2013 Update – Study of U.S. Inland Containerized Cargo Moving Through Canadian and Mexican Seaports: One Year Later - Federal Maritime Commission
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2013 Update – Study of U.S. Inland Containerized Cargo Moving Through Canadian and Mexican Seaports: One Year Later

August 9, 2013

Statement of Commissioner Richard A. Lidinsky, Jr.

Just over one year from the submission of the Commission’s Study of U.S. Inland Containerized Cargo Moving Through Canadian and Mexican Seaports, the Office of Commissioner Richard A. Lidinsky, Jr. would like to update the maritime industry, regulated parties, and consuming public, regarding this very important issue. In general, the volume of cargo bound for U.S. inland destinations imported via adjacent countries has remained constant and economists anticipate a stagnant growth rate for the balance of this year.

The report issued by the Commission in July 2012 at the request of U.S. Senators and Congressmen posed three basic questions: first, whether there were any legal or regulatory bars to the carriage by sea and movement of U.S. inland containerized cargo entering via the Canadian or Mexican border; second, what competitive factors would drive a U.S. importer or exporter to route cargo through Mexican or Canadian ports; third, what Congress could do to “level the playing field” in facilitating U.S. ports’ competition with other North American cross-border ports by addressing the HMT structure.

This Study by the Commission was conducted in consultation with Federal and State government agencies in the U.S. The FMC also consulted directly with the governments of Canada and Mexico. Additionally, FMC representatives visited with government officials in Canada and Mexico in order to develop a first-hand understanding of their transportation systems. The Canadian transport and Mexican port officials were more than cooperative in sharing information.

The Committee tasked with completing the report, composed of Commission attorneys, economists, and industry experts found with regard to the first question that carriers shipping cargo through Canadian and Mexican ports violate no U.S. law, treaty, agreement, or FMC regulation. The second question posed was reduced to several key factors that drive cargo bound for the U.S. heartland, through foreign seaports including overall shipment savings, risk mitigation through port diversification, perceived transit time benefits, avoidance of the HMT, and rail rate disparities. The Commission’s report concluded that Congress has many options to consider with regard to replacing the current Harbor Maintenance Tax (HMT) structure, to ensure maximum competitiveness for all U.S. ports.

Competitive diversion threats noted in the Commission’s Study included the current ports of Lázaro Cárdenas in Southwestern Mexico, and the Port of Prince Rupert in Northwestern Canada. Additionally, several proposed projects were discussed, all of which have been postponed since the issuance of the Study, due to the general economic downturn, and cargo volume flattening experienced as a general trend over the last several years. These projects also included the building of Punta Colonet, a massive container port on the Baja Peninsula, and the Port of Melford located in close proximity to the current Port of Halifax, in Nova Scotia.

The report, non-discriminatorily, focused primarily on the considerable amount of cargo bound for the U.S. but entering North America initially through Prince Rupert. The Port, located about 450 miles north of the U.S.-Canada border in Northern British Columbia, now constitutes the largest single source of American cargo diversion. The geographic location of the Port and its naturally deep, ice-free harbor, have attracted numerous service strings originating in Northeast Asia. More specifically, 2010 saw 425,264 TEUs enter the U.S. via Canada, with 116,107 TEUs entering through Prince Rupert. Other Canadian Ports receiving U.S. bound cargo included Vancouver, Montreal, and Halifax.

In 2011, it is estimated that roughly 478,000 TEUs made their way into the U.S. via these same Canadian ports with 140,845 TEUs entering through the Port of Prince Rupert. In 2012, the number of U.S. bound containers that transited Prince Rupert rose to an estimated 190,000 TEUs. However, the cargo volumes thus far for 2013 perhaps indicate the Port’s annual capacity growth is beginning to flatten, with a projected yearly volume of 197,400 TEUs.

This lower growth could be attributed to several factors including a slow-down of the global economy; the Port of Prince Rupert nearing its maximum design capacity; and operational decisions by ocean carriers to utilize U.S. west coast ports.

On the Congressional front, S. 601, the Water Resources Development Act (WRDA) gained Senate approval in May 2013, and includes moderate HMT reform by mandating that more, but not all annual HMT collections are spent on port dredging and maintenance. A House version of the WRDA has yet to be introduced.

After evaluating the situation over the past year, including a re-examination and assessment of domestic and global transportation developments, general economic environment, and industry conditions, continued congressional consideration of a revised HMT plan for the future is likely. This office will continue to monitor cargo flow trends on behalf of the importer, exporter and American consumer, seeking to ensure the Commission’s goal of a fair, efficient, and reliable maritime transportation system.

The Office of Commissioner Richard A. Lidinsky, Jr. thanks the Commission’s Bureau of Trade Analysis (BTA) for their assistance.