Costs of Cargo Preference

PAD-77-82: Published: Sep 9, 1977. Publicly Released: Sep 9, 1977.

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The current version of cargo preference legislation would require 9.5% of imported oil to be carried in U.S.-flag ships. Witnesses before the House Committee on Merchant Marine and Fisheries presented estimates of the difference in costs between carrying imported oil on U.S. ships protected by cargo-preference legislation and the cost of carrying oil on foreign-flag ships.

Estimates of the transportation cost differential ranged from 1.2 cents per gallon to 2.8 cents per gallon. The Maritime Administration estimate was 1.6 cents per gallon. The differences in estimates were due primarily to disagreement over the capital cost differential between building ships in the United States and obtaining them in world markets. Estimates of costs to consumers for all imported oil ranged from 0.1 cents per gallon to 1.0 cents per gallon. Because of the wide dispersion in estimates, GAO made its own estimates using a simple average of operating cost differentials which is about one-fourth of the total differential. A range for capital cost differentials, the major source of variation, was estimated on the basis of different assumptions about world tanker prices. No firm conclusion was reached on possible costs of retaliation by other countries, since it could take forms other than adding to price. A reasonable range of cost estimates would be from about 0.15 cents to 0.23 cents per gallon of imported oil.

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