Cargo diversion’s political stir

FMC study riles Canadian industry and government leaders.

By Chris Dupin

  A long-expected decision last month by the U.S. Federal Maritime Commission to begin an investigation into diversion of U.S. imports and exports through Canadian ports has ruffled the feathers of some Canadian business and government leaders.
  FMC Chairman Richard A. Lidinsky Jr. has said for months he was considering such a study because of concerns expressed by West Coast port interests.
  This fall the FMC received requests to look into the issue from nine members of Congress from Washington state — Sens. Patty Murray and Maria Cantwell, and Reps. Rick Larsen, Jay Inslee, Norm Dicks, Adam Smith, Dave Reichert, Jaime Herrera Beutler, and Jim McDermott — as well as California Rep. Laura Richardson.
  Lidinsky said his agency was asked “to study the extent to which the Harbor Maintenance Tax (HMT) and other disparities affect container cargo diversion from U.S. West Coast ports to west coast Canadian and Mexican ports, and we have been asked to offer legislative and regulatory recommendations.
  “The time has come for the FMC to examine the disparities that have pushed U.S.-bound ocean cargo from our ports to Canadian ports. Last year, 7 percent of U.S.-bound imports that entered through the West Coast came through a Canadian port instead of a U.S. port,” he said.
  In particular, Prince Rupert of British Columbia has seen a meteoric rise in container volumes. It opened a new container terminal in 2007 and is nearing its 500,000 TEU capacity, handling over 45,000 TEUs in September alone.
  Through its Asia-Pacific Gateway and Corridor Initiative, the Canadian government has encouraged increased use of Prince Rupert and Vancouver by U.S. shippers. Nearly two-thirds of the container cargo moving through Prince Rupert is destined for the United States, while only 5 percent to 6 percent of Vancouver’s volume is headed south of the border.

  Michael Gurney, director of communications at the Prince Rupert Port Authority, said the port was “confident that the investigation will show that a level playing field across North American economies is preferable and is more conducive to healthy competition.” He said the port firmly believes its growth has not been a reflection of government subsidies “but of our natural strategic advantages such as our proximity to Asia and low rail grade from Prince Rupert into the U.S. Midwest — things that contribute to speed, reliability and efficiency.”
  The FMC’s decision to begin the inquiry drew sharp reaction from Canadian business. Perrin Beatty, president and chief executive officer of the Canadian Chamber of Commerce, said his group “will oppose any protectionist measures that will penalize Canadian ports, railways and all cargo carriers and make North America’s freight system more costly.” He contended: “Canadian ports and users are required to pay the full cost of the infrastructure they use.”
  The Fairview Container Terminal in Prince Rupert was built with financial assistance from both Canada’s federal government and the province of British Columbia in 2006-2007, but Gurney said “in terms of our relationship to the federal government, it is an arms-length relationship. I don’t believe that qualifies as a subsidy. We are set up to be independent and profitable. We are essentially a steward of what we call in Canada the crown lands, the federal government land.”
  Gerald Keddy, parliamentary secretary to Canada’s Minister of International Trade Ed Fast, said his government would “vigorously defend against and refute any allegations that actions on the part of Canadian ports or businesses are in any way inappropriate.”
  He added “any suggestion — as some have proposed — of imposing new taxes on U.S.-bound containers coming through Canadian ports, is a bad idea.”
  Speaking in the Canadian Parliament, Fast, who is also minister for the Asia-Pacific Gateway Initiative, said “any new tax is a bad idea as it raises costs on consumers. Canada’s ports and railways are competing fairly.”
  He also said “we will defend Canada’s competitive advantage wherever it is threatened. I have made this clear to FMC Commissioner Lidinsky as well as to my USTR counterpart,” U.S. Trade Representative Ron Kirk.
  Rep. Larsen, R-Wash., who was one of the lawmakers requesting the inquiry, praised the FMC for voting to initiate the cargo diversion study.
  “Our Northwest ports are losing business to Canada at a time when we need this trade and the jobs it will create more than ever,” Larsen said in a statement. “We need to understand why this is happening so Congress can take action to fix this disparity and create jobs.”
  The Canadian government and Prince Rupert have announced plans to increase the capacity of the container terminals at Prince Rupert by 1,000 percent by 2020 to 5 million TEUs, Lidinsky said.
  Gurney said, however, the short-term plan is to increase the number of berths at Prince Rupert from two to three, so the total capacity would rise to 2 million TEUs over the next decade.
  Lidinsky noted there are plans to build a similar Atlantic gateway port in Melford, Nova Scotia, with direct rail links to U.S. destinations. (There is a similar proposal to build a container terminal in the same Canadian province at Sydney and Lidinsky has also said there is the possibility that someday a Canadian port bordering the Arctic Sea will be built if the ice cap continues to melt.)
  And Canada has created a mirror of its promotion initiative for transpacific cargo called the Atlantic Gateway and Trade Corridor Strategy, which touts its “fully integrated multimodal transportation system that offers deep water ports, efficient and reliable road and rail networks with access to U.S. markets, and airports with air cargo access to/from international markets.”
  Lidinsky also noted that in Mexico the Port of Lazaro Cardenas has begun to target U.S.-bound cargo.

Harbor Maintenance Tax. The HMT is an ad valorem tax based on the value of imported goods, amounting to about $80 on average for a 40-foot container of imports moving through a U.S. port, Lidinsky said. But he noted charges can be much steeper for a container loaded with high-value goods such as auto parts.
  Despite the HMT, he said the U.S. government is failing to provide needed infrastructure investments in return.
  “Let me be very clear about this: Canadian and Mexican ports are free to compete with U.S. ports for U.S. cargo. But they should do so on a playing field that is not artificially tilted by governments’ policies,” Lidinsky said.
  He also said he was “curious whether that disparity is compounded by artificial differences in container inspection practices and costs, rail costs, and infrastructure cost investments.”
  “The primary focus of the congressional request is disparities created by the U.S. harbor maintenance tax,” Lidinsky said. “So the primary impetus for the study is a U.S. policy and the question: are we handicapping ourselves? Is there something we can learn from how Canadian ports raise revenues and pay for dredging and port infrastructure?”
  Of course, the harbor maintenance tax is the subject of at least two other major debates in the shipping industry. Promoters of “marine highway” systems want domestic intermodal cargo to be exempted from the HMT to encourage the use of short-sea or inland vessels to haul freight; ports and exporters want the surplus in the Harbor Maintenance Trust Fund that contains the proceeds of the HMT to be spent down to work-off the backlog of maintenance dredging around the country.
  It also appears that many Canadian ports attracting U.S. cargo are blessed by deep water. Gurney said Prince Rupert has the deepest natural harbor in North America, and has little need to dredge. Melford also says it has water to accommodate the largest container berths. Sydney already has deep water, but began a $38 million project to deepen its entrance channel to 17 meters (55 feet) in October.
  In addition, the Port of Montreal has long competed vigorously for cargo moving to and from the U.S. Midwest without causing much commotion.

  
Kevin Doherty, chief executive officer of the Montreal Gateway Terminals Partnership (MGT), said about 30 percent of the containers that the two terminals his company handles moves to U.S. cities such as Chicago, Detroit and Minneapolis, with a smaller portion going into the Northeast.
  Geography, he said, offers Montreal the ability to bring cargo 1,000 miles up the St. Lawrence River and closer to its final destination, thereby reducing more expensive rail or truck transport for American shippers. Doherty explained that advantage may grow as he expects the size of the containerships calling at the port to increase in the coming years. The largest ships currently calling MGT max out at about 4,400 TEUs, but success at bringing large tankers up the river indicate that it may be possible to bring 5,000-6,000 TEU ships to Montreal, he said.
  MGT has also been working to make its terminals more attractive to both U.S. and Canadian shippers by reducing intermodal container dwell times.
  Doherty said MGT has entered into performance agreements with Canadian National Railway and the Port of Montreal’s short line railroad to reduce wait times. Today, all boxes are out of the port within 48 hours after they are discharged from a ship, he said. Before the agreements, containers sometimes sat for a week. He added the terminal has a similar agreement with Canadian Pacific.

Just The Facts. In response to the Canadian Chamber of Commerce, Lidinsky said “contrary to some overheated claims by a certain lobby group, no one at the FMC or in the U.S. government has raised the prospect of levies, sanctions, or tariffs. I am simply talking about a study of the facts.”
  But Keddy insisted “we do know that there are those who are indeed advocating such a tax.”
  The FMC said the notice of inquiry process will allow business and government officials from the United States, Canada or other parts of the world to offer comments.
  Lidinsky also noted that as an independent federal agency “a decision to study the issue of U.S.-bound trade moving through Canadian and Mexican ports does not imply any position by the Obama administration.”
  “A tax at the border wouldn’t just be a tax on Canadians. It would be a tax on Americans, too. We cannot forget the 8 million American jobs that depend on trade with Canada,” Keddy warned. “We’re each other’s number-one trading partner. People working in the auto sector, in high technology, in manufacturing and many other sectors of the U.S. economy depend on fast, efficient, cost-effective trade between and through our countries.”
  Keddy contended “history has shown that restrictive trade policies stall growth and kill jobs. Canada believes that this is the time for our countries to work together in partnership to encourage economic growth and job creation through trade, not stall it.”
  He said the Canadian government has “invested in competitiveness of its ports and has made significant investments improving its port infrastructure. Our ports also offer an added advantage to shippers — a 60-hour sailing time advantage between Asia and British Columbia ports compared to other North American ports.”
  
Maritime Magazine, a Canadian trade publication, quoted Jean-Jacques Ruest, an executive vice president and chief marketing officer at CN, that his railroad “rejects as unfounded any suggestion that it is subsidizing rates for ocean carriers and their customers using the Prince Rupert gateway in order to establish that port as a competitor.”
  It’s not only Canadians that are raising eyebrows at the FMC’s study. Shipping executives question whether a regulatory agency like FMC really has the authority to be investigating an issue such as cross-border cargo movement or the ability to do anything about it, even when cargo is moving on through ocean bills of lading.