Transportation of Public Law 480 Commodities--Efforts Needed To Eliminate Unnecessary Costs

NSIAD-85-74: Published: Jun 18, 1985. Publicly Released: Jun 18, 1985.

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Allan I. Mendelowitz
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GAO assessed the Department of Agriculture's (USDA) and the Maritime Administration's (MARAD) management of the expenditure of U.S. funds for ocean transportation of agricultural commodities.

GAO found significant problems indicating that USDA may be paying higher ocean freight differentials than necessary. USDA control over the bidding and negotiation process for ocean transportation contracts was inadequate because foreign countries: (1) used closed bids which could be submitted late or were based on knowledge of submitted bids; (2) could negotiate with any preferred vessel owner, which did not ensure the lowest possible rates; and (3) could serve as vessel brokers, which could lead to favoritism in rate negotiations. USDA did not consistently follow the standard provision for calculating differentials, or applied the standard in a manner that reduced costs to foreign countries at the expense of higher USDA payments. GAO also found that MARAD did not verify data used in calculating guideline rates because it assumed that vessels returned to the United States without cargo. However, vessels may carry cargo on the return voyage, which allows them the potential to earn excessive profits. Additionally, since MARAD had not prepared guidelines for passenger liners because of the difficulty in separating revenues, it did not know whether transportation rates for liners represented cost plus a reasonable profit.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: USDA announced, on April 10, 1989, a final rule requiring open and competitive contracting in the procurement of ocean transportation by importing countries when the Commodity Credit Corporation is financing the ocean freight under Title I, P.L. 480. May 25, 1989 is the effective date of this new rule.

    Recommendation: The Secretary of Agriculture should require publicly opened transportation offers. The offered transportation rates must be firm and nonnegotiable, and awards should be consistent with open, competitive, and responsive bid procedures. USDA should provide an observer for transportation bid openings, as it does for commodity bids.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: USDA stated that its policy is to minimize the cost of providing both commodity and transportation financing, consistent with the purposes of the P.L. 83-480, title I program and the requirements of the Cargo Preference Act.

    Recommendation: The Secretary of Agriculture should establish a clear policy to minimize USDA transportation expenditures, consistent with cargo preference requirements.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: In its comments and letter, September 11, 1985, USDA referred to changes made in purchase authorization requirements to address the cited problems. With respect to the identified problem areas, USDA has not indicated any intent to revise the program regulations to address these areas. However, on April 10, 1989, USDA announced a significant change in the regulations which will reduce costs.

    Recommendation: The Secretary of Agriculture should direct the Administrator, Foreign Agricultural Service (FAS), to revise and implement program regulations on the basis of this policy. FAS should emphasize cost reductions in the problem areas identified by GAO, including: (1) computation of ocean freight differentials; (2) allocation of cargo; (3) shipment on the basis of lowest landed cost; (4) requirement for demurrage and despatch; and (5) elimination of unnecessarily restrictive tender terms.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: The Department of Transportation (DOT): (1) requested that vessel owners provide a certified listing of actual costs of voyages; (2) established a final rule for calculating fair and reasonable rates for less-than-full ship-load dry bulk cargoes transported on U.S. flag liners; and (3) established a final rule for calculating rates for full-range shipments.

    Recommendation: The Secretary of Transportation should direct the Administrator, MARAD, to devise and institute a method for assessing whether transportation rates for liners represent cost plus a reasonable profit. Also, vessel owners should be required to have their independent accountants semiannually certify that vessel costs and operating data are accurate.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: DOT: (1) finalized a rule for full cargo shipments which provides for recalculation of rates if a vessel is scrapped or sold overseas; (2) intends to recalculate rates if returning U.S. vessels carry other preference cargo; and (3) plans to analyze the feasibility of adjusting rates for commercial, nonpreference cargo.

    Recommendation: The Secretary of Agriculture should issue regulations requiring certification that nonliner U.S. flag vessels do not scrap or carry cargo on a return voyage. The regulations should also provide that the guideline rate will be recalculated and the transportation rate adjusted if a vessel obtains backhaul cargo or is scrapped or sold overseas.

    Agency Affected: Department of Agriculture


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