AFL-CIO Calls for Strengthening of U.S. Cargo Preference Rules
The AFL-CIO's maritime unions are calling for comprehensive cargo policies to generate the revenue base for an American maritime revival. Commercial and government cargo interests often pick foreign-flag carriers when the law allows, since foreign operators are the least-cost option. Since this has a deleterious long-term effect on the health of America's maritime industry, the AFL-CIO's maritime affiliate unions (MEBA, MM&P and SUP) are calling for expanded cargo preference laws to force more government agencies to "Ship American" with taxpayer dollars, along with tax incentives for commercial shippers who choose to move their freight to market on American vessels.
The biggest piece of the puzzle is government cargo. As a freight customer, the federal government does not face the commercial pressures that incentivize private companies to pick the cheapest viable shipping option. Federal cargoes are a critical source of revenue for the U.S.-flagged deep sea fleet, and through "cargo preference" laws, federal agencies are legally required to "Ship American" for most goods - but often don't, and rarely face any penalty for overlooking the law.
"Congress should require regular audits of cargo preference compliance and transparent reporting of violations and corrective actions to Congress," the AFL-CIO wrote. "Congress must codify full U.S.-flag carriage for government cargo and vest clear authority and accountability for non-availability determinations with the Maritime Administrator."
At present, the Cargo Preference Act of 1954 - which governs civilian agencies' cargoes - only requires 50 percent of federal freight to be shipped on American bulkers, boxships and tankers each year. The requirements for military cargoes - governed by a separate act from 1904 - cover 100% of all defense shipments, but may be waived at the discretion of the Secretary of Defense if there is no American vessel "available at a fair and reasonable rate." Military food and clothing cargoes are covered by the strict Berry Amendment to the Buy American Act, which requires that these goods must be made in the United States and then shipped to wherever troops are located; petroleum is not covered by the amendment and can be procured abroad, reducing tonne-mile demand for tanker tonnage.
The current Maritime Administrator - Capt. Stephen Carmel, a longtime maritime executive in Jones Act and U.S.-flagged shipping - has often said that cargo is the linchpin for the revival of American maritime. In budget hearings before Congress last month, Carmel noted that federal petroleum cargoes are in particularly short supply, and that this adds risk to plans for the expansion of the Tanker Security Program fleet of U.S.-flagged tankers.
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In the letter, the AFL-CIO called for significant tax incentives for commercial cargo owners to join in the "Ship America" plan for international cargo shipments. "Congress must amend the Internal Revenue Code to allow an enhanced deduction equal to 200 percent of eligible international shipping expenses incurred by private shippers using qualified U.S.-flag vessels, with vessel eligibility overseen by the Maritime Administration and effective for taxable years beginning after enactment," recommended the union.
In addition, the union called for a significant incentive for American mariners who choose to "go deep-sea." At present, working on a U.S.-flagged ship overseas incurs the same U.S. tax rate as any work within the United States. Instead, the AFL-CIO called for the IRS to extend its Section 911 foreign earned income exclusion to U.S. vessels in international commerce. This would give deep-sea U.S.-flagged shipping a profound recruitment advantage over Jones Act domestic shipping, which would still be exposed to U.S. income tax liabilities; it would also provide a major financial incentive for trained merchant mariners to stay in the industry rather than departing for shoreside employment.