Taxing Whose Containers?

One could toil away for years in the shipping industry without hearing more than a few passing references to the Harbor Maintenance Tax. It’s one of those “issues” that hovers in the background, never changing yet always at the ready for some fist-shaking complaints.

And as targets go, it’s a good one: Importers of goods via ship must pay a portion of the value of their cargo to maintain the depth of navigation channels, yet Congress for years has kept roughly half of the money collected, using it as an ever-so-slight offset to the federal deficit. West Coast ports such as Seattle and Tacoma are especially irked at the tax since the naturally deep Puget Sound doesn’t need dredging. Their importers, then, subsidize dredging at river ports such as New Orleans; Savannah, Ga.; nearby Portland, Ore.; and New York-New Jersey, competitors for the same pool of Asia cargo.

Now the West Coast ports have a new reason to complain about the HMT, and, as a result, this standby issue is about to make the headlines again — probably with a bigger splash than in 1998 when the Supreme Court, in a rare maritime ruling, declared the tax unconstitutional as applied to exports.

The reason for the new attention is competition, but with a new twist: Seattle and Tacoma, and other U.S. West Coast ports, have been watching with increasing unease the meteoric rise of Prince Rupert, British Columbia, a port in a town of 12,000, 480 miles north of Vancouver. The small industrial town is on the Great Circle shipping route between Asia and North America, and robust rail connection into the North American interior gives it a three-to-four day advantage over Los Angeles-Long Beach in getting goods to Chicago and other U.S. cities. The route has been a hit with shippers looking to pare inventory costs through faster transit times.

But few if any sales pitches fail to mention that no Harbor Maintenance Tax is due on containers arriving at Canadian ports, a savings of $137 per container on average, according to the Federal Maritime Commission. The U.S. West Coast ports have come to see the tax as the main culprit in their declining market share against Canada — Seattle and Tacoma saw their combined piece of total West Coast cargo drop from 18.4 percent in 2005 to 15.6 percent last year, while British Columbia ports increased their share from 7.8 percent to 12.4 percent during that same period, according to West Coast port data.

It’s the future that most worries the U.S. ports: Prince Rupert may have handled less than 400,000 TEUs last year, but a second container terminal is in its design stages, which has Prince Rupert on course to handle up to 5 million TEUs by 2020, the Prince Rupert Port Authority says on its Web site.

With limited options given the close relationship with Canada, the U.S. ports’ strategy is narrow and surgical, targeting a familiar punching bag, the HMT. As a result of lobbying, the FMC in August received a letter from Sens. Maria Cantwell and Patty Murray of Washington, saying “it appears that the HMT may be a key factor in causing U.S. ports to lose a growing share of imported container cargo from Asia,” and requesting an inquiry. The FMC, whose Chairman Richard Lidinsky has known about the diversion issue on the East Coast going back to the 1980s, appears ready to act. The commission will vote Oct. 5 whether to pursue a formal inquiry and if so at what level of legal formality.

The West Coast ports, however, are already several steps ahead; at the risk of being branded protectionists — an unusual charge for a port — they have a remedy in mind: a new HMT-like levy on U.S. containerized imports that originate at Canadian ports.

That may sound like it has a nice simplicity to it, but the idea raises myriad questions: Doesn’t the U.S. economy, and consumers in particular, benefit more from greater efficiency of supply chains than what it loses in a few longshore, trucking or warehousing jobs? Is imposing a new tax on business the right move when the economy is still struggling to recover? If this is to be a tax on the cargo, isn’t that a tariff and wouldn’t that violate the North American Free Trade Agreement? Might not a better solution be to scrap the HMT and make funding for maintenance dredging a local responsibility among ports that require it?

And what about the estimated 15 percent of Canadian containers that enter through U.S. ports? Would Canada be within their rights to tax that cargo? As Canadian Pacific CEO Fred Green told the recent Journal of Commerce Maritime Conference, “People may want to have their eyes wide open before they start throwing stones.”

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com, and follow him at twitter.com/PeterTirschwell.
 

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