U.S. Ports Say Canada Cargo Diversion Mostly Hurts Its West Coast

(The FMC issued its NOI in November 2011 and subsequently extended the comment period to January 9, 2012 at the request of the Shipping Federation of Canada. See ITT's Online Archives 11110715 and 11122349 for summaries. The Government of Canada has submitted comments to the NOI, which state that diversion of U.S. inland cargo through Canadian ports is marginal and falling, and that substantially more Canadian cargo is diverted through U.S. ports than vice versa. See ITT's Online Archives 11122920 for summary.)

HMT "Land Border Loophole" and Double Taxation Advantage Canadian Ports

Almost all ports that submitted comments held that the current HMT assessment increases costs of U.S. ports. They state that this creates a trade advantage for Canada and disadvantages U.S. ports, especially those on the West Coast. Comments identified two ways main ways in which the HMT distorts the flow of trade:

Land border loophole. According to the FMC, the U.S. devised the HMT to help fund harbor and channel maintenance by charging users of U.S. seaports an ad valorem rate of 0.125% on imported shipments. However, ports note that the HMT is not assessed on importers who route cargo through non-U.S. ports (such as Canada and Mexico) and then move their cargo into U.S. markets by land. Ports state that this so-called "land border loophole" encourages international importers to divert cargo to non-U.S. ports such as British Columbia to avoid the HMT. Several ports supported imposing the equivalent of the HMT on international cargo passing from Canada by land across the U.S. border to close this "land border loophole" and erase an artificial Canadian trade advantage.²

Double taxation. The HMT is often viewed as a double tax on goods moved by water because they get taxed when they arrive in the U.S. and get taxed again if the goods are moved by water domestically. Additionally, if a shipper moves their products on U.S. surface transportation system to avoid this double taxation, U.S. roads will become more congested and more traffic related fatalities and a higher emissions rate will result.

Advantages also Created by West Coast Ports' Clean Truck Rules, Etc.

Several ports noted that Canadian and Mexican ports have been strategically positioning themselves as alternatives to U.S. ports. They state these ports are taking advantage of several factors present in many West Coast ports that increase the cost of those supply chains, including the labor environment, environmental policies, and congestion. For example, recent attempts have been made by several west coast ports to implement Clean Truck Programs, which they state place heavy restrictions on trucks concerning engine manufacturing dates and that are costly and burdensome to importers who need surface transportation to move product.

Investments in British Columbia Make Canadian Ports Viable Alternatives to U.S.

For many years, West Coast seaports have financially benefited from the size restrictions of the Panama Canal and insufficient port infrastructure in Canada. However, Ports state that recent investments by Canada and the planned expansion of the Panama Canal have created a real threat of cargo being siphoned off from U.S. ports. They note that the Canadian government is taking a proactive approach to capture U.S.-bound cargo. For example, it kicked off its Asia-Pacific Gateway and Corridor Initiative projects in 2006, with a commitment to invest nearly $1 billion in infrastructure projects to make British Columbia a viable alternative to the U.S. West Coast. It has also invested significantly in the Canadian National Railroad, which gives Canada a high speed rail corridor directly into the U.S. heartland- bypassing U.S. ports.

U.S. Lacks Spending on Infrastructure, Has Burdensome Regulations, Etc.

Many ports and several associations also noted that U.S. ports may be disadvantaged for the following reasons:

• HMTF funds not used for intended purposes. The full expenditure of the amounts in the Harbor Maintenance Trust Fund (HMTF) is of primary concern to U.S. ports as revenues generated by the HMT are not fully allocated to their intended purpose of maintaining the nation's waterways. The HMTF has a $6 billion surplus, yet there are many ports that are functioning with shallow and narrow channels that are in dire need of dredging to service their current customer base. Not having the needed depth and width, some larger vessels cannot enter channels and are restricted to lighter loads. As a consequence, this involves the offloading of cargo to smaller ships, multiple trips, and ultimately increased costs.

• U.S. lacks infrastructure spending plan. While Mexico and Canada have been investing value in their ports, the U.S. has made itself a less desirable option as it disregards infrastructure needs and imposes burdensome regulations on shippers, such as the HMT and the Importer Security Filing (ISF). Additionally, unlike Mexico and Canada, the U.S. does not have a comprehensive national strategy for transportation infrastructure development. This often leads to lags in funding or important projects such as developing key freight corridors. A few comments suggested the U.S. Government reauthorize the Surface Transportation legislation and that it focus on improving freight transportation.

• Funding process has long delays. The federal government needs to find a way to expedite the review, approval, and eventual funding of projects to deepen federal channels. Without an expedited process, many ports will no longer be able to handle the larger ships that are now operating in all trade lanes. The U.S. government can help streamline permit requirements to expedite the construction of waterside trade facilities where delays can result in higher costs to U.S. exporters and lost cargo opportunities to foreign competitors.

¹The International Port of Memphis, the Southeast Michigan Council of Governments, the Port of Everett, the Washington Public Ports Association, the Port of Houston Authority, the Detroit Wayne County Port Authority, the Massachusetts Port Authority, the American Apparel and Footwear Association, the World Shipping Council (WSC), the National Industrial Transportation League (NITL), the National Retail Federation (NRF). See FMC's website for full list of entities that submitted comments.

²Joint comments submitted by the WSC, NITL, and NRF state that such a tax would violate the GATT and the spirit of NAFTA and provoke an unjustifiable trade dispute with the U.S.' largest trading partner. Such a tax could also invite retaliation from the Canadian government on goods moving from the U.S. to Canada, including Canadian import and export cargo that transits through U.S. ports. Therefore, these organizations state that they would be strongly opposed to such a proposal.

(See ITT's Online Archives 11091306 for summary of a letter sent by two Senators requesting the FMC conduct an analysis on the HMT and cargo diversion.

See ITT's Online Archives 10021815 for summary of a 2010 report that found despite a large HMTF surplus, the busiest U.S. harbors are under-maintained.

See ITT's Online Archives 11112913 for summary of participants at a House Transportation subcommittee hearing stating that dredging and other port infrastructure should be a higher priority in order to handle increased trade from the expansion of the Panama Canal.)