Block That Diversion

When Congress acts to avoid the year-end fiscal cliff threatening the nation’s fragile economic recovery, it should include a solution for an issue that threatens to curtail the country’s ability to maintain competitive ports and diverts import containers away from U.S. ports.

That issue is the Harbor Maintenance Tax, which assesses an ad valorem tax of 0.0125 percent on every import container that lands at a U.S. port to fund the maintenance of U.S. ports. That doesn’t sound like much, but the HMT averages $109 per 40-foot container, according to a Federal Maritime Commission report.

That’s enough to divert containers to the Canadian ports of Vancouver and Prince Rupert and away from ports in the U.S. Pacific Northwest, the FMC and U.S. PNW ports say. The FMC report, which suggested Congress consider changes, acknowledged there is nothing illegal about shipping U.S.-bound cargo through Canadian ports and noted shippers’ routing decisions are based on time and cost savings, risk mitigation and rail rates in addition to the HMT.

“It’s not about diversion. It’s about competition,” Jean-Jacques Ruest, Canadian National Railway’s executive vice president and chief marketing officer, told the JOC’s Canada Maritime Conference this month. “It gets heated up, but it’s about better service.”

That may be, but there is little question the HMT makes the U.S. PNW ports less competitive vis-à-vis Canadian ports. Import containers that land in Prince Rupert and are railed by CN to the U.S. don’t pay the HMT because they come in under the North American Free Trade Agreement.

That’s not the only problem with the HMT. It collects about $1.5 billion annually, which is supposed to accumulate in the Harbor Maintenance Trust Fund for use in maintaining U.S. port depths. Problem is, Congress siphons off about $700 million a year to fund the nation’s deficit and for other programs.

Congress will consider ways to reform the way it funds harbor maintenance as part of the long-delayed Water Resources Development Act.

As Mark Szakonyi explains in this week’s cover story, Congress could consider more infrastructure funding as part of a Grand Bargain to deal with the fiscal cliff.

The best way to reform the nation’s freight transportation needs is by creating a Transportation Trust Fund, where projects, including port dredging and freight rail initiatives, as well as highways, are awarded by merit.

Such a fund could be financed by the first fuel tax hike in 17 years, which also could fund the deepening of U.S. ports to competitive depths. Congress would have a tougher time getting its hands on harbor funds if they were rolled into an overall Transportation Trust Fund. That way both diversions might end — the diversion of U.S. import cargo through Canadian ports, and the diversion of harbor maintenance funds to other uses.

Contact Peter T. Leach at pleach@joc.com and follow him at twitter.com/petertleach.

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