When the Federal Maritime Commission launched an inquiry into shipment of U.S.-bound containers through Canadian ports, cargo interests and Canadian officials feared the FMC was trying to build regulatory roadblocks at the border.
The FMC report, issued late last month, stopped short of a frontal attack on cross-border shipments. It focused on U.S. policies, particularly the Harbor Maintenance Tax on waterborne imports. The report suggested Congress consider changes to the HMT, a new fee on all cross-border cargo, and proposals for a national transportation policy.
“This study provides facts U.S. policymakers can rely upon as they make the important choices affecting this country’s ability to compete in a global transportation marketplace,” FMC Chairman Richard Lidinsky Jr. said.
Two FMC members didn’t see it that way. Rebecca Dye and Michael Khouri, the commission’s two Republican members, were on the losing end of a 3-2 vote to release the report. They said the report’s methodology was flawed and its conclusions were half-baked.
“The ‘study’ we have submitted to Congress is a political policy paper developed to justify a predetermined conclusion that the Harbor Maintenance Tax affects ‘cargo diversion’ from U.S. to Canadian ports,” Dye said in a statement posted on the FMC Web site.
The FMC’s inquiry followed a request last year by Sens. Maria Cantwell and Patty Murray, D-Wash., and several House members from the West Coast. They asked the FMC to investigate whether U.S. policies, including the HMT, encourage shipments through Canadian ports.
Their interest was spurred by the rapid growth of the Port of Prince Rupert, British Columbia, which has leveraged its short transit time from Asia, quick intermodal transfer and low rail rates into annual volume of more than 500,000 20-foot-equivalent units.
The FMC report found nothing illegal about shipping U.S. cargo through Canadian or Mexican ports. The report said shippers are attracted to those ports by low costs, efficiency and risk mitigation, but that savings in time and money may be overstated.
“Many of the advertised benefits of foreign ports are not as significant as may be believed, for example, the transit time from China to inland destinations such as Chicago and Memphis through the Port of Prince Rupert as opposed to ports in the United States,” the report said.
Most significantly, the report said the Harbor Maintenance Tax is a disincentive to routing import cargo through U.S. ports. The HMT, 12.5 cents per $100 of value, is assessed on U.S. waterborne imports and domestic cargo. The FMC estimated the HMT adds $109 per 40-foot container to the cost of U.S. shipments.
“If U.S. importers were relieved from paying this tax or, equivalently, if a fee of this magnitude was imposed at the border on U.S.-bound containers having used Canada’s west coast ports, a portion of the U.S. cargo that comes through the ports of Vancouver and Prince Rupert likely would revert to using U.S. West Coast ports,” the report said.
“It seems clear that removal of the HMT would drive some U.S. discretionary cargo going through Canadian ports back to U.S. West Coast ports, but by no means all. That being said, the HMT does appear to be one competitive force that is not based on natural competition, but may indeed be a legislative disadvantage on some U.S. ports,” the report said.
Khouri questioned the report’s analysis. Canadian shippers, he noted, were more likely to use U.S. ports than U.S. shippers to ship through Canada. The report said U.S. cargo shipped via Canadian ports totaled less than 2.6 percent of U.S. containerized imports and exports in 2010. Canadian imports and exports via U.S. ports were 1.3 percent of U.S. volume.
“The unaddressed question is — if HMT is such a relevant factor in route selection, why would any Canadian-bound cargo enter through a U.S. port and pay the HMT?” Khouri said in a statement on the FMC Web site. “The original question was how to ‘level the playing field.’ An alternative question could be — is there enough tilt to the playing field to allow for rain water to run off?”
He suggested the report’s contradictions made it worthless as a policy document. “I believe the FMC study falls short of answering the congressional inquiry,” he said. “Further, I believe the study fails to assist or advance meaningful study or debate concerning either the federal HMT or the broader subject of a national transportation policy.”
Dye also objected to a line in the report noting Prince Rupert does not participate in the U.S. Container Security Initiative, which screens U.S.-bound cargo. Ports, she noted, were chosen for the CSI based on cargo volume. She said all containers arriving at Canadian ports undergo radiation screening and that Prince Rupert has been selected for a joint U.S.-Canada pilot project for targeted examination.
The FMC’s request for comments on the issue elicited responses from 76 companies, associations, ports and governments. Dye complained the report “confuses certain positions, inappropriately characterizes several comments, and fails to acknowledge many of the important commenters.”
She said the only data submitted by commenters claiming a relationship between the harbor tax and cargo diversion was a 2007 study by Robert C. Leachman, an economist who analyzed the role of costs in determining the flow of West Coast cargo.
Dye said Leachman’s cost-based model “does not account for the dynamic reality in the marketplace.” A footnote in the report acknowledged that such models “tend to overestimate” the impact of changes in costs on shifts in container flows.