack of control over when they 

receive food aid cargoes from suppliers, which makes it difficult to 
Page 34 GAO-04-1065 Maritime Security Fleet

distribute the food aid tonnage onto vessel sailings to stay under the 

limit and meet delivery deadlines. They stated they could face additional 

expenses for cargo storage at ports as well as loading penalties and 

charges for delayed delivery. MSF carriers also cited the fact that they 

may bid on multiple food aid shipments concurrently as a complication 

in planning vessel tonnages around a limit. 

• A second challenge cited by two MSF carriers was that they have 

agreements with other carriers to share space on their vessels that could 

be at risk if a carrier is concerned with shipping food aid above a certain 

tonnage. USDA and MARAD corroborated this view and expressed 

concern that eliminating vessel-sharing agreements would increase 

inefficiency in the market. 

• A third challenge noted by some MSF carriers was that the costs they 

incur to maintain an infrastructure to support food aid cargo might 

become too high if their food aid tonnage should be reduced. Such 

infrastructure might include a U.S.-flag vessel stationed abroad to 

transfer food aid from major ports to more remote destinations or the 

container loading operations some MSF carriers have set up in the Great 

Lakes region.

The ability of the non-MSF carriers to benefit from a tonnage limitation 

would depend on their market niche, according to our interviews with 10 

non-MSF carriers. The simulation we discussed above suggests that, under 

certain assumptions, the additional bagged food aid available to all nonMSF carriers might range from less than 1 percent to 8 percent of this 

segment’s current bagged tonnage for tonnage limits at 5,000 and 2,500 

tons, respectively.42 However, each non-MSF carrier’s ability to bid for and 

win that cargo would be differentially affected by (1) whether it carries 

bagged food aid; (2) whether it services food aid destinations where cargo 

has become available; and (3) the tonnage of cargo available, compared 

with its vessel capacity. For example, while seven of the non-MSF carriers 

we interviewed said they would benefit from a tonnage limitation, two nonMSF carriers said they would be unaffected because they do not carry 

bagged food aid. Three non-MSF carriers supported a lower tonnage 

limitation limit, but two of them mentioned being constrained by the 

42This percentage only reflects tonnage impacts forecasted for MSF containerships. If the 

one remaining LASH vessel in the MSF were to also carry less food aid, then these 

percentages would rise.
Page 35 GAO-04-1065 Maritime Security Fleet

geographic routes they service in their ability to pick up new business. 

Moreover, two other non-MSF carriers responded that a lower tonnage 

limitation would actually hurt them because it would encourage MSF 

carriers to more intensely compete in their market niche that services 

smaller shipments. Three other non-MSF carriers with larger vessels were 

satisfied with a higher tonnage limitation because it would reduce MSF 

competition in the market niche for large shipments. 

Effect on Program Agencies 

Will Depend on MSF and 

Non-MSF Carrier Responses 

The impact of a bagged tonnage limitation on program agencies is hard to 

predict and will ultimately depend on the degree to which both MSF and 

non-MSF carriers alter the terms in which they participate in the Maritime 

Security Program and cargo preference. According to DOD, a tonnage limit 

could cause some MSF carriers to withdraw from the Maritime Security 

Program, though DOD officials indicated that they expect to receive more 

applications for the next program than available slots. USDA, USAID, and 

MARAD also reported several concerns about a tonnage limit at any level. 

These concerns include:

• Decreased food aid timeliness: USDA and USAID noted concern that 

food aid shipments could be delayed if the non-MSF vessels do not have 

sufficient capacity to quickly carry the additional food aid shipments 

above a limit or if MSF carriers responded to the limitation by spreading 

food aid tonnage over several sailings to stay under the limit.43

43When we asked the non-MSF carriers about excess capacity, only 3 of 10 reported they 

could do more sailings with their existing vessels while the others would either have to 

charter or buy new vessels. Additionally, most MSF and non-MSF carriers reported that food 

aid agencies tend to bunch up contracts in the last 3 months of the fiscal year, such that 

vessel availability could become a problem under a tonnage limitation.
Page 36 GAO-04-1065 Maritime Security Fleet

• Increased administrative burdens: USDA and USAID noted concern 

about additional administrative burdens if MSF carriers responded to 

the limit by submitting partial bids or dividing up shipments and if nonMSF carriers increasingly submitted bids for bagged cargo that were 

contingent on getting numerous contracts in order to fill larger vessels. 

MARAD noted concern that a tonnage limit would negatively affect their 

initiative to implement service contracts.44 Additionally, both food aid 

agencies and MARAD will face the administrative burden of having to 

track volumes on a voyage basis—something they do not currently do.

• Increased shipping costs: USDA, USAID, and MARAD noted concern 

over the possibility of increased freight rates if (1) non-MSF carriers 

raised prices in response to decreased competition, (2) freight rates bid 

by non-MSF vessels for contracts that would have otherwise been 

carried by MSF vessels are higher because of charter service rather than 

liner service or because the non-MSF carrier may not regularly sail to 

that location, (3) MSF carriers raised prices in response to losses 

associated with carrying less food aid, receiving fewer subsidy 

payments, or incurring costs for delayed delivery charges, and/or (4) 

freight rates bid by MSF carriers for food aid shipments below a tonnage 

limitation are higher than their bid otherwise would have been for a 

larger shipment due to the loss of economies of scale.45

Tonnage Limitation 

Generally Would Have 

Limited Overall Impact on 

Ports, with Greater 

Potential Effects on Certain 

Terminals

A bagged food aid tonnage limitation on MSF carriers generally would have 

limited impact on the overall activity of the major food aid ports, based on 

our analysis of the food aid shipment data and the interviews we conducted 

with port representatives. Some ports may experience some shift in the 

type of food aid handled, which could affect participating terminals within 

these ports. For example, if bagged cargo shipments by MSF 

containerships were seriously affected, this would likely have a greater 

impact on terminals that predominantly stuff bagged food aid cargo into 

44According to MARAD, a service contract is a long-term contract arranged for a regular 

volume of cargo to be delivered over a period of time for a negotiated freight rate. If a 

tonnage limit were imposed, MARAD is concerned that MSF carriers would not be able to 

participate in service contracts because they would fear exceeding a tonnage limitation.

45We did not analyze freight rate differences between MSF and non-MSF carriers. Both 

groups of carriers emphasized that competitive pressures in the market limit their ability to 

raise prices.
Page 37 GAO-04-1065 Maritime Security Fleet

containers. However, any impact would depend on the extent of the 

limitation imposed and the MSF carriers’ responses to it.

The major Gulf ports, from which most food aid cargo is shipped, would 

likely experience little impact if a bagged food aid limitation were imposed 

on MSF carriers because they service both MSF and non-MSF vessels that 

carry bagged cargo. The result would be a shift among their customers, 

according to port officials. The ports of Lake Charles and Jacintoport are 

specialized agricultural commodity ports that handle only bagged food aid 

cargo, and they anticipate that any loss of bagged cargo by MSF carriers 

would likely be picked up by the non-MSF carriers who are their biggest 

customers. The ports of New Orleans and Houston service both MSF and 

non-MSF customers at different terminals. These large ports handle all 

kinds of cargo in addition to food aid shipments, and port officials 

anticipate that there would be no net loss in overall business for the port. 

While officials said there could be some impact on individual terminals, 

they estimated that the terminals could likely replace any lost food aid 

container cargo with other container cargo. 

The large coastal container ports like Norfolk, Charleston, and Seattle 

would also likely experience little impact since the volumes of food aid 

cargo involved comprise a very small percentage of their total business. 

For instance, Norfolk handled 12 million tons of cargo in 2003, of which 

70,000 tons were food aid that they stuffed into containers at the port, 

according to a port official. Norfolk did not track how much food aid it 

handled that was already in containers. The port official in Charleston 

estimated that food aid was about 1 percent of its cargo, while the official 

in Seattle estimated about 3 to 4 percent. These ports would experience 

little impact from a bagged tonnage limitation on MSF carriers, according 

to these officials. However, they said that the terminals at the ports that 

stuff the bagged food aid into the containers might be affected.

A port of Chicago representative expressed the greatest concern about the 

potential impact from a tonnage limitation, although food aid cargo is a 

small portion of Chicago’s total cargo. MSF carriers transport most of the 

section 17 cargo reserved for Great Lakes ports, and the majority of it goes 

through the port of Chicago. The port official said that the port valued food 

aid cargo because it was relatively more labor intensive and generated 

more jobs than other types of cargo. The preponderance of food aid cargo 

going through the port of Chicago is handled at a single terminal, whose 

business could be damaged, depending on the nature and extent of the 

impact. If MSF carrier participation in food aid shipments is severely 
Page 38 GAO-04-1065 Maritime Security Fleet

curtailed and other carriers do not step in to carry section 17 cargo, the 

terminal could be seriously affected. In addition, the port official said that 

one benefit of the section 17 provision was that it helped make Midwestern 

commodity suppliers more competitive when their cargo could be loaded 

in nearby Great Lakes ports instead of being transported to Gulf ports. The 

official said that the regional effort to encourage more food aid commodity 

sourcing from Midwestern suppliers could also be affected if section 17 

bagged cargo was curtailed.

Observations While we make no recommendations in this report, we believe that our 

analysis provides important insights into the nature of competition 

between MSF and non-MSF carriers for food aid shipments. A sharp drop in 

bulk food aid shipments in fiscal years 2000 and 2001 suggests that 

competition for bagged food aid has become more intense. In those years, 

MSF carriers captured a large share of the business, but market share of 

bagged shipments shifted toward the non-MSF carriers in fiscal years 2002 

and 2003. The two segments of the industry appear to be finding ways to 

respond to the changes in food aid, but this time frame is too short to 

determine any clear trends. 

We also believe that our analysis of a potential limit on the MSF carriers’ 

food aid shipments provides some findings that are not obvious without a 

close examination of the system. One finding is that, if MSF carriers have 

certain options in responding to a tonnage limit that would mitigate the 

impacts of that limit, the potential decline in food aid shipments by this 

group would be less than the total volume of food aid carried on voyages 

over the limit. This result would occur if MSF vessels carry some food aid 

up to the limit on affected voyages, and in some cases choose to forfeit 

subsidy payments in favor of carrying profitable shipments above the limit. 

To the extent that MSF carriers do choose to carry food aid over the limit 

and forfeit the subsidies, a tonnage limit may not lead to a large shift in 

food aid shipments and financial benefits to non-MSF vessels. Where any 

financial effects of food tonnage limitations would accrue remains 

uncertain. For example, MARAD subsidy payments could be lower if MSF 

carriers continue to carry food aid. However, food aid agencies could face 

higher costs if the limits resulted in fewer and more expensive options for 

some shipments, and these agencies have emphasized their concerns that 

additional constraints on food aid shipments could impede their ability to 

provide food aid to meet critical humanitarian needs. 
Page 39 GAO-04-1065 Maritime Security Fleet

Finally, it is important to recognize the limits of any effort to predict the 

future course of events in an area in which key factors are so volatile. For 

example, the volume of food aid shipments has varied greatly over recent 

years, and the relationship between food aid and export subsidies is also 

under discussion in the WTO negotiations. The outcome of MARAD’s 

efforts to support the two key maritime sectors is clearly influenced by the 

level and composition of food aid, so long-term trends and even 

fluctuations in food aid shipments will affect the program. Second, the 

importance and profitability of food aid, compared with other commercial 

or preference cargo, has a large influence on the health of the various firms 

and components of the industry, and the volume and prices for these 

alternative cargoes can also change significantly. In these cases, firms may 

decide to move vessels into or out of the program, which will have an effect 

on the existing operators. 

Agency Comments and 

Our Evaluation

USAID, USDA, and DOD provided written comments on a draft of this 

report, which are reproduced in appendixes IV, V, and VI. USAID stated that 

we used sound and logical methodologies to analyze the data and 

accurately identified trends pertaining to MSF and non-MSF carriers that 

carried food aid over a 5-year period. USAID agreed that predicting the 

impact of a tonnage limitation is difficult and said it takes a cautious 

approach to changes, citing concerns regarding impacts on administrative 

systems and the ability to meet foreign assistance objectives. USDA said 

that the report adequately summarized USDA’s major concerns over the 

impact on food aid programs that could result from a bagged cargo tonnage 

limitation placed on MSF carriers, including decreased food aid timeliness, 

increased administrative burdens, and increased shipping costs. DOD 

generally concurred with our findings. It stated that it would oppose any 

change in cargo preference that would adversely impact the U.S. merchant 

marine because it believed there would be negative impacts on DOD 

mobilization capabilities. DOT provided oral comments. DOT said that the 

draft report provided a thoughtful analysis of the potential impact of 

tonnage limits on food aid shipments and how they might affect the U.S.-

flag shipping industry. However, DOT identified issues with some factors, 

and the way they are considered, in the simulation model we used to 

estimate the range of impacts from different tonnage limits. In addition, 

USAID and DOT provided technical comments, which we incorporated in 

the report as appropriate.

DOT officials, including the Director of MARAD’s Cargo Preference 

Program, said that they identified issues with some factors and the way 
Page 40 GAO-04-1065 Maritime Security Fleet

they are considered in the simulation model used in our analysis of 

potential impacts of a tonnage limitation. In particular, these officials 

suggested that the draft report and its simulation model could have more 

thoroughly explored the effects of three factors: (1) MSF carriers’ ability to 

replace food aid cargo with commercial cargo, (2) the industry’s reluctance 

to carry cargo over the limit and forfeit the subsidy, and (3) the logistical 

constraints on carriers’ ability to operate under a low tonnage limit. 

Specifically, with respect to replacing food aid cargo, DOT officials 

questioned whether sufficient commercial cargo is actually available in the 

marketplace to replace food aid cargo for MSF vessels. With respect to 

carrying cargo above the limit and forfeiting the subsidy, DOT emphasized 

that all five MSF carriers stated they would not give up their subsidy to 

carry food aid. DOT officials stated their view that logistical limitations, 

which would further constrain MSF carriers’ ability to carry food aid 

shipments under low tonnage limits, may be underestimated in the model. 

While the DOT officials recognized these factors are acknowledged in the 

draft report as limitations on the model’s predictive value, they emphasized 

their view that the cumulative effect of more thoroughly exploring them in 

the model might have led us to conclude that the imposition of tonnage 

limits could be more detrimental to MSF than the results otherwise 

indicated. As a result, the officials suggested the model’s limitations be 

more extensively and prominently recognized in the body of the report. 

Finally, the DOT officials emphasized their agreement with the aspect of 

our observations that the imposition of any tonnage limit on MSF vessels 

could drive up costs for the food aid program and decrease efficiency by 

limiting competition and increasing freight charges.

We agree that MSF carriers may face constraints in terms of their options in 

responding to a tonnage limitation. Specifically, we agree that carriers may 

have restricted flexibility in managing contract amounts to keep food aid 

shipments below limits and still carry food aid, and in replacing lost food 

aid with other cargo. Our simulation analysis specifically incorporates 

uncertainty in these factors, and we have modified our report language in 

several places to clarify the range of assumptions concerning those and 

other variables, and the implications of the uncertainty regarding our 

results. Additional detail about how these factors are treated in our 

analysis is presented in the following paragraphs. With respect to whether 

carriers would in some cases carry food aid above a tonnage limit and forgo 

the subsidy for affected days, we agree that including that assumption is 

important to our simulation model results. Our simulation model 

represents the outcome when carriers choose the most profitable option 

available on each voyage, and vessel data reported by MSF carriers suggest 
Page 41 GAO-04-1065 Maritime Security Fleet

that there are times when carriers would have the financial incentive to 

carry food aid above the limit and forfeit their subsidy payment for that 

voyage. The presentation of our simulation model results makes it clear 

that option is an important one in carriers being able to mitigate the impact 

of a tonnage limitation. If carriers never forgo the subsidy, the impacts of a 

limitation on MSF carriers would be greater. Neither carriers nor MARAD 

provided us a reason why they would not ever forgo a subsidy.

The simulation model incorporates the likelihood that MSF carriers would 

face logistical constraints in managing food aid contracts to continue 

carrying food aid amounts near but under the limit. It reflects possibilities 

ranging from carriers being able to carry food aid exactly up to the limit 

amount—for example 2,500 tons—to not being able to carry any food aid 

on the share of voyages above the limit. We tested the sensitivity of our 

simulation results to the particular probability distribution assumed for this 

variable; and we found that if carriers are assumed to have less flexibility in 

managing food aid tonnage below a limit, the average values for the 

impacts would differ somewhat from the averages we reported. For 

example, for one alternative distribution assuming less flexibility, the 

average value of food aid tonnage that carriers would have to give up or 

lose the subsidy for the voyage increased from about 92,000 tons to about 

109,000 tons.46 

Similarly, our simulation model allows for the possibility that MSF carriers 

would be unable to replace any food aid above a limit with commercial or 

nonfood preference cargo. However, most MSF carriers reported that they 

are currently sailing near full capacity, with a range of capacity utilization 

rates that together average 90 percent. The simulation model relies on 

these reported capacity utilization rates to determine the most likely value 

for the share of food aid effectively above the limit that carriers might be 

able to replace with other cargo. However, the simulation model reflects a 

range of probabilities with respect to carriers being able to replace lost 

food aid cargo and achieve their current (based on the fiscal year 2001 to 

46As in the simulation model results in our report, this simulation assumed that the food aid 

effectively above the limit (or given up to keep the subsidy on a voyage) equaled the amount 

above the limit plus an additional amount that ranged from 0 to 2,500 tons. The most likely 

value in this range of incremental amounts was changed from 0 to 1,250. Other distributions 

in the simulation model were unchanged. Other impacts of this changed distribution include 

a similar percentage increase in net revenue lost from carrying food aid and a greater 

likelihood that carriers would forgo the subsidy to carry larger food aid shipments on some 

voyages. The average overall decline in MSF food aid tonnage due to the limit under this 

scenario was about 42,000 tons, compared with 39,000 tons in the simulation we report. 
Page 42 GAO-04-1065 Maritime Security Fleet

2003 data we analyzed) average capacity utilization, and includes at one 

extreme the possibility that no lost food aid tonnage will be replaced. 

To the extent that these constraints strongly affect MSF carriers’ ability to 

respond to tonnage limits, then the high end of the range of possible results 

suggested by the simulation model should be considered. For example, if 

MSF carriers face significant logistical constraints to carrying food aid up 

to the limit, then, under a tonnage limit of 2,500 tons, they are more likely 

to have an annual 138,000 tons of food aid effectively above the limit, 

compared with the annual 61,000 tons of food aid effectively above the 

limit as estimated by the simulation’s low value results.47

In addition to the potential impacts of a tonnage limit that are suggested by 

the simulation model under certain assumptions, there are potential 

structural constraints we were not able to reliably quantify and include in 

the model. One example is the potential impact on MSF carriers’ total 

tonnage and revenues if a tonnage limit were to jeopardize their vessel 

sharing agreements. As we stated in the report, these types of structural 

constraints could challenge MSF carriers in being able to effectively 

respond to a tonnage limit at any level.

We are sending copies of this report to appropriate congressional 

committees, the Secretaries of USDA, DOD, and DOT, and the 

Administrator of USAID. We will also make copies available to others upon 

request. In addition, this report will be available at no charge on the GAO 

Web site at http://www.gao.gov. 

47We provided the individual simulation results for each of the three carrier options 

discussed in the report in table 3, for a limit of 2,500 tons, and in table 5, for a limit of 5,000 

tons. While eliminating any one of the three carrier options would affect the results for the 

remainder of the model, the results are provided individually in order to illustrate the types 

of impacts associated with each option.
Page 43 GAO-04-1065 Maritime Security Fleet

If you or your staff have any questions about this report, please contact me 

at (202) 512-4128. Additional contacts and staff acknowledgments are listed 

in appendix VII.

Loren Yager

Director, International Affairs and Trade
Page 44 GAO-04-1065 Maritime Security Fleet

Report to Congressional Committees

The Honorable John McCain

Chairman

The Honorable Ernest F. Hollings

Ranking Minority Member

Committee on Commerce, Science,

and Transportation

United States Senate

The Honorable John W. Warner

Chairman

The Honorable Carl Levin

Ranking Minority Member

Committee on Armed Services

United States Senate

The Honorable Duncan Hunter

Chairman

The Honorable Ike Skelton

Ranking Minority Member

Committee on Armed Services

House of Representatives
Page 45 GAO-04-1065 Maritime Security Fleet

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

In a legislative mandate in section 3535 of the National Defense 

Authorization Act for Fiscal Year 2004 (P.L. 108-136), Congress directed us 

to review the impact of placing a tonnage limitation on transportation by 

the Maritime Security Fleet (MSF) of cargo preference food aid and to 

report to the Chairman and Ranking Minority Member of the House and 

Senate Committees on Armed Services and the Senate Committee on 

Commerce, Science, and Transportation. As discussed with Committee 

representatives, we have focused on answering the following questions: (1) 

how the cargo preference and Maritime Security Programs are designed to 

meet their objectives and who participates in them; (2) what the nature and 

extent are of MSF and non-MSF carrier participation in the food aid 

program; (3) how establishing a bagged cargo preference tonnage 

limitation on MSF vessels would be expected to affect the MSF, other U.S.-

flag ships, the cargo preference food aid program, and the ports servicing 

these ships.

To examine how the cargo preference and Maritime Security Programs are 

designed to meet their objectives and who participates in them, we 

reviewed documents, relevant legislation, regulations, and data pertaining 

to the cargo preference and Maritime Security Programs from the Maritime 

Administration (MARAD) and Department of Defense (DOD), as well as 

our prior studies and those done by the Congressional Research Service. 

We also obtained and analyzed MSF and cargo preference vessel data and 

food aid shipment participation data from MARAD and the Department of 

Agriculture (USDA) for fiscal years 1999 to 2003. We examined the data for 

their reliability and appropriateness for our purposes through electronic 

testing of the data, verification of the data against other sources, and 

interviews with agency officials that manage the data. We found the data to 

be sufficiently reliable to represent participation by MSF and non-MSF 

vessels and carriers in transporting food aid shipments. In addition, we 

interviewed agency officials at MARAD, DOD, USDA, and the Agency for 

International Development (USAID), as well as representatives of three 

maritime trade associations. We also conducted structured interviews with 

representatives of 15 carriers that transported the majority of cargo 

preference food aid, including 5 MSF and 10 non-MSF carriers. 

To determine the nature and extent of MSF and non-MSF carrier 

participation and competition in the food aid program, we gathered and 

analyzed food aid shipment data from USDA and USAID for fiscal years 

1999 to 2003. We examined the data for their reliability and appropriateness 

for our purposes and found them sufficiently reliable to represent MSF and 

non-MSF carrier participation and competition in the food aid program. We 
Appendix I

Objectives, Scope, and Methodology

Page 46 GAO-04-1065 Maritime Security Fleet

also interviewed USDA, USAID, MARAD, DOD, and maritime trade 

association officials, including company representatives from 5 MSF and 10 

non-MSF carriers. To determine whether bagged cargo has accounted for 

an increasing share of food aid shipments, we obtained and analyzed USDA 

food aid procurement data from fiscal years 1996 to 2003. We examined the 

data for their reliability and appropriateness for our purposes through 

electronic testing of the data, verification of the data against other sources, 

and interviews with agency officials that manage the data. We found them 

sufficiently reliable to confirm that an increasing share of food aid was 

shipped as bagged cargo from 1999 to 2003. In addition, we reviewed 

agency reports that discussed food aid program activities and trends, and 

conducted interviews with USDA and USAID officials. To examine the 

process by which agencies award food aid shipments to MSF and non-MSF 

carriers, we obtained and reviewed USDA, USAID, and MARAD directives 

and regulations governing the ocean transportation of food aid cargo and 

also reviewed applicable legislation. We also conducted interviews with 

USDA and USAID officials responsible for awarding food aid shipments in 

accordance with cargo preference requirements. To identify the U.S. ports 

that handled the largest tonnages of food aid cargo shipped by MSF and 

non-MSF carriers, we analyzed USDA food aid shipment data. To gain 

additional perspectives on how MSF and non-MSF carriers handled and 

transported this cargo in preparation for export shipment, we interviewed 

port officials from 8 major food aid ports,1

 as well as 15 MSF and non-MSF 

carrier representatives.

To examine how establishing a bagged cargo preference tonnage limitation 

on MSF vessels would potentially affect MSF and other U.S.-flag ships, we 

obtained and analyzed USDA food aid shipment data for fiscal years 1999 to 

2003. We analyzed the tonnage carried and revenues earned for each MSF 

vessel voyage that carried food aid above potential limits of 2,500, 5,000, 

and 7,500 tons. To illustrate how carriers might respond to a tonnage limit, 

we obtained operating and revenue information from the five MSF carriers 

on each of their vessels from fiscal years 2001 to 2003. To account for 

variation in the values of our estimates, we performed a Monte Carlo 

simulation2

 that varied the impact model approximately 20,000 times from 

1

Port selection criteria included the tonnage of bagged cargo handled by the port as well as 

factors relating to geographic location and whether the port services MSA-17 cargo. 

2

A Monte Carlo simulation is a widely used computational method for generating probability 

distributions of variables that depend on other variables or parameters represented as 

probability distributions. 
Appendix I

Objectives, Scope, and Methodology

Page 47 GAO-04-1065 Maritime Security Fleet

probability distributions characterizing possible values for variables, such 

as the percent of food aid above the limit that carriers replace with other 

cargo, the freight rate for other cargo, and the cost differential between 

food aid and other cargo. This simulation resulted in a range of estimates, 

under certain assumptions, for the likely total decline in MSF food aid 

tonnage and net revenues on an annual basis. A technical discussion of the 

simulation model and the results at a 5,000-ton limitation is provided in 

appendix II.3

 We examined USDA’s food aid shipment data and carrier’s 

vessel estimates for their reliability and appropriateness for our purposes. 

For USDA’s data, we performed electronic testing of the data, verification 

of the data against other sources, and interviews with agency officials that 

manage the data. Although we were able to do only limited verification of 

the self-reported data from carriers, we found both sources to be 

sufficiently reliable to inform our simulation model. In addition, we 

supplemented our simulation results with information that both MSF and 

non-MSF carriers provided in interviews pertaining to any structural 

constraints they may face in responding to a tonnage limitation.

To examine how establishing a bagged cargo preference tonnage limitation 

on MSF vessels would potentially affect the program agencies, we 

reviewed the current extent of data collection and procedures for tracking 

food aid shipments to see if additional administrative burdens would be 

entailed. We also interviewed agency officials at USDA, USAID, MARAD, 

and DOD. 

To examine how establishing a bagged cargo preference tonnage limitation 

on MSF vessels would potentially affect the ports that service food aid 

shipments by MSF and non-MSF carriers, we analyzed food aid shipment 

data from USDA that identified the ports used for each shipment for fiscal 

years 1999 to 2003. We also conducted telephone interviews with 

representatives of eight major food aid ports (Charleston, South Carolina; 

Chicago, Illinois; Houston and Jacintoport, Texas; Lake Charles and New 

Orleans, Louisiana; Norfolk, Virginia; and Seattle, Washington) to obtain 

additional information, including their assessment of the potential impact 

of a limitation on their port. 

3

We did not perform the simulation on a tonnage limit at 7,500 tons, given that so few 

containership voyages carried cargo at that level and that only one LASH vessel remains in 

MSF.
Appendix I

Objectives, Scope, and Methodology

Page 48 GAO-04-1065 Maritime Security Fleet

We performed our work from February through August 2004 in accordance 

with generally accepted government auditing standards. 
Page 49 GAO-04-1065 Maritime Security Fleet

Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation ApendxiI

This appendix describes the data and methodology that we used to analyze 

the impact of a bagged tonnage limitation on MSF and presents some 

additional estimates not contained in the letter portion of this report. This 

simulation analysis is based on certain assumptions regarding carrier 

options and responses and makes use of food aid data from agencies, 

reported vessel revenue and cost estimates for recent years, and 

information from interviews about the food aid industry. The three 

potential carrier responses incorporated into our model include an MSF 

vessel’s potential ability to continue carrying some food aid on affected 

voyages, replace some food aid with other cargo, and forfeit its subsidy for 

food aid contracts that are sufficiently profitable. Our methodology 

illustrates that, depending on the degree to which these options exist for 

MSF, carriers may reduce the overall tonnage and net revenue1

 impacts of a 

limit. These estimates reflect some probability that carriers will face 

constraints in how they respond to limits, however, there is uncertainty 

associated with some of the assumptions of the model. Carriers may face 

additional logistical or structural constraints relating to program 

requirements or company characteristics that would limit their responses 

to a greater degree than our simulation reflects. Moreover, future market 

conditions may differ from those reflected in recent data, such that our 

analysis could not be used as a forecast. Thus, while our simulation can 

help decision-makers understand important factors that should be taken 

into account when considering tonnage limits—and develops a range of 

impact estimates based on recent years that reflect those factors—actual 

impacts could be near the outer limits of or fall outside our estimated 

ranges.

1

We use the term net revenue to reflect revenue minus costs.
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 50 GAO-04-1065 Maritime Security Fleet

Data and Methodology To analyze the impacts of a tonnage limit on MSF vessels, we collected data 

on key tonnage and revenue variables from a variety of sources for fiscal 

years 2001 to 2003. To create a list of MSF vessel voyages that carried food 

aid tonnage above a potential limit, we examined USDA’s food aid shipment 

data and identified 123 vessel voyages. We paired this voyage list with 

estimates we collected from the MSF carriers on each vessel’s annual costs 

and annual tonnage and freight rates for commercial cargo, food aid cargo, 

and nonfood aid preference cargo.2

 We also calculated the subsidy per 

voyage each MSF vessel earns, based on the number of days per voyage in 

that vessel’s regularly scheduled outbound service.3 

To estimate a range of impacts for a tonnage limitation under certain 

assumptions, we explicitly consider three options that MSF carriers may 

potentially have in responding to such a limit. For affected voyages, an MSF 

carrier may be able to (1) continue carrying some food aid up to the limit, 

(2) replace some food aid above a limit with other cargo, and (3) continue 

carrying food aid above a limit if it were more profitable than the subsidy 

payment for that voyage plus any net revenue from replacing the food aid 

with other cargo. As discussed below, we rely on assumptions about the 

degree to which carriers may be able to respond in these three ways to 

assign probabilities to a probability distribution. Table 4 shows that we use 

the following five probability distributions to calculate a range of impacts 

for MSF carriers under a tonnage limitation. Each of these distributions is 

discussed further in the text following table 4.

2

Our cost data reflect total costs incurred by the MSF carrier for each vessel’s annual 

operations. They include vessel expenses such as wages and insurance, as well as cargo 

handling expenses. They do not include administrative and general expenses incurred by 

the carrier company. 

3

We used the days of outbound service because a vessel carrying food aid cargo above a 

tonnage limit would have to forfeit its subsidy only for the days the food aid is on the vessel, 

which occur on the outbound portion of its voyage.
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 51 GAO-04-1065 Maritime Security Fleet

Table 4: Assumptions in the Simulation Model and the Probability Distributions Reflecting Those Assumptions

Source: GAO analysis.

a

Given the information available pertaining to each of our impact variables, we selected probability 

distributions that are widely used by researchers.

b

This term is used to indicate the food aid tonnage that may not be carried when an MSF vessel 

voyage is affected by the limit.

c

We considered the freight rates that all five MSF carriers reported for all of their vessel voyages—both 

those above and below a tonnage limit—to calculate a standard deviation ($58.18). We then used this 

standard deviation to create a distribution for each voyage ranging from 1.65 standard deviations 

below the reported freight rate to 1.65 standard deviations above the reported freight rate. This range 

was constrained to fall between the lowest ($39.45) and highest ($300.94) freight rates reported by the 

group of carriers, and was further constrained to not exceed the food aid rate for the voyage. From that 

distribution (without the food aid rate constraint), we determined the mean freight rate for each voyage. 

When the constraints created by the highest and lowest reported rates are not binding, the mean 

equals the reported rate. But when the lower (higher) constraint is binding, the mean will be greater 

(lesser) than the reported rate.

1. USDA and USAID reported that the food aid tonnage on a voyage often 

comprises multiple food aid contracts such that carriers may be able to 

continue to bid only on those shipments providing tonnage under the 

limit. However, since food aid contract terms vary, the degree to which 

MSF carriers can maximize carrying food aid up to the limit will also 

Variable

Type of 

distributiona Basis

Probability at 90 percent confidence interval

Mean Minimum Likeliest Maximum

Food aid tonnage 

effectively above the

limit b

Triangular USDA and USAID 

report food aid 

voyage tonnage is 

comprised of 

multiple, divisible 

contracts. 

Varies by voyage Same as 

likeliest

Total food aid 

tonnage per 

voyage minus 

limit tonnage 

(e.g. 2,500 or 

5,000 tons)

Total food aid 

tonnage per 

voyage

Percent of food aid 

tonnage effectively 

above the limit that 

is replaced with 

other cargo

Triangular Capacity utilization 

rates as reported by 

each carrier

Likeliest value 

times 67 percent 

0 percent Reported 

capacity usage 

for each vessel 

(ranges from 75 

to 95 percent)

Same as 

likeliest

Freight rate per ton 

for other cargo

Triangular Standard deviation of 

freight rates on other 

cargo reported by all 

MSF carriers

Calculated mean 

freight rate times 

1.0, with certain 

constraintsc

Calculated 

mean freight 

rate times 0.6, 

with certain 

constraintsc

Calculated 

mean freight 

rate times 1.0, 

with certain 

constraintsc

Calculated 

mean freight 

rate times 1.4, 

with certain 

constraintsc

Per-ton cost 

difference for food 

aid over other cargo

Triangular Estimates reported 

from carriers and 

industry experts

$21.67 $0 $30 $35

Percent of total 

vessel costs that 

vary with the 

tonnage level

Uniform Estimate from 

MARAD on fixed 

vessel costs

35 percent 0 percent Not applicable 

due to uniform 

distribution

70 percent
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 52 GAO-04-1065 Maritime Security Fleet

vary. As a result, we include in our simulation an assumption that 

carriers will most likely be able to carry tonnage up to the level of the 

limit (based on profit maximization principles), but we use a 

probability distribution that includes a range of values for the amount 

of food aid that the vessel could potentially lose—otherwise stated as 

the amount of food aid effectively above the limit. For example, at a 

limit of 5,000 tons, for an MSF voyage with 6,000 tons of food aid, only 

1,000 tons of food aid could be effectively above the limit. However, if 

MSF carriers had less flexibility in managing food aid tonnage, up to the 

entire 6,000 tons could be effectively above the tonnage limit. 

2. We asked carriers to provide information about their current capacity 

utilization as an indication of the most likely value for the share of food 

aid they may be able to replace. Reported capacity utilization rates 

were high for all carriers with a range of values averaging 90 percent. 

However, we note the uncertainty regarding how close to the reported 

capacity utilization rates carriers would be able to come through 

replacing lost food aid tonnage with other cargo. We use a probability 

distribution to incorporate this uncertainty that allows for the 

possibility that carriers would not be able to replace any lost food aid 

with other cargo. 

3. We asked carriers to provide their average freight rates for commercial 

cargo and nonfood aid preference cargo as an indication of the most 

likely freight rate they may receive on replacement cargo. Using 

annually weighted information from the five MSF carriers on all of their 

vessel voyages, we calculated a standard deviation and used this 

variation to apply a range of values for each voyage to reflect likely 

freight rates for other cargo, subject to certain constraints. 

4. If MSF carriers replace food aid above a limit with other cargo, they are 

also likely to experience a change in costs. We found that it is generally 

more costly for the MSF to carry a ton of food aid than it is to carry a 

ton of commercial cargo.4

 Based on interviews with carriers and 

industry experts, we incorporate, across the model, a range of values 

for this additional food aid cost differential around a most likely 

estimate of $30 per ton.

4

The primary reasons for this cost difference include container stuffing and stripping costs, 

as well as fumigation costs that are required for food aid and not for commercial cargo. This 

estimate does not include cost differences pertaining to particular voyage contract terms.
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 53 GAO-04-1065 Maritime Security Fleet

If carriers alter the total tonnage on a vessel voyage, their costs will also 

vary. We do not have data pertaining to the percentage of MSF total vessel 

costs that vary with tonnage levels. Based on broad estimates from MARAD 

that around 40 percent of vessel costs are for overhead or fixed items, we 

consider a wide range of values around the remaining 60 percent of total 

costs.

To incorporate these five assumptions into our impact estimates, we 

performed a Monte Carlo simulation.5

 In this simulation, values were 

randomly drawn 20,000 times from probability distributions characterizing 

possible values for impact variables discussed above and listed in table 4. 

Under assumptions described by probability distributions selected for 

these impact variables, the simulation yields estimates for the total decline 

in both MSF food aid tonnage and net revenues on an annual basis. 

Summary of Results Using our simulation model, we analyzed the tonnage and net revenue 

impacts on MSF of a food aid limit at 5,000 and 2,500 tons.6

 Results for a 

2,500-ton limit are presented in the letter portion of this report while table 5 

provides the results for a 5,000-ton limit. As shown in table 5, the estimated 

decline in MSF food aid tonnage under this limitation ranges from around 

3,000 to 13,000 tons, a decline significantly less than the total tonnage on 

voyages affected by the limit—46,000 tons. In this analysis, carriers are 

estimated to replace food aid above the limit with 1,000 to 11,000 tons of 

other cargo and continue to carry 5,000 tons to 31,000 tons of food aid 

above the tonnage limit. The total decline in net revenues for this group 

would range from roughly $500,000 to $1 million. 

5

Monte Carlo simulation is a widely used computational method for generating probability 

distributions of variables that depend on other variables or parameters represented as 

probability distributions. Monte Carlo methods are to be contrasted with the deterministic 

methods used to generate specific single number or point estimates.

6

We did not analyze a food aid limit at 7,500 tons in our model due to the fact that recent 

data show that most of these voyages occurred on LASH vessels that are being phased out of 

MSF.
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 54 GAO-04-1065 Maritime Security Fleet

Table 5: GAO Simulation of MSF Voyages with Food Aid above a 5,000 Ton Limit, 3-Year Annual Average for Fiscal Years 2001-

2003

Source: GAO analysis using USDA data and MSF vessel data.

a

Ranges provided are at a 90 percent confidence interval. 

b

This tonnage does not include LASH vessels.

c

We assume carriers are not able to carry food aid tonnage exactly up to the limit in every case, so that 

the food aid tonnage effectively above the limit is greater than the difference between the tonnage and 

the limit. 

d

This tonnage is calculated by subtracting the food aid tonnage above the limit that is carried from the 

total food aid tonnage effectively above the limit.

e

This decline includes the revenue loss from carrying less food aid, the revenue gain from carrying 

additional other cargo, the forfeited subsidy payments, and cost savings from altering the cargo 

tonnages carried in food aid and other goods. 

According to this analysis, the impact estimates for a limit at both 2,500 and 

5,000 tons are influenced most by variations in assumptions pertaining to 

the amount of food aid effectively above the limit for each voyage, and the 

share of food aid above the limit that carriers may be able to replace with 

other cargo. A higher value for the amount of food aid effectively above the 

limit tends to increase the estimate for the total decline in MSF net 

revenues because MSF carriers are less able to maximize carrying food aid 

up to the limit. A higher value for the share of food aid above the limit that 

Dollars in millions

Estimated range of valuesa

Low value

Average 

value High value

Total food aid tonnage on voyages affected by the limitb 46,000 tons

Factor 1: MSF vessels may carry some food aid up to the limit, depending on number 

and terms of food aid shipments:

Food aid tonnage effectively above the limitc 11,000 22,000 38,000

Food aid net revenues associated with this tonnage $1.3 $2.6 $4.5

Factor 2: MSF vessels may replace some food aid above the limit with other cargo:

Estimated tonnage of additional other cargo 1,000 5,000 11,000

Net revenues earned from additional other cargo $0.0 $0.4 $0.9

Factor 3: MSF vessels may continue to carry some food aid above the limit and forfeit the 

subsidy if sufficiently profitable:

Food aid tonnage above the limit that is carried 5,000 15,000 31,000

Net revenues earned from food aid above the limit minus forfeited subsidy payments $0.5 $1.5 $3.3

Simulation estimates with factors 1-3 combined

Decline in MSF food aid tonnaged 3,000 7,000 13,000

Decline in MSF net revenuese $0.5 $0.7 $1.0
Appendix II

Simulating Potential Impacts of a Bagged 

Tonnage Limitation

Page 55 GAO-04-1065 Maritime Security Fleet

carriers might replace with other cargo tends to lower the estimate for the 

total decline in MSF net revenues because carriers are earning more money 

from replacement cargo. However, this assumption tends to raise the 

estimate for the total decline in MSF food aid tonnage carried because it 

makes the option of forfeiting the subsidy payment to carry food aid above 

the limit less profitable.

This simulation model has certain limitations resulting from two broad 

areas of uncertainty not incorporated into the estimates. First, MSF 

carriers may face logistical or structural constraints as imposed by 

program requirements or company characteristics that would alter their 

response to a tonnage limit in ways our simulation does not reflect. For 

example, if an MSF carrier decides never to carry food aid above a limit—- 

even if it is profitable to do so, net of a forfeited subsidy payment—then the 

total food aid tonnage available to the non-MSF carriers would also 

increase. In addition, vessel financial data are based on estimates of annual 

averages and may not incorporate the entire range of variation for every 

variable.7

 One example might include a higher food aid cost differential 

associated with an emergency food aid shipment to a remote area with 

particularly expensive contract terms. 

Second, our model relies on data from fiscal years 2001 to 2003, which may 

not be an accurate indicator of future food aid program levels, future food 

aid program requirements, or the future number of U.S.-flag vessels 

participating in cargo preference. For example, if future food aid program 

levels decline, then the overall tonnage and revenue changes from a shift in 

the MSF’s food aid market share would also likely decline. Therefore, to the 

extent that our model’s assumptions do not adequately reflect these two 

broad areas of uncertainty, the impacts of a tonnage limit could lie outside 

our estimated ranges. 

7

Vessel financial data are also self-reported, and we were only able to do limited verification 

of these data.
Page 56 GAO-04-1065 Maritime Security Fleet

Appendix III

Profile of Maritime Security Fleet ApendxiI

The Maritime Security Fleet currently comprises 47 vessels operated by 12 

companies. Table 6 provides a profile of the vessels participating in the 

Maritime Security Fleet, as of December 2, 2003.

Table 6: Maritime Security Fleet, as of December 2, 2003

MSP contract number Vessel name Company name Vessel type

Volume carried

(TEUs, square feet or 

metric tons)

MA/MSP-1 APL Korea American Ship 

Management, LLC

Containership 3,900 TEUs

MA/MSP-2 APL Philippines American Ship 

Management, LLC

Containership 3,900 TEUs

MA/MSP-3 APL Singapore American Ship 

Management, LLC

Containership 3,900 TEUs

MA/MSP-4 APL Thailand American Ship 

Management, LLC

Containership 3,900 TEUs

MA/MSP-5 President Adams American Ship 

Management, LLC

Containership 3,600 TEUs

MA/MSP-6 President Jackson American Ship 

Management, LLC

Containership 3,600 TEUs

MA/MSP-7 APL China American Ship 

Management, LLC

Containership 3,900 TEUs

MA/MSP-8 President Polk American Ship 

Management, LLC

Containership 3,600 TEUs

MA/MSP-9 President Truman American Ship 

Management, LLC

Containership 3,600 TEUs

MA/MSP-10 Green Cove Central Gulf Lines, Inc. Roll-on/roll-off 131,998 sq. ft.

MA/MSP-11 Green Point Central Gulf Lines, Inc. Roll-on/roll-off 128,328 sq. ft.

MA/MSP-12 Green Lake Central Gulf Lines, Inc. Roll-on/roll-off 150,828 sq. ft.

MA/MSP-13 Liberty American International 

Car Carrier, Inc.

Roll-on/roll-off 135,324 sq. ft.

MA/MSP-14 Patriot American International 

Car Carrier, Inc.

Roll-on/roll-off 155,947 sq. ft. 

MA/MSP-15 Freedom American International 

Car Carrier, Inc.

Roll-on/roll-off 215,709 sq. ft.

MA/MSP-16 Chesapeake Bay First American Bulk 

Carrier Corporation

Containership 2,409 TEUs

MA/MSP-17 Delaware Bay First American Bulk 

Carrier Corporation

Containership 2,409 TEUs

MA/MSP-18 Endeavor E-SHIPS, Inc. Containership 1,834 TEUs

MA/MSP-19 Endurance E-SHIPS, Inc. Containership 1,834 TEUs
Appendix III

Profile of Maritime Security Fleet

Page 57 GAO-04-1065 Maritime Security Fleet

MA/MSP-20 Enterprise E-SHIPS, Inc. Containership 1,834 TEUs

MA/MSP-21 Lykes Navigator First Ocean Bulk CarrierI, LLCContainership 2,698 TEUs

MA/MSP-22 Lykes Discoverer First Ocean Bulk CarrierII, LLCContainership 2,698 TEUs

MA/MSP-23 Lykes Liberator First Ocean Bulk CarrierIII, LLCContainership 2,698 TEUs

MA/MSP-24 Maersk Missouri Maersk Line, Limited Containership 3,084 TEUs

MA/MSP-25 Maersk Virgina Maersk Line, Limited Containership 3,084 TEUs

MA/MSP-26 Maersk Georgia Maersk Line, Limited Containership 3,084 TEUs

MA/MSP-27 Maersk Carolina Maersk Line, Limited Containership 3,084 TEUs

MA/MSP-28 Overseas Joyce OSG Car Carriers, Inc. Roll on/roll-off 100,965 sq. ft.

MA/MSP-29 Sealand Achiever U.S. Ship Management, 

Inc. 

Containership 3,606 TEUs

MA/MSP-30 Sealand Florida U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

MA/MSP-31 Sealand Pride U.S. Ship Management, 

Inc.

Containership 2,890 TEUs

MA/MSP-32 Sealand Motivator U.S. Ship Management, 

Inc.

Containership 2,890 TEUs

MA/MSP-33 Sealand Commitment U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

MA/MSP-34 Sealand Atlantic U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

MA/MSP-35 Sealand Defender U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-36 Sealand Endurance U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-37 Sealand Explorer U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-38 Sealand Innovator U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-39 Sealand Integrity U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

MA/MSP-40 Sealand Liberator U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-41 Sealand Patriot U.S. Ship Management, 

Inc.

Containership 2,306 TEUs

MA/MSP-42 Sealand Performance U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

(Continued From Previous Page)

MSP contract number Vessel name Company name Vessel type

Volume carried

(TEUs, square feet or 

metric tons)
Appendix III

Profile of Maritime Security Fleet

Page 58 GAO-04-1065 Maritime Security Fleet

Source: MARAD and DOD.

a

LASH or Lighter Aboard Ships are barge carrying vessels that use barges like containers.

MA/MSP-43 Sealand Quality U.S. Ship Management, 

Inc.

Containership 3,606 TEUs

MA/MSP-44 Lykes Motivator Waterman Steamship 

Corporation

Containership 2,500 TEUs

MA/MSP-45 Atlantic Forest Waterman Steamship 

Corporation

LASHa 40,795 metric tons

MA/MSP-46 Green Dale Waterman Steamship 

Corporation

Roll on/roll off 131,998 sq. ft.

MA/MSP-47 Lykes Explorer Waterman Steamship 

Corporation

Containership 2,698 TEUs

(Continued From Previous Page)

MSP contract number Vessel name Company name Vessel type

Volume carried

(TEUs, square feet or 

metric tons)
Page 59 GAO-04-1065 Maritime Security Fleet

Appendix IV

Comments from the U.S. Agency for 

International Development ApendxiIV
Appendix IV

Comments from the U.S. Agency for 

International Development

Page 60 GAO-04-1065 Maritime Security Fleet
Appendix IV

Comments from the U.S. Agency for 

International Development

Page 61 GAO-04-1065 Maritime Security Fleet
Appendix IV

Comments from the U.S. Agency for 

International Development

Page 62 GAO-04-1065 Maritime Security Fleet
Appendix IV

Comments from the U.S. Agency for 

International Development

Page 63 GAO-04-1065 Maritime Security Fleet
Page 64 GAO-04-1065 Maritime Security Fleet

Appendix V

Comments from the Department of 

Agriculture ApendxiV
Appendix V

Comments from the Department of 

Agriculture

Page 65 GAO-04-1065 Maritime Security Fleet
Page 66 GAO-04-1065 Maritime Security Fleet

Appendix VI

Comments from the Department of Defense ApendxiVI
Page 67 GAO-04-1065 Maritime Security Fleet

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Celia Thomas (202) 512-8987

Leyla Kazaz (202) 512-9638

Acknowledgments In addition to those named above, Jay Cherlow, Martin De Alteriis, Jamie 

McDonald, Eric Petersen, Kendall Schaefer, Richard Seldin, and Daniel 

Williams made key contributions to this report.

(320245)
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

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