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Detailed Information on the
Maritime Administration Ocean Freight Differential Assessment

Program Code 10004009
Program Title Maritime Administration Ocean Freight Differential
Department Name Department of Transportation
Agency/Bureau Name Maritime Administration
Program Type(s) Direct Federal Program
Assessment Year 2006
Assessment Rating Moderately Effective
Assessment Section Scores
Section Score
Program Purpose & Design 80%
Strategic Planning 86%
Program Management 86%
Program Results/Accountability 67%
Program Funding Level
(in millions)
FY2007 $269
FY2008 $175
FY2009 $145

Ongoing Program Improvement Plans

Year Began Improvement Plan Status Comments
2006

Completing an evaluation with partner government agencies on the efficacy of an electronic vendor payment system to further improve the payment process.

Action taken, but not completed Responding to GAO report 07-560, we met with USDA/AID on May 9, 2007 where the action plan was agreed. AID published RFI to trade in October. USDA still waiting for their staff to complete audit. Milestone: 1. Audit by USDA of their pilot program 2. AID to publish RFI for vendor interest -- done
2006

Negotiating policies that reduce flexibilty challenges in the administration of foreign food aid in compliance with cargo preference laws.

Action taken, but not completed We met with USDA/AID on May 9, 2007, and agreed to form an Executive Working Group (EWG) to examine the policy points raised in the GAO report. We reminded USDA of the need to proceed in November 2007. Milestone: Begin negotiation of policy points agreed to that was raised in GAO report 07-560.
2006

Join with partner government agencies to develop revised regulations to improve compliance rates with cargo preference law and minimize litigation from supply chain partners in the private sector. Submit legislation to update the Cargo Preference Act (46 USC 55305).

Action taken, but not completed 1. Began negotiations with USDA/AID in June 2006. Waiting for their sign-off on final language. November 2007 resolution of ACT legal suit supporting MARAD's position may encourage AID to return to talks. 2. Language was drafted and sent to OMB but two key topics had to be withdrawn due to objections from AID. Revised and resubmitted for FY09 Authorization bill. Milestone 1. Negotiate revised regulatory language continuing with USDA/AID. 2. Draft and submit revised legislation.--done

Completed Program Improvement Plans

Year Began Improvement Plan Status Comments

Program Performance Measures

Term Type  
Long-term/Annual Outcome

Measure: Percentage of ocean freight differential (OFD) costs reimbursed to U.S. Government agencies engaged in foreign food aid programs for that portion of the OFD incurred in contracting with U.S.-flagged vessels to ship foreign food-aid in compliance with minimum U.S.-flag tonnage requirements contained in the Food Security Act of 1985.


Explanation:The measure is a ratio of reimbursed OFD, as mandated in the Food Security Act of 1985, to the actual cost of compliance. As stated in the explanation of the program purpose, when the U.S. government provides food assistance to overseas beneficiaries, cargo preference laws originally required that at least 50 percent of the total tonnage must be shipped on U.S.-flag commercial vessels. The Food Security Act of 1985 increased the minimum required tonnage of food aid preference cargoes from 50 to 75 percent and also directed the U.S. Department of Transportation to finance increases in shipping costs incurred to implement this additional U.S-flag preference cargo tonnage requirement. The shipping agencies obligate from their own appropriations the cost of ocean freight, plus the cost of any ocean freight differential incurred on food aid preference cargoes shipped. The Department of Transportation provides quarterly reimbursements for "incremental OFD" (the difference in cost between shipping cargo on a U.S.-flag vessel compared to shipping the same cargo on a foreign-flag vessel), and annual reimbursements for "excess 20% OFD" (the amount determined when cost of ocean freight and incremental OFD exceeds 20% of the total of commodity value plus ocean freight plus incremental OFD). The components of the "excess 20%" calculation mandated in the Act result in reimbursement levels in some years that exceed the OFD incurred by using U.S.-flag vessels, resulting in an additional economic benefit to the shipping agencies.

Year Target Actual
2003 100% 83%
2004 100% 109%
2005 100% 171%
2006 100% 153%
2007 100% 162%
2008 100%
2009 100%
2010 100%
2011 100%
2012 100%
Annual Output

Measure: Number of U.S.-flag, militarily useful, oceangoing, commercial vessels participating in the carriage of foreign food aid preference cargoes.


Explanation:As stated heretofore in the PART, the ability of the U.S. to move large quantities of military personnel and supplies overseas quickly and effectively is critical to the nation's security objectives. Due to the cost differential between U.S. and foreign carriers, the majority of international oceanborne cargo is now carried by foreign-flagged ship operators. In the absence of economic inducement, such as cargo preference, empirical evidence indicates that many U.S.-flagged vessels would leave the U.S. fleet to re-register under a foreign flag in order to be more competitive by reducing costs associated with regulatory compliance and wages. The departure from the market of those vessels would also result in majority of mariners employed aboard those vessels leaving the industry. Cargo preference laws were thus enacted in part to support the development and maintenance of a U.S. merchant fleet, including experienced U.S.-citizen mariners, that could serve as a naval auxiliary in time of war or national emergency, and in part to support U.S.-flag carriage of a substantial portion of the nation's foreign commerce. Global demand for commercial ocean transport, U.S. foreign food aid policies, and other macro and micro economic factors impact vessel participation. The Maritime Administration as set an initial target in implementing this measure of at least 62 militarily usefil commercial vessels that contract annually to transport food aid preference cargoes to foreign ports. The target level of 62 is the minimum number of commercial vessels the Maritime Administration has determined is required to, in conjunction with other Federal maritime operations and training programs, maintain a sufficient reserve pool of experienced mariners to support sealift operations for an initial national defense response and futher sustainment sealift operations. The target levels will be reassessed annually based on ongoing evaluations of U.S. military sealift requirements.

Year Target Actual
2003 N/A- not implemented 115
2004 N/A- not implemented 92
2005 N/A- not implemented 95
2006 N/A- not implemented 93
2007 N/A- not implemented 78
2008 62
2009 62
2010 62
2011 62
2012 62

Questions/Answers (Detailed Assessment)

Section 1 - Program Purpose & Design
Number Question Answer Score
1.1

Is the program purpose clear?

Explanation: The cargo preference laws found in the 1936 Merchant Marine Act, as amended, were enacted to provide an economic incentive for merchant vessel owners to operate under U.S. registry in support of a national policy to maintain an adequate and viable domestic merchant marine. When the U.S. Department of Agriculture and the U.S. Agency for International Development provide food assistance to overseas beneficiaries, the original cargo preference laws required that at least 50 percent of the total agricultural cargo under certain foreign food aid programs be shipped on U.S.-flagged vessels. Due to higher regulatory standards, labor costs, and operating overhead, U.S.-flagged vessels often cost more than foreign vessels. The difference in ocean freight costs between U.S.-flagged vessels and non U.S.-flag vessels is referred to as ocean freight differential, and U.S. government shipping agencies are required to obligate from their own appropriations the cost of all ocean freight plus the cost of any ocean freight differential incurred on the first 50 percent of certain foreign food aid cargoes shipped. When Congress enacted the Food Security Act of 1985, they increased the statutory minimum required tonnage of government-sponsored food aid shipments that must be shipped on U.S.-flagged vessels from 50 to 75 percent. Congress also directed the U.S. Department of Transportation to finance any increases in shipping costs incurred to implement this increased cargo preference requirement. Thus, the purpose of the Ocean Freight Differential program is to reimburse U.S. government agencies for that portion of the ocean freight differential they incurr in contracting with U.S.-flagged vessels to comply with the provisions of the Food Security Act of1985, defined in the Act as the ocean freight differential on certain foreign food aid tonnage after the first 50 percent shipped.

Evidence: 1. 46 App. U.S.C. 1101 sets forth the policy - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. 46 App. U.S.C. 1241 is the Cargo Preference Act of 1954. - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 3. 46 App. U.S.C. 1241d-1241i is the Food Security Act of 1985 - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

YES 20%
1.2

Does the program address a specific and existing problem, interest, or need?

Explanation: The ability of the United States to move large quantities of military personnel and material overseas quickly and effectively is critical to the nation's security strategies and objectives. Cargo preference laws were enacted to support a national policy designed to support the development and maintenance of a U.S.-flagged merchant fleet that (1) could carry a substantial portion of the nation's foreign commerce and,(2) could effectively play its role as a naval auxiliary in time of war or national emergency. In addition, the U.S. merchant marine carriers provide a reserve pool of trained U.S. mariners to crew the U.S. Department of Defense National Defense Reserve Fleet when needed. Due to the cost differential between U.S. and foreign carriers, the vast majority of international oceanborne cargo is now carried by foreign-flagged shipping operators. In the absence of cargo preference laws, a government study indicates that the majority of U.S.-flagged vessels would leave the U.S. fleet to re-register under a foreign flag in order to be more competitive by reducing costs associated with regulatory compliance and wages. Many others who could not be competitive with foreign-flagged carriers would cease operating and either scrap or lay up their vessels. The departure from the market of those vessels would also result in the majority of the mariners employed aboard those vessels leaving the industry. The application of cargo preference to foreign food aid, with the associated ocean freight differential reimbursements, helps support the development and maintenance of the U.S.-flagged merchant fleet and the reserve pool of trained mariners.

Evidence: 1. U.S.-flag ships carrying food aid cargoes in FY2005 numbered 95 vessels versus the total U.S.-flag commercial fleet engaged in our foreign trade of 111 vessels. 2. National Security Directive 28 of October 5, 1989 issued by President George H.W. Bush providing a directive on the use of commercial sealift. 3. Memorandum for the Deputy Commander, United States Transportation command dated February 10, 2006, from the Assistant Deputy Under Secretary of Defense (Transportation Policy) provides interim guidance for the implementation of sealift policy. 4. Mercer Management Consulting, "The U.S. Flag Liner Shipping Industry's Role in Military Sealift", March 1995. 5. See loss of U.S. flags vessels in "Cargo Preference," GAO 1994 - http://archive.gao.gov/t2pbat2/152603.pdf

YES 20%
1.3

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The Ocean Freight Differential program is the only program that reimburses other government agencies responsible for food assistance to foreign nations for a portion of the cost differential incurred to comply with cargo preference laws by using U.S.-flagged vessels.

Evidence: 1. Merchant Marine Act, 1936, title IX (46 App. U.S.C. 1241) - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. Food Security Act of 1985, Public Law 99-198 (46 App. U.S.C. 1241d-g) - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

YES 20%
1.4

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The Ocean Freight Differential program exists to support compliance with statutory cargo preference requirements. Because of the inseparable relationship of the program to cargo preference laws, program management assert that program effectiveness is impaired because the cargo preference laws themselves are fundamentally flawed in that they provide no enforcement mechanism to ensure compliance with the statute (46 App. U.S.C. 1241). The result has been recurring litigation initiated by U.S. merchant ship operators seeking court-ordered enforcement against government agencies responsible for certain foreign food aid assistance programs. Furthermore, it remains an open question as to whether the application of cargo preference requirements to foreign food aid programs effectively address the specific needs and efficiently support the national interests decribed in the explanation to question 1.2, with GAO reports in fiscal years 1994, 1995 and 2004 providing evidence supporting both sides of the issue. However, if evaluated independently of cargo preference enforcement issues, the design of the Ocean Freight Differential program is free of major flaws that would limit the program's effectiveness and efficiency.

Evidence: 1. 46 App. U.S.C. 1241(b)(2) only authorizes the Secretary of Transportation (delegated to MARAD) to publish regulations but it does not provide any enforcement authority. http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. Compliance by AID for Title II cargoes has been: FY05 was 64.9%; FY04 was 71.9%; FY03 was 71.2%; FY02 was 66.8%; FY01 was 73.5%. 3. American Cargo Transport, Inc., etc. v. United States of America, etc. No. C05-393JLR, USDC, W.D. Washington and America Cargo Transport, Inc. v. Andrew S. Natios, U.S. Agency for International Development and John Jamian, Acting Maritime Administrator, Department of Transportation, Civil Action No.: 05-1452 (RBW). 4. Changes were made to streamline and remove payment delays in the OFD program following a DOT IG report of May 5, 2004 (Report FI-2004-057). http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 5. Memorandum to Captain William G. Schubert, Maritime Administrator, from Jeffrey A. Rosen, General Counsel of DOT, dated June 25, 2004 re Cargo Preference Billing and Payment Process. 6. U.S. Government Accountability Office, Cargo Preference Requirements: Objectives Not Significantly Advanced When Used in U.S. Food Aid Programs. http://archive.gao.gov/t2pbat2/152603.pdf. 7. U.S. Government Accountability Office, Cargo Preference Laws-Estimated Costs and Effects. http://www.gao.gov/archive/1995/rc95034.pdf. 8. U.S. Government Accountability Office, Opportunities to Improve the Economy, Efficiency, and Effectiveness of Federal Programs. http://www.gao.gov/new.items/d04649.pdf.

NO 0%
1.5

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The program design effectivly targets resources to directly address the program's purpose, as explaned in question 1.1. Although reimbursement payments are made to other government agencies, the ocean freight differential for which they are reimbursed under this progrgam directly and effectively reaches the intended beneficiaries: the U.S.-flag vessel operators under contract to ship foreing food aid commodoties and the mariners crewing their vessels.

Evidence: 1. 46 App. U.S.C. 1241. http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. 46 App. U.S.C. 1241f. http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 3. 46 App. U.S.C. 1241h. http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

YES 20%
Section 1 - Program Purpose & Design Score 80%
Section 2 - Strategic Planning
Number Question Answer Score
2.1

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The long-term performance measure is the percentage of preference cargo shipped on U.S.-flagged vessels for U.S. government sponsored foreign food-aid. This measure is intended to reflect the cumulative effort of the program's annual activities and its focus on the long-term goal of increasing this percentage. This measure supports the purpose of the program by indicating when the program's mission is accomplished, both in the long-term and on an annual basis, as described in the Food Security Act of 1985.

Evidence: 1. Maritime Administration Strategic Plan for FY2003-2008. http://marad.dot.gov/Publications/Docs/MARAD_2003_2008_strategic_plan.pdf 2. U.S. Department of Transportation Strategic Plan 2003-2008. http://www.dot.gov/stratplan2008/strategic_plan.htm 3. 2007 Budget Cargo Preference performance measures.

YES 14%
2.2

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The Maritime Administration has established ambitious long-term targets of U.S.-flag carriage for foreign food aid programs subject to cargo preference and ocean freight differential reimbursement. This will be accomplished by providing maximum and immediate Ocean Freight Differential reimbursements to the U.S. Department of Agriculture and the Agency for International Development and by educating their logistics managers and senior leaders on their true program costs and about modern logistics programs that can both reduce their costs and increase their efficiencies, such as: implementing electronic vendor payment systems, establishing universal service contracts, using historical risk management concepts, and using commercial transportation terms and practices. MARAD's long-term goal, using incremental results from inter-agency collaboration, is to achieve a consistent year-to-year percentage of U.S.-flag carriage of 78% by fiscal year 2012. As shown in the performance measure table, this is ambitious and equals the best year since fiscal year 2000. Recent deviation from the statutory minimum has been created by world market conditions and food aid agency program management decisions. Achievement of this ambitious end-state would indicate both improved program effectiveness and better relationships with program partners (see question 2.5 below).

Evidence: 1. Maritime Administration Strategic Plan 2003-2008. http://marad.dot.gov/Publications/Docs/MARAD_2003_2008_strategic_plan.pdf 2 U.S. Department of Transportation Strategic Plan 2003-2008. http://www.dot.gov/stratplan2008/strategic_plan.htm 3. 2007 Cargo Preference Budget Performance Goals. 4. The compliance percentage for all food aid cargoes both USDA and AID combined has been: CPY2001 - 74%; CPY2002 - 75%; CPY2003 - 75%; CPY2004 - 75%; CPY2005 - 69%.

YES 14%
2.3

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The program has two annual performance measures. The first performance measure is, like the long-term measure, the percentage of preference cargo shipped on U.S.-flagged vessels for U.S. government sponsored foreign food-aid. This measure directly supports the long-term goal of increasing this percentage by indicating how well the program's mission is accomplished on an annual basis and by indicating how the program evolves over time. The second performance measure is the percentage of U.S.-flag ocean-going vessels participating in the program. This is an indicator of program effectiveness that indicates how well resources ultimately reach the targeted beneficiaries as described in the explanation of the program's purpose under question 1.1.

Evidence: 1. 2007 Budget Cargo Preference Performance goals.

YES 14%
2.4

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The baseline for the first annual performance measure is the statutory mandate of a 75 percent minimum carriage threshold for percentage of preference cargo shipped on U.S.-flagged vessels for U.S. government sponsored foreign food-aid. The annual target is 78 percent. This is an ambitious target that exceeds present program performance and recognizes interagency relationship dynamics in foreign food aid delivery. The baseline and target for the second annual performance measure is a ninety percent rate of U.S.-flag ocean-going vessels participating in government-sponsored foreign food aid eligible for ocean freight differential reimbursement. This is an ambitious target that exceeds the average of the two most recent fiscal years by about eight percent while at the same time recognizing the potential impact of market externalities.

Evidence: 1. 2006 Budget Cargo Preference Performance goals. 2. Humanitarian Food Aid Reports published at www.marad.dot.gov\offices\cargo\capos%20reports 3. American Cargo Transport, Inc., etc. v. United States of America, etc. No. C05-393JLR, USDC, W.D. Washington and America Cargo Transport, Inc. v. Andrew S. Natios, U.S. Agency for International Development and John Jamian, Acting Maritime Administrator, Department of Transportation, Civil Action No.: 05-1452 (RBW).

YES 14%
2.5

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: The Maritime Administration, domestic merchant marine (industry) partners, and some federal government partners in the program are committed to and work toward both annual and long-term goals of the program. Other program partners within the federal government view this program as impairing their efforts to accomplish their own annual and long-term goals. This is illustrated by the fiscal year 2005 performance measure for the percentage of preference cargo shipped on U.S.-flagged vessels of government sponsored foreign food-aid. The outcome of 69 percent, six percent below the baseline and statutory minimum, is an indication of interagency conflict based on a persisting perception of disparate program objectives among program partners within the federal government. The Maritime Administration is working with all program partners to resolve issues relevant to this perception in order attain the baseline target established by statute and eventually the long-term performance goal.

Evidence: 1. Humanitarian Food Aid Reports published at www.marad.dot.gov\offices\cargo 2. PowerTrack vendor payment pilot program between USDA, MARAD, carriers, forwarders, and USbank Corporation. 3. Proposed supplemental notice from USDA to OMB inserting agreement to comply with cargo preference into proposed rule 7 USC PART 1496.

NO 0%
2.6

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Independent evaluations of sufficient scope and quality are conducted as needed to support program improvements and evaluate effectiveness and relevance to problem, interest, or need. The most recent evaluation occurred in fiscal year 2004 when MARAD requested the U.S. Department of Transportation's Inspector General to review an interagency reimbursement dispute andreport on the Ocean Freight Differential program's billing and payment processes.

Evidence: 1. Office of Inspector General, Department of Transportation, Audit Report, Cargo Preference Billing and Payment Process, Report Number: F1-2004-057, issued May 5, 2004. http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 2. Office of Inspector General, USAID, Audit of USAID's Cargo Preference Reimbursements under Section 901d of the Merchant Marine Act of 1936, Audit Report No. 9-000-01-003-P, Issued March 30, 2001. http://www.usaid.gov/oig/public/fy01rpts/9-000-01-003-f.pdf#search='USAID%20900001003P' 3. U.S. Government Accountability Office, Cargo Preference Requirements: Objectives Not Significantly Advanced When Used in U.S. Food Aid Programs. http://archive.gao.gov/t2pbat2/152603.pdf. 4. U.S. Government Accountability Office, Cargo Preference Laws-Estimated Costs and Effects. http://www.gao.gov/archive/1995/rc95034.pdf. 5. U.S. Government Accountability Office, Opportunities to Improve the Economy, Efficiency, and Effectiveness of Federal Programs. http://www.gao.gov/new.items/d04649.pdf.

YES 14%
2.7

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Funding is mandatory (permanent and indefinite funding authority) and the requested appropriation is based on prior-year borrowing authority enacted to support the anticipated level of program reimbursements (for the prior year). Expected accomplishment of annual and long-term performance goals are part of the justification for annual borrowing authority in the budget request for the budget year. Administrative costs of the program are not part of the program budget, they are instead included the Maritime Administration's Operations and Training budget request.

Evidence: 1. 2007 Budget Cargo Preference goals. 2. 46 App. U.S.C. 1241d - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

YES 14%
2.8

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The question is not applicable. The ocean freight differential (OFD) program is mandated by statue. The federal agencies conduct the program as required by statue.

Evidence: 1. 46 App. U.S.C. 1241f - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. 46 App. U.S.C. 1241h - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

NA 0%
Section 2 - Strategic Planning Score 86%
Section 3 - Program Management
Number Question Answer Score
3.1

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: MARAD collects freighted copies of on-board bills-of-lading each month from its program partners (other government agencies and their subcontractors). These are checked against previous booking awards and entered into the Cargo Preference Operating System (CAPOS) database. Each week the year-to-date food aid compliance data is assimilated and posted on the MARAD website where it is accessed and used by private sector program partners.

Evidence: 1. 46 App. U.S.C. 1241f - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 2. The requirement to provide bill-of-lading information to MARAD is contained in 46 CFR §381.3. 3. The website report URL is www.marad.dot.gov/offices/cargo

YES 14%
3.2

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: The Ocean Freight Differential program has a program standard provided by statute in the Food Security Act of 1985, which states that a minimum of 75 percent of agricultural cargos of certain foreign assistance programs shall by shipped by U.S.-flagged vessels. The Maritime Administration is required to provide an annual report to the Congress on program performance. Cost and schedule accountability is addressed by both the Maritime Administration and private sector program partners in the maritime industry through the monitoring of contracting activities for shipping food aid cargos under the jurisdiction of the cargo preference laws. Program partners in federal agencies responsible for the procurement of freight contracts with private sector maritime shippers have, at times, pursued objectives that contravene the enacted minimum standard resulting in performance levels below 75%. In the absence of enforcement authority for cargo preference law, accountability for minimum standard performance by the shipping agencies has devolved to the courts through litigation initiated by private sector program partners.

Evidence: 1. See Humanitarian Reports at www.marad.dot.gov/offices/cargo 2. For example, see American Cargo Transport, Inc., etc. v. United States of America, etc. No. C05-393JLR, USDC, W.D. Washington and America Cargo Transport, Inc. v. Andrew S. Natios, U.S. Agency for International Development and John Jamian, Acting Maritime Administrator, Department of Transportation, Civil Action No.: 05-1452 (RBW). 3. 46 CFR §381.6 - http://www.access.gpo.gov/nara/cfr/waisidx_02/46cfr381_02.html 4. 46 App. U.S.C. 1241(b)(2) - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 5. MARAD Annual Reports. http://www.marad.dot.gov/Publications/genref.htm

YES 14%
3.3

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: The Maritime Administration, U.S. Department of Agriculture (USDA) and the Agency for International Development (AID) have a ocean freight differential (OFD) reimbursement payment process set forth in an interagency memorandum of understanding. These reimbursements payments are made for two costs: 1."Incremental OFD" is the difference in cost between shipping cargo on a U.S.-flag vessel compared to shipping the same cargo on a foreign-flag vessel. 2. "Excess 20% OFD" is paid by MARAD to USDA/AID when the cost of ocean freight and "incremental OFD" exceeds twenty percent (20%) of the total of commodity value being shipped plus ocean freight plus "incremental OFD". The U.S. Department of Agriculture submits "incremental OFD" invoices on a quarterly basis, and "20% excess OFD" invoices annually after all the "Incremental OFD" invoices for the year are finalized. Reimbursement payments are sent to USDA who provides the proper allocation to the various food aid programs. The allocation is based on the percentage each program was represented in the original invoice. Historically, OFD invoicing and reimbursement was several years in arrears due to disputes about reimbursement calculation methodology. However, in 2004, the Maritime Administration (MARAD) requested that the Department of Transportation Inspector General review the program to provice guidance on the issue. After reviewing the requested guidance, MARAD and USDA staffs worked as a team to clear up the backlog and establish current invoicing. MARAD also installed an accounting tracking software program (FREEBALANCE) to track OFD payments. With these initiatives complete, funds are now obligated in a timely manner. The program is also working jointly with federal partners to implement a pilot program for an electronic vendor payment system to enhance the timeliness and reporting of program obligations.

Evidence: 1. Memorandum of Understanding Between Commodity Credit Corporation and Maritime Administration and Agency for International Development dated July 20, 1987. 2. Office of Inspector General, DOT, Audit Report, Cargo Preference Billing and Payment Process, Report Number: F1-2004-057, Issued May 5, 2004. http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 3. Memorandum from DOT General Counsel to Maritime Administrator, Subject: Cargo Preference Billing and Payment Process, June 25, 2004.

YES 14%
3.4

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Following guidance from the U.S. Department of Transportation Inspector General, the Maritime Administration worked together with the federal invoicing agencies to clear up a reimbursement backlog, establish current invoicing and pursue other improvements in the billing and payment process. The Maritime Administration established an efficiency target to process at least 90 percent of ocean freight differential invoices within 45 days of initial draft. Program managers are also currently engaged with partner government agencies to jointly implement a pilot program for an electronic payment vendor system (PowerTrack) that has a proven record of program cost savings at the U.S. Department of Defense and the U.S. Department of State.

Evidence: 1. Office of Inspector General, DOT, Audit Report, Cargo Preference Billing and Payment Process, Report Number: F1-2004-057, Issued May 5, 2004. http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 2. Memorandum from DOT General Counsel to Maritime Administrator, Subject: Cargo Preference Billing and Payment Process, June 25, 2004. 3. 2007 Budget Cargo Preference Goals. 4. Memo from the Dep. Sec. DOD 8/30/01 to DOD senior staff

YES 14%
3.5

Does the program collaborate and coordinate effectively with related programs?

Explanation: Federal agencies responsible for foreign food assistance seek to maximize the amount of resources available to procure food commodities, while the objective of Maritime Administration is to maximize financial assistance to the domestic maritime industry through the cargo preference requirements. These competing objectives are a significant impairment to effective collaboration and coordination. There have also been longstanding interagency disputes over the calculation of the excess ocean freight component of ocean freight differential. The result was multiyear delays in reimbursement payments. The agencies addressed this issue and all payments are now current.

Evidence: 1. MARAD Annual Reports. http://www.marad.dot.gov/Publications/genref.htm 2. Cargo preference website at www.marad.dot.gov/offices/cargo 3. USDA website at www.fsa.usda.gov/daco/conferences

NO 0%
3.6

Does the program use strong financial management practices?

Explanation: The Ocean Freight Differential program uses internal control procedures and regular data collection from program partners to insure that funds are reimbursed in the the proper amount and in a timely manner. When the U.S. Department of Agriculture submits an invoice for reimbursement of ocean freight differential, program staff verify amounts by comparing them to bills of lading received from private sector shipping companies participating in the program. Discrepancies are resolved in joint consultation with the relevant program participants. In addition, the Maritime Administration has appointed a funds control officer for the program and utilizes accounting software to monitor fund balances and track reimbursement payments.

Evidence: 1. Office of Inspector General, DOT, Audit Report, Cargo Preference Billing and Payment Process, Report Number: F1-2004-057, Issued May 5, 2004. http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 2. Memorandum from Maritime Administrator to Associate Administrator for Cargo Preference dated July 22, 2003 titled "Fund Control Procedures for Ocean Freight Differential Program". 3. Memorandum from the Director of the Office of Cargo Preference to the Senior Advisor for Agricultural Programs dated July 30, 2003 appointing him as the Funds Control Officer to comply with the Maritime Administrator's memorandum.

YES 14%
3.7

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The most salient management deficiency was a fundamental interagency dispute regarding the proper reimbursement calculation methodology and whether the Maritime Administration properly possessed and used discretion as to which calculation method to apply. This issue, together with an antiquated billing and payment process, resulted in invoicing that was several years in arrears and multiyear delays in reimbursement payments. Following guidance from the U.S. Department of Transportation Inspector General and the U.S. Department of Transportation General Counsel, the Maritime Administration revised its reimbursement methodology and worked together with the program invoicing agency to clear up the invoice backlog and establish a current invoicing system. Program managers are also engaged with the invoicing agency to jointly implement a pilot program for an electronic payment vendor system to further address management deficiencies in the billing and payment process.

Evidence: 1. Office of Inspector General, DOT, Audit Report, Cargo Preference Billing and Payment Process, Report Number: F1-2004-057, Issued May 5, 2004. http://www.oig.dot.gov/StreamFile?file=/data/pdfdocs/fi2004057.pdf 2. Memorandum from DOT General Counsel to Maritime Administrator, Subject: Cargo Preference Billing and Payment Process, June 25, 2004.

YES 14%
Section 3 - Program Management Score 86%
Section 4 - Program Results/Accountability
Number Question Answer Score
4.1

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: As stated in question 2.1 and 2.2, the long term performance measure is the percentage of food aid preference cargo shipped in U.S.-flag vessels and, as addressed in 2.3, it is also the annual measure. As shown in the performance measure table, there are years where world market conditions and food aid program management create deviations from the statutory baselines of 75% annual carriage. MARAD's long-term goal, using incremental results from inter-agency collaboration, is to achieve a target baseline percentage of U.S.-flag carriage of 78% by 2012.

Evidence: 1. The U.S.-flag commercial merchant fleet engaged in international trade has been: 2002 - 101 ships; 2003 -- 107 ships; 2004 -- 106 ships; 2005 - 111 ships. 2. MARAD has projected 2006 OFD at $244.3 million which includes the final clearance of old invoices and 2007 OFD at $120 million as detailed in the federal budgets. 3. 2007 Budget Cargo Preference performance measures. 4. 46 App. U.S.C. 1101. - http://www.access.gpo.gov/uscode/title46a/46a_21_1_.html 5. CAPOS database shows U.S.-flag vessel participation in the food aid program to be: 2005 -- 95 vessels; 2004 -- 92 vessels; 2003 -- 115 vessels; 2002 -- 103 vessels; 2001 -- 115 vessels. 6. NDTA sealift report 7. Letter of January 8, 2001 from U.S. Transportation Command (Daniel F. McMillin) to MARAD (James E. Caponiti).

LARGE EXTENT 17%
4.2

Does the program (including program partners) achieve its annual performance goals?

Explanation: As stated in question 2.3, MARAD's annual goal to have shipper agencies comply with cargo preference law and ship at least statutory minimum 75 percent of food aid cargoes on U.S.-flag vessels. The performance measure was 69% in fiscal year 2005, a low mark for the last eight years. USDA programs normally accomplish meet or exceed the 75 percent baseline; however, the AID Title II program does not, despite frequent litigation filed against AID by their supply chain partners ( MARAD has no enforcement authority to compel compliance with the statutory minimum). It should be noted that AID disputes MARAD's numbers and states that MARAD does not correctly interpret the Cargo Preference laws. Other annual goals indicate partial, but notable achievement of targets. The annual percent of U.S.-flag vessels participating in the program was above the target for three of the last five years, but below target for the most recent two years. The number and percent of guideline rate calculations processed within 24 hours of receipt has shown a slight decline in recent years and has been slightly below the baseline target for the last two years. The amount and percentage of the invoices that are processed for reimbursement within 45 days have dramatically improved beginning in fiscal year 2005, supporting MARAD's assertions in other sections of this assessment that the program was responsive to guidance from the most recent Department of Transportation Inspector General on this process issue. While a notable achievement, that performance level is still 11% below the baseline target.

Evidence: 1. 2007 Budget Cargo Preference performance measures. 2. AID's compliance percentage has been: 2001 -- 74%; 2002 -- 67%; 2003 -- 71%; 2004 -- 72%; 2005 -- 65%. USDA's compliance percentage has been: 2002 -- 75%; 2003 -- 75%; 2004 -- 83%; 2005 -- 78%. 3. For example, see American Cargo Transport, Inc., etc. v. United States of America, etc. No. C05-393JLR, USDC, W.D. Washington and America Cargo Transport, Inc. v. Andrew S. Natios, U.S. Agency for International Development and John Jamian, Acting Maritime Administrator, Department of Transportation, Civil Action No.: 05-1452 (RBW). 4. 46 App. U.S.C. 1241(b)(2).

LARGE EXTENT 17%
4.3

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: MARAD has established two new primary efficiency measures. One measures the processing and payment time of the reimbursement invoices and the other measures the time to calculate the guideline ocean freight rates when requested by the shipper agencies. As discussed in Section 2 and since reaching an agreement on the correct reimbursement calculation methodology in 2004, the invoicing agency and MARAD have collaborated to achieve a much greater efficiency in OFD processing, as evidenced below and in the attached performance measure table. The guideline rate measure shows some performance slippage. Some of this is attributable to world market conditions in 2001 and 2002 that allowed vessel operators to respond more quickly to rate requests followed by the international economic boom driven by China in 2003-2005 which had the opposite effect. In addition, as food becomes more targeted with smaller parcels in different contracts to different destinations on the same vessel, the calculations become have increased in complexity.

Evidence: 1. 2007 Budget Cargo Preference performance measures. 2. The average OFD invoice processing time between USDA and MARAD was: 128.3 days in 2003; 83.8 days in 2004; and 38.3 days in 2005. The number of transactions processed within the performance measure was: 20% in 2003; 27% in 2004; 79% in 2005. The guideline rate requests processed within the performance measure was: 92% in 2003; 91% in 2004; 89% in 2005.

LARGE EXTENT 17%
4.4

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: OFD is a unique program of the federal government. There is no other program that reimburses the differential cost of shipping a cargo on a U.S.-flag vessel verses a foreign flag vessel. The OFD program shares a broad common purpose with other MARAD programs of promoting the maintenance of a U.S. Merchant Marine and associated mariners nessacary for our economic and defense security. These other programs are: the Maritime Security Program which pays a small annual retainer fee to a limited number of vessels; the Jones Act which requires all domestic water transportation to be on U.S. registered vessels but does not pay separate fees; and the other cargo preference laws that require varying percentages of non-food aid cargoes to be carried U.S. registered vessels but also do not pay any separate fees.

Evidence: 1. 46 App. U.S.C. 1101 - http://www.access.gpo.gov/uscode/title46a/46a_21_1_.html 2. Maritime Security Act of 2003 (117 STAT. 1789, 1803) (46 App. U.S.C. 53102-53106) - http://www.marad.dot.gov/Publications/05%20reports/MaritimeLaws(2005)qxd.pdf P. 93. 3. 46 App. U.S.C. 883 - http://www.access.gpo.gov/uscode/title46a/46a_19_.html 4. 10 App. U.S.C. 2631 http://www.marad.dot.gov/Publications/05%20reports/MaritimeLaws(2005)qxd.pdf P. 223. 5. 46 App. U.S.C. 1241-1 - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html 6. 46 App. U.S.C.1241(b) - http://www.access.gpo.gov/uscode/title46a/46a_21_9_.html

NA 0%
4.5

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: An independent evaluation of the program of sufficient scope has not been performed since the Government Accountability Office (GAO) examined cargo preference issues in two reports published in 1994. Since twelve years have passed since that time, the findings would have to be reexamined for relevance based on current program performance. More recently, GAO in 2004 selected cargo preference laws as one of several federal programs to scrutinize for opportunies to improve economy, efficiency and effectiveness. In both 1994 and 2004, GOA states that the effect of cargo preference laws has been mixed, with evidence inidicating thathat they (including the Ocean Freight Differential program) have a substantial impact on the U.S. merchant marine industry by providing an incentive to remain in the U.S. fleet. However, they also substantially increase federal agencies' transportation costs, and it is notable that the PART assessment for Title II Food Aid stated that that program would be more cost effective if cargo preference laws were because they increase both delivery cost and time. In addition, as noted in question 2.7, the Department of Transportation conducted a limited scope evaluation of a certain internal process and to provide assurance that a proposed reimbursement payment was supportable and reasonable. The findings in this report were illustrative of the concerns explained in questions 2.5 and 3.5.

Evidence: 1. U.S. Government Accountability Office, Cargo Preference Requirements: Objectives Not Significantly Advanced When Used in U.S. Food Aid Programs. http://archive.gao.gov/t2pbat2/152603.pdf. 2. U.S. Government Accountability Office, Cargo Preference Laws-Estimated Costs and Effects. http://www.gao.gov/archive/1995/rc95034.pdf. 3. U.S. Government Accountability Office, Opportunities to Improve the Economy, Efficiency, and Effectiveness of Federal Programs. http://www.gao.gov/new.items/d04649.pdf. 4. See evidence cited for explanation to question 2.7.

LARGE EXTENT 17%
Section 4 - Program Results/Accountability Score 67%


Last updated: 09062008.2006SPR