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Diversion of Maritime Cargo from U.S. Ports Increased in 2015, FMC Finds

Thursday, July 21, 2016
Sandler, Travis & Rosenberg Trade Report

The diversion of U.S.-bound maritime cargo to Mexico and Canada accelerated in 2015, the Federal Maritime Commission found in a recent report, in what it said is a sign that U.S. ports must continue to expand and improve to stay competitive.

The FMC’s first report on this topic, which was issued in 2012, was prompted by requests from members of Congress to evaluate the extent to which the Harbor Maintenance Tax, other U.S. policies and other factors may incentivize U.S.-bound container cargo to shift from U.S. seaports to those located in Canada and Mexico. However, this year’s report makes little mention of the HMT and instead focuses on port congestion, which in 2015 was heavily influenced by new vessel alliances, reaction by marine terminal operators and labor unrest. The result was that for the second year in a row there was an increase in Canadian and Mexican inbound cargo diversion away from U.S. West Coast seaports, highlighted by increases in container volumes at the Pacific ports of Prince Rupert and Vancouver in Canada and Lazaro Cardenas and Manzanillo in Mexico at the apparent expense of the U.S. ports of Los Angeles, Long Beach and Oakland.

The future of this trend is uncertain, the report indicates. On the one hand, U.S. West Coast ports are undertaking massive infrastructure improvement and expansion projects, such as rebuilding terminals, installing larger cranes, and expanding intermodal rail access, to ensure that they can handle bigger container ships and the resultant increase in cargo volume. In addition, Canada’s port of Prince Rupert is nearing capacity and the port of Vancouver could run out of trade-enabling industrial land within the next decade.

On the other hand, all three major Canadian ports offer extensive on-dock rail for simple and seamless transfer of cargo, and the CN railroad is extending its reach further south into the U.S. In Mexico, the port of Lazaro Cardenas will see the opening this year of a fully automated terminal that will increase the port’s capacity by more than 50 percent. Other factors that could exacerbate cargo diversion and are reviewed in the report include continued chassis shortages, the PierPASS traffic mitigation fee, the continued construction of mega container ships, the container weight requirement that took effect July 1, and the recent opening of an expanded Panama Canal.

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