Cargo Quid Pro Quo

Tips for U.S. Ex-Im Clients

By Lori Musser

It isn’t new, and it isn’t just a U.S. anomaly. Other countries like to support national fleets too, making sure certain government-agency supported cargo exports are routed on their merchant marine.

Under the Export-Import Bank of the United States, or Ex-Im Bank, cargo preference shipping requirements were developed 85 years ago, per Public Resolution 17, or PR-17. What better way to help maintain a viable U.S. merchant marine than by making U.S.-flag shipping costs eligible for credit agency support as a U.S. services export?

Companies that request services from Ex-Im Bank must be prepared to shop their ocean cargo carriage around the U.S. fleet, and working through U.S. cargo preference regulations requires some skill. Fortunately, for contractors responsible for ensuring that they and all subcontractors comply, there are several resources available, including a new online learning course.

The Office of Cargo and Commercial Sealift at the U.S. Maritime Administration, or MARAD, enforces cargo preference statutes and regulations, and oversees compliance. They ensure shippers use U.S.-flag vessels whenever reasonable, to transport government-impelled cargo.

There are two types of Ex-Im transactions which require shipping on U.S.-flag vessels: direct loans of any amount; and guarantees of more than US$20 million or repayments of more than seven years plus (unless the export qualifies for a longer repayment term under Ex-Im’s Medical Equipment Initiative, Environmental Exports Program, or Transportation Security Program).

Ex-Im transactions that are exempt from cargo preference include credit guarantee facilities of any amount, short-term insurance or medium-term insurance of any amount or term, and guarantees of up to US$20 million with a repayment period of seven years or less.

Technically, 100 percent of Ex-Im Bank supported cargo is supposed to move on a U.S.-flag vessel. When cargo moves under foreign flags, the U.S. maritime economy and availability of a strong merchant marine to support security efforts can be jeopardized. Nevertheless, for some Ex-Im transactions, there is a compromise.

Strange Bedfellows

The unique relationship between the Ex-Im Bank and MARAD may at times seems counter-intuitive. One agency helps build U.S. exports to global destinations, supporting U.S. manufacturing and supply chains. The other improves and strengthens the U.S. marine transportation system to meet U.S. economic, environmental and security needs. The goals can be at odds, so shippers that fully understand mandates, obligations and work-arounds are paramount to helping the U.S. truly achieve both sets of goals.  

Top Tips to Help Shippers Navigate the Ex-Im Bank and MARAD System

1. Call Carriers Early: Collect ocean-carriage bids from U.S.-flag carriers as early as possible to obtain the most favorable rates and shipping schedule.

2. Use MARAD Facilitation: MARAD offers facilitation services to help obtain suitable shipping arrangements (schedules, rates, routes and capacity) on U.S.-flag vessels. Options (such as the use of Advance Shipping Plans, Booking Subject to Completion, and Service Contracts) may prove useful, as will providing complete cargo details to the facilitation team. In cases where cargo is insufficient for optimal volume rates, where cargo may vary from a plan, or where a program of shipments may dictate better shipping rates, these options may prove particularly valuable for shippers.

3. Know the “Determination” Process: Ex-Im Bank has a process – it evaluates eligibility for financing of projects involving foreign-flag shipping. MARAD has a process – it provides determinations (some of which can result in cargo preference waivers) for use in the Ex-Im Bank financing evaluation process.

4. Use the Cargo Purchaser’s Fleet: Ex-Im Bank may provide financing for cargo carried on vessels of the cargo purchaser’s nation for up to 50 percent of the total volume of cargo financed under a specific credit, but, that nation must have a merchant navy and not engage in discriminatory treatment of U.S.-flag vessels in foreign trade.

5. Compensate for Past Transgressions: When projects are brought to Ex-Im Bank for financing after some portion of the cargo has already been shipped on foreign-flag vessels, there may be an opportunity to consult with MARAD to commit to booking future cargo equivalents on U.S. flag vessels. That opportunity may depend on timing, past performance and good intent.

6. Reachback for a Portion of Past Foreign-Flag Shipped Cargo: When compensatory bookings aren’t an option, there may still be a chance for Ex-Im Bank financing for some portion of the cargo. For example, if foreign-flag shipments occurred within a year of the Ex-Im Bank application, up to 10 percent of the value of the total cargo to be financed may be eligible for Ex-Im Bank financing – but at a lower rate (maximum 80 percent level of what Ex-Im Bank would ordinarily finance). Again, timing, fulfillment performance and good intent factor in a reachback decision.            

7. Pursue a ‘Waiver’: Sometimes Ex-Im is able to approve financing of goods shipped on foreign-flag vessels if MARAD certifies that U.S.-flag carriage is not available or possible – strict MARAD procedures are in place. Shippers may request this certification based on lack of vessel availability “in sufficient number, in sufficient tonnage capacity, on necessary schedules, or at reasonable rates.” Shippers provide details to MARAD about their shipping needs and their efforts to identify a carrier. MARAD will delve a little deeper, reaching out to carriers for information, and looking at everything from the shipper’s advanced planning, letters of credit, contracts, timelines and other documentation. MARAD evaluates and may then certify vessel non-availability when there is a lack of response from U.S.-flag vessels or clearly no availability given timing, routing, special cargo considerations (such as heavy-lift), cost or probable delays. It counts heavily if the shipper has made a good faith effort. Vessel non-availability certifications related to lack of reasonable rates take into consideration guideline rates produced by MARAD’s Office of Finance and Rate Approvals, additional shipper and carrier input, vessel supply and demand, and rates (historical, U.S.-flag, and commercial rates). MARAD’s initial input to Ex-Im’s financing decision, facilitation services, or waiver determination may unearth an unconsidered and competitive U.S.-flag option.

8. Pursue it Again: Shippers that are truly flummoxed after receiving assistance and a negative determination, and haven’t firmly booked their cargo, can request reconsideration through the Deputy Maritime Administrator within 10 business days following the determination. There is a process to request more time. With advice from a Reconsideration Committee, the Deputy Administrator reviews and provides a written response within 10 days.

9. Do your Research: MARAD publishes the outcome of requests for determinations on its website at Knowledge of precedents may help.

10. Take the Class: MARAD’s newly accredited, free cargo preference e-training courses, developed in collaboration with Defense Acquisition University, offer background on the importance of maintaining a U.S.-flag merchant fleet, as well as useful guidance to help comply. The group of four short courses are available to the public.

11. Meet Deadlines: Submitting bills of lading and forms on time is key to Ex-Im’s cargo preference process. Bills of lading are required within 20 working days of the date of loading for shipments originating in the U.S. (or within 30 working days for shipments originating elsewhere). So is the Ex-Im “Form F” monthly report of ocean shipments (except for multiple shipments – then it can be submitted at the beginning of each month, along with the preceding month’s bills of lading).

More detail can be found in various publications and guidance documents published by Ex-Im Bank and MARAD, available via their web pages:;

Based in the U.S., Lori Musser is a veteran shipping industry writer.

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