September 14, 2022

Chairs DeFazio, Carbajal Statements from Hearing on Maritime Cargo Preferences

Washington, D.C. — The following are opening remarks, as prepared for delivery, from Chair of the House Committee on Transportation and Infrastructure Peter DeFazio (D-OR) and Chair of the Subcommittee on Coast Guard and Maritime Transportation Salud Carbajal (D-CA) during today’s hearing titled, “Cargo Preference: Compliance with and Enforcement of Maritime’s Buy American Laws.”
Video of Carbajal’s opening statements can be found here.
More information on the hearing can be found here.
Chair DeFazio:
Thank you, Chair Carbajal, for calling this very important hearing on compliance with and enforcement of cargo preference requirements. Oversight of cargo preference laws is long overdue, and this hearing could not come at a better time with the release of the Government Accountability Office’s (GAO) report on cargo preference enforcement on Monday.
I’d like to acknowledge Rear Admiral Phillips’ first appearance before this subcommittee in her new role as Maritime Administrator. It is great to see you again and I look forward to hearing how the Maritime Administration (MARAD) plans to better enforce cargo preference compliance.
The U.S. depends on a robust merchant fleet not only for economic purposes but also for national security. This past year, we’ve seen the negative effects of an industry dominated by foreign companies and interests wreaking havoc on our supply chain. It is counter to U.S. interests to increase reliance on foreign-flagged vessels. For decades we’ve seen the U.S.-flag fleet shrink, dropping from 199 vessels in 1990 to 84 presently. The flags of convenience system has exacerbated this issue, allowing companies to flag their vessels under countries that lack labor, safety, and environmental standards.
Cargo preference provides a backbone to support the dwindling internationally sailing U.S.-flag fleet, especially when coupled with other incentive programs like the Maritime Security Program. Cargo preference refers to the various laws requiring government-impelled cargo to be carried on U.S.-flagged vessels. Without it, the U.S. would not have the means to carry defense cargo overseas in times of war and would instead rely on foreign-flagged vessels.
There’s an old saying: “cargo is king.” By providing a baseline of cargo for U.S.-flagged ships, we incentivize more vessels to join the fleet. Without guaranteeing cargo for U.S. vessels, we lose demand for U.S. owned and crewed ships. The 2012 Moving Ahead for Progress in the 21st Century Act reduced the cargo preference minimum for non-military government impelled cargo from 75% to 50%. Since then, we’ve witnessed a 36% drop in total government cargo transported on U.S.-flagged vessels and the number of U.S.-flagged vessels. That is why it is vital that cargo preference requirements not only be restored to the 75% requirement for non-military cargo, but also that existing statutory requirements be fully enforced.
Over the years, we’ve heard of agencies working to defy or subvert the statutory requirements of cargo preference through the overutilization of “notwithstanding” exemptions and individual agencies making their own determinations of availability without seeking assistance from MARAD. But we haven’t been able to track this due to the lack of public reporting by MARAD.
The compliance rates reported to MARAD and provided by GAO in their report paint a false picture of what is occurring. While on the surface it seems as if these federal agencies are in full compliance, in reality the percentage is inflated to include instances where “notwithstanding” or non-availability exemptions are granted. If you look at the strict amount of cargo carried on U.S.-flagged vessels not taking the exemptions into account, it is far lower than the 100% for military cargo and 50% for non-military government-impelled cargo mandated by statute.
In addition, MARAD has yet to complete a rulemaking on cargo preference guidance to determine availability or procedures for determining agency compliance. Without completing this rulemaking, MARAD cannot and has not used enforcement powers granted to them in the National Defense Authorization Act for Fiscal Year 2009. We will continue to see agencies pad their numbers and not provide full data until MARAD moves forward with a rulemaking.
The report released Monday by the GAO highlights the frustrating position MARAD is in and recommends they move forward with a rulemaking. It is my understanding that MARAD concurs with the recommendations of the report. While they may agree with the recommendations, they’re presently blocked from publishing a rulemaking by the Office of Management and Budget and the agencies subject to cargo preference requirements. Today I expect to hear more on how MARAD can move forward with a rulemaking and enforcement.
We cannot wait any longer while MARAD is bullied into a position of non-compliance with the law. That is why we included a provision in this year’s House National Defense Authorization Act which would require MARAD to report cargo preference data again and move forward with a rulemaking.
I thank GAO for their work on this insightful report and look forward to our witnesses’ comments on the findings and the current state of cargo preference compliance.
Chair Carbajal:
Good morning, and welcome to today’s hearing titled, “Cargo Preference: Compliance with and Enforcement of Maritime’s Buy American Laws.” Today, we will hear testimony from five witnesses.
The first testimony will be from Rear Admiral Ann Phillips, who is appearing before Congress for the first time in her role as Administrator of the Maritime Administration. Welcome and congratulations on your confirmation Admiral. I am glad that you have come on board to lead MARAD at this important time.
Admiral Phillips will be joined on today’s first panel by Mr. Andrew Von Ah, Director of the Physical Infrastructure Team at the Government Accountability Office.
Two days ago, the GAO publicly released his team’s report on “Actions needed to enhance cargo preference oversight.” After months of interviews, research, and discussion with federal agencies, maritime labor, and cargo carriers among others, the GAO has found evidence of a lack of oversight, inconsistent application, and non-compliance among government agencies and contractors. As a result, GAO has recommended that cargo preference be reported to the public on an annual basis, and that the DOT take steps to fully enforce cargo preference requirements.
I’d like to emphasize the fact that we will be discussing a long-standing public law that has never been adequately enforced–not a new proposal.
Today’s second panel will feature a military sealift expert, Mr. Bryan Clark, Director of the Center for Defense Concepts and Technology at the Hudson Institute; and two representatives from the commercial maritime industry, Mr. Eric Ebeling, speaking on behalf of USA Maritime, and Captain Don Marcus, President of the International Organization of Masters, Mates and Pilots representing maritime labor.
As I expect our witnesses will make clear, compliance with cargo preference law is closely tied to the sustainment of American jobs and national security. It requires that government-impelled cargo be shipped overseas using U.S. flagged vessels—in other words, vessels crewed by U.S. mariners, owned by Americans, and abiding by U.S. laws. Guaranteeing a steady supply of cargo through Cargo Preference programs equates to job security for these hardworking citizens. Along with the Maritime Security Program and the Jones Act, Cargo Preference ensures that the U.S. seagoing maritime industry does not disappear completely.
With cargo backlogs and rising inflation as pressing concerns, we know better than ever, that maintaining a vibrant U.S.-flagged fleet is the foundation of a healthy economy. We cannot rely on foreign ships and foreign mariners to carry out our commerce any longer.
Finally, we must not forget the impact of cargo preference on our nation’s defense. The law mandates that 100% of DOD cargo and 50% of non-military government-impelled cargo be shipped on U.S.-flagged vessels—when those vessels are available at a fair and reasonable rate. Cleaning up the way “availability” is decided and communicated will increase the amount of cargo available to U.S. carriers, bolstering the maritime industry while accomplishing DOD’s sealift capacity needs.
Today, I expect to hear actionable next steps out of MARAD. Entrusting ill-suited agencies to make determinations has led to the poor compliance rates we’re currently seeing. Enforcement power was provided to MARAD in the 2009 NDAA and action is long overdue; we need a completed rulemaking. It is a stated priority of President Biden and it needs to be a priority of every agency.
We have a lot of ground to cover today with the help of our witnesses. I thank each of them for their gracious attendance and am excited to begin