U. S. Maritime Administration

NCBFAA Annual Conference – April 18, 2016

U. S. Maritime Administration

MARITIME ADMINISTRATION (MARAD):

Mission: To improve and strengthen the U.S. marine transportation

system - including infrastructure, industry and labor - to meet the

economic and security needs of the Nation.

Purpose: Defined in statute: “it is the policy of the United States to

encourage and aid the development and maintenance of a

merchant marine.” (46 U.S.C. 50101)

Since 1775, the marine transportation industry has met the needs of

our Nation during peace and war. The U.S.-flag fleet, the maritime

workforce, ports and the nation’s shipbuilding and repair capability

continue to be a critical component of the transportation

infrastructure and military readiness. … The fourth arm of defense

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U. S. Maritime Administration

Bottom Line Up Front

This is about making sure the warfighter is supported in the field

Federal law requires the use of U.S.-flag ships for Civilian Agencies

cargo

The law is implemented in the DFARS & FARs and includes a contract

clause requiring the usage of U.S ships for transport by sea

The Maritime Administration is here to help the Industry

Define what is U.S.-flag vessel required transport

Assist in locating U.S.-flag ships

Monitor, enforce and qualify if a waiver is required

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Transportation Protects the Nation

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Everything is Connected by Water

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Transportation is like Oxygen

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U. S. Maritime Administration

U.S. Transport ship SENECA, Cuba 1898

Charge of the Rough Riders, Cuba 1898

Why have a Federal law that requires

the (probably more expensive) use of

U.S.-flag ships for DoD & Civilian

Agencies Cargo?

Spanish – American War (1898)

• 51 ships needed ASAP

• U.S. paid exorbitant prices for sealift

• Many ships unsuitable or broke down

• Several foreign crews refused to sail

Some History…

… Answer

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U. S. Maritime Administration

Strategic Value of a U.S.-flag Commercial Fleet

U.S.-flag commercial vessels are there when needed U.S. citizen mariners provide reliable service – and in harms way - in times of Crisis U.S.-flag companies have proven logistics expertise – time and again

- Immediate access to existing transport corridors

- Fixing hard problems in shipping to difficult locations (e.g. Afghanistan)

40,000 troops landing at Inchon, Korea – 15 SEP 1950

U.S. commercial

ships

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U. S. Maritime Administration

What is a Merchant Marine?

- “Merchant Marine” is term used to describe commercial vessels (not military),

engaged in world commerce.

- Keeping these ships going is critical as these vessels act as a naval auxiliary

during war or national emergency.

"It is necessary for the national defense... that the United States shall have a merchant

marine of the best equipped and most suitable types of vessels sufficient to carry the

greater portion of its commerce and serve as a naval or military auxiliary in time of war or

national emergency..." - Act of 1936

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U. S. Maritime Administration

Importance of the U.S. Merchant Marine

If DoD had to replace the services of the U.S.-flag commercial fleet and their intermodal

assets with Government owned truck and rail intermodal systems: • Initial capital investment would be $54 Billion

• Annual maintenance would be $ 1 Billion

The U.S.-flag ocean carriers were key in developing the NDN – with commercial truck and rail

Northern Distribution Network to Afghanistan 7

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U. S. Maritime Administration

Let’s Meet the Modern U.S. Merchant Marine

Types of Vessels: Container, Roll on Roll off, Project or

Break-bulk, Dry-bulk, and Tanker

Types of Service:

• Liner

• Tramp

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U. S. Maritime Administration

Liner Service

• Regularly scheduled

• Published schedule

• Published rates

• Usually Containerized

but not always

• Intermodal

Ocean Transportation Service

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U. S. Maritime Administration

Inducement or “Tramp” Service

• Not Regularly Scheduled

• Goes Where The Cargo Is

• Usually Break Bulk / Project Cargo

Ocean Transportation Service

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U. S. Maritime Administration

Container Ships

Transport boxed cargo in units of: • Twenty and Forty foot units

• Flat Racks (open sided), specialty boxes

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

Roll on / Roll off (RoRo)

• Many are in Liner Service

• Autos / Trucks / Project Cargo

• DoD Favored

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

RoRo GREEN DALE in Liner Service U.S. to Japan

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

New RoRo MARJORIE C, Maiden Voyage - May 2015

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

Project / Breakbulk - Heavy Lift

• Some Liner Services

• Some Non Scheduled / On Inducement

• Self Sustaining (own Gear)

• Usually Heavy Lift Capable

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

Dry Bulk

• Usually full ship loads

• Grain

• Loose

• Bagged

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

Tankers • Usually full shiploads

• Crude oil and Distillate (gasoline, diesel, aviation fuel)

• Typically chartered to a specific company for long term use.

• Some vessels move from project to project (called the spot market)

U.S.-flag Commercial Vessel Types

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U. S. Maritime Administration

Military Cargo Preference Act of 1904 (10 U.S.C. 2631)

Requires that all items procured for or owned by U.S. military departments and

defense agencies be carried exclusively (100 percent) on U.S.-flag vessels

available at rates that are not excessive or otherwise unreasonable.

These cargoes are generated primarily by DoD contracts with domestic and

foreign contractors and subcontractors.

The U.S.-flag vessel use requirement applies not only to the end product but

also to the component parts.

Military Cargo Preference Law

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U. S. Maritime Administration

Cargo Preference Act of 1954 (46 U.S.C. 55305) The law requires that at least 50 percent of the gross tonnage of all Government

generated cargo, meaning cargoes procured, furnished, or financed by the

United States Government, shall be transported on privately owned, U.S.-flag

commercial vessels to the extent such vessels are available at fair and

reasonable rates for commercial vessels of the United States...

These cargoes are generated primarily by Civilian Agencies contracts with

domestic and foreign contractors and any tiered subcontractors.

The U.S.-flag vessel use requirement applies not only to the end product but

also to the component parts.

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Civilian Cargo Preference Law

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U. S. Maritime Administration

MARAD interprets Gross Tonnage as Revenue Tonnage. A Revenue Ton is a billing unit in the shipping industry. One revenue ton equals weight in metric tons or volume in cubic meters, whichever is higher in terms of freight.

1 Revenue Ton (RT) =1 Metric Ton (MT) or 1 Cubic Meter (CBM)

CP Law Continued…

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U. S. Maritime Administration

Transportation of DoD cargoes is subject to Defense Federal Acquisition Regulation Supplement (DFARS) 247.5 - Ocean Transportation by U.S.-Flag Vessels. Must (100 percent) use U.S.-flag vessels

DFARS Clause 252.247-7023, Transportation of Supplies by Sea, prescribes that the contractor shall, within 30 days after each shipment, provide the Contracting Officer and MARAD a copy of the rated on board Carrier Bill of Lading.

DoD Acquisition Regulations

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U. S. Maritime Administration

Transportation of Civilian Agencies cargoes is subject to Federal Acquisition Regulation (FAR) 52.247-64 - The law requires that at least 50 percent of the gross tonnage of all Government generated cargo, meaning cargoes procured, furnished, or financed by the United States Government, shall be transported on privately owned, U.S.-flag commercial vessels to the extent such vessels are available at fair and reasonable rates for commercial vessels of the United States…

FAR Clause 52.247-64 - the Contractor shall submit one legible copy of a rated on-board ocean Bill of Lading for each shipment to both—

(i) The Contracting Officer, and

(ii) The Office of Cargo and Commercial Sealift (MARAD)

The Contractor shall furnish these Bill of Lading copies (i) within 20 working days of the date of loading for shipments originating in the United States, or (ii) within 30 working days for shipments originating outside the United States.

Civilian Acquisition Regulations

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U. S. Maritime Administration

MARAD enforces the requirements mandated by the Ex-Im Bank that 100 percent of certain cargoes generated by Ex-Im Bank loans and loan guarantees are required to be carried on U.S.-flag vessels.

Loans

All direct loans generated under Export Import Bank financing are to be shipped exclusively on U.S.-flag vessels.

Loan Guarantees

Cargo generated under Export Import Bank loan guarantees are to be shipped

exclusively on U.S.-flag vessels provided the guarantee amount is over $20

million or the term of the guarantee is over 7 years.

Export-Import Bank Cargoes

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U. S. Maritime Administration

The Cargo Preference Act of 1954 46 U.S.C. 55305 requires that at least 50 percent of the gross tonnage of all Government-generated cargo, including Agricultural commodities, be transported on privately owned, U.S.-flag commercial vessels to the extent such vessels are available at fair and reasonable rates.

“It’s the policy of the United States to use its abundant agricultural productivity to promote the foreign policy of the United States…”

7 U.S.C. 1691. The Food for Peace Act (7 U.S.C. 1691 to 1738r) contains the various programs, as listed below, utilized by the United States to accomplish this policy.

Agricultural Cargoes

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U. S. Maritime Administration

U.S.-Flag Waivers for Civilian Cargoes

1. Vessel non-availability Waiver - if a non-availability wavier is requested,

MARAD will make the determination.

2. Waiver based on Cost – freight charges offered are inordinately

excessive or unreasonable based on comparisons described in the FAR.

• Price comparisons to foreign flag rates are not sufficient to warrant

granting a waiver

• Cost waivers are rare

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U. S. Maritime Administration

Only the DoD Contracting Officer has the authority to determine whether an

exemption is to be granted, within the limits of the DFARS.

Should the Contracting Officer find that there are sufficient grounds for an

exemption in accordance with the DFARS, an exemption may be granted if there

is concurrence by the Military Sealift Command (MSC) or the Military Surface

Deployment and Distribution Command (SDDC).

• MARAD is consulted in determining U.S.-flag vessel non-availability or price

reasonableness.

The Contractor must submit any request for use of other than U.S.-flag vessels

in writing to the Contracting Officer at least 45 days prior to the sailing date

necessary to meet its delivery schedules. This procedure must be followed for

each shipment.

Exemptions for DoD Cargoes

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U. S. Maritime Administration

MARAD would generally view a violation as on-going until that violation is corrected, that is, until

the requisite amount of cargo is transported on U.S.-flag vessels. The violation, therefore, would

likely continue well beyond the time of the actual foreign-flag transportation that initiates the

violation.

The actual amount of the civil penalty would be based upon the consideration of a number of

factors. MARAD’s cargo preference NPRM and is currently under review at OMB, contains seven

(7) factors: (1) the facts underlying the specific violation, (2) the gravity of the violation, (3) the

degree of culpability, (4) the existence of any prior violations, (5) the respondent’s ability to pay a

civil penalty, (6) the effect of a penalty on the respondent’s ability to continue to do business, and

(7) any other relevant considerations. These factors would all be taken into consideration when

setting any actual penalty for a knowing and willful cargo preference violation.

However, we would emphasize that MARAD views civil penalties as a last resort. We are far

more interested in working with agencies and their contractors/recipients to identify opportunities

for compensatory cargo to be carried on U.S.-flag vessels. This corrective action is far more cost-

effective for the contractor/recipient and ultimately serves the actual purposes of cargo preference

– getting cargo aboard U.S.-flag vessels.

VIOLATIONS

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U. S. Maritime Administration

MARAD Role and How We Can Help:

Determine the availability of U.S.-flag service when that availability is sought by another agency, contractor, or program participant.

Provide guidance concerning the reasonableness of ocean freight rates to federal agencies and program participants.

Establish regulations and procedures for U.S. Government agencies to ensure that the Cargo Preference Laws are implemented as intended by Congress.

Monitor the compliance of U.S. Government agencies and commercial shippers subject to the preference statutes and regulations. Ensure that documentation on ALL government-impelled cargo moves are reported.

Report to Congress annually on compliance with the Cargo Preference Laws by federal agencies.

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U. S. Maritime Administration

Risk in Using Foreign-flag Vessels:

Australia, 1939; Crew of 60 Walks

- Will the foreign vessel physically be able to make the journey?

- Will the foreign vessel make the required delivery date?

- Will the foreign crew carry the cargo in wartime conditions?

- Will the cargo be safe and secure?

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U. S. Maritime Administration

The Value of the Cargo Preference Laws to the U.S. Maritime Industry

Annual U.S.-flag Revenue $ 2.25 Billion

Annual Cargo Tonnage for U.S. Ships $ 12 Million plus

And the United States Receives:

- Over 75 U.S.-flag state of the art ships

- Reliability of U.S.-flag service

- Reliability of U.S. workforce afloat

- Access to worldwide transport infrastructure

Importance of Cargo Preference

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U. S. Maritime Administration

Office of Cargo and Commercial Sealift

You can get help in compliance from

the Maritime Administration’s

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U. S. Maritime Administration

OFFICE OF CARGO AND COMMERCIAL SEALIFT

General Email: cargo.marad@dot.gov

HELPFUL WEB LINKS:

Web Page: www.marad.dot.gov

--Once there, click on “Ships and Shipping” to find the Cargo Preference section

This page contains links to:

• U.S.-flag carrier listing

• U.S.-flag vessel listing

• U.S. Coast Guard’s listing of “Vessels, Owners, and Operators Prohibited from Carrying Government Impelled Cargoes”

How To Reach MARAD

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For Civilian Cargoes: Mr. Jan Downing, Senior Trade Specialist Jan.Downing@dot.gov (202) 366-0783

For DoD Cargoes: Mr. Michael Hokana, Senior Trade Specialist Michael.Hokana@dot.gov (202) 366-0760

U. S. Maritime Administration

WHO WILL CARRY THE GOV’T IMPELLED CARGO?:

The Mariners of the U.S. –Flag Merchant Marine 33