FAR 47.503—Applicability.
Plain-English Summary
FAR 47.503 explains when the Cargo Preference Acts of 1904 and 1954 apply to shipments in federal contracting and foreign assistance, and it identifies the specific cargo categories covered. It addresses Government-owned supplies in the possession of the Government, contractors, or subcontractors at any tier; supplies for Government use that are contracted for but not yet owned by the Government at shipment; and certain supplies shipped for foreign assistance programs when they are not purchased with local currency funds. It also creates a special rule for Government-owned supplies shipped commercially for military departments, requiring exclusive use of privately owned U.S.-flag commercial vessels when such vessels are available at fair and reasonable rates. Finally, it clarifies that the 50-percent cargo preference requirement does not bar using U.S.-flag commercial vessels for up to 100 percent of the covered cargo. In practice, this section tells contracting personnel and shippers which cargoes are subject to cargo preference, when U.S.-flag vessels must be used, and where exceptions or broader use of U.S.-flag shipping are allowed.
Key Rules
Cargo preference coverage
The Cargo Preference Acts apply to the cargoes listed in paragraph (a), unless paragraph (b) or 47.504 provides an exception. This means the rule is not limited to cargo already owned by the Government; it also reaches certain cargo being acquired for Government use and some foreign assistance shipments.
Government-owned supplies covered
Government-owned supplies are covered whether they are in the possession of the Government, a contractor, or a subcontractor at any tier. The key trigger is Government ownership, not who physically holds the goods.
Supplies for Government use
Supplies contracted for Government use that require later delivery to a Government activity are covered even if the Government does not yet own them at the time of shipment. This prevents avoidance of cargo preference by shipping before title passes.
Foreign assistance cargo limits
Supplies shipped for distribution to foreign assistance programs are covered only when they are not acquired or contracted for with local currency funds. Paragraph (a)(3) ties coverage to the funding source and points to 47.504(b) for the local-currency exception.
Military department shipments
Government-owned supplies shipped commercially for use by military departments must move exclusively on privately owned U.S.-flag commercial vessels if such vessels are available at fair and reasonable rates. This is a stronger requirement than the general 50-percent rule.
No ceiling on U.S.-flag use
The 50-percent requirement does not prohibit using privately owned U.S.-flag commercial vessels for up to 100 percent of the covered cargo. Agencies may choose to ship all of the cargo on U.S.-flag vessels when that is permissible and practical.
Responsibilities
Contracting Officer
Identify whether the cargo falls within the covered categories, apply the correct cargo preference rule, and ensure solicitations, contracts, and shipping instructions reflect any U.S.-flag requirements or exceptions. The contracting officer must also consider the special military department rule and any applicable exception in 47.504.
Agency / Government Activity
Determine whether the shipment is Government-owned, for Government use, or for foreign assistance, and ensure the cargo is routed in compliance with cargo preference requirements. For military department cargo, the agency must use privately owned U.S.-flag commercial vessels when available at fair and reasonable rates.
Contractor
Comply with cargo preference requirements for Government-owned supplies in its possession and for supplies it ships on behalf of the Government. The contractor must ensure shipments are arranged consistent with any required U.S.-flag vessel use and pass the requirement down as needed.
Subcontractor at Any Tier
Handle Government-owned supplies in accordance with cargo preference rules when the cargo is in its possession. Subcontractors must follow the applicable shipping direction even though they are not the prime contractor.
Shipping / Transportation Personnel
Arrange transportation using the correct vessel type based on the cargo category and availability of U.S.-flag commercial vessels at fair and reasonable rates. They must verify whether the shipment is subject to the general cargo preference rule or the stricter military department rule.
Practical Implications
This section is mainly about identifying when cargo preference applies, so the biggest day-to-day risk is misclassifying the shipment. A shipment can be covered even if the Government does not yet own it, and even if it is held by a contractor or subcontractor.
For military department cargo, the rule is stricter than the general 50-percent standard: if suitable U.S.-flag commercial vessels are available at fair and reasonable rates, the shipment must go exclusively on those vessels.
Foreign assistance shipments require special attention to funding source. If the supplies were acquired or contracted for with local currency funds, the cargo preference rule in paragraph (a)(3) does not apply in the same way.
Contractors and subcontractors should not assume that possession changes the rule. Government ownership and intended use are the key factors, so shipping documents and contract terms should be reviewed before arranging transport.
The final sentence is important operationally: the 50-percent requirement is a minimum, not a cap. Agencies may ship more than 50 percent, including all of the cargo, on privately owned U.S.-flag commercial vessels when appropriate.
Official Regulatory Text
(a) Except as stated in paragraph (b) of this section and in 47.504 , the Cargo Preference Acts of1904 and1954 described in 47.502 (a) apply to the following cargoes: (1) Supplies owned by the Government and in the possession of- (i) The Government; (ii) A contractor; or (iii) A subcontractor at any tier. (2) Supplies for use of the Government that are contracted for and require subsequent delivery to a Government activity but are not owned by the Government at the time of shipment. (3) Supplies not owned by the Government at the time of shipment that are to be transported for distribution to foreign assistance programs, but only if these supplies are not acquired or contracted for with local currency funds (see 47.504 (b)). (b) Government-owned supplies to be shipped commercially that are- (1) In the possession of a department, a contractor, or a subcontractor at any tier and (2) For use of military departments shall be transported exclusively in privately owned U.S.-flag commercial vessels if such vessels are available at rates that are fair and reasonable for U.S.-flag commercial vessels. (c) The 50-percent requirement shall not prevent the use of privately owned U.S.-flag commercial vessels for transportation of up to 100 percent of the cargo subject to the Cargo Preference Act of1954.