International Food Assistance: Cargo Preference Increases Food Aid Shipping Costs, and Benefits Are Unclear
Published: 2015-08-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Cargo preference laws require that a percentage of U.S. government cargo, including international food aid, be transported on U.S.-flag vessels according to geographic area of destination and vessel type. One intention is to ensure a merchant marine—both vessels and mariners—capable of providing sealift capacity in times of war or national emergency, including a full, prolonged activation of the reserve fleet. The CPFA percentage requirement has varied over the years, and was reduced from 75 to 50 percent in 2012. Among other objectives, this report examines (1) CPFA's impact on food aid shipping cost and U.S. agencies' implementation of CPFA requirements and (2) the extent to which the implementation of CPFA requirements contributes to sufficient sealift capacity. GAO analyzed agency documents and bid data from April 2011 (when the food procurement database was implemented) through fiscal year 2014, and interviewed agency officials as well as maritime industry stakeholders.
section_title: What GAO Found
paragraphs: Cargo preference for food aid (CPFA) requirements increased the overall cost of shipping food aid by an average of 23 percent, or $107 million, over what the cost would have been had CPFA requirements not been applied from April 2011 through fiscal year 2014. Moreover, differences in the implementation of CPFA requirements by the U.S. Agency for International Development (USAID) and U.S. Department of Agriculture (USDA) contributed to a higher shipping rate for USDA. Following the July 2012 reduction in the minimum percentage of food aid to be carried on U.S.-flag vessels, USAID was able to substantially increase the proportion of food aid awarded to foreign-flag vessels, which on average have lower rates, helping to reduce its average shipping rate. In contrast, USDA was able to increase the proportion of food aid awarded to foreign-flag vessels by only a relatively small amount because it is compelled by a court order to meet the minimum percentage of food aid carried on U.S.-flag vessels by individual country, a more narrow interpretation of the geographic area requirement than what USAID applies. Despite GAO's past recommendations, U.S. agencies have not fully updated guidance or agreed on a consistent method for agencies to implement CPFA, which would allow USDA to administer CPFA using a method other than country-by-country.
U.S. Agency for International Development's (USAID) and U.S. Department of Agriculture's (USDA) Cost of Cargo Preference for Food Aid (CPFA) Requirements, April 2011 through Fiscal Year 2014 (Dollars in millions)
CPFA's contribution to sealift capacity is uncertain, and available mariner supply has not been fully assessed. While CPFA has ensured that a portion of U.S.-flag vessels carry some food aid cargo, the number of vessels carrying food aid and U.S. mariners required to crew them has declined. The available pool of sealift capacity has always met all of the Department of Defense's (DOD) requirements, without the full activation of the reserve sealift fleet. DOD's most serious scenario would require a full and prolonged—a period longer than 6 months—activation of the reserve sealift fleet as well as the use of commercial vessels. The Maritime Administration (MARAD) estimated that 3,886 mariners would be needed to crew the reserve surge fleet and 9,148 mariners to crew commercial vessels. MARAD estimated that at least 1,378 additional mariners would be needed to satisfy a full and prolonged activation, including the crewing of commercial vessels. However, the actual number of U.S. mariners qualified and available to fulfill DOD's most serious scenario is unknown and MARAD has not fully assessed the potential availability of all qualified mariners to satisfy a full and prolonged activation.
section_title: What GAO Recommends
paragraphs: Recognizing that cargo preference serves statutory policy goals, Congress should consider clarifying CPFA legislation to define “geographic area” in a manner that ensures agencies can fully utilize the flexibility Congress granted to them when it lowered the CPFA requirement. The Secretary of Transportation should direct the Administrator of MARAD to study the potential availability of all qualified mariners needed to meet a full and prolonged activation of the reserve sealift fleet; DOT agreed with this recommendation.

section_title: Letter
paragraphs: The United States shipped more than 1 million metric tons of food aid in  fiscal year 2013, intended to benefit 46.2 million people in 56 countries, at  a cost of around $1.7 billion, which included commodity and freight cost.  Under U.S. law, a minimum share of U.S. food aid must be shipped on  U.S.-flag vessels. For the purposes of the report, we refer to that  requirement as cargo preference for food aid (CPFA). The percentage  requirement of CPFA has fluctuated since 1954, from the original 50  percent to 75 percent in 1985, and back to 50 percent in 2012. The U.S.  Agency for International Development (USAID) and the U.S. Department  of Agriculture (USDA) administer food aid programs; the cost of  transporting food aid comes from the funding for these programs. The  Department of Transportation’s (DOT) Maritime Administration (MARAD)  is responsible for monitoring USAID’s and USDA’s adherence to CPFA.  Statutory objectives for cargo preference, which in addition to food aid are  also applied to other government cargo such as Department of Defense  (DOD) cargo, include the development and maintenance of a merchant  marine—both vessels and mariners—capable of providing sealift in time  of war or national emergency. According to MARAD officials, the  objectives for CPFA are the same as the statutory objectives for cargo  preference in general.
In response to your request, in this report, we examine (1) CPFA’s impact  on food aid shipping cost and U.S. agencies’ implementation of CPFA  requirements, (2) the extent to which the implementation of CPFA  requirements contributes to sufficient sealift capacity, and (3) stakeholder  views on options to improve the sustainability of the oceangoing U.S.-flag  fleet.
To address our objectives, we analyzed cargo preference legislation as  well as USAID’s, USDA’s, and MARAD’s guidance and data on CPFA.  We also interviewed USAID, USDA, and MARAD officials about each  agency’s roles and responsibilities regarding CPFA, the processes each  agency uses to implement CPFA and to ensure and monitor compliance  with the requirements, the cost implications of the requirements on food  aid programs, and the impact of the requirements on cargo preference  objectives. To determine the CPFA requirements’ impact on food aid  shipping cost, we analyzed food aid procurement data for both USAID  and USDA from April 2011 through fiscal year 2014, including some bulk  food commodities and all packaged food commodities and shipment data  for fiscal years 2011 through 2014. During this time period, CPFA  requirement levels changed from 75 to 50 percent. We examined the  number of total U.S.-flag and foreign-flag bids per solicitation. We used  regression analysis to identify the impact of the changes in the CPFA  requirements. To examine the extent to which the implementation of  CPFA requirements contributes to sufficient sealift capacity, we  interviewed DOD officials about the sealift capability and military  usefulness of the vessels in the U.S.-flag fleet. We also analyzed  MARAD’s data on U.S.-flag vessels, including those carrying food aid  cargo and the number of mariner positions aboard such vessels.  Furthermore, we obtained data from the U.S. Coast Guard (USCG) on the  number of mariners potentially qualified to provide sealift during times of  war or national emergencies. We found the data on U.S.-flag vessels,  mariner positions supported by CPFA, and mariners that crewed the  Ready Reserve Force from 2002 to 2015 sufficiently reliable for the  purposes of this report.  We also interviewed MARAD officials to  understand the crewing process for the reserve sealift fleet. MARAD  officials described the data they used and factors they considered to  estimate the number of positions needed for a full, prolonged operation of  the reserve surge fleet and all commercial vessels and the number of  available mariners. However, we were not able to assess the accuracy of  these estimates because MARAD was unable to provide us with the  details about them. To obtain stakeholder views on options to improve the  sustainability of the oceangoing U.S.-flag fleet, we conducted  semistructured interviews and requested follow-up documentation from a  nongeneralizable sample of 29 stakeholders knowledgeable about CPFA  issues, selected based on, among other factors, how often others  suggested we meet with them and their location. We categorized these  stakeholders into (1) maritime industry stakeholders, which are those  stakeholders that we interviewed that self-identified as brokers, carriers,  freight forwarders, and mariners, and (2) other maritime stakeholders,  which are those stakeholders that we interviewed that self-identified as  academia, commodities, freight forwarders, implementing partners or  nongovernmental organizations (NGO), ports, and trade associations.  The intent of our semistructured interviews was to identify options to  improve the sustainability of the oceangoing U.S.-flag fleet, including food  aid-carrying U.S.-flag vessels. We did not specifically ask stakeholders to  consider the effect that options may have on food aid. Twenty of the 29  stakeholders we interviewed responded to our follow-up request.  Eighteen of these stakeholders (7 maritime industry stakeholders and 11  other maritime stakeholders) selected what they believe to be the top  three options from among those suggested and provided comments on a  variety of the options, while the other 2 stakeholders (both other maritime  stakeholders) responded that they would not provide their views because  they did not favor any of the options. See appendix I and II for more  details on our scope and methodology, as well as our regression  methodology and results.
We conducted this performance audit from October 2014 to August 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Evolution of the Legal Requirements of Cargo Preference for Food Aid
paragraphs: The legal requirements of CPFA, particularly the required level of CPFA  shipped on U.S.-flag vessels, have changed over time. Figure 1 shows  key legislation related to CPFA.
section_title: Roles of Various U.S. Agencies Involved in CPFA
paragraphs: USAID, USDA, and MARAD are the primary agencies involved in CPFA.
USAID administers Title II of the Food for Peace Act, which responds  to emergency needs such as disasters and crises, and targets the  underlying causes of hunger and malnutrition through development  food assistance programs. In fiscal year 2014, USAID provided an  estimated 1 million metric tons of food aid valued at more than $1.3  billion.
USDA’s Foreign Agricultural Service (FAS) administers other food aid  programs. In particular, the Food for Progress program responds to  non-emergency food aid situations by supporting agricultural value  chain development, expanding revenue and production capacity, and  increasing incomes in food-insecure countries. The McGovern-Dole  International Food for Education and Child Nutrition program  responds to nonemergency food aid needs by supporting education  and nutrition for schoolchildren, particularly girls, expectant mothers,  and infants. In fiscal year 2014, USDA provided nearly 192,000 metric  tons of food aid, valued at more than $127 million, for Food for  Progress; and more than 70,000 metric tons of food aid, valued at  more than $164 million, for McGovern-Dole.
USDA’s Farm Service Agency serves as the buying agent for all U.S.  food aid programs and extends invitations for bids to prospective food  commodities sellers and providers of freight services for commodity  delivery to overseas ports. The Farm Service Agency’s Kansas City  Commodity Office (KCCO) is responsible for procuring food  commodities.
MARAD is responsible for monitoring federal agencies’  implementation of cargo preference laws, including CPFA. In addition  to monitoring compliance, MARAD establishes guideline rates to  determine whether U.S.-flag shipping rates are fair and reasonable.  See appendix III for details on MARAD’s “fair and reasonable”  determinations.
DOD and the USCG also have some involvement in CPFA, through  various activities detailed below.
subsections: section_title: Voluntary Intermodal Sealift Agreement and Maritime Security Program
paragraphs: DOD has programs that involve U.S.-flag vessels that compete to ship  food aid under CPFA. For example, the Voluntary Intermodal Sealift  Agreement (VISA) is a partnership between the U.S. government and the  maritime industry to provide DOD with “assured access” to commercial  sealift and intermodal capacity to support the emergency deployment and  sustainment of U.S. military forces. During times of war or national  emergency, DOD will use commercial sealift capacity, to the extent it is  available, to meet ocean transportation requirements. This commercial  sealift capacity includes U.S.- and foreign-flag vessels or intermodal  capacity to support DOD’s needs. In the event voluntary capacity does  not meet DOD contingency requirements, DOD will activate VISA as  necessary. VISA participants have committed vessels or intermodal  capacity to support DOD contingency requirements during the various  activation stages of VISA and in return are afforded priority to meet DOD  peacetime and contingency sealift requirements.
Vessels participating in the Maritime Security Program (MSP) are  required to be enrolled in VISA. MSP is intended to guarantee that  certain kinds of militarily useful ships and their crews will be available to  DOD in a military contingency. Vessels in MSP will be activated through  the VISA program. Currently, MSP provides direct payment of up to $3.1  million per year for up to 60 militarily useful U.S.-flag vessels participating  in international trade to support DOD. DOT determines the commercial  viability and DOD determines the military usefulness of vessels that seek  participation in MSP. Guidance on military usefulness is being updated  and is expected to be issued by September 2015. According to DOD  officials, the criteria for military usefulness include ship speed, deck  strength, and container cargo carriage capacity.
section_title: Reserve Sealift Fleet
paragraphs: DOD, through the United States Transportation Command, and DOT,  through MARAD, maintain and operate a fleet of vessels owned by the  federal government to meet the logistic needs of the military services that  cannot be met by existing commercial service. As of July 2015, the  reserve sealift fleet is composed of 61 vessels, 46 of which are MARAD- owned and form part of the Ready Reserve Force, and 15 are DOD- owned vessels in the Military Sealift Command’s Surge Sealift program.  DOD notifies the Military Sealift Command and MARAD when it directs  activation of vessels in the reserve sealift fleet for contingency operations,  exercises, training and testing, and other defense purposes for when  commercial sealift is not available or suitable. Such vessels must be fully  operational with a complete crew within their assigned readiness status,  which varies from 5 to 10 days. Commercial U.S. ship managers  provide systems maintenance, equipment repairs, logistics support,  activation, manning, and operations management by contract.
section_title: U.S. Mariners
paragraphs: U.S. mariners are necessary to crew U.S.-flag commercial vessels  providing sealift capabilities for DOD needs, as well as the reserve sealift  fleet. Crewing of such vessels is a voluntary system for mariners with the  necessary qualifications. Mariner qualifications for crewing the reserve  sealift fleet include having a USCG merchant mariner credential with the  necessary national and international endorsements to crew these  vessels, which include Standards of Training, Certification and  Watchkeeping (STCW) and endorsement for unlimited tonnage for deck  officer positions that include master, chief mate and officer in charge of a  navigational watch, and unlimited horsepower for engineer positions. In  addition, mariners sailing onboard such vessels, among other things, are  required to take specific DOD-approved training matching their types of  vessels, cargo, mission requirements, and areas of operation, according  to MARAD. The specialized training includes topics such as physical  security, antiterrorism, ship survivability, Navy communication systems,  naval operations, engineering, and logistics. This training is typically  provided by Navy trainers, as well as by union and private trainers.  Currently, U.S. maritime labor unions have collective bargaining  agreements with vessel operators under contract to the government to  crew the reserve sealift fleet, as needed. USCG is responsible for the  credentialing of mariners and maintains records on all mariners who hold  valid merchant mariner credentials, including data on mariners who may  serve on U.S.-flag vessels that support DOD during times of war or  national emergencies, among which are vessels that compete to ship  food aid under CPFA.
section_title: Strategic Sealift Officer Program
paragraphs: The Navy’s Strategic Sealift Officer Program maintains within the Reserve  Component of the U.S. Navy a cadre of strategic sealift officers to support  national defense sealift requirements and capabilities. Strategic sealift  officers can be recalled to active military duty to fill officer positions  aboard the reserve sealift fleet if a shortage of qualified civilian mariners  exists. However, many of the Strategic Sealift Officers may already be  employed as civilian mariners onboard commercial vessels. The Navy  and MARAD have agreed that Strategic Sealift Officers may be used to fill  officer positions aboard the reserve sealift fleet after all reasonable  means to obtain other qualified civilian mariners have been exhausted.
section_title: Food Aid Purchasing and Shipping Process
paragraphs: USAID and USDA rely on implementing partners to deliver food aid to  beneficiaries for emergency and nonemergency purposes.  Implementing partners submit a food order proposal designed to meet  program objectives of USAID’s and USDA’s food aid programs. USAID  and USDA officials review the order to ensure its suitability for the  program and country area with regard to the quantity and type of  commodity requested. Once approved, the commodity request for food  aid is forwarded to KCCO, which collects commodity orders with similar  delivery dates for placement on a solicitation. KCCO then issues a  solicitation for commodity vendors to offer their products for sale to  USDA. Concurrently, administering agencies, working with implementing  partners, issue a solicitation with specific freight tender terms and  conditions for ocean freight services to deliver these commodities to  overseas destinations. For all U.S. in-kind food commodities except  USAID’s bulk food aid, ocean carriers and commodity vendors submit  offers electronically through the Web Based Supply Chain Management  system (WBSCM). KCCO evaluates commodity bids and freight offers  according to lowest landed cost (the cost of the commodity plus  transportation charges), through WBSCM. USAID and USDA review the  ocean freight offers to identify programmatic issues, such as ensuring  ocean freight offers meet the tenders’ terms and conditions, ensuring  rates are consistent with fair market prices, as well as assessing the  offers’ relation with CPFA requirements. USAID and USDA coordinate  with KCCO to recommend award of commodity and transportation  contracts, and advise the implementing partners to enter into such  contracts.
section_title: Shipping Rates on U.S.- Flag versus Foreign-Flag Vessels
paragraphs: U.S.-flag vessels charge higher shipping rates than foreign-flag vessels  largely because of their higher operating cost. According to a MARAD  study, U.S.-flag vessels face significantly higher cost, including crew cost,  maintenance and repair cost, insurance cost, and overhead cost. For  2010, MARAD found that the average U.S.-flag vessel operating cost is  roughly 2.7 times higher than its foreign-flag counterpart. MARAD also  found that crew cost, the largest component of U.S.-flag vessels’  operating cost, was about 5.3 times higher than that of foreign-flag  vessels. While crew cost accounted for about 70 percent of U.S.-flag  vessel operating cost, it accounted for about 35 percent for the foreign- flag vessels.
section_title: DOD Determines Sealift Capacity Needs and MARAD Assesses Sufficiency of the Mariner Pool
paragraphs: National Security Directive 28 directs DOD to determine the requirements  for sealift, among other things, and DOT to determine whether adequate  manpower is available to meet such requirements. According to DOD  officials, DOD has determined the number of vessels, including those in  the reserve sealift fleet that would be required to meet its needs under  different contingency scenarios and communicated that to MARAD. DOD  officials told us that the number of vessels—both commercial and those in  the reserve sealift fleet—required to meet sealift capability for DOD needs  varies by contingency. However, DOD’s most serious scenario requires a  full and prolonged—a period longer than 6 months—activation of the  reserve sealift fleet as well as the use of commercial vessels. MARAD  analyzes USCG data, vessel information data, and talks to U.S. maritime  labor unions to estimate the number of U.S. mariners actively sailing to  determine whether sufficient U.S. mariners exist to crew the entire  reserve sealift fleet as well as maintain commercial operations.
section_title: Cargo Preference Requirements Increase Food Aid Shipping Costs, Especially for USDA
paragraphs: CPFA requirements increased the cost of shipping food aid for USAID  and USDA by about 23 percent, or $107 million, over what it would have  been had CPFA requirements not been applied during the time period  April 2011 through fiscal year 2014. USDA pays higher shipping rates  than USAID partly because of the different application of the CPFA  requirements between the two agencies. Pursuant to a court order  following a law suit filed against USDA, USDA must measure compliance  with cargo preference laws for Food for Progress and Section 416(b)  programs on a country-by-country basis to the extent practicable unless  MARAD revises cargo preference regulations or policy to allow a different  method for defining geographic area, or if USDA determines that a  change in method is necessary following good faith negotiations on the  matter with MARAD. The country-by-country basis is a more narrow  interpretation of the geographic area requirement associated with CPFA  than what USAID applies. Following the July 2012 reduction in the  minimum percentage of food aid to be carried on U.S.-flag vessels from  75 percent to 50 percent, USAID was able to substantially increase the  proportion of food aid awarded to foreign-flag vessels, helping to reduce  its average shipping rate. In contrast, USDA was only able to increase the  proportion of food aid awarded to foreign-flag vessels by a relatively small  amount such that it utilized foreign-flag vessels far below the 50 percent  allowed by the 2012 law, and its average shipping rate did not decrease.  USAID and USDA continue to differ in how they implement CPFA, and  they, together with MARAD, have not fully updated guidance for or  agreed on a consistent method for agencies to implement CPFA based  on geographic area.
subsections: section_title: Cargo Preference Requirements Increase Total Shipping Costs, but USAID and USDA No Longer Receive Reimbursements to Compensate for the Higher Cost
paragraphs: The cargo preference requirements for food aid increased the total cost of  shipping food aid (see table 1). We found that CPFA requirements  increased the cost of shipping food aid by 23 percent, increasing the total  cost of shipping food aid by $107 million. This increase covers all of  USDA’s food aid purchases and USAID’s purchases of packaged food aid  from April 2011 through fiscal year 2014. The extra cost to meet the  CPFA requirements was $45 million for USAID’s packaged food aid, 16  percent higher than what USAID would have paid if the CPFA  requirements were not applied for April 2011 through fiscal year 2014.  For USDA’s food aid, the extra cost was $62 million, or 36 percent higher.  (Dollars in millions)
U.S. Agency for  International  Development   (USAID)
The Food Security Act of 1985 raised the CPFA requirement from 50  percent to 75 percent and required DOT to reimburse USAID and USDA  for the ocean freight cost associated with the additional 25 percent  requirement, and for the portion of the freight cost that exceeded 20  percent of total commodity and freight cost (see table 2). These two  reimbursements—Ocean Freight Differential (OFD) and Twenty Percent  Excess Freight (TPEF)—ranged from around $50 million to over $100  million a year from fiscal years 2010 to 2012. Agencies used the  reimbursement to fund additional food aid programs. After the CPFA  requirement was lowered in July 2012, USAID and USDA still incurred the  extra cost to meet the requirements but they no longer received any  reimbursement. According to a USDA official, it funds about three fewer  grant agreements per year after the reimbursements stopped because of  the loss of reimbursements. From fiscal years 2009 through 2012, USDA  signed an average of 35 new grant agreements a year amounting to  around $388 million a year. For fiscal years 2013 and 2014, USDA signed  an average of about 20 new grant agreements a year amounting to  around $313 million a year.  (Dollars in millions)
section_title: Different Implementation of Geographic Area Leads to Higher Shipping Rates Paid by USDA
subsections: section_title: Geographic Area Is Undefined in Law, Leading to Differing Agency Implementation
paragraphs: USAID and USDA use different interpretations of how to implement CPFA  requirements, which contributed to the substantial differences in shipping  rates between them. The Cargo Preference Act of 1954 specified that at  least 50 percent of the gross tonnage of U.S. food aid commodities be  shipped on U.S.-flag vessels “in a manner that will ensure a fair and  reasonable participation of commercial vessels of the United States in  those cargoes by geographic areas.” However, neither this act and  subsequent laws modifying the CPFA minimum percentage requirement  nor the cargo preference regulations promulgated by MARAD define  geographic area. In 1998, the United States District Court for the District  of Columbia ordered USDA to measure compliance with cargo preference  laws for Food for Progress and Section 416(b) programs on a country-by- country basis to the extent practicable unless MARAD revises cargo  preference regulations or policy to allow a different method for defining  geographic area, or if USDA determines that a change in method is  necessary following good faith negotiations on the matter with MARAD.  Thus, USDA is required to meet the minimum percentage of food aid  carried on U.S.-flag vessels by individual country and for each of its food  assistance programs, which are Food for Progress and McGovern-Dole,  regardless of the price of U.S. shipping, according to USDA officials.  USAID, however, is not bound by the order as it was not a party to the  litigation. Instead, USAID interprets the CPFA requirement in a manner  that gives it substantially more flexibility. It defines geographic area on a  global basis for its packaged food aid. For bulk food aid, USAID uses a  modified country basis where it can broaden the interpretation of  geographic area to the regional level when it determines that there is  limited availability of U.S.-flag vessels for a particular route. For example,  USAID defines the region of West Africa, and not individual countries in  West Africa, as one geographic area for bulk food aid, giving it greater  flexibility and allowing it to better manage its limited resources.
section_title: USDA Shipped a Lower Proportion of Food Aid on Foreign-Flag Vessels than USAID
paragraphs: USDA shipped a lower percentage of food aid on foreign-flag vessels  than USAID, and its percentage on U.S.-flag vessels was higher than the  minimum requirements both before and after the 2012 changes in the  CPFA requirements. In addition, it did not reduce the percentage on U.S.- flag vessels as much as USAID did after the change in CPFA  requirements in July 2012 (see fig. 2). We analyzed data on USAID’s and  USDA’s food aid shipments from fiscal years 2009 through 2014 and  found that USAID shipped an average of 82 percent of food aid on U.S.- flag vessels before the change and 54 percent after the change. In  contrast, USDA shipped an average of 89 percent of food aid on U.S.-flag  vessels before the change and 76 percent after the change.
According to USDA officials, USDA ships a high percentage of its food aid  on U.S.-flag vessels because it has to meet the minimum percentage  shipped on U.S.-flag vessels by country, and its shipments are generally  too small to be split among multiple vessels. Our analysis found that U.S.- flag vessels carried at least 50 percent of the commodities to 20 out of the  21 countries USDA sent food aid to in 2014 (see fig. 3). In contrast, U.S.- flag vessels carried over 50 percent of the commodities to only 19 out of  31 countries USAID sent food aid to in 2014. When considering the  vessel type separately, we found that U.S.-flag vessels carried 100  percent of the food aid shipped on either bulk or liner for 9 out of the 21  countries that USDA sent food aid to in 2014. We examined the countries  with 100 percent USDA food aid shipments on U.S.-flag vessels and  found all of them received only one shipment of food aid in that year for  the particular vessel type. USDA had no choice but to use U.S.-flag  vessels when it had only one shipment to a country in a given year  because of the way it is legally required to interpret geographic area. For  example in 2014, USDA shipped 100 percent of its food aid, consisting of  only one shipment each year, to the Dominican Republic using U.S.-flag  vessels. When USDA had multiple shipments to a country, such as to  Ethiopia in 2014, it was able to send some food on foreign-flag vessels.  For USAID, U.S.-flag vessels, either bulk or liner, carried 100 percent of  the food aid for 9 out of the 31 countries USAID sent food aid to in 2014.
We found that after the changes in the CPFA requirements, the average  shipping rate for USAID decreased by around 9 percent, or $21 per metric  ton, after controlling for other factors. The shipping rate decreased slightly  for USDA, though the decrease is not statistically significant. Since a  variety of factors in addition to the changes in the CPFA requirements may  affect shipping rates, we developed multivariate regression models that  control for other factors that may also affect shipping rates to assess the  likely effect of the changes. For detailed discussion of the regression  methodology and results, see appendix II.
A higher proportion of food aid awarded to foreign-flag vessels and the  decrease in shipping rates on foreign-flag vessels likely contributed to the  lower shipping rates for USAID after the CPFA requirement change in  2012. Foreign-flag vessels on average charge lower shipping rates than  U.S.-flag vessels (see table 3). From April 2011 through fiscal year 2014,  we found that U.S.-flag vessels charged $61 ton more than foreign flag  vessels for packaged food aid and $55 per metric ton more for bulk food  aid. After the CPFA requirement change, foreign-flag vessels participated  more in the food aid solicitation. Our estimates using statistical modeling to  control for various factors show that the number of bids received for each  solicitation increased by three after the 2012 change in the CPFA  requirements and that all of the increase was from the increase in bids  from foreign-flag vessels. According to USAID officials, after the CPFA  requirement change, they have received more foreign-flag bids for some  routes previously dominated by U.S.-flag vessels. Results from our  regression model also indicates that the shipping rate on foreign-flag  vessels decreased by 9 percent for USAID and 7 percent for USDA since  the CPFA requirement change in 2012. USAID was able to award more  food aid shipments to lower-priced foreign-flag vessels, which led to a  statistically significant decrease in its overall shipping rates. On the other  hand, USDA was able to increase the proportion awarded to foreign-flag  vessels by a relatively small amount and we did not find a statistically  significant decrease in its overall shipping rates since the CPFA  requirement change in 2012. (Dollars per metric ton)
section_title: Agencies Have Not Agreed on Updated Guidance for CPFA
paragraphs: MARAD, USAID, and USDA do not have updated guidance and have not  agreed on a consistent method for the agencies to implement CPFA.  They signed a memorandum of understanding (MOU) in 1987 for  administering CPFA that, among other things, did not provide an agreed- upon definition for geographic area. They signed another MOU in 2009  that relates to the interpretation of vessel service categories but still left  the definition of geographic area unaddressed. Officials representing the  agencies told us that they could not successfully agree on some cargo  preference issues. The three agencies currently use separate agency  guidance to interpret application of CPFA requirements, but do not follow  a common set of updated interagency guidance. According to MARAD,  USAID, and USDA officials, they know about the different process each  agency uses to implement CPFA, but these practices are not documented  in any interagency guidance. MARAD officials said that they regularly  monitor USAID’s and USDA’s compliance with CPFA, based on vessels’  voyage report data and the data that USAID and USDA report on their  websites. However, MARAD officials also explained that it is difficult for  them to enforce CPFA requirements, noting that they understand that  USAID uses a different interpretation of geographic area for CPFA  compliance of USAID’s packaged food aid. Although there is the potential  for a $25,000 fine per day for each willful violation of the cargo preference  requirement, MARAD officials said that even if they found instances of  non-compliance, they cannot penalize USAID and USDA, because they  are government agencies. Rather, they would have to penalize the  implementing partner that ships the commodities for noncompliance,  which they have chosen not to do. In past proposals to MARAD for cargo  preference rule making, USDA noted that one of the topical areas of most  concern to USDA for its food aid shipments is the definition of the term  “geographic areas.” USDA had also noted that USDA and USAID needed  clarity on the application of CPFA to allow for efficient and effective  delivery of food aid.
Our prior work found that agencies that articulate their agreements in  formal documents can strengthen their commitments to working  collaboratively. Specifically related to CPFA, GAO recommended in 2007  and again in 2009 that USAID and USDA work with DOT and relevant  parties to expedite updating the MOU between U.S. food assistance  agencies and DOT to minimize the cost impact of cargo preference  regulations on food aid transportation expenditures and to resolve  uncertainties associated with the application of CPFA requirements. The  agencies did not fully implement our recommendation; their signed MOU  in 2009 did not resolve some uncertainties among agencies, including the  definition of geographic area. Pursuant to the terms of the court order  requiring USDA to comply with CPFA on a country-by-country basis, an  MOU embodying an agreement between USDA and MARAD on a  consistent definition of “geographic area” would allow USDA to administer  CPFA using a method other than country-by-country.
section_title: CPFA’s Contribution to Sealift Capacity Is Uncertain, and MARAD Has Not Fully Considered Available Mariner Supply
paragraphs: Despite cargo preference, the number of vessels carrying food aid and  U.S. mariners required to crew them has declined. However, DOD has  met all of its past sealift needs with the existing capacity and has never  fully activated the reserve sealift fleet. The number of U.S. mariners  qualified and available to serve DOD’s needs under a full and prolonged  activation is uncertain. Furthermore, MARAD has not fully assessed the  sufficiency of mariners available under a full and prolonged activation.
subsections: section_title: Despite Cargo Preference, the Number of Vessels Carrying Food Aid and U.S. Mariners Required to Crew Them Has Declined
paragraphs: Sealift capability provided by U.S.-flag vessels, including those carrying  food aid, has declined. From 2005 to 2014, the number of vessels in the  overall oceangoing U.S.-flag fleet declined about 23 percent, from 231 to  179 vessels. In April 2015, MARAD reported that the decrease in  available government cargo is the most significant factor contributing to  the loss of U.S.-flag vessels. The majority of the decline has been in  DOD cargo, the largest source of preference cargo. DOD cargo  accounted for approximately three-quarters of preference cargo in 2013.  Food aid shipments have also declined. From 2005 to 2013, the amount  of U.S. food aid commodities purchased and shipped from the United  States by the U.S. government—and therefore subject to cargo  preference—declined by 66 percent and the number of U.S.-flag vessels  carrying food aid declined by more than 40 percent, from 89 to 53. The  number of vessels carrying food aid further declined to 38 in 2014 (see  fig. 4).
As the number of vessels, including those carrying food aid, has declined  since 2005, so has the number of mariners crewing them. MARAD  estimated that in fiscal year 2005 there were at least 1,329 positions  aboard 66 of the 89 vessels carrying food aid. In fiscal year 2014, the  estimate was approximately 612 positions aboard 33 of 38 vessels  carrying food aid. Because crew members rotate over the course of a  year, MARAD estimates that each position generates approximately two  mariner jobs per year. Using MARAD’s estimating procedures, CPFA,  therefore, could have supported 1,224 mariner jobs during fiscal year  2014. See figure 5 for sealift capabilities supported by CPFA.
CPFA supports some sealift capability by ensuring that a portion of U.S.- flag vessels carry some food aid cargo. We found that without CPFA,  most food aid cargo would not be transported on U.S.-flag vessels.  USAID and USDA review and approve contracts to ocean carriers based  on CPFA requirements and lowest landed costs for the combination of  necessary commodities and transportation costs. We found that if CPFA  requirements had not been applied, 97 percent of food aid tonnage after  the CPFA change would have been awarded to foreign-flag vessels. Even  with CPFA, however, the number of U.S.-flag vessels and mariners  supported by CPFA has decreased, and the overall contribution of CPFA  to sealift is unclear.
section_title: DOD Has Met Its Past Sealift Needs without Full Activation of the Reserve Sealift Fleet
paragraphs: One intended objective of CPFA is to help ensure a merchant marine— both vessels and mariners—capable of providing sealift in times of war or  national emergency. For its sealift capability needs, DOD relies on  commercial vessels, including those carrying food aid, and the reserve  sealift fleet, which, according to DOD, have been sufficient for its past  needs. During times of war or national emergency, DOD can make the  decision to use commercial or government-owned sealift capacity to meet  ocean transportation requirements. According to DOD officials, DOD pays  the shipping costs for its cargo to those commercial vessels that provide  capacity. DOD officials also told us that a vessel does not need to be  deemed militarily useful to provide sealift capability, and both U.S.- and  foreign-flag vessels can be used to provide sealift. As of March 2015,  there were 167 oceangoing U.S.-flag vessels that could provide sealift for  DOD’s needs. However, vessels that participate in VISA would be  afforded the first opportunity to provide sealift capabilities, as they have  agreed to provide DOD with assured access to sealift capacity. In March  2015, 99 oceangoing U.S.-flag vessels were enrolled in VISA, 58 of which  are MSP vessels that receive a $3.1 million annual payment to support  DOD in addition to any shipping costs DOD provides for its cargo. In the  event provided capacity does not meet DOD’s needs, DOD will activate  the VISA to require additional vessel capacity be made available, as  necessary. DOD can also activate the reserve sealift fleet when  commercial vessels cannot satisfy military operational requirements,  among other reasons. The reserve sealift fleet is composed of 61 vessels,  46 of which are MARAD-owned and form part of the Ready Reserve  Force and 15 DOD-owned vessels in the Military Sealift Command’s  Surge Sealift program. See figure 6 for the composition of oceangoing  U.S.-flag and the reserve sealift fleet.
DOD has never activated VISA or the entire reserve sealift fleet to meet  sealift capacity needs. DOD requires access to sufficient U.S.-flag  capacity to meet the most serious scenario and, according to DOD  officials, available vessel capacity—U.S.- and foreign-flag—has  historically been sufficient to meet DOD’s needs. While VISA participants  have provided sealift capacity for DOD, since the program’s inception in  1997, the VISA program has never been activated. Partial activations of  the reserve sealift fleet have been needed to support DOD. For example,  according to the Military Sealift Command, in fiscal year 2014, 2 Ready  Reserve Force vessels were activated, 1 to support the destruction of  Syrian chemical weapon components in the Mediterranean, and another  to support a cargo mission for U.S. Central Command; furthermore, 4 of  the Military Sealift Command’s Surge Sealift Program vessels were  activated to support Navy exercises. According to DOD officials, only  during a significant contingency would the entire reserve sealift fleet be  activated, and only in the most serious scenario would the entire reserve  sealift fleet be activated for a prolonged period of time, in addition to the  use of commercial vessels. However, in the past 13 years, including  during Operation Iraqi Freedom and Operation Enduring Freedom in  Afghanistan, there has never been a time when the entire reserve sealift  fleet has had to be activated. Figure 7 shows the number of Ready  Reserve Force vessels, a subset of 46 vessels in the reserve sealift fleet,  and mariners used for its activation since 2002.
section_title: The Number of U.S. Mariners Qualified and Available to Serve DOD’s Needs under a Full and Prolonged Activation Is Uncertain
subsections: section_title: Estimated Number of Mariners Needed
paragraphs: MARAD has estimated the number of mariners required to fully crew both  the reserve sealift fleet and commercial operations for shorter- and  longer-duration surge scenarios as required by DOD. DOD’s most  serious scenario envisions a full activation of the entire reserve sealift  fleet for an extended period of time. In addition, DOD would require the  use of some commercial sealift for sustainment purposes. According to  MARAD, an activation of the entire reserve sealift fleet would require a  total crew of 1,943 mariners for a 6-month period. However, these  vessels maintain a smaller crew at all times; therefore, full activation of  the fleet would require finding mariners to complete the necessary  crewing levels. For example, in June 2015, there were 645 mariners  already serving aboard the fleet, and thus initially activating the full fleet  would require an additional 1,298 mariners. If the full fleet is activated for  a period longer than 6 months, then the crew would need to be rotated  and 1,943 additional mariners would be needed to fill all the positions.  Using MARAD’s estimates, the crew to sustain the reserve sealift fleet for  12 months would require 3,886 mariners. In addition, according to  MARAD, U.S. mariners are also needed to crew commercial vessels  during that same time period, including those providing sealift to DOD.  MARAD officials expect all commercial vessels to continue operations  during the same period during which the reserve surge fleet is activated  and estimated that 9,148 mariners would be needed to crew such  vessels. While MARAD estimates that 3,886 mariners are needed to  sustain the reserve sealift fleet, it estimates that a total of 13,034 mariners  is required to both support the prolonged operation of the entire reserve  sealift fleet as well as the operation of commercial vessels during a  scenario requiring the prolonged full activation of the reserve sealift  fleet.
section_title: The Number of Mariners Available Is Uncertain
paragraphs: While USCG maintains data on mariner qualifications, the number of  mariners potentially available—both actively sailing and willing—to  operate the reserve sealift fleet under a full and prolonged activation is  uncertain.
Number of mariners potentially qualified. USCG data show that  the number of mariners potentially qualified to operate the reserve  sealift fleet has increased since fiscal year 2008. According to  MARAD, the ability to crew and operate the reserve sealift fleet to  meet military sealift requirements depends on having sufficient  qualified mariners available in time of national emergency.  Mariners with such qualifications have taken specific DOD- approved training required to crew vessels in the reserve sealift  fleet, according to DOD officials. The pool of mariners able to crew  and operate the reserve sealift fleet includes those who have  obtained their STCW and unlimited tonnage/horsepower  endorsements, according to MARAD. USCG data show that from  fiscal years 2008 to 2014, the number of mariners with STCW and  unlimited tonnage and horsepower endorsements increased from  37,702 to 54,953 (see fig. 8)
Actively sailing mariners. According to MARAD officials, not all  mariners with STCW endorsement utilize their credential to sail  internationally, in part because of a lack of jobs aboard  oceangoing vessels. They told us that the pool of mariners  available to operate these vessels is better represented by those  who are actively sailing because they are more likely to have their  training and qualifications up to date. Further, according to  MARAD, when U.S. mariners are not actively sailing, they typically  do not maintain their memberships in the U.S. maritime labor  unions, which have collective bargaining agreements for crewing  the reserve sealift fleet. However, complete, detailed data on  actively sailing U.S. mariners are not available. USCG maintains a  database on U.S. mariners and their credentials, but USCG  officials noted that USCG’s ability to identify actively sailing  mariners is limited to the extent to which companies notify USCG  of mariners sailing internationally through discharge certificate  records. When vessels return from an international voyage, the  vessel owner is required to provide discharge certificates for all  the mariners aboard to USCG, upon request. As of June 2, 2015,  USCG reported that it had received 16,637 certificates of  discharge for mariners with STCW and unlimited  tonnage/horsepower endorsements that had sailed in the previous  18 months. However, USCG officials estimate that they do not  receive all the certificates of discharge, and the number of actively  sailing mariners may be higher than this.
Mariners who are willing. MARAD officials noted crewing of the  reserve sealift vessels is done through a voluntary system, and  the number of those who would actually crew these vessels is  uncertain. MARAD officials explained that the majority of mariners  hold permanent positions aboard a given commercial vessel and  volunteering for prolonged employment aboard the reserve sealift  fleet would, in most cases, mean that they would forfeit their  permanent positions. The mariners would then have to compete  for a new commercial position once they finished their time in the  reserve sealift fleet, a contingency that would likely decrease their  likelihood of volunteering. MARAD developed the Mariner  Outreach System (MOS) to monitor, among other things, U.S.  mariners’ willingness to crew the reserve sealift fleet. U.S.  mariners have the option to consent to be contacted in the event  of a national emergency or sealift crisis through the USCG  application for merchant mariner credential or the MOS. From  2008 to 2014, about 9,000 mariners, on average annually, have  consented to be contacted through the USCG application for  merchant mariner credential process every year. For example,  during fiscal year 2014, 9,682 U.S. mariners consented to allow  MARAD to contact them. While these mariners consent to be  contacted, they are not obligated to sail. At the same time, they  have shown some willingness to crew the reserve sealift fleet.  However, MARAD officials noted that not all of the mariners in  MOS have the endorsements and training required to crew  vessels in the reserve sealift fleet.
Strategic Sealift Officers. In addition to the pool of mariners who  could volunteer to support the reserve sealift fleet, Strategic Sealift  Officers can be called to duty to fill officer positions aboard the  reserve sealift fleet if a shortage of qualified civilian mariners  exists. According to a DOD official, as of April 2015, the Strategic  Sealift Officer program consisted of 1,973 officers, of whom 1,063  were not actively sailing. However, DOD officials told us, to date,  merchant mariners have been sufficient to support sealift  capabilities and Strategic Sealift Officers have never been called  into duty to crew the reserve sealift fleet.
section_title: MARAD Has Not Fully Assessed the Sufficiency of Mariners Available under DOD’s Most Serious Scenario
paragraphs: While the USCG database shows over 16,000 potentially qualified and  actively sailing mariners, MARAD stated that not all these mariners would  be readily available to crew the reserve sealift fleet and maintain ocean  commercial operations. As of May 2015, MARAD has estimated that  11,280 U.S. mariners were readily available based on its assumptions  and analysis of USCG data. According to MARAD officials, this number  is sufficient to support the initial activation of the reserve sealift fleet for 6  months but insufficient to support the prolonged operations of all the  vessels, after the initial crew is rotated. MARAD concluded that at least  1,378 more mariners would need to be available to meet the needs of the  prolonged operation of the entire reserve sealift fleet as well as the  operation of commercial vessels. According to MARAD officials, they  expect the shortage to occur for senior officer positions but not at the  lower officer positions, such as third mate or third assistant engineer,  since the merchant marine academies graduate their students each year  with these ranks. MARAD officials acknowledged that there are more  mariners qualified to support the operation of the reserve sealift fleet but  stated that they may not be available to do so in part because of either  their current location or employment, or lack of appropriate experience for  a particular officer position. However, MARAD did not reassess the  sufficiency of the mariner pool using different assumptions to include a  bigger portion of those qualified, such as the more than 1,000 Strategic  Sealift Officers who were not actively sailing as of April 2015, or consider  mechanisms to reach out to the mariners it excluded in its analysis if  there was a full, prolonged activation of the reserve sealift fleet. Figure 9  summarizes the potential mariner supply for a prolonged surge based on  USCG data on potentially qualified actively sailing mariners and  MARAD’s estimates on those readily available.
section_title: Selected Stakeholders Have Differing Views on Options to Improve the Sustainability of the Oceangoing U.S.- Flag Fleet
paragraphs: Given that the number of U.S.-flag vessels has declined since fiscal year  2005, we interviewed 29 stakeholders knowledgeable about CPFA to  obtain their views on what policy options, if any, could improve the  sustainability of the oceangoing U.S.-flag fleet, including those carrying  food aid. The 29 stakeholders we interviewed suggested 27 unique  options; 18 of these stakeholders subsequently selected what they  believe to be the top 3 options from among those suggested as well as  provided comments on a variety of the options. The 27 options ranged  from increasing the CPFA minimum requirement from 50 to 100 percent  to eliminating CPFA altogether, with the stakeholders’ relationships to the  maritime industry highly related to the nature of their selection. Results  from stakeholders overall, maritime industry stakeholders, and other  maritime stakeholders are presented in the figure below. (See app. IV  for a complete list of options and counts—both overall and broken out by  stakeholder category.)
Figure 10 lists the frequently selected options by stakeholders overall,  maritime industry stakeholders, and other maritime stakeholders.
subsections: section_title: Stakeholders’ Selections
paragraphs: Stakeholders. The options that 4 of the 18 stakeholders who selected  what they believe to be the top 3 options from among those suggested  were to increase cargo preference on all government cargo to 100  percent; increase funding for U.S. food aid programs; increase MARAD’s  monitoring and enforcement of its statutory authority, and eliminate the 3- year waiting period imposed on foreign vessels that acquire U.S.-flag  registry before they are eligible to carry preference food aid cargo.
In addition, there were a number of options that 3 of the 18 stakeholders  selected, including reforming tax law that may negatively affect the U.S.- flag fleet, improving the food aid procurement/ supply chain process to  include market efficiencies, eliminating CPFA and creating a DOD  program to provide military sealift capability, increasing the CPFA  minimum requirement from 50 to 75 percent, increasing the CPFA  minimum requirement from 50 to 100 percent, reinstating OFD and TPEF  reimbursements, subsidizing U.S.-flag fleet vessels, and reforming tort  law that may negatively affect the U.S.-flag fleet.
Maritime industry stakeholders. The options that 3 of the 7 maritime  industry stakeholders selected as being among their top 3 were to  increase all cargo preference to 100 percent, increase funding for U.S.  food aid programs, and increase MARAD’s monitoring and enforcement  of its statutory authority. All 3 of these options were also options that the  18 stakeholders frequently selected, but all 3 options are different from  the options that the 11 other maritime industry stakeholders frequently  selected. Furthermore, support for these 3 options varied within this  category of maritime industry stakeholders. For example, while some  maritime industry stakeholders selected a particular option, others  commented on the possible negative effects of the same option.
In addition, there were 2 options that 2 of the 7 maritime industry  stakeholders selected: increasing the CPFA minimum requirement from  50 to 100 percent and enforcing cargo preference requirements for all  U.S. government agencies.
Other maritime stakeholders. The options that 3 of the 11 other maritime  stakeholders selected as being among their top 3 were to reform tax law  that may negatively affect the U.S.-flag fleet, improve the food aid  procurement/supply chain process to include market efficiencies,  eliminate the 3-year waiting period imposed on foreign vessels that  acquire U.S.-flag registry before they are eligible to carry preference food  aid cargo, and eliminate CPFA and create a DOD program to provide  military sealift capability. The option to eliminate the 3-year waiting  period was also frequently selected by the 18 stakeholders, but all four  options are different from the options frequently selected by the 7  maritime industry stakeholders. Furthermore, support for these 4 options  varied within this category of other maritime stakeholders.
In addition, there were a number of options that 2 of the 11 other maritime  stakeholders selected, including increasing the CPFA minimum  requirement from 50 to 75 percent, reinstating the OFD and TPEF  reimbursements, determining the minimum number of vessels and  mariners needed to sustain the U.S.-flag fleet, subsidizing U.S.-flag fleet  vessels, reforming tort law that may negatively affect the U.S.-flag fleet,  and not requiring CPFA compliance by country.
section_title: Stakeholders’ and Agency Officials’ Comments
paragraphs: When selecting their top three options, stakeholders also provided  comments on any options, and agency officials later provided comments  on the options frequently selected by stakeholders. These comments are  summarized below for each of the frequently selected options.
subsections: section_title: Increase All Cargo Preference to 100 Percent
paragraphs: Stakeholders from both categories provided comments both  supporting and opposing increasing all cargo preference to 100  percent. For example, 1 maritime industry stakeholder commented  that an increase could help the U.S. government maintain a strong  U.S.-flag fleet, while another commented that too much food aid  funding would be lost to U.S.-flag rates, which are generally higher  than foreign-flag rates. Similarly, 1 other maritime stakeholder  commented that an increase to 100 percent would be preferable,  while another commented that the U.S. government should not  give carriers with U.S-flag vessels a monopoly and believed these  carriers would keep raising their shipping rates. Comments from  maritime industry stakeholders were mixed, with 3 supporting the  option and 2 not supporting the option. On one hand, 1 maritime  industry stakeholder expressed support for the increase as a  means of redressing the decline in U.S. government cargo  shipped. On the other hand, another maritime industry stakeholder  commented that only negative effects were associated with this  option. For example, too much food aid funding would be lost to  higher shipping rates.
According to USAID and USDA officials, there are no potential  benefits and only potential negative effects associated with  increasing all cargo preference to 100 percent. USAID officials  believe that this option would not be beneficial to U.S. food aid  programs. According to USAID officials, the potential negative  effects would be that with increased cargo preference  requirements, food aid programs would experience greater  transportation costs and significantly less flexibility in determining  the shipping process. USAID officials said that this option would  negatively affect the food aid program’s size, and ultimately the  programs would ship fewer commodities to fewer places and  reach fewer beneficiaries. According to USAID officials, the U.S.  government could implement the option of increasing all cargo  preference to 100 percent only through a change in the cargo  preference statute. According to USDA officials, one of the  potential negative effects of increasing all cargo preference to 100  percent is that, with USDA food assistance constrained by the  amount of money budgeted for each program, increasing cargo  preference to 100 percent would limit the number of shipments  because of the higher cost of shipping on U.S.-flag vessels. In  addition, there are a limited number of U.S.-flag vessels that  participate in food aid shipments and lack of availability of U.S.- flag vessels could cause delays in shipments, breaks in food aid  pipelines, and disruption of programs on the ground.
section_title: Increase Funding for U.S. Food Aid Programs
paragraphs: Stakeholders from both categories provided comments supporting  increasing funding for U.S. food aid programs, and no  stakeholders provided opposing comments. Furthermore,  stakeholders commented that funding has decreased despite  factors such as higher costs and greater food aid needs. For  example, 1 maritime industry stakeholder commented that funding  for U.S. international food aid programs is currently inadequate, as  it has been cut significantly in recent years while certain costs  have risen. Similarly, 1 other maritime stakeholder commented  that funding has gone down sharply in inflation-adjusted terms  over the past years even as the number of disaster-affected  peoples worldwide has grown. Maritime industry stakeholders who  commented on this option were all in support of it. One maritime  industry stakeholder emphasized the multiple interests these  programs support, including those of DOD and the U.S.  agricultural business. The stakeholder also commented that the  programs demonstrate the country’s commitment to helping those  in need and supporting foreign policy goals.
According to USAID and USDA officials, there are no potential  negative effects and only potential benefits of increasing funding  for U.S. food aid programs. According to USAID officials, the  potential benefit of increasing funding would be that, along with  refinements made to cargo preference regulations, more  recipients would be reached. However, USAID officials explained  that it is difficult to quantify any effect on the U.S.-flag fleet. USAID  officials stated they would continue to program food assistance  resources in the most appropriate modality for the response, and  comply with all applicable legislative parameters. According to  USAID officials, the U.S. government could implement the option  of increasing funding for U.S. food aid programs through the  congressional budget process. According to USDA officials, a  potential benefit of increasing funding is that, with the Food for  Progress program currently limited because of a $40 million cap  on transportation costs, it is difficult to meet the legislated  minimum tonnage requirement for the program. The high  shipping rates absorbed by the food assistance programs often  result in fewer agreements and shipments in any given fiscal year.  Any increase in funding for the program would have to be in the  form of an increase to the transportation cap to have an impact on  the program. USDA officials added that increasing funding for U.S.  food aid programs could help to improve the sustainability of the  oceangoing U.S.-flag fleet because increased funding would result  in increased shipments of food aid, and increased shipments  would benefit the U.S.-flag fleet.
section_title: Increase MARAD’s Monitoring and Enforcement
paragraphs: Stakeholders from both categories provided comments both  supporting and opposing increasing MARAD’s monitoring and  enforcement of its statutory authority. Maritime industry  stakeholders who commented on this option were all in support of  it. Two maritime industry stakeholders commented that MARAD  has not completed the rulemaking process, with one questioning  why it has not been done and the other citing the necessity of  doing it.
According to USAID and USDA officials, there are no potential  benefits and only potential negative effects associated with  increasing MARAD’s monitoring and enforcement of its statutory  authority. According to USAID officials, the potential negative  effects would be a loss of time, control, and flexibility in  implementing food aid programs. This ultimately would result in  less efficient, less timely programming and distribution, and costs  to programs. According to USAID officials, the U.S. government  could implement the option of increasing MARAD’s monitoring and  enforcement through the interagency rulemaking process.  According to USDA officials, a potential negative effect is that it  would potentially reduce the role of programming agencies with  regard to cargo preference. They said that MARAD likely does not  have a complete and thorough understanding of food aid  regulations and policies. USDA has consistently maintained  compliance with cargo preference and sees no benefit to having  MARAD’s increased involvement in monitoring and enforcement.
section_title: Reform Tax Law
paragraphs: Only 1 other maritime stakeholder provided a comment either  supporting or opposing reforming tax law. The single comment  was in support of the option, stating that it would be particularly  helpful to the international competitiveness of the U.S.-flag fleet.  However, 1 maritime industry stakeholder commented that the  tonnage tax regime works very well today as long as it is  interpreted correctly. Another maritime industry stakeholder stated  that U.S. tax law currently alleviates some of the burden of federal  income taxes on U.S. vessel owners (although tonnage tax could  be improved and U.S. vessel owners remain subject to state,  local, and other taxes), but provides no tax relief for U.S. merchant  mariners serving on vessels internationally, in contrast to  merchant mariners serving on foreign vessels, who generally pay  no taxes to any jurisdiction.
No agency officials commented on the option of reforming tax law.
section_title: Improve the Food Aid Procurement/Supply Chain Process
paragraphs: Stakeholders from both categories provided comments generally  supporting improving the food aid procurement/supply chain  process. For example, other maritime stakeholders who  commented on this option were generally in support of it. One  stakeholder commented that there are a variety of ways to  improve the process and the options need to be discussed with all  parties—implementing agencies, commodity and food product  vendors, freight forwarders, shipping companies, labor, and U.S.  government agencies—to find the best solutions.
According to USAID officials, the potential benefits of improving  the food aid procurement/supply chain process to include market  efficiencies would be that some cost savings would result from  more effective implementation of commercial terms and practices.  However, USAID officials anticipate that improving the food aid  procurement/supply chain process would have an insignificant  effect on improving the sustainability of the oceangoing U.S.-flag  fleet unless the barriers to entry were lowered. According to  USAID officials, the U.S. government could implement this option  at the USAID program and contract levels. USDA officials stated  that they welcome improvements to the food aid  procurement/supply chain process. However, USDA officials  noted that USDA is required to follow the Federal Acquisition  Regulation for procurement.
section_title: Eliminate the Three-Year Waiting Period
paragraphs: Other maritime stakeholders who provided comments on the  option of eliminating the 3-year waiting period on foreign vessels  that acquire U.S.-flag registry before they are eligible to carry  preference food aid cargo generally believed that it would remove  a bureaucratic obstacle and could lead to increased competition.  However, several maritime industry stakeholders commented that  the elimination could lead to vessels flagging in and out of the  U.S.-flag fleet whenever convenient. While stakeholders who  commented on this option generally supported it, 1 questioned  why the period could not be shortened to 1 year.
Both USAID and USDA officials generally provided comments  supporting eliminating the 3-year waiting period and both  commented that a change to current cargo preference statute  would be required to do so. According to USAID officials,  eliminating the 3-year waiting period could lower freight rates. It  also could increase competition and eliminate any existing  monopolies. There is a very small pool of U.S.-flag vessel  owners who are eligible to participate in the carriage of agricultural  food aid commodities. This limits agencies’ selection and  flexibility, and leads to inefficient choices of trade that do not  conform to commercial practices, such as with combination  voyages to ports in Southwest Africa, East Africa, and Southeast  Asia. According to USAID officials, eliminating the 3-year waiting  period could help to improve the sustainability of the oceangoing  U.S.-flag fleet by lowering foreign-flag vessels’ entry barriers, and  growing the U.S.-flag fleet. According to USDA officials, more  vessels participating as U.S-flag vessels would increase  competition and potentially reduce shipping rates. According to  USDA officials, to avoid the potential negative effects of  eliminating the waiting period, there would need to be some sort of  vetting period to ensure that foreign vessels that have acquired  U.S.-flag registry are indeed equipped to move food aid cargo.  According to USDA officials, eliminating the waiting period could  also help to improve the sustainability of the oceangoing U.S.-flag  fleet because vessels that have transitioned from foreign to U.S.- flag may be younger and in better condition than some U.S.-flag  vessels currently participating in the food aid shipments. MARAD  officials explained that there is a cost to flag in and out of the U.S.- flag fleet.
section_title: Eliminate CPFA and Create a DOD Program
paragraphs: Stakeholders from both categories provided comments both  supporting and opposing eliminating CPFA and creating a DOD  program to provide military sealift capability. Comments from other  maritime stakeholders on this option were evenly split.  Specifically, 1 stakeholder commented that this was the best idea  of all the options, separating food aid from military readiness,  while another stakeholder commented that this would be more  costly.
USAID officials cited potential benefits of eliminating CPFA, and  USDA cited both potential benefits and negative effects with this  option. According to USAID officials, the potential benefits would  be increased flexibility and significant cost savings to the food aid  programs. According to USDA officials, the potential benefits  would be that competition would increase, U.S.-flag rates would  theoretically be lower, and a large number of foreign-flag vessels  could participate. The expected reduction in shipping rates would  result in an increase to the number of food assistance agreements  under the Food for Progress program. Eliminating CPFA would  greatly benefit the food assistance programs. According to USDA  officials, the potential negative effects of eliminating CPFA and  creating a DOD program would be that those U.S.-flag steamship  companies that rely on revenue from food aid shipments may  suffer financially. In addition, the unfamiliarity of foreign-flag  vessels with food aid shipments could be problematic.
section_title: Conclusions
paragraphs: U.S. food aid programs play an important role in improving food security  and alleviating hunger for millions of people around the world. How well  USAID and USDA can achieve food aid programs’ goals depends on the  effective and efficient use of food aid resources. The elimination of  reimbursements to USAID and USDA, which the agencies used to fund  food aid programs, further accentuates the importance of effectively using  their limited food aid resources for the programs’ goals. Under U.S. law, a  minimum proportion of U.S. food aid must be shipped on U.S.-flag  vessels to promote both national security and commercial interests.  However, because using U.S.-flag vessels is often more expensive than  using foreign-flag vessels, a larger portion of the food aid budget must go  to shipping costs than if there were no such requirement. Changes in the  law in 2012 reduced the U.S.-flag minimum requirement for food  assistance from 75 to 50 percent, decreasing the overall shipping cost of  food aid, especially for programs administered by USAID. However,  USDA has experienced limited savings, because the agency is subject to  a court order requiring it to administer cargo preference on a country-by- country basis; USDA’s utilization of foreign-flag vessels was far below the  50 percent allowed by the 2012 law. GAO has twice recommended that  key agencies administering CPFA agree on a consistent interpretation of  CPFA requirements through an MOU, but the agencies have only  addressed the definition of vessel categories and not the definition of  “geographic area.” As USDA continues to use a more stringent definition  of geographic area when implementing CPFA, it is not able to take  advantage of the shipping price decreases that USAID utilizes. Pursuant  to the terms of the court order requiring USDA to comply with CPFA on a  country-by-country basis, an MOU embodying an agreement between  USDA and MARAD on a consistent definition of “geographic area” would  allow USDA to administer CPFA using a method other than country-by- country.
CPFA ensures that U.S.-flag vessels carry a portion of food aid, but the  extent to which CPFA contributes to sufficient sealift capabilities for DOD  is unclear. While DOD officials noted that the number of U.S.-flag vessels  is sufficient for contingency needs including a full and prolonged  activation of the reserve fleet, it is unclear whether there are enough  mariners available to fulfill this scenario, particularly in senior officer  positions. MARAD has estimated that there is a shortage of qualified  mariners available to address a full and prolonged activation of the  reserve fleet. However, its estimate does not fully account for all of the  potential sources of supply, including reserve naval officers. Without a full  understanding of both the need for and potential available supply of  mariners under DOD’s most serious scenario, the U.S. government is  limited in its capacity to address any potential imbalance. Furthermore,  the U.S. government cannot guarantee that the use of food aid  programming funds to pay higher U.S.-flag shipping prices under CPFA is  achieving the intended goal of maintaining a merchant marine capable of  providing sealift capability in time of war or national emergency.
section_title: Matter for Congressional Consideration
paragraphs: While recognizing that cargo preference serves policy goals established  by Congress with respect to the U.S. merchant marine, including  maintenance of a fleet capable of serving as a naval and military auxiliary  in time of war or national emergency, Congress should consider clarifying  cargo preference legislation regarding the definition of “geographic area”  to ensure that agencies can fully utilize the flexibility Congress granted to  them when it lowered the CPFA requirement.
section_title: Recommendation for Executive Action
paragraphs: GAO recommends that the Secretary of Transportation direct the  Administrator of MARAD to study the potential availability of all qualified  mariners needed to meet a full and prolonged activation of the reserve  sealift fleet. In the study, MARAD should identify potential solutions to  address the mariner shortfall if one is still identified.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft copy of this report to DOT, USDA, USAID, DOD, and  USCG for their review and comments.  In its written comments,  reproduced in appendix V, DOT concurred with our recommendation to  study the potential availability of all qualified mariners needed to meet a  full and prolonged activation of the reserve sealift fleet. DOT stated that  MARAD has been reviewing the adequacy of existing plans to recruit  mariner volunteers to crew the full reserve fleet. Furthermore, DOT noted  that 13,000 mariners are required to crew all the vessels in the fleet for  sustained operations. During the course of our review, MARAD provided  the estimated number of mariners required for prolonged full activation as  12,658. When we followed up on the number given in DOT’s written  comments, however, DOT noted that the estimated number was 13,034  instead. While MARAD officials outlined some factors and high-level  calculations they utilize when computing such an estimate, we could not  assess the reliability or accuracy of either estimate because MARAD did  not have a final report that documented and presented precise  calculations and methods that they used. We therefore were unable to  verify the details of their estimates. We noted MARAD’s different  estimated numbers of mariners in our report.  We also received agencies’  technical comments, which we incorporated where appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees; the Secretaries of Transportation, Agriculture,  and Defense; the Administrator of the Maritime Administration and  USAID; and the Commandant of the U.S. Coast Guard. In addition, the  report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix VI.
section_title: Appendix I: Scope and Methodology
paragraphs: This report examines (1) cargo preference for food aid’s (CPFA) impact  on food aid shipping cost and U.S. agencies’ implementation of CPFA  requirements, (2) the extent to which the implementation of CPFA  requirements contributes to sufficient sealift capacity, and (3) stakeholder  views on options to improve the sustainability of the oceangoing U.S.-flag  fleet.
To address our objectives, we analyzed cargo preference legislation as  well as documents, guidance, and data on CPFA provided by the U.S.  Agency for International Development (USAID), the U.S. Department of  Agriculture (USDA), and the Department of Transportation’s (DOT)  Maritime Administration (MARAD). We also interviewed USAID, USDA,  and MARAD officials about each agency’s role and responsibilities  regarding CPFA, the processes each agency uses to implement CPFA,  the cost implications of such requirements on food aid programs, and the  impact of such requirements on cargo preference objectives.
To determine the CPFA requirements’ impact on food aid shipping cost,  we analyzed food aid procurement data for both USAID and USDA from  April 2011 through fiscal year 2014, including some bulk food  commodities and all packaged food commodities and shipment data for  April 2011 through fiscal year 2014. With the exception of the detailed  discussion in appendix II, we use the term “solicitation” to mean  solicitation line. Each agency announces solicitations for bids to ship food  aid. Each solicitation includes a line for a specific amount of a specific  commodity to be procured for a specific food aid program. For example, a  recent solicitation for USAID freight included one line for 51,710 metric  tons of sorghum for the World Food Program’s food aid program in  Sudan. During this time period, CPFA requirement levels changed from  75 to 50 percent. We examined the number of total U.S.-flag and foreign- flag bids per solicitation. We analyzed USDA and USAID bid data to  estimate the cost difference between U.S.- and foreign-flag vessels and  the CPFA requirements’ effect on shipping awards. We used regression  analysis to identify the impact of the changes in the CPFA requirements  on the cost of shipping U.S. food aid. For detailed discussion of our  methodology and results, see Appendix II.
To examine the extent to which the implementation of CPFA  requirements contributes to sufficient sealift capacity, we reviewed the  Department of Defense’s (DOD) documentation related to the Voluntary  Intermodal Sealift Agreement (VISA) and the Maritime Security Program  (MSP) and interviewed DOD officials about the sealift capability and  military usefulness of the vessels in the U.S.-flag fleet. We also analyzed  MARAD’s data on U.S.-flag vessels, including those carrying food aid  cargo and the number of mariner positions aboard such vessels. We  interviewed MARAD officials to understand the reliability of the data  provided. According to MARAD officials, MARAD receives information  directly from operating companies related to vessel specifications, as well  as crewing requirements. Such information is stored in the Mariner  Outreach System (MOS). Information stored in MOS was used to provide  vessel crewing information for commercial and reserve sealift vessels.  Further, MARAD officials used the Cargo Preferences Overview System,  which records bills of lading, to identify those vessels carrying food aid  cargo. We found the U.S.-flag vessel and mariner positions data  sufficiently reliable for the purposes of this report. Furthermore, we  obtained U.S. merchant mariner credential data available through the  U.S. Coast Guard’s (USCG) Merchant Mariner Licensing and  Documentation System and interviewed USCG officials to understand the  number of U.S. mariners with Standards of Training, Certification and  Watchkeeping (STCW) and unlimited tonnage/horsepower  endorsements. The Merchant Mariner Licensing and Documentation  System stores information on merchant mariners’ credentials and  endorsements. We found overall credential and endorsement information  to be sufficiently reliable for the purposes of this report. We also obtained  data on the number of actively sailing mariners from USCG. The data  received represents mariners with STCW and unlimited  tonnage/horsepower endorsements for which USCG obtained discharge  certificates during the last 18 months. However, according to officials we  interviewed it likely underrepresents the number of mariners that sailed  during this period because discharge certificates may not have been  received for all mariners that have sailed. Further, USCG indicated that  while it had checks in place to avoid double counting of mariners that filed  multiple discharge certificates during this period, there was also a  possibility of some double counting of the mariners that sailed more than  once during this time period. We are presenting this number, with its  limitations, to help place MARAD’s estimate of the number of available  mariners into some context. We also interviewed MARAD officials to  understand the crewing process for the Reserve Sealift Fleet and the  number of U.S. mariners available to support DOD needs in time of  national emergency. MARAD officials provided an estimate of the number  of available mariners. MARAD officials told us that they estimated the  number of mariners needed to ensure that the entire Reserve Sealift Fleet  was able to conduct prolonged operations while full commercial  operations continued by calculating the number of positions on each  vessel, and comparing this sum with the estimate of available mariners.  During the course of our review, MARAD provided the estimated number  of mariners needed as 12,658. In commenting on our draft report,  however, DOT noted that the estimated number was instead 13,034.  However, these estimates, as well as the estimates of the number of the  available mariners, are of undetermined reliability because we were only  partially able to assess them. While MARAD officials outlined the data  sources and key factors they considered when making these estimates,  they reported that they did not have a final report that documented and  presented precise calculations and methods that they used, and we were  therefore unable to examine the details of their estimates. We determined  that while we could comment on MARAD’s stated rationale and basic  approach to estimating the sufficiency of the number of mariners, we  could not assess the accuracy of MARAD’s estimates on the number of  mariners available or the number of mariners required. However, we are  reporting this number to provide context for our findings on the data  sources that MARAD used and the key factors that they considered.
To obtain stakeholder views on options to improve the sustainability of the  U.S.-flag fleet, we conducted semistructured interviews and requested  follow-up documentation from a nongeneralizable sample of 29  stakeholders knowledgeable about CPFA issues. We created an initial list  of stakeholders using internal knowledge of CPFA. We then added more  stakeholders based on interviewee responses to our question on whom  else they thought we should speak with, considering, among other  factors, how often others suggested we meet with them, the  representation of their subcategory, and their location. For example, we  conducted site visits at ports that we selected based on their ranking  compared with that of other ports in terms of net commodity weight  (metric tons) of food aid as well as the presence of stakeholders in the  area. We categorized these stakeholders into maritime industry  stakeholders—those stakeholders that self-identified as brokers, carriers,  freight forwarders, and mariners—and other maritime stakeholders— those stakeholders that self-identified as academia, commodities, freight  forwarders, implementing partners or nongovernmental organizations  (NGO), ports, and trade associations.
The intent of our semistructured interviews was to have stakeholders  identify any options to improve the sustainability of the oceangoing U.S.- flag fleet, including food aid–carrying U.S.-flag vessels. During these  interviews, we orally explained to stakeholders that our review is focused  only on the oceangoing vessels of the U.S.-flag fleet and our review is on  the topic of cargo preference for food aid. Cargo preference for food aid  (CPFA) is sometimes referred to as agricultural cargo preference (ACP),  but for the purposes of this report, we refer to it as CPFA. We did not  specifically ask stakeholders to consider the effect that options may have  on food aid. We consolidated interview responses to create a  comprehensive list of 27 policy options for stakeholder comment. To  ensure the accuracy of our consolidation effort, we internally reviewed our  coding and reconciled any discrepancies.
As a follow-up to our semistructured interviews, we sent the list of 27  options to all 29 stakeholders, requesting that they select what they  believe to be the top 3 options from among those suggested and provide  any comments. Twenty of the 29 stakeholders we interviewed responded  to this follow-up request. Eighteen of these stakeholders (7 maritime  industry stakeholders and 11 other maritime stakeholders) selected what  they believe to be the top 3 options from among those suggested and  provided comments on a variety of the options, while 2 of these  stakeholders (both other maritime stakeholders) responded that they  would not provide their views because they did not favor any of the  options. We tallied the stakeholder follow-up responses to determine the  options frequently selected by all stakeholders and maritime industry  stakeholders compared with other maritime stakeholders. A complete list  of all options suggested by stakeholders and how often stakeholders from  the two categories of stakeholders selected each option can be found in  appendix IV. In addition, we tallied the stakeholder follow-up responses to  identify any overlap among selections made by the two categories of  stakeholders. Our discussion of stakeholders’ selected options is based  on what they selected as their top 3 options. Because of this, when we  report that a certain number of stakeholders selected an option, it does  not necessarily mean that the remaining stakeholders did not support the  given option. Rather, it means that those stakeholders did not select it as  one of their top 3 options.
While we received 20 of 29 responses to our second phase of data  collection on options and this set of responses is neither a complete  universe of the selected stakeholders nor a sample generalizable to the  full population of stakeholders, we present the results of our analysis to  identify general tendencies in the policy options preferred by a set of  important stakeholders knowledgeable about CPFA issues.
To obtain agency officials’ views on stakeholders’ suggested options, we  requested officials from the Department of Defense (DOD), DOT, USDA,  USAID, and USCG submit any views in writing on the options frequently  selected by stakeholders.
We conducted this performance audit from October 2014 to August 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our   findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Analysis of the Number of Ocean Freight Bids and Food Aid Shipping Rates
paragraphs: We analyzed the effect of the changes in cargo preference for food aid  (CPFA) requirements in 2012 on the number of bids from ocean freight  carriers and on food aid shipping rates. In July 2012, the Moving Ahead  for Progress in the 21st Century Act of 2012 reduced the minimum  required level of food aid to be shipped on U.S.-flag vessels from 75 to 50  percent and eliminated the Great Lakes Set-Aside, which required that at  least 25 percent of Title II packaged food aid tonnage be shipped out from  Great Lakes ports each month. The act also eliminated the Maritime  Administration’s reimbursement to the U.S. Department of Agriculture  (USDA) and the U.S. Agency for International Development (USAID) for  the ocean freight differential resulting from the CPFA requirements.
Because the CPFA requirements require that a certain percentage of U.S.  food aid be shipped on U.S.-flag vessels, some foreign-flag carriers may  have been deterred from bidding on some solicitations knowing that they  would be unlikely to win the shipping award. This would be the case,  especially when 25 percent of Title II packaged food aid tonnage was  allocated to Great Lakes ports. According to a 2010 study, food aid  shipped through Great Lakes ports was mostly shipped on lower-priced  foreign-flag vessels because the portion allocated to the Great Lakes  ports was made without consideration of the vessel’s flag as mandated by  Section 17 of the Maritime Security Act of 1995. Most of the remaining  75 percent of Title II packaged food aid would then be required to be  shipped on U.S.-flag vessels. The lower percentage required to be  shipped on U.S.-flag vessels may encourage foreign-flag carriers to  participate in the bidding process, especially for certain routes for which  they did not previously participate. In addition, more competition and  higher participation from foreign-flag carriers after the CPFA change may  lead to lower overall shipping rates because foreign-flag vessels on  average charge lower shipping rates. Our hypothesis is that after the  relaxation of the CPFA requirements in July 2012, the number of bids  from foreign-flag vessels would increase and overall food aid shipping  rates would decrease.
We developed statistical models to assess the effect of the July 2012  changes in the CPFA requirements, after controlling for a variety of  factors that may affect the number of bids received for each solicitation  and food aid shipping rates. However, there are several limitations to this  methodology.
We collected data on all of USDA’s food aid shipments and  USAID’s packaged food aid shipments. However, similar data on  USAID’s bulk food aid shipments were not available and our  results cannot be generalized to those shipments. In order to  address this limitation, we analyzed the award data, when feasible  and appropriate, which include all shipments of food aid.
We used a particular set of changes in the CPFA requirements to  provide some insight into the effect of the CPFA requirements.  However, these results cannot be generalized to other potential  changes in the CPFA requirements. For example, our results  cannot be generalized to show the effects of eliminating all CPFA  requirements or of requiring all U.S. food aid to be shipped on  U.S.-flag vessels.
We controlled for a variety of factors that can affect the number of  bids and the food aid shipping rates; however, it is still possible  that some other factors we cannot control for drive the effect we  observe. We conducted some sensitivity analysis to help address  this limitation.
subsections: section_title: Data Sources
paragraphs: We collected data on shipping awards and bids from USDA’s Kansas City  Commodity Office’s (KCCO) Web Based Supply Chain Management  System (WBSCM). The data covered USAID’s packaged food aid and all  of USDA’s food aid shipments from April 2011 through fiscal year 2014.
KCCO implemented WBSCM in April 2011. USAID does not use WBSCM  to procure shipping for its bulk food aid.
The data on bids include information on all bids submitted by carriers to  ship USAID’s packaged food aid and all of USDA’s food aid from April  2011 through fiscal year 2014. For each bid, the data include information  on the carrier that submitted bids, the date of submission, the name of the  vessel, the vessel type (bulker, liner, or tanker), the commodity, the  implementing partner, the recipient country, the destination and discharge  port, and the quantity of the order.
We conducted our analysis at the level of each solicitation line and  constructed the data on bids to count the number of bids submitted for  each solicitation line. Each agency announces solicitations for bids to ship  food aid. Each solicitation includes a line for a specific amount of a  specific commodity to be procured for a specific food aid program. For  example, a recent solicitation for USAID included one line for 51,710  metric tons of sorghum for the World Food Program’s food aid program in  Sudan. We also included the information on the solicitation line such as  the commodity, the implementing partner, the recipient country, the  destination, and the quantity of the line. For the date of the solicitation, we  used the date the first bid was submitted.
The data on shipping awards includes two sets of data. One set is the  bids that were actually awarded the shipping contract when KCCO  applied the CPFA requirements. The second set is the bids that would  have been awarded the shipping contract had the CPFA requirements not  been applied. Both sets of data include information on the quantity of the  solicitation line, the type of commodity, the agency (USAID or USDA), the  implementing partner, the recipient country, the destination, the quantity  allocated to each awarded bid, the type of vessel, and the total shipping  cost. Each solicitation line may be split into more than one shipment. For  example, half of a solicitation line may be shipped on U.S.-flag vessels  and the other half on foreign-flag vessels. Again, we conducted our  analysis at the level of each solicitation line and constructed both sets of  data on shipping awards so that for each solicitation line, we calculated  information such as the quantity allocated to U.S.- and foreign-flag  vessels, the awarded cost of shipping on U.S.- and foreign-flag vessels,  and the awarded shipping rate on U.S.- and foreign-flag vessels.
We merged the data on bids and the two sets of data on shipping awards  for each solicitation line. When merging the two sets of data on shipping  awards, only 75 (4 percent) of 1,712 solicitation lines did not match.  When merging the two sets of data on shipping awards with the data on  bids, 676 (28 percent) of the 2,388 solicitation lines from the data on bids  did not match the data on shipping awards. According to KCCO officials,  the 676 solicitation lines that did not have a match with the data on  shipping awards could be partly due to solicitation lines that were not  awarded. All solicitations lines from the data on shipping awards had a  match in the data on bids.
For each set of data, we created a dummy variable which equals to 0 for  any solicitation line before the CPFA requirements change and 1 for after.
section_title: Analysis of the Number of Ocean Freight Bids
paragraphs: Data source. For the analysis of the number of ocean freight bids carriers  submitted, we used the data on bids, which included 2,388 solicitation  lines. Even though not all of these solicitation lines would eventually be  awarded in the data on shipping awards, we focused on this larger data  set because prior to the award process, the carriers cannot predict which  solicitation lines would be awarded. Therefore, the number of bids is  better captured by the full set of data on bids.
Summary statistics. Comparing the average number of bids before and  after the changes, we found that the overall number of bids increased  from around 7 to around 10 bids (see table 4). The average number of  bids from U.S.-flag bids remained roughly unchanged and the average  number of bids from foreign-flag vessels increased from around 2 to  around 5.
We also compared the characteristics of the solicitations lines before and  after the changes in the CPFA requirements to describe how USDA and  USAID food aid programs may have changed. These included the  composition of food aid by commodity type, the month of the solicitation  line, the implementing partner, and the destination. We found few  differences in the implementing partner and the type of commodity before  and after the changes.
However, we did find differences in the destination and the month of the  solicitation line. For example, the percentage of solicitation lines destined  for Port-Au-Prince, Haiti, decreased from 8 to 3 percent of solicitation  lines after the changes in the CPFA requirements. The differences in  these characteristics before and after the change emphasized the  importance of controlling for these characteristics when comparing the  number of bids before and after the changes. In our example of Port-Au- Prince, a solicitation line with food aid destined there was correlated with  a higher number of bids. And since the percentage of solicitation lines  destined there decreased after the change, the number of bids may have  decreased due to this. However, if we observed a decrease only in bids,  one may have erroneously attributed the decrease to the changes in the  CPFA requirements if we did not control for the destination.
Regression model and results. To compare the number of bids for each  solicitation line before and after the changes in the CPFA requirements,  we estimated ordinary least square (OLS) regressions using the following  equation.
We estimated this equation for solicitation line i where Change is a  dummy for before and after the CPFA changes, X is a set of solicitation  line characteristics including the tonnage, implementing partner,  destination of the food aid, and the month the first bid was submitted for  the solicitation line, and 𝜀𝜀𝑖𝑖 is the error term. The dependent variable, y is  the number of bids for each solicitation line i.
Using this model specification, we found that the total number of bids  increased by 3.43 and the number of bids from foreign-flag vessels  increased by 3.09 (see table 5). The increase in the number of bids from  U.S.-flag vessels was not statistically significant. We also found that the  number of foreign-flag vessels and foreign-flag carriers bidding for each  solicitation line increased by 1.58 vessels and 1.22 carriers. We found  that the number of U.S.-flag vessels and carriers bidding decreased by  0.26 vessels and 0.60 carriers. This suggests that some of the increase in  the number of foreign-flag bids may be from more carriers and vessels  participating. The results from the OLS regressions are robust to the  inclusion of different sets of control variables. We do not control for a  dummy for whether the solicitation line was for bulk or packaged food aid  and for the type of commodity because controlling for them did not  significantly improve the explanatory power of the model.
Potential limitations and sensitivity analysis. The main limitation with our  methodology is that we cannot control for all factors that may affect the  number of bids from U.S.-flag and foreign-flag vessels. For example, the  number of U.S.-flag vessels available to ship food aid declined during our  study period from April 2011 through fiscal year 2014. However, we did  not include data on the trends in the vessels in our analysis. So even  though the changes of the CPFA requirements may have increased the  number of bids from U.S.-flag vessels, the decline in the number of U.S.- flag vessels may have decreased the number of bids, thereby nullifying  any increases from the changes in the CPFA requirements. Since the  number of U.S.-flag vessels available for food aid was not included in our  analysis, we may have erroneously found that the changes did not  change the number of bids from U.S.-flag vessels.
Figure 11 adds validity to our methodology in identifying the effect  of the changes of the CPFA requirements on the number of bids  from foreign-flag vessels. We estimated 39 OLS regressions, 1 for  each month between May 2011 and July 2014, as the dummy  variable so we could test for a break point. For each month, we  created a dummy variable set to 0 for any solicitation line before  that month and to 1 for any solicitation line after that month. We  estimated 39 separate OLS regressions with each regression  controlling for 1 month dummy variable in addition to the tonnage,  implementing partner, and destination of the food aid, and the  month the first bid was submitted for the solicitation line. Figure 11  shows the coefficient and the 99 percent confidence interval  around the coefficient on the month dummy variable from each of  the 39 OLS regressions. We found that the largest coefficient is  for July 2012, the month of the changes in the CPFA  requirements. These results show that the largest increase in the  number of bids from foreign-flag vessels occurred in July 2012,  the month of the CPFA changes. This suggests that the changes  in the CPFA requirements had a larger effect on the number of  bids from foreign-flag vessels than any other changes that may  have happened between from April 2011 through fiscal year 2014.
We estimated the OLS regression models using data from 6  months before and after the changes; we found even larger and  statistically significant increases in the number of bids, especially  from foreign-flag vessels. Finding the increase in the number of  bids from foreign-flag vessels using data for this shorter period  builds more confidence in the robustness of our results.
section_title: Analysis of Food Aid Shipping Rates
paragraphs: Data source. To estimate the shipping rates of the winning bids before  and after the changes in the CPFA requirements, we analyzed data on  shipping awards, which included 1,712 solicitation lines.
Summary statistics. We found that the average overall shipping rates  declined slightly from $258 per metric ton to $252 per metric ton after the  changes (see table 6). For U.S.-flag vessels, the average shipping rates  increased from $290 to $309 per metric ton after the changes. The  average shipping rates remained unchanged after the changes for  foreign-flag vessels.
We also compared the characteristics of the solicitations lines before and  after the changes in the CPFA requirements. These characteristics  included the composition of the food aid by the type of commodities,  agency, the month of the solicitation line, the implementing partner, and  the destination. We found few differences in the implementing partner and  the type of commodity before and after the changes. However, we did find  differences in the destination and the month of the solicitation line. These  results are consistent with those from the data on bids since the data on  awards is a subset of the data on bids and represents 72 percent of the  solicitation lines in the data on bids.
Regression model and results. To compare the shipping rates for each  solicitation line before and after the changes in the CPFA requirements,  we estimated OLS regressions using the following equation.
We estimated this equation for solicitation line i where Change is a  dummy for before and after the CPFA changes; X is a set of solicitation  line characteristics including the tonnage, implementing partner, and  destination of the food aid, and the month the first bid was submitted for  the solicitation line; and 𝜀𝜀𝑖𝑖 is the error term. y is the natural logarithm of  the shipping rate for each solicitation line i.
Using this model, we found that the overall shipping rate decreased by  around 6 percent (see table 7). We also found that the shipping rates on  foreign-flag vessels decreased by around 8 percent. The shipping rates  on U.S.-flag vessels did not change. The results from the OLS  regressions are robust to the inclusion of different sets of control  variables. The estimates range from a decrease of around 6 percent to a  decrease of around 8 percent. We do not control for a dummy for whether  the solicitation line was for bulk or packaged food aid and for the type of  commodity because controlling for them do not increase the adjusted R  squared by much.
Compared with USDA, USAID is more flexible in applying the CPFA  requirements. The percentage of food aid shipped on U.S.-flag vessels  declined much more for USAID than for USDA after the changes in the  CPFA requirements. Consistent with this difference between agencies,  the shipping rates for USAID decreased, while those for USDA did not  (see table 8). The overall shipping rate decreased by around 9 percent  for USAID, likely because of the increased use of foreign-flag vessels  after the change and the 9 percent decrease in the shipping rates on  those foreign-flag vessels. The shipping rate on U.S.-flag vessels  increased by around 5 percent for USAID. For USDA, the overall  shipping rate and the shipping rate on U.S.-flag vessels were unchanged,  while the shipping rate on foreign-flag vessels decreased by around 7  percent.
Potential limitations and sensitivity analysis. The main limitation with our  methodology is that we cannot control for all factors that may affect  shipping rates. For example, the overall commercial shipping rates could  have declined during the period of our data from April 2011 through fiscal  year 2014. Some of the decrease in shipping rates could have been due  to other factors that cause the overall decline instead of the changes in  the CPFA requirements. While we did not obtain data on commercial  shipping rates, we found two results that may ameliorate this limitation.
Figure 12 adds validity to our methodology in identifying the effect  of the changes of the CPFA requirements on USAID’s shipping  rates. We estimated 39 OLS regressions, 1 with each month  between May 2011 and July 2014 as a dummy variable. For each  month, we created a dummy variable set to 0 for any solicitation  line before that month and to 1 for any solicitation line after that  month. We estimated 39 separate OLS regressions with each  regression controlling for 1 month dummy variable in addition to  the tonnage, implementing partner, and destination of the food  aid, and the month the first bid was submitted for the solicitation  line. Figure 12 shows the coefficient and the 99 percent  confidence interval around the coefficient on the month dummy  variable from each of the 39 OLS regressions. We found that the  smallest coefficients are for July and August 2012. These results  show that the largest decline in USAID’s shipping rates occurred  in July 2012, the month of the CPFA changes. This suggests that  the changes in the CPFA requirements had the larger effect on  USAID’s shipping rates than any other changes that may have  happened between from April 2011 through fiscal year 2014.
When we estimated the OLS regression models only for the  period 6 months before and after the changes, we found even  larger and statistically significant decreases in the shipping rates  on foreign-flag vessels. For this shorter period, there was likely to  have been less change in other factors such as overall  commercial shipping rates. For USDA, the decrease in the overall  shipping rate became larger and statistically significant, likely  because of the large decrease in the shipping rates on foreign-flag  vessels. However, for USAID, the decrease in the overall shipping  rate was not statistically significant, likely because of the larger  standard errors. Finding the decrease in the shipping rates on  foreign-flag vessels for this shorter period builds some more  confidence in the robustness of the result.
section_title: Appendix III: The Maritime Administration’s Fair and Reasonable Determinations
paragraphs: The Cargo Preference Act of 1954 requires civilian federal government  agencies to ship on U.S.-flag vessels only to the extent that such vessels  are available at “fair and reasonable rates.” The fair and reasonable  provision helps ensure that U.S.-flag vessels do not overcharge federal  agencies required to ship on U.S.-flag vessels. The Maritime  Administration (MARAD) will find a rate to be fair and reasonable if it is  less than or equal to MARAD’s estimate of the cost of the voyage in  question plus a reasonable profit. MARAD calculates fair and reasonable  rates for ships chartered to carry shiploads of bulk and packaged  agricultural commodities. Rates are also determined for bulk agricultural  commodities carried by liner-service vessels. For other cargoes carried  on liner-service vessels, conference rates are paid, which MARAD  maintains are inherently fair and reasonable.
MARAD makes a separate cost estimate for each voyage that it is asked  to investigate. It bases its estimate on operating cost information supplied  annually by the ship owner and certified by a corporate officer and on  information specific to the voyage in question. Additionally, MARAD  factors the return trip into the cost of the voyage. MARAD assumes that  the vessel will return empty of cargo. If the vessel does carry cargo on the  return trip, it must report this to the shipper agency, and if requested by  the shipper agency MARAD will make an adjustment to the fair and  reasonable rate. MARAD also allows for a reasonable profit on a 5-year  running average derived from transportation companies in the Fortune  500 as well as the U.S. corporate sector in general. Currently, this profit  factor is about 19 percent.
MARAD requests ship owners to supply the following cost information  each year: normal operating speed; daily fuel consumption at normal operating speed; daily fuel consumption while in port; type of fuel used; total capitalized vessel costs, for example, cost of vessel acquisition; vessel operating cost information for the prior calendar year; and number of vessel operating days for the vessels for the prior calendar  year (this information is used to determine daily operating cost).
Additionally, MARAD collects the following information for each voyage  for which a fair and reasonable rate is calculated: port expenses for ports the vessel is scheduled to visit—for example,     fees for pilots and custom charges; cargo expenses—for example, fees for stevedores and off-loading     equipment, and canal expenses—for example, fees for tolls.
section_title: Appendix IV: Complete List of Stakeholder Options and Counts
paragraphs: Table 9 lists 27 options to improve the sustainability of the oceangoing  U.S.-flag fleet, including food aid–carrying U.S.-flag vessels, derived from  semistructured interviews with a nongeneralizable sample of 29  stakeholders knowledgeable about cargo preference for food aid (CPFA)  issues. For each option, we list the number out of 18 stakeholders who  selected the option as one of their top three options. For each option, we  also list the number out of 7 maritime industry stakeholders who selected  the option as one of their top three options and the number out of 11  other maritime stakeholders who selected the option as one of their top  three options. For a detailed description of our scope and methodology  for these semistructured interviews, see appendix I.
For a summary of the key results from our semistructured interview and  follow-up effort, see figure 10 in this report. In addition to these earlier  observations, it is important to note that our analysis of stakeholder  selection of options to improve the sustainability of the oceangoing U.S.- flag fleet, including food aid–carrying U.S.-flag vessels, reveals instances  of overlap to some degree among options selected by maritime industry  stakeholders and other maritime stakeholders. Specifically, 10 of the 27  options were selected by 1 or more stakeholder from each of the two  categories. These 10 options were (1) increase CPFA minimum  requirement from 50 to 75 percent, (2) increase CPFA minimum  requirement from 50 to 100 percent, (3) eliminate the 3-year waiting  period imposed on foreign vessels that acquire U.S.-flag registry before  they are eligible for carriage of preference food aid cargo, (4) reinstate  Ocean Freight Differential and Twenty Percent Excess Freight  reimbursements, (5) increase all cargo preference to 100 percent, (6)  subsidize U.S.-flag fleet vessels, (7) reform tort law that may negatively  affect the U.S.-flag fleet, (8) increase the Maritime Administration’s  monitoring and enforcement of its statutory authority, (9) increase funding  for U.S. food aid programs, and (10) provide multiyear funding for U.S.  food aid programs. However, no options were selected by 2 or more  stakeholders from each of the two categories. Finally, 5 of the 27 options  were not selected by any stakeholders from either category as part of  their top 3 options. These 5 options were (1) give priority berthing rights to  U.S.-flag fleet vessels; (2) reform U.S. shipping standards to better align  with international standards; (3) eliminate mariner nationality  requirements for U.S.-flag fleet vessels; (4) harmonize customs duties,  especially for NAFTA countries, and bill of lading so shipped cargo is  treated the same as cargo moving on land; and (5) increase cooperation  between the U.S. Agency for International Development (USAID) and the  U.S. Department of Agriculture (USDA).
section_title: Appendix V: Comments from the Department of Transportation
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Judith Williams (Assistant  Director), Ming Chen (Assistant Director), Fang He, Justine Lazaro,  Victoria Lin, and Marycella Mierez made key contributions to this report.  The team benefited from the expert advice and assistance of Carol Bray,  Martin de Alteriis, David Dornisch, and Mark Dowling.