Impact of proposed federal limits on US bagged food aid shipments: reduction in MSF carrier profits—a risk assessment 1

Abstract

This paper is a stochastic risk simulation of the impact of proposed federal tonnage limits on US Maritime Security Fleet (MSF) bagged food aid shipments. Only MSF (i.e. federally subsidized carriers/vessels for war, or emergencies) and non-MSF US carriers (therefore, at competitive disadvantage) can compete for such shipments—representing an indirect subsidy to both groups. To compensate, US Congress proposed a financial penalty (loss of voyage subsidy) on MSF carriers for food aid above a certain limit. Accordingly, certain carriers will be policy ‘winners’ (non-MSF—larger food aid shipments), and others ‘losers’ (MSF). By simulating loss-minimizing economic behaviour by MSF carriers—using five stochastic factors—I obtain losses substantially below those claimed by the MSF owners. Simulated annual-average MSF profits reduction is $3.5 million—within a large confidence interval; if no carriers surrender their subsidies (as claimed by MSF owners), a reduction of $6.0 million. Only 16% of annual MSF voyages are affected by a 2,500-ton limit (3%; 5,000-ton limit). Minimizing losses, 25 (of 41 affected) annual MSF voyages replace 38,000 tons of food aid with 23,000 tons of other cargo—forgoing $2.1 million in yearly direct subsidies. Two assumptions explain most of this simulated loss reduction.