Imagine for a moment you’re an importer of consumer goods looking for the fastest possible transit time from China to your distribution center in Chicago. Air freight is too expensive, so you ship your containers on a Cosco ship across the Pacific. They’re unloaded at Prince Rupert, British Columbia, and transferred promptly to a Canadian National train bound for the U.S. Midwest.
Because Prince Rupert is the closet North American port to Asia on the great circle route served by ships in the trans-Pacific trade lanes, your containers are already well into their rail voyage while goods heading from Asia on a ship to Southern California may only just be arriving at the Port of Los Angeles or Long Beach, cutting your transit time by at least three days and possibly up to six or seven. Is this a problem?
Most shippers see no problem whatsoever. In fact, they see an opportunity to improve their supply chains. The combination of price and service at Prince Rupert has attracted a small but growing following in the shipper community. Prince Rupert began container service in 2007 and handled 343,000 TEUs last year, the vast majority of those headed to U.S. “inland ports” such as Chicago and Memphis.
Ask U.S. ports and marine terminals, however, and the answer is likely to be different. Virtually since the beginning of container shipping, U.S. ports have grumbled as ships disgorge U.S.-bound cargo at the Canadian ports of Halifax, Montreal, Vancouver and, more recently, Prince Rupert. The combination of northern ports reached before those in the U.S. on inbound routes and friendly relations between the U.S. and Canada has kept the “diversion” issue on the radar screen of U.S. ports for decades.
As a U.S. maritime lawyer, Richard Lidinsky wrote in a 1984 law review article that “U.S. port officials have expressed growing concern over the dramatic shift of Midwest containerized cargo away from U.S. ports to ports in Canada, upsetting the normally balanced north-south cargo flow … and much to the detriment of American ports.”
Lidinsky, now chairman of the Federal Maritime Commission, says that far from fading away, the issue deserves fresh attention. “Since I got here (at the FMC), several people have talked to me about this,” he said in a recent interview. “I heard it during my confirmation hearings on the Senate side, I heard it from port authority people on the West Coast, and in a recent meeting in Long Beach, other people brought it up to me.”
He pointed to several areas of concern, including favorable rail rates, border security and built-in price advantages the Canadian ports have because the Harbor Maintenance Tax is applied to containers arriving at U.S. ports but not to U.S.-bound containers offloaded in Canada.
The most recent figures from the ports suggest why the issue is coming back. British Columbia ports’ total West Coast container market share grew from 7.8 percent in 2005 to 12.4 percent last year, while the share of Seattle-Tacoma, the ports closest to British Columbia, dropped from 18.4 percent to 15.6 percent over that time.
“At the core of this, it is a lot of rumor and insinuation not backed up by hard fact,” Lidinsky said. “So it falls to us to be the party that goes to Customs, the Canadian government, the railroads, Cosco — this is all within our jurisdiction, and we would not shy away from doing that.”
Calling Canada “a tremendous neighbor and ally,” he said, “You do them a favor, us a favor, by having a full and frank discussion about this cross-border traffic. I see the commission getting into this, without preconceived outcome, but let’s put all facts on the table and see if there is a solution to what is perceived by many people to be a growing and serious problem.”
U.S. ports are not publicly crying foul over the diversions, at least not yet. “Statistics confirm that diversion is taking place,” said Tay Yoshitani, CEO of the Port of Seattle. “As one member of the (West Coast port) collaborative group, I would be happy to cooperate with the FMC should they decide to initiate an inquiry. Frankly, an FMC inquiry has not been on our radar screen thus far.” (For a video interview with Tay Yoshitani, see http://www.joc.com/maritime/port-seattles-yoshitani-port-issues-forecast-2011-video.)
The Canadians have something to say on this topic; next week, we will hear from them.