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Diversion of Maritime Cargo from U.S. Ports Likely to Continue, FMC Finds

Monday, July 20, 2015
Sandler, Travis & Rosenberg Trade Report

In an update of a 2012 report, the Federal Maritime Commission concludes that shippers are not going to stop diverting containerized cargo through Canadian ports and that Mexican ports continue to present another option for individual shippers looking for alternative routes. Congestion in U.S. West Coast ports resulted in 2014 being the most active year yet for cargo diversion, the FMC states, and while it remains to be seen whether this trend will continue there are several indicators that 2014 is not an anomaly.

The original study 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. That study concluded that numerous factors account for why shippers engage in diversion, including overall shipment savings, risk mitigation through port diversification, perceived transit time benefits, avoidance of the HMT, and rail rate disparities. However, the study also asserted that the HMT places U.S. ports at a competitive disadvantage and that “removal of the HMT would drive some U.S. discretionary cargo going through Canadian ports back to U.S. west coast ports,” a conclusion that some FMC commissioner said was politically motivated.

The updated report finds that within the last year issues affecting the competitiveness of U.S. ports have started to be addressed. The ports of Seattle and Tacoma began the process of entering into a competitive working agreement that will allow them to exchange information and combine efforts to compete more effectively with international ports, while the ports of Los Angeles and Long Beach entered into an agreement that allows them to discuss and agree on projects and programs that address transportation infrastructure needs and reduce pollution caused by port-related activities. The Ocean Carrier Equipment Management Association, the West Coast MTO Agreement and almost every vessel-operating carrier and marine terminal operator serving U.S. West Coast ports formed the Pacific Ports Operational Improvements Agreement, which authorizes the parties to discuss and exchange information and reach agreement on measures that address and improve the efficiency of operations at U.S. West Coast port facilities to aid in the reduction of congestion.

However, the report adds, U.S. ports are still facing challenges that impact their ability to compete with international ports. Canada’s port of Prince Rupert has become a significant competitor of U.S. West Coast ports, with an estimated 61.8 percent of cargo imports destined for the U.S., growth of 13.8 percent in 2014 and projects planned to increase the port’s capacity. In addition, larger ships, new alliances, labor-management disputes, and equipment and trucking shortages have contributed to the already building congestion at U.S. ports. As a result, shippers have been diverting cargo to different routes and ports to lessen delays.

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