When the Federal Maritime Commission last fall launched an inquiry into containerized cargo moving inland through Canadian and Mexican ports, the reaction in Canada was swift and fierce.
The FMC’s goal, of course, was to determine the economic factors affecting shippers’ choice of ports. It focused heavily on the Harbor Maintenance Tax, a 0.125 percent levy on the value of a containerized import ostensibly to fund maintenance projects, including dredging, at U.S. ports. The Harbor Maintenance Trust Fund currently has a balance of more than $6 billion.
Canada has no such tax. It also has no shortage of outrage over the FMC inquiry. “What a frivolous waste of freaking time!” said a Canadian freight forwarder who requested anonymity. “It’s your (U.S.) debate, about the Harbor Maintenance Tax, and you should have that debate if you want it, but don’t make Canada the scapegoat.”
Perrin Beatty, president of the Canadian Chamber of Commerce and a former Cabinet minister, said FMC Chairman Richard A. Lidinsky’s “repeated use of ‘diversion’ represents a repudiation of free market competition. “Diversion is a highly politicized word,” Beatty said. “It is never used about the hefty amount of Canadian cargo shipped through U.S. ports.” U.S. ports handle 8 percent of Canadian containerized cargo, he said.
There is no record in Journal of Commerce files to indicate Lidinsky ever used the term.
More than 60 individuals and groups, most of them agreeing with the Canadian perspective, had their say in the FMC’s comment period, which ended Jan. 9. Canadian Pacific Railway, which serves the Port of Vancouver, British Columbia, offered the most complete analysis of cargo flows of goods to U.S., Canadian and Mexican ports. Data show traffic at Mexican and Canadian ports grew faster than U.S. ports by fractions of a percent between 2000 and 2010, but the cargo volumes reflected growth in each nation’s gross domestic product. The U.S. lagged Mexico and Canada in GDP growth by fractions of a percentage point: 2.1 percent in the U.S., compared with 2.4 percent in Canada and 2.5 percent in Mexico.
“Stronger growth in GDP and in merchandise imports for Canada and Mexico has resulted in stronger growth in containerized freight as compared with the U.S.,” CP said.
U.S. trade still dominates its North American neighbors: $2 trillion in the U.S., compared with $521 billion for Canada and $609 billion for Mexico, according to the World Trade Organization.
Container traffic reflected similar patterns, CP said. Using data from the American Association of Port Authorities and Canadian port authorities, the railroad noted U.S. container volume grew from 30 million 20-foot equivalent units in 2000 to 42 million TEUs in 2010 at a compound annual rate of 3.4 percent. Canada’s volume grew 5 percent, but ports handled 4.7 million TEUs in 2010. Mexico ports in comparison were booming, growing to 3.7 million TEUs in 2010, up from 1.3 million in 2000, a 10.9 percent average annual growth rate.
Despite the growth in all three countries, CP cited data from PIERS, a Journal of Commerce sister company, to argue Canada’s market share for U.S.-bound containers dropped from 3.2 percent in 2000 to 2.5 percent in 2010. The U.S. ports’ market share for boxes bound for Canada declined from 10.8 percent in 2000 to 6.1 percent. There is still a gap in total number of containers. U.S. ports handled 2.2 million TEUs of Canadian cargo in 2010, while Canadian ports landed 425,264 TEUs bound for the U.S.
The ports of Vancouver, Prince Rupert, Montreal and Halifax cited the same market share data in their comments to the FMC to counter “misconceptions” in the inquiry. “There is no statistical evidence to support the claims that U.S. cargo is being ‘diverted’ through Canadian ports,” the ports wrote in a joint filing.
Eric Johnson, executive director of the Washington Public Ports Association, said the HMT creates an advantage for Canadian ports. In 2009, the Washington state Legislature considered a $50-per-container fee for congestion relief at Puget Sound ports, but shot it down after lawmakers estimated a $30 fee on a 20-foot container would result in a 30 percent decline in port traffic. Johnson said the HMT had a similar effect to drive containers to Canadian ports.
The Seattle Metropolitan Chamber of Commerce agreed the tax discouraged shippers’ choice of port and that the diversion of cargo to Canada could threaten some 200,000 jobs in the region.
Support for the idea the HMT is diverting U.S.-bound goods to foreign ports, however, appears limited to the Puget Sound region. Shippers, for example, told the FMC there were factors beyond the HMT in their choice of ports. Consider time to market: There are 4,642 nautical miles from Shanghai and Prince Rupert, compared with 5,101 miles to Seattle, which saves two days sailing.
“I hope you realize it’s not the taxes, it’s the transit times. So unless you’re going to change the curvature of the earth, I will continue to import my U.S. goods through the Port of Prince Rupert,” wrote Aron Finn, who identified himself only as “port user.”
“Canadian ports aren’t out to get us, they’re doing something better than us and supplying the U.S. marketplace with the goods they need and want in a more efficient manner, end of story,” he said.
John Pound, operations controller for Canton, Ohio-based FitnessQuest, said his company is testing the movement of goods through Prince Rupert for two reasons: the relative cost compared to U.S. ports, and there was “no degradation in logistics to U.S. destinations.”
Many used the FMC inquiry to call for reform of the HMT itself. To compete with foreign ports, the U.S. must develop a national freight policy and invest in infrastructure.
“Creation of a National Freight Transportation Strategy is vital not only for the competitiveness of U.S. ports, but the nation as a whole,” said Geraldine Knatz, executive director of the Port of Los Angeles. She said the U.S. Department of Transportation should develop a strategy that addresses the multimodal needs for freight transportation, especially imports and exports through U.S. ports.
“A comprehensive, integrated approach similar to Canada’s National Policy Framework … is needed,” Knatz said. “America needs a national freight transportation system that serves as the backbone to the economy by making U.S. freight gateways more efficient, reliable and sustainable.”
Tay Yoshitani, executive director of the Port of Seattle, acknowledged Canada had done an excellent job executing its national transportation strategy. “The U.S. should follow suit by ensuring that our own policies don’t encourage shippers to use other gateways for Asian cargo destined for U.S. cities, and transportation investments are made with an eye to long-term competitiveness,” he said.
The port’s comments noted higher U.S. intermodal rail rates plus the HMT, when combined with the Canadian government’s well-thought-out national freight policy, have resulted in a diversion of hundreds of thousands of U.S.-bound containers a year through Canadian ports. “If the FMC finds that U.S. law provides incentives to move cargo through foreign gateways,” Yoshitani wrote, “we believe the commission should recommend that U.S. law be modified to ensure all U.S. containers are treated equally.”