FMC to probe role of HMT in diverting U.S. cargo to Canada and Mexico

Federal Maritime Commission Chairman Richard A. Lidinsky, Jr. says 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. So the primary question is: are we handicapping our own ports in international competition?”

Chairman Lidinsky was commenting on a unanimous vote yesterday by the FMC to begin a Notice of Inquiry into disparities that may be causing U.S.-bound cargo to be driven to Canadian and Mexican ports.

The FMC move came in response to written requests from U.S. Senators Patty Murray and Maria Cantwell and a bipartisan group of eight U.S. Representatives from Washington State and California.

In their letter, the Senators wrote:

“We are writing to request that the Federal Maritime Commission analyze the impact the federal Harbor Maintenance Tax (HMT) may have on the diversion of U.S. -bound cargo from U.S. ports to those in Canada or Mexico. Shippers can avoid paying the HMT by routing cargo through non-U.S. seaports. Although the HMT has existed since 1986, it has become a more significant competitiveness issue with the development of new Canadian and Mexican seaports along the west coast, and it appears that the HMT may be a key factor causing U.S. ports to lose a growing share of imported container cargo from Asia.

A growing number of containerized U.S. imports from Asia move through the west coast Canadian container ports of Vancouver and Prince Rupert en route to the U.S . Midwest (i.e. Chicago and Memphis) through cross-border rail. Additional volumes enter U.S . markets via Mexican ports. As a result, non- U.S . ports are able to claim a substantial per-container cost advantage over U.S. seaports based on the HMT alone. The results of this unfair disparity are increased cargo diversion and lost U.S. jobs. In addition, the HMT is not collected at the land border, resulting in decreased revenue for the Harbor Maintenance Trust Fund (HMTF). As a consequence, our country’s capacity to handle international trade growth is adversely affected. It is imperative that we level the playing field between international ports and domestic ports so that the U.S. can continue to compete for cargo.”

The FMC Notice of Inquiry will seek public comment and information to inform the Commission’s study of the U.S. Harbor Maintenance Tax and other disparities that may be driving U.S.-bound cargo from U.S. ports.

The Commission will be seeking voluntary and full input on the issue from government, industry, and the public — both in the United States and Canada.

Proposed Rule for Service Contracts Linked to Freight-Rate Indices: The Commission also voted unanimously to issue a proposed rule that would give more flexibility for ocean carriers and shippers to use service contracts with rates linked to freight rate indices. To date, the Commission has received more than fifty service contracts that reference freight indices.

Under current rules, service contracts can only reference outside terms, such as a rate in a freight index, that are “contained in a publication widely available to the public and well-known within the industry.” The proposed rule would make clear that contracts can reference freight indices or other outside terms, so long as they are “readily available to the parties and the Commission.”

Chairman Lidinsky stated: “This proposed rule is another example of the Commission implementing President Obama’s guidance to revisit regulations to reduce burdens and promote flexibility. To the maritime industry, my message is: go forth and innovate. The FMC will try to give you the certainty and flexibility you need, while continuing to protect the shipping public.”

October 6, 2011