Thursday, October 6, 2011

FMC to Examine Canada/Mexico Cargo Diversions, Issues New Rule on Service Contracts

The Federal Maritime Commission on Wednesday voted unanimously to begin a Notice of Inquiry into disparities that may be causing US-bound cargo to be driven to Canadian and Mexican ports. In a separate action, the Commission also voted unanimously to approve a proposed rule to provide flexibility and certainty to ocean carriers and customers who use service contracts with rates linked to freight-rate indices.

Speaking at the Canadian Maritime Conference in Montreal two weeks ago, FMC Chariman Richard Lidinsky said that he wanted to move forward with the diversion review based on a personal request from US Senators Maria Cantwell and Patty Murray, both of Washington state.

Cantwell and Murray said in their Aug. 29 request to Lidinsky that the federal HMT has become a "significant competitiveness issue" with the rise of Canadian and Mexican West Coast ports.

"It appears the HMT may be a key factor causing US ports to lose a growing share of imported container cargo from Asia," the senators said.

The two senators asked Lidinsky to "conduct an analysis of the impacts and the extent to which the HMT and other factors impact container cargo diversion from US West Coast ports to West Coast Canadian and Mexican ports, as well as offer legislative and regulatory recommendations to address this concern."

Inaugurated in 1986, the HMT is a federal tax imposed on shippers based on the value of imported and domestic goods being shipped through US ports. The tax, which generates between $1.3 billion and $1.6 billion a year, is placed in the federal HMT Trust Fund to be used for maintenance dredging of federal navigational channels.

"A growing number of containerized US imports from Asia move through the West Coast Canadian container ports of Vancouver and Prince Rupert en route to the US Midwest (i.e., Chicago and Memphis) through cross-border rail," the senators wrote in their letter to the FMC chair.

"Additional volumes enter US markets via Mexican ports. As a result, non-US ports are able to claim a substantial per-container cost advantage over US seaports based on the HMT alone. The results of this unfair disparity are increased cargo diversion and lost US jobs."

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

"Canadian and Mexican ports are free to compete with US ports for US cargo. But they should do so on a playing field that is not artificially tilted by governments’ policies," Lidinsky said Wednesday. "So the primary question is: are we handicapping our own ports in international competition?"

In their second action, the Commission on Wednesday 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 the Commission’s 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."

"This proposed rule is another example of the Commission implementing President Obama’s guidance to revisit regulations to reduce burdens and promote flexibility," Lidinsky said.

"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."