Canadian ports and railways strongly resent FMC inquiry on cargo diversion

by Canadian Shipper

VANCOUVER, BC. — Canadian port and railway circles have expressed strong objections to a  lanned inquiry by Washington’s Federal Maritime Commission into  alleged diversion of US import containers from Asia through Port Metro Vancouver  and Prince Rupert in British Columbia. At a maritime conference in Montreal, FMC chairman Richard Lidinsky confirmed on Sept. 21 that he will propose this fall that the Commission begin a study requested by Washington State senators Patty Murray and Maria Cantwell. On Oct. 5th, the FMC decided to launch that investigation.

While the senators, in a letter, urged the FMC to focus mainly on the impact that the federal Harbor Maintenance Tax (HMT) may have on cargo diversion to Mexican as well as Canadian ports, they also ask the FMC to look into unspecified “other factors” and to consider legislative and regulatory changes.

The senators pointed out that a growing number of containerized US imports from Asia have been moving through the ports of Vancouver and Prince Rupert en route to the US Midwest through cross-border rail.

They affirm that the HMT, a levy imposed since 1986 on shippers based on value of goods to help finance maintenance dredging, “may be a key factor causing US ports to lose a growing share of imported container cargo from Asia.”

They further argue that “non-US ports are able to claim a substantial per-container cost advantage over US seaports based on the HMT alone” and that this amounts to “unfair disparity” provoking lost US jobs.

Over the past five years, the share of Port Metro Vancouver and Prince Rupert in total North American West Coast box cargo has risen from 9% to about 13%, and both ports have announced capacity expansion plans. Last year, Vancouver’s box throughput rose 17% to 2.5 million TEUs whereas Prince Rupert saw its box cargo surge by 30% to 344,000 TEUs.

This past summer, Lidinsky was quoted in US media reports as referring, among other things, to the “possible subsidy of cargo rail moves through Canada” and to “weaker container inspections” – singling out Prince Rupert.

CN operates a rapid, double-stack service between Prince Rupert, Chicago, Memphis and the Gulf of Mexico.

Asked to respond, Jean-Jacques Ruest, executive VP and chief marketing officer of CN, spoke bluntly, rejecting 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 North American gateway.

“CN is a market-driven company that operates in highly-competitive commercial markets, and customers are making choices in those markets. Sometimes they choose Canadian gateways for US customers and sometimes the reverse.

“Prince Rupert is up to 58 hours closer to Asia than other West Coast ports. This saves the ocean liners time and money each way, not to mention the benefits derived by cargo owners through reduced inventory carrying costs.”

For his part, Don Krusel, president and CEO of the Prince Rupert Port Authority, stressed: “The advantages shippers are realizing through utilizing the Port of Prince Rupert and the Northern Trade Corridor (in British Columbia) are not the result of subsidy or lax security, but rather the speed and reliability in service attributed to efficient operations.”

Gary LeRoux, executive director of the Association of Canadian Port Authorities, questioned the justification of an inquiry exercise “when free trade is the very foundation of the Canada-U.S. commercial relationship.”

John Higginbotham, a former Canadian diplomat now heading transportation studies at Carleton University, suggests that any study of what he called “a relatively minor issue” will not be worth the FMC’s time, especially in the broader context of economic recovery challenges facing two countries which, moreover, have a long tradition of cooperation in cross-border trade, foreign policy and security. He also felt that Prince Rupert was being “picked on unfairly” and categorized the inquiry request as “a reflection of internal problems in the United States.”

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