Study of U.S. Inland Containerized Cargo Moving 

Through Canadian and Mexican Seaports 

July 2012 

Committee for the Study of U.S. Inland Containerized Cargo 

Moving Through Canadian and Mexican Seaports 

Richard A. Lidinsky, Jr. - Chairman 

Lowry A. Crook - Former Chief of Staff 

Ronald Murphy - Managing Director 

Rebecca Fenneman - General Counsel 

Olubukola Akande-Elemoso - Office of the Chairman 

Lauren Engel - Office of the General Counsel 

Michael Gordon - Office of the Managing Director 

Jason Guthrie - Office of Consumer Affairs and Dispute Resolution 

Services 

Gary Kardian - Bureau of Trade Analysis 

Dr. Roy Pearson - Bureau of Trade Analysis 

Paul Schofield - Office of the General Counsel 

Matthew Drenan - Summer Law Clerk 

Jewel Jennings-Wright - Summer Law Clerk 
Foreword

Thirty years ago, U.S. East Coast port officials watched in wonder as containerized

cargo sitting on their piers was taken away by trucks to the Port of Montreal for export.

At that time, I concluded in a law review article that this diversion of container cargo was 

legal under Federal Maritime Commission law and regulation, but would continue to be 

unresolved until a solution on this cross-border traffic was reached:

“Contiguous nations that are engaged in international trade in the age of containerization 

can compete for cargo on equal footings and ensure that their national interests, laws, 

public policy and economic health keep pace with technological innovations.” [Emphasis 

Added]

The mark of a successful port is competition. Sufficient berths, state-of-the-art cranes, 

efficient handling, adequate acreage, easy rail and road connections, and sophisticated 

logistical programs facilitating transportation to hinterland destinations are all tools in the 

daily cargo contest. All ports have strengths and weaknesses as they vie for valuable 

containerized cargo, particularly when international borders are present. In looking at 

the issues before us – Study of U.S. Inland Containerized Cargo Moving Through 

Canadian and Mexican Seaports – many have prejudged this effort and felt that we 

would build regulatory roadblocks at our borders. So let me be clear at the outset: the 

Commission study has found no legal or regulatory impediment to the use by 

ocean carriers of Canadian or Mexican ports for U.S. cargo shipments. 

We examined in great detail rates and other factors which might cause an U.S. shipper 

to choose a foreign port, in an adjacent nation, over an American one. In doing so, we 

identified a situation in the Pacific Northwest, even reaching southward into California, 

whereby cargo movements through certain other parts of our border are putting these 

ports at a strong competitive disadvantage. However, in the supply chain of 

American international waterborne commerce we oversee, U.S. shippers violate

no FMC law or regulation by using Canadian or Mexican ports. 

In Montreal last fall, I suggested that it was necessary to discuss these matters as 

friends and neighbors. Today, Prince Rupert and Lázaro Cárdenas present us this 

opportunity so that when Melford or Sydney is operational, or when a new port opens in 

northern Canada in ten years to handle North Pole carriers, or additional Mexican ports 

serve our states from the south, we will not be confronted with these questions again.

Having reached the above conclusions, we then present Congress with a list of 

current options that have been proposed by others to assist them in remedying 

the competitive disadvantage of a number of American ports under the current 

Harbor Maintenance Tax structure.
I want to thank all who took the time to comment in our Notice of Inquiry or in other 

ways assist our committee. We also appreciate the international, federal, state, and 

local agencies and governments involved in our cross-border trade, whom we consulted 

during our efforts. Finally, I would like to thank the members of the committee 

themselves for their dedicated and skillful contributions in producing this very important 

document. 

Washington, D.C. 

July 2012 

r6~A. L;~t t. 

Richard A. Lidinsky, Jr. 

Chairman 
Table of Contents

Executive Summary ........................................................................................................ 2

Defining the Issue ........................................................................................................... 4

Congressional Request ............................................................................................... 4

Notice of Inquiry........................................................................................................... 4

Competition vs. Legislation: How Can U.S. Ports Compete? ...................................... 7

Potentially Competitive Ports in Canada and Mexico .................................................. 8

Case Study: Prince Rupert ........................................................................................ 13

Current Usage of Prince Rupert: Vessels and Cargo ................................................ 14

History of Diversion: Regulation, Adjudication and Legislation...................................... 29

Cargo Diversion......................................................................................................... 29

Applying the Concept of “Diversion” to Adjacent Foreign Ports ................................. 33

Passage of the HMT and Subsequent Legislative Action .......................................... 34

Congressional Research Service Report................................................................... 37

Current Issues and Proposals Regarding HMT ......................................................... 38

“Natural” Competitive Factors ....................................................................................... 40

Ocean Freight Rates.................................................................................................. 40

Total Transit Times Vary Little ................................................................................... 44

Port Diversification to Mitigate Risk ........................................................................... 50

Rail Rates .................................................................................................................. 51

“Artificial” Legislative/Regulatory Factors ...................................................................... 51

Liability, General Oversight and Security................................................................... 51

Harbor Maintenance Tax ........................................................................................... 52

Congressional Policy Considerations............................................................................ 57

1
Executive Summary 

In undertaking the Study of U.S. Inland Containerized Cargo Moving Through Canadian 

and Mexican Seaports we have been guided by Congressional requests “to study the 

impacts and the extent to which the U.S. Harbor Maintenance Tax (HMT), other U.S. 

policies, and other factors may incentivize container cargo to shift from U.S. west coast

ports to those located in Canada and Mexico.” 

Since the creation of the Federal Maritime Commission (FMC or Commission) by 

Congress in 1961, the Commission has had a duty to protect those engaged in the U.S. 

maritime trade, including shippers, carriers, ports and many others. As the U.S. Federal

regulatory agency tasked with maintaining a maritime industry based on fair 

competition, we ascertained through both the Notice of Inquiry responses and additional 

research that the issues posed by the Congressional request can be reduced to three 

basic questions: 1) Are there 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? 2) What are the competitive factors that would cause a U.S. importer or 

exporter to route cargo through ports in these adjacent nations? 3) To further enhance 

the ability of U.S. ports to compete against these cross-border ports, what can 

Congress do to help create a “level playing field?” 

In determining whether there are any legal or regulatory bars to cross-border 

containerized movement, our study examined in great detail the history of cargo 

“diversion” and the many precedents in FMC case law. We further focused on the 

persistent liability issues raised when cargo is damaged in transit between Canadian 

and Mexican ports and the U.S. border, as well as the impact of differing security 

arrangements.

Our findings conclude that carriers shipping cargo through Canadian and 

Mexican ports violate no U.S. law, treaty, agreement, or FMC regulation. 

In turning to our second major area of inquiry, an intensive study was made as to the 

reasons why shippers elect to use ports in nations adjacent to the U.S. as part of their 

global supply chain.

Ports across the United States, Canada, and Mexico compete on a wide variety of 

variables. Each port might offer particular benefits in rates, transit times, and location 

relative to population centers. This competition benefits all aspects of the container 

shipping industry, and the Commission encourages this competition, and recognizing

that many importers in the United States benefit greatly from having foreign ports 

available as a resource. We did note, however, that many of the advertised benefits of 

foreign ports are not as significant as may be believed, for example, the transit time 

from China to inland destinations such as Chicago and Memphis through the Port of 

Prince Rupert as opposed to ports in the United States.

2
Our findings in this area conclude that numerous factors account for why 

shippers would elect to use ports in Canada or Mexico - - - overall shipment 

savings, risk mitigation through port diversification, perceived transit time 

benefits, avoidance of the HMT, and rail rate disparities - - - but, we conclude that 

for whatever reason or reasons shippers elect to use foreign ports, they are 

within their rights under FMC law and regulation.

Finally, we turn to possible policy and legislative actions that might enhance the 

competitive position of U.S. ports hindered by the existing HMT structure. While the 

Commission recognizes that funds are necessary to ensure adequate facilities to 

maintain international trade, the fact that each container requires, on average, a 

$109/FEU fee to use a U.S. port places those ports at a competitive disadvantage 

before the container has even been offloaded. A detailed empirical study that is 

addressed in this report shows the impact that the HMT may potentially have on the 

flow of U.S.-bound cargo through ports in Canada and Mexico.

In examining port competition amongst the three countries, it is noteworthy that both 

Canada and Mexico have a strong national port policy and infrastructure strategy. Many 

have argued that our government should emulate these activities. While the FMC has 

no statutory authority to bring about such results, we do, as the guardian of our 

international waterborne commerce, have a responsibility to Congress to identify

several proposals that are in the arena of debate. It has been stated, “Even if Prince 

Rupert did not exist, Congress owes it to ports in the northwest and west coast now, 

and the east coast in the future, to examine our cargo fee structure to keep all U.S. 

ports competitive with their foreign neighbors for the benefit of all three countries.”

Our final finding is that Congress has many options to consider should it decide 

to revise or replace the current HMT structure in its goal of ensuring maximum 

competitive abilities for all U.S. ports.

3
Defining the Issue

Congressional Request

In August and September, 2011, the FMC received requests from United States 

Senators Patty Murray and Maria Cantwell (both of Washington), Congressmen Rick 

Larsen, Jay Inslee, Norm Dicks, Adam Smith, Dave Reichert, Jaime Herrera Beutler 

and Jim McDermott (all of Washington), and Congresswoman Laura Richardson 

(California), to study the impacts and the extent to which the HMT, other U.S. policies, 

and other factors may incentivize incoming container cargo to shift from U.S. seaports 

to competing ports located in Canada and Mexico. These requests also asked the 

Commission to make legislative and regulatory recommendations to address this 

concern. In November 2011, the FMC by unanimous vote issued a Notice of Inquiry 

(NOI) to solicit the public’s views and information concerning the factors that may cause 

or contribute to the shift in cargo. This report addresses the results of the study, 

including the information solicited in the NOI. 

Notice of Inquiry

On November 3, 2011, the FMC published a Notice of Inquiry (NOI) which solicited the 

public’s views and comments concerning factors which may cause or contribute to the 

shift of containerized cargo destined for U.S. inland points from U.S. to Canadian and 

Mexican seaports. On December 22, 2011, the FMC extended the original due date for 

public comment to January 9, 2012. The requested views and comments were intended 

to assist the FMC in identifying and evaluating causes which might favor moving cargo 

through Canadian and Mexican seaports.

In all, the FMC received 76 responses, reflecting 220 comments. The responses came 

from a wide array of respondents representing interests in Canada, the United States 

and Mexico. They included ten associations, four coalitions, two public/private 

partnerships, two shippers, one trade group, two councils, one federation, 14 Chambers

of Commerce, 11 port authorities, two rail companies, two Canadian government 

provinces, one official Canadian government response, three U.S. Congressmen, one 

Governor, one State Congressman, two city officials, four universities, one terminal 

operator, one ocean carrier, one non-vessel-operating common carrier (NVOCC), one 

Union, one law firm, one developer, one nonprofit group, and four individuals. These

responses offered an insightful view regarding respondents’ rationale for shipping 

through Prince Rupert instead of U.S. west coast ports for shipment to U.S. inland 

destinations such as Chicago and Memphis.

Forty-one respondents cited Prince Rupert’s geographic location as the main reason 

they preferred using it over U.S. west coast ports for their shipments to U.S. inland 

destinations. Eighteen specifically cited Prince Rupert’s closer geographic proximity to 

China over U.S. west coast ports; 18 preferred the shorter transit times and the speed 

to market they experienced by using Prince Rupert compared with other U.S. west 

4
coast ports; four specifically mentioned their preference of Prince Rupert’s deep draft; 

and one enjoyed the frequency of service Prince Rupert offered.

The respondents preferring Prince Rupert’s geographic location and associated closer 

proximity to China over U.S. west coast ports tended to represent trade associations 

such as the American Apparel Footwear Association, coalitions such as the World 

Shipping Council, National Industrial Transportation League, and the National Retail 

Federation, and shippers such as Anderson Hay and Grain Company. All referenced 

using Port of Prince Rupert because of its closer proximity to North Asia, and supposed 

faster transit times to U.S. inland destinations (speed to market).

Government officials located in the U.S. Midwest, on both the Federal and state level, 

also favored the use of Prince Rupert over U.S. west coast ports, but not necessarily 

because of superior transit times enjoyed by shippers. Their concern was the loss of 

U.S. jobs should this business revert to U.S. west coast ports. We believe that these 

respondents are primarily referring to jobs on CN rail facilities in the U.S. which are 

dependent on cargo coming through Prince Rupert. Local Chambers of Commerce 

reflected this same view. Finally, CN, CP, and Canadian Government officials all touted 

Prince Rupert’s favorable location to North Asia, and the speed to inland U.S. 

destinations Prince Rupert offered in coordination with Canadian rail service.

Forty-five respondents cited Prince Rupert’s cargo velocity to U.S. inland destinations 

over U.S. west coast ports as their main criterion for using the port rather than U.S. west 

coast ports. Ten cited Prince Rupert’s reliable intermodal services; nine respondents 

used Prince Rupert to mitigate risk (in other words, these respondents preferred to 

spread shipments over several mutually viable ports to avoid interruptions to their 

supply chains). Five preferred Prince Rupert’s superior productivity and capacity for 

expediting their shipments through the port and on their way to inland destinations; four 

cited operational efficiency (most effective path to market); three cited port services and 

available infrastructure; and three cited quicker turnaround of containers. 

As can be expected, the same respondents who favored Prince Rupert’s geographic 

location also supported the port's ability to transfer containers from ship to rail and 

onward to U.S. inland destinations seamlessly (throughput); for all the same reasons

trade associations, coalitions, and shippers all favored Rupert’s operational efficiencies,

port productivity, and labor stability, along with quicker turn time offered by the port. 

They also referenced their ability to shift cargo to Prince Rupert should there be labor 

unrest or instability at U.S. west coast ports. Canadian railways and government 

officials also pointed this out in their comments.

Thirty-eight responses cited Prince Rupert’s lower costs compared to U.S. west coast 

ports, most of which focused on the issue of the HMT. Eleven respondents cited the 

HMT as the catalyst responsible for the increased use of Prince Rupert as a gateway to 

U.S. markets. Conversely, thirteen responded that HMT had no impact. 

5
It should be noted that the preponderance of the respondents who mentioned HMT as 

having no impact on shippers favoring Prince Rupert over U.S. west coast ports were 

either shipper associations and coalitions, Canadian Government agencies and 

businesses, or U.S. government officials on the Federal and State levels, and 

individuals based in the Midwest. These entities would stand the most to lose in the 

form of higher freight rates through Prince Rupert, jobs, and money injected into local 

economies, if an HMT type tax were collected at Prince Rupert. Those who mentioned 

avoiding the HMT as the chief reason for shippers using Prince Rupert over U.S. west 

coast ports came mainly from U.S. west coast port authorities that generally favor

getting rid of the tax entirely.

Six respondents cited the preference of Prince Rupert over U.S. west coast ports 

because of lower labor cost, and the stability of its work force; five cited overall savings 

versus U.S. west coast ports; and three cited fewer regulations (such as environmental

regulations and fees, clean truck regulations, and the Los Angeles/Long Beach 

PierPass program). These respondents tended to represent shipping 

associations/coalitions and shippers.

On the subject of HMT impact, 22 respondents recommended keeping the status quo 

by maintaining the fee in its current form. Those located in the mid-west and dependent 

on Canadian trade tended to favor the current structure in its entirety. However, on the 

west coast, several ports cited the need for a harbor maintenance fee. For example, 

Seattle and Tacoma have very little need for HMT-funded dredging activity, and these 

ports are on the front line of port competition with Prince Rupert. Other ports led by Los 

Angeles/Long Beach (LA/LB) have developed a position regarding HMT that is clearly 

reflected later in this report.

Two respondents recommended that the HMT be repealed entirely because of its 

negative impact on commerce. Four suggested a cross-border tax to replace HMT, 

because they felt all importers should have to pay the same tax, no matter how cargo 

came into the country. Ten recommended that the United States formulate a National 

Transportation Policy, akin to Canada’s Asia Pacific Corridor (APGC) Policy and 

Mexico’s national transportation policy. This policy was supported by such groups as 

the Coalition for America’s Gateways and Trade Corridors and the Waterfront Coalition. 

Nine respondents recommended that the HMT funds be used more equitably, citing that 

some larger ports such as Los Angeles provide the vast majority of the funds in the 

Harbor Maintenance Trust Fund (HMTF), but get a far smaller proportion of its benefits. 

Seattle advised that moving cargo through Prince Rupert could result in a shortage of 

containers in the U.S. interior during peak seasons. This is because rail contracts 

between steamship lines and CN call for a certain number of these boxes to be returned

to Prince Rupert, guaranteeing CN income from containers moving back to Prince 

Rupert. 

6
Competition vs. Legislation: How Can U.S. Ports Compete?

The ocean container transportation industry is like other industries in the United States 

in that it thrives on competition at all levels. Steamship lines, trucking companies, 

logistics providers, terminals, and seaports all compete with each other on price, quality 

of service, environmental sensitivity, and a variety of other factors, leading to advances

in technology and efficiency, and ultimately ensuring fair prices for the end consumer.

We must, however, endeavor to differentiate between the natural competitive factors

that drive advancement, and those laws or trade practices that could place ports in one 

country at an advantage or disadvantage with competing ports operating under a 

different legislative system.

When addressing Congress’s request of the FMC, we identified several factors that 

might incentivize incoming U.S. cargo to shift to seaports in Mexico and Canada. Four

of these factors are the effects of economic competitive advantages, and the remaining 

factors, including the HMT, reflect legislatively, or artificially, induced competitive 

distortions that could lead to a disadvantage for U.S. ports. We evaluated the regulatory 

and legal framework of cross-border container traffic by the impact of these factors, to 

identify how the behavior of existing and planned seaports is taking advantage of these 

competitive factors, and how U.S. seaports might be able to minimize the effect of 

natural competitive advantages that might exist for these foreign competitors. Finally, 

we review several policy recommendations that might be useful for U.S. legislators to 

consider in the future.

The following factors, both competitive and legislative in nature, would appear to impact 

the supply chain and logistics decisions of importers in the United States.

“Natural” Competitive Factors

• Ocean Freight Rates – Is the cost of importing a container from Asia more or less 

expensive when shipping through seaports in Canada and Mexico as opposed to 

seaports in the United States?

• Transit Times – Is there a significant difference in transit times between Asia and 

inland population centers through U.S. ports and those in Canada and Mexico?

• Risk Mitigation/Diversification – To what extent is the use of foreign seaports the 

result of risk avoidance and supply chain diversification?

• Rail Assessorial Charges – Are there significant differences between fuel 

charges on containers traveling through Canada and Mexico as opposed to the 

United States? What is the cause of those differences?

“Artificial” Legislative/Regulatory Factors

• Liability, General Oversight, and Security – Are there advantages to moving 

cargo through ports in Canada and Mexico rather than U.S. ports based purely 

on differences in regulatory systems? For instance, are there cost advantages in 

avoiding U.S. jurisdictional requirements such as cargo liability regimes, 

7
requirements imposed by the Shipping Act and FMC regulation, or requirements 

imposed by cargo security laws and regulations?

• Harbor Maintenance Tax – Is the fact that the HMT is charged on imported cargo 

arriving at U.S. seaports and not on imported cargo arriving through Canadian 

and Mexican border-crossings creating a competitive disadvantage for U.S. ports 

and causing jobs associated with that activity to migrate to neighboring 

countries? 

Potentially Competitive Ports in Canada and Mexico

In accordance with the 2011 letters from Congressmen and Senators, the Commission 

first assessed likely sources of competition to U.S. seaports. Within Canada and

Mexico, we identified five existing or planned seaports that would appear to focus on 

U.S.-bound cargo and consequently could be considered “competitive threats.” Those 

five ports are the Canadian ports of Prince Rupert, Melford, and Sydney, and the 

Mexican ports of Punta Colonet and Lázaro Cárdenas, the latter of which was visited by 

FMC staff as part of this study. Although other existing major ports such as Vancouver, 

Halifax, and Manzanillo handle U.S.-bound cargo, they appear to primarily focus on 

cargo destined for Canada and Mexico. 

Prince Rupert

Located approximately 450 miles north of the U.S.-Canada border on the Pacific coast 

of British Columbia, the Port of Prince Rupert was opened in 2007. For most of 

Northeast Asia (which generally encompasses North China, Japan, and Korea), Prince 

Rupert is geographically closer than U.S. ports, and up to three days closer when 

measuring ocean transit times according to the Prince Rupert Port Authority.

1 It also 

claims an ice-free natural harbor with a natural draft of over 50 feet at the terminal berth 

and no air draft limitations.2 

Within the Port of Prince Rupert, ocean containers are handled at the Fairview 

Container Terminal, operated by Maher Terminals under a 30 year lease agreement 

with the Prince Rupert Port Authority. Currently, Fairview has 60 acres of land and the

capacity to handle 750,000 TEU per year.3

 

1 We note that while the ocean transit time from Asia is indeed shorter than it would be for U.S. Pacific 

Coast ports, the overall transit times from Asia to the U.S. Midwest are similar when considered as a 

whole. This will be addressed later in the study.

It consists of a single berth of 1,181 feet with 

three super post-panamax cranes. Current plans would expand the terminal to 139 

acres and add five additional cranes with an additional 300 feet of berth, thereby 

2 Draft refers to the depth of water available for larger ships. The largest container ships afloat today have 

drafts that can reach 50 feet or more, and many container terminals must dredge silt and earth 

periodically to maintain an adequate draft to prevent large vessels from running aground. Air draft refers 

to any height restrictions on vessels due to bridges or other structures that might cross a shipping 

channel.

3 TEU signifies twenty-foot equivalent units. It represents a single standard intermodal shipping container 

20 feet long, eight feet wide, and eight feet, six inches high. It is the standard unit of measurement for 

container cargo volumes as well as ship size.

8
expanding the terminal’s capacity to two million TEU per year. Additionally, a second 

terminal is in the planning stages that could bring the port’s total operational capacity to 

five million TEU per year according to the Prince Rupert Port Authority. Containers 

traveling through Prince Rupert transit to their final destination almost exclusively by ondock rail, which connects to the network of Canadian National Railway (CN). CN’s 

network spreads across Canada connecting Prince Rupert to major cities such as 

Vancouver, Toronto, and Montreal, and also extends down into the United States to 

major population centers such as Chicago, Memphis, and New Orleans. See Image 1.

Image 1: CN’s Rail Network Map4

 

4 CN Network Map, Canadian Nat’l Railway Corp., http://www.cn.ca/en/shipping-map-north-americarailroad.htm (last visited Jul. 24, 2012).

9
Nova Scotia

Within Nova Scotia on Canada’s East Coast, two competing concepts for a deep-water 

container terminal are working their way from the drawing board to breaking ground on 

construction. Melford International Terminal would be located on the southern banks of 

the Strait of Canso. The competing port concept of Sydney would be located further 

northeast on Cape Breton. See Image 2.

Image 2: Map of Nova Scotia5

Much like Prince Rupert on Canada’s Pacific Coast, both Melford and Sydney’s

strategic locations on the great circle route would make either of them the closest east 

coast North American port to Europe, and Asia via the Suez Canal. Both locations

would have no draft issues, are ice free, and have navigational water depths of at least

90 feet, thereby making them capable of handling the largest containerships afloat. 

Additionally, either terminal would be developed along the same conceptual guidelines 

as Prince Rupert, to serve as a specialized intermodal facility focusing on cargo bound 

for the central United States.

 

5 National Aeronautics and Space Administration, EOS Project Sci. Office, Visible Earth [Database], 

http://visibleearth.nasa.gov/view.php?id=69081 (object name Nova Scotia, Canada (Oct. 21, 2003); 

accessed Jul. 24, 2012). Reprinted with Permission.

10
It was recently announced that the Melford International Terminal intended to start 

construction of a new $350 million container facility at the port before the end of 2012. 

Funding for the privately funded project has been secured, and Maher Terminals is 

taking an unspecified stake in the project. When complete in 2014-15, the container 

terminal and intermodal yard would cover 315 acres, and could have a yearly capacity 

of up to 1,500,000 TEU. Like Prince Rupert, Melford is connected to the CN rail 

network.

The Cape Breton Regional Municipality announced earlier this month that it is planning 

to develop a major container port on the east coast of Nova Scotia in the city of Sydney. 

The facility is still seeking the necessary $350 - $400 million in investment funding, and 

initial reports are that the initial annual capacity of the facility would be approximately 1

million TEU per year.

Punta Colonet

The multi-modal Punta Colonet project, located in the Baja Peninsula about 150 miles 

south of San Diego, would have the primary purpose of facilitating Asian exports to the 

United States. According to Mexican government reports, the port would be able to 

handle 6,000,000 TEU annually, and when completed would cover an area of more than 

27,000 acres, or slightly more than 42 square miles.6 This is the most important project 

of the 2007-2012 Mexico National Infrastructure Plan, yet it has been delayed twice due 

to the world financial crisis and market outlook.

As of this study, it appears that Punta Colonet is still very much in the early planning 

stages, and not likely to be a competitive threat for several years. The harbor would 

have to be dredged and protected with breakwaters, and hundreds of miles of rail track 

would have to be laid. The entry point into the United States would ultimately be 

determined by the U.S. railroad that might choose to participate in the port’s 

development. 

Lázaro Cárdenas

The Port of Lázaro Cárdenas is a multi modal port located on Mexico’s west coast, 

approximately 1,500 miles south of San Diego. It is connected to Mexico City and other 

surrounding areas by road and rail and to the United States by Kansas City Southern 

Railroad (KCS), which has a line originating at the Port of Lázaro Cárdenas, and 

crosses into the United States through Laredo, TX. (See Image 3) Given this location, it 

would appear that Lázaro Cárdenas would be more competitive for U.S. containers 

bound for Houston and areas along the Gulf of Mexico as opposed to the U.S. Midwest. 

According to the Port, transit time from Asia to Houston through Lázaro Cárdenas can 

be achieved in 27 days as opposed to 54 when transiting the Panama Canal. The port 

is operated by the Administración Portuaria Integral (API) de Lázaro Cárdenas.

 

6 Jerry Pacheco, Planned Seaport to be Third Largest in World, Albuquerque Journal, Mar. 2, 2009,

http://www.abqjournal.com/biz/0294376619biz03-02-09.htm.

11
Image 3: Map of Kansas City Southern Rail Connection to Lázaro Cárdenas7

The port’s main channel has a depth of 59 feet, with 54 feet available at berth. Current 

container terminal facilities sit on 300 acres, and are operated by Hutchison Whampoa. 

The Port of Lázaro Cárdenas also recently signed a 32 year concession with APM 

Terminals to build an additional $900 million container facility, which, when completed in 

2014, will occupy 252 acres of land. The combined wharf length for the two adjacent 

container terminals will be 9,757 feet. Both terminals will have on dock rail facilities, and 

the capacity of the two terminals will be just over four million TEU’s per year.8

 

7 Map provided courtesy of Kansas City Southern Railroad.

8 We should point out that the Port of Lázaro Cárdenas relies now and will continue to rely heavily on 

cargo bound for Mexico City and other population centers in Mexico. However, KCS has stated that it 

intends to focus heavily on transporting U.S. cargo through Lázaro Cárdenas into the Gulf Region as the 

port expands with the new APM terminal.- 

12
Case Study: Prince Rupert

While we have identified the ports above as likely potential competition for U.S. 

seaports in the coming years, the fact of the matter is that neither Melford nor Punta 

Colonet is in operation, and only a very small percentage of the cargo handled by 

Lázaro Cárdenas is bound for the U.S. Prince Rupert, however, has been handling 

cargo for five years, and presents an excellent comparative case study from which to

extrapolate the competitive behavior of other Canadian and Mexican Ports in the future. 

The basis for this comparison is that these competitive ports in Canada and Mexico are 

relying on a method of specialization not available to most ports in the U.S., namely, an 

almost exclusive focus on intermodal cargo, to achieve and advertise efficiencies of cost 

and time for cargo bound for inland population centers.

Specialization for Intermodal Cargo

Most major seaports in the United States are located in or near major population 

centers, but also compete to serve as the seaport of entry for cargo bound further 

inland. This presents an inherent difficulty in that intermodal (discretionary) containers, 

i.e., those that are to be directed inland by train, are generally handled differently from 

local containers, which are almost always loaded onto a chassis for local trucking. 

Terminals must constantly be looking at how to utilize their limited terminal space, and 

in most cases, there is little room to expand. Prince Rupert is an example of how a port 

can essentially do away with virtually all non-discretionary cargo, and develop a terminal 

that is focused only on intermodal cargo, thereby achieving natural efficiencies of cost, 

time, and space that benefit the port users. In the case of Prince Rupert, this approach 

to terminal development can be seen in Canada’s Asia Pacific Gateway Corridor 

initiative (APGC). 

Development of the Asia Pacific Gateway Corridor

Having invested considerable sums to improve the rail corridor from the U.S. Midwest 

through the Rockies to the ports of Vancouver and Prince Rupert in western Canada, 

the APGC was launched in 2006 with a specific aim of expediting the flow of cargo from 

central and north China in particular to Chicago and other parts of the Midwest. Among 

the advantages claimed for this initiative, the prospect of faster transit time for cargo 

routed from Shanghai and other places in northeast Asia to Chicago via Prince Rupert, 

as compared to routing the same cargo through the ports of LA/LB, ranked high. Based 

on the notion that Canada has the closest west coast ports to Asia, as well as fewer

congested rail links into the Midwest, its proponents claimed the corridor provided a 

cost, as well as a transit time, advantage. The corridor’s rail connectivity is believed to 

be a key to the APGC’s eventual success. Prince Rupert’s container terminal, for 

example, has an on-dock rail facility that allows containers to be loaded directly from the 

ship to double-stack railcars, permitting intermodal trains to leave the terminal within 

hours (rather than days) of a ship’s arrival. In short, at its present scale of operation, the 

Fairview Container Terminal in Prince Rupert is viewed by its supporters as a simpler, 

cheaper, more efficient “mouse-trap.”

13
Current Usage of Prince Rupert: Vessels and Cargo

Service Strings Calling at Prince Rupert

Three transpacific services currently call at Prince Rupert on a weekly basis. Two 

services (CEN and CPN), each with six ships, are operated by COSCO Container Lines 

(COSCO) and one (PNH) is operated by Hanjin Shipping (Hanjin), also with six ships.9

The CEN service originates in north China (Xingang, Dalian and Qingdao). After calling 

in Prince Rupert, the service sweeps south to Long Beach and then loops back to 

Oakland before returning to north China. COSCO’s CPN service originates in south 

China (Hong Kong and Yantian) and makes calls in central China (Ningbo and 

Shanghai) before calling at Prince Rupert. Calls are then made in Vancouver and 

Seattle before the ships return to China via Japan (Yokohama). The HPN service 

operated by Hanjin also originates in central China, making three calls (Qingdao, 

Ningbo and Shanghai) there as well as in South Korea (Busan and Seoul) before 

arriving in Prince Rupert. Ships in the HPN service then call at Seattle, Portland and 

Vancouver, but return to Seattle before proceeding back to South Korea and central 

China. All three services are operated under the CKYH alliance banner, so all four 

partners (the other two being Kawasaki Kisen Kaisha (K Line) and Yang Ming Marine 

Transport Corp., (Yang Ming)) take space on these services too (though the latter two 

carriers do not necessarily route US-bound cargo through Prince Rupert).

The evolution and development of each of these services is described below. It should 

be noted that the services described below were not newly created to serve Prince 

Rupert; Prince Rupert was merely added to the itinerary of existing services, a relatively 

easy thing to do when the number of ships in those services expanded to accommodate 

slow-steaming.10 The long-established CEN service from north China was the first 

service to include calls at Prince Rupert. The other two services (CPN and HPN and 

their predecessors) seem more stable in terms of the size of ship deployed and weekly 

capacity offered. These services also accommodated calls at Prince Rupert within the 

fabric of an existing service, the first in late 2008 and the second in early 2010.

COSCO’s CEN service was launched in May 1999 with six vessels of 1,900 TEU. Over 

time, larger vessels have replaced smaller vessels. In April 2003, the CEN service 

consisted of five vessels with vessel capacity ranging between 2,700 and 2,900 TEU. In 

April 2006, vessel size ranged from 3,400 TEU to 5,400 TEU. At that time, it was a 

weekly service consisting of five vessels calling at Dalian, Xingang, Qingdao, 

Yokohama, Long Beach, Oakland and Dalian. In August 2006, Shanghai was added to 

the port rotation but was dropped in December 2006 and Yantian added. Shanghai was 

once again added to the rotation in December 2007. In June 2008, the port rotation was 

 

9 In general, container shipping services are provided using service strings such as the ones described 

here. A service string is comprised of a set number of ships sailing in a loop with a set port rotation, with 

vessels stopping at a port on the same day of each week.

10 Slow steaming refers to sailing container vessels at a slower speed to conserve fuel. In order to 

maintain the schedule integrity of service strings, however, slow steaming generally entails the addition of 

one or more ships to a given service.

14
changed by adding Prince Rupert while dropping Yantian. With these changes, the CEN 

service 35-day rotation covered calls in Shanghai, Prince Rupert, Long Beach, Oakland, 

Yokohama, Dalian, Xingang, Qingdao and Shanghai. In August 2008, vessel size was 

increased from 5,400 TEU to 7,500 TEU but later reverted to 5,400 TEU ships in 

November 2008 as the global economy deteriorated. By March 2009, average vessel 

size was back to 7,500 TEU but was taken down to 5,500 TEU in June 2009 as the 

traditional summer peak failed to materialize. In February 2010, another vessel was 

added to accommodate slow-steaming, increasing the rotation to 42 days. In April 2011, 

a vessel was dropped from the service and the call at Shanghai was eliminated. In July 

2011, an additional vessel was once again added to the string. In September 2011, the 

call at Yokohama was eliminated. Presently, the CEN service consists of six vessels 

having a capacity of 5,500 TEU with a 42-day rotation calling at Xingang, Dalian, 

Qingdao, Prince Rupert, Long Beach, Oakland and Xingang.

In May 2006, the CKYH alliance launched the CH-PNW North Loop service operated by 

Hanjin which consisted of four vessels with a capacity of 5,500 TEU. It was a weekly 

service with a 28-day rotation calling at Shanghai, Busan, Seattle, Portland, Vancouver, 

Kwangyang (Seoul, South Korea) and Shanghai. At the same time, the alliance 

launched the CH-PNW South Loop service operated by COSCO which consisted of four 

vessels also with a capacity of 5,500 TEU. It was a weekly service with a 28- day 

rotation calling at Hong Kong, Yantian (Shenzhen), Yokohama, Seattle, Vancouver, 

Yokohama and Hong Kong. In July 2007, the alliance merged the CH-PNW South Loop 

with the PNW North Loop and called the new integrated service the PNW North & South 

Loop. This service deployed nine vessels with a capacity of 5,500 TEU. The additional 

vessel was added in order to maintain schedule integrity. The port coverage remained 

unchanged under the new service calling at Hong Kong, Yantian (Shenzhen), 

Yokohama, Vancouver, Seattle, Yokohama, Shanghai, Busan, Seattle, Portland, 

Vancouver, Kwangyang, and Hong Kong. Prince Rupert was added to PNW North & 

South Loop service in October 2008 on the rotation of the transpacific PNW South Loop 

of the butterfly service. It became the first import call prior to Vancouver and Seattle. 

The port 63-day rotation was now calling at Hong Kong, Yantian (Shenzhen), 

Yokohama, Prince Rupert, Vancouver, Seattle, Yokohama, Shanghai, Busan, Seattle, 

Portland, Vancouver, Kwangyang, and Hong Kong. 

In February 2010, the alliance decided to revert to two separate service strings. This 

time, the PNW North and South Loops each consisted of five vessels with a capacity of 

5,500 TEU – one vessel more than at the launch of these services in May 2006. The 

PNW North Loop’s port rotation was Hong Kong, Yantian, Yokohama, Prince Rupert, 

Vancouver, Seattle, Yokohama and Hong Kong. The PNW South Loop’s port rotation 

was Ningbo, Shanghai, Busan, Prince Rupert, Portland, Vancouver, Busan, 

Kwangyang, and Ningbo. In April 2011, the PNW North Loop became today’s CPN 

service and the PNW South Loop became today’s HPN service. Currently, the CPN 

service consists of six vessels, five with a capacity of 7,500 TEU and the sixth with a 

capacity of 5,446 TEU. It has a 42-day rotation calling at Hong Kong, Yantian, Ningbo, 

Shanghai (Yangshan), Prince Rupert, Vancouver, Seattle, Yokohama and Hong Kong. 

Presently, the PNH service has six vessels with a capacity of 5,500 TEU. It is a weekly 

15
service with 42-day rotation calling at Qingdao, Ningbo, Shanghai (Yangshan and 

Waigaoqiao), Busan, Prince Rupert, Seattle, Portland, Vancouver, Seattle, Busan, 

Kwangyang and Qingdao.11 A snapshot of these three services can be seen in Table 1 

below.

 

11 The sixth vessel was added to the HPN service in December 2011 and to the CPN service in April 

2012.

16
CEN Service

April 2006

5 Vessels

CEN Service

April 2012

6 Vessels

 Dalian  Xingang

 Xingang  Dalian

 Qingdao  Qingdao

 Yokohama  Prince Rupert

 Long Beach  Long Beach

 Oakland  Oakland

 Dalian  Xingang

PNW North Loop

May 2006

4 Vessels

PNH Service

May 2012

6 Vessels

 Shanghai  Qingdao

 Busan  Ningbo

 Seattle  Busan

 Portland  Prince Rupert

 Vancouver  Seattle

 Seoul  Portland

 Shanghai  Vancouver

 Seattle

 Busan

 Seoul

 Qingdao

PNW South Loop

May 2006

4 Vessels

CPN Service

May 2012

6 Vessels

 Hong Kong  Hong Kong

 Yantian  Yantian

 Yokohama  Ningbo

 Seattle  Shanghai

 Vancouver  Prince Rupert

 Seoul  Vancouver

 Yokohama  Seattle

 Hong Kong  Yokohama

 Hong Kong

Table 1: Snapshot of Service Changes Incorporating Prince Rupert

17
Use of North American Ports by Canada and the United States

As part of this study, the Commission evaluated data on the number of U.S. imports 

entering the U.S. through ports in Canada. This data came from Transport Canada, and 

from the United States Surface Transportation Board (STB). Overall, this data 

suggested several trends and could lead to a number of hypotheses relating to cargo 

diversion. First, overall, U.S. imports arriving through Canadian Ports had been 

declining prior to the operation of Prince Rupert, at which time they have begun to rise.

This would suggest that the HMT alone may not be enough to divert cargo through 

Mexico or Canada, but with the opening of ports such as Melford, Sydney, and Puna 

Colonet, more cargo may be diverted through foreign ports in the future. Second, for 

U.S. exports (on which the HMT does not apply), the amount of U.S. cargo using 

Canadian ports continues to decline. Finally, we note that Canadian importers and 

exporters are three times as likely to use a U.S. port as vice versa, possibly due to the 

larger number of services calling at U.S. ports overall.

Transport Canada Data

Citing Transport Canada as the source of the data, CP Rail provided information in part 

of its response to the NOI on the quantity of U.S. bound containers shipped through 

Canadian ports each year from 2000 through 2010.12 It also provided information on the 

number of U.S. export containers shipped through Canadian ports as well as Canadian 

imports and exports routed through U.S. ports. These data are used here in a slightly 

adapted form to examine trends over the 2000 to 2010 period in the willingness of U.S. 

importers and exporters to route containers through Canadian ports (see Tables 2 and 3 

below) and the propensity of Canadian shippers to route their import and export 

containers through U.S. ports (see Tables 4 and 5 below). 

The propensity of U.S. importers to route containers through Canadian ports is 

measured in Table 2 in terms of the number of TEU shipped through Canada per 1,000 

TEU of containers imported into the U.S. (see the final column of Table 2). This number 

had been falling continuously between 2000 and 2007, from 32 TEU per 1,000 TEU

bound for the U.S. to 17 TEU per 1,000 TEU in 2007. In late 2007, the container 

terminal at the Port of Prince Rupert became operational, after which this number began 

increasing and reached 25 TEU per 1,000 TEU bound for the U.S. in 2010 (but still 

below the year 2000 ratio). In 2010, out of 17.2 million TEU bound for U.S. shippers, 

over 425,000 TEU were routed through Canada.

Looking at Table 3, it appears that U.S. exporters’ propensity to ship containers through 

Canada is modestly higher than the propensity of U.S. importers to ship containers 

through Canada. (Given the presence of HMT, and all else equal, one would have 

expected U.S. importers to have a higher ratio of containers shipped through Canada 

than U.S. exporters.) The propensity of U.S. exporters to ship containers through 

Canada remained rather steady from 2000 to 2006 at between 33 to 35 TEU per 1,000 

 

12 CP Rail reported that the trans-border container volumes include movements to U.S. markets by all 

modes: rail, truck and some short-sea shipping services.

18
TEU of U.S. exports, but that number has since dropped to 30 to 35 TEU per 1,000 TEU

of U.S. exports.

We note that more Canadian shippers import containers through U.S. ports than U.S. 

shippers import through Canadian ports, albeit the absolute volume of containers is 

much lower. Canadian shippers began the period importing over 100 TEU per 1,000 

TEU of Canadian imports through the U.S. (see Table 3). Their propensity to import 

through U.S. ports remained at about that level until 2005, but has fallen since to about 

60 TEU per 1,000 TEU imported.

Similarly, the tendency of Canadian shippers to export containers through U.S. ports is 

substantially greater than the propensity of U.S. shippers to export containers through 

Canada. Moreover, that propensity appears not to have waned. Throughout the period, 

Canadian shippers shipped through U.S. ports between about 100 to 120 TEU per 

1,000 TEU of Canadian exports.

19
Import TEU Propensity

Bound for the U.S. 

Entering via

Canadian Ports

TEU routed through 

Canada per 1,000 TEU 

bound for the U.S.

2000 11,619,531 366,432 32

2001 11,783,798 355,752 30

2002 13,441,489 397,644 30

2003 14,617,927 407,020 28

2004 16,370,993 388,349 24

2005 17,926,845 379,904 21

2006 19,136,788 354,803 19

2007 18,998,718 321,716 17

2008 17,672,857 382,986 22

2009 15,013,760 313,585 21

2010 17,223,279 425,264 25

Import TEU Bound 

for the U.S.

Source: Table adapted from CP Rail's response to the NOI citing 

Transport Canada as the data source.

0 

5 

10 

15 

20 

25 

30 

35 

40 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Propensity

Table 2: U.S. Importers' Use of Canadian Ports

20
Export TEU Propensity

Originating in the U.S.

Leaving via

Canadian Ports

TEU routed through 

Canada per 1,000 TEU 

originating in the U.S.

2000 7,873,038 264,965 34

2001 7,650,014 264,339 35

2002 7,704,314 272,024 35

2003 8,346,910 279,949 34

2004 8,949,114 294,133 33

2005 9,567,471 316,071 33

2006 9,999,800 315,028 32

2007 11,674,709 341,184 29

2008 12,280,852 363,548 30

2009 11,188,703 276,973 25

2010 12,145,650 323,613 27

Export TEU 

Originating in 

the U.S.

Source: Table adapted from CP Rail's response to the NOI citing 

Transport Canada as the data source.

0 

5 

10 

15 

20 

25 

30 

35 

40 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Propensity

Table 3: U.S. Exporters' Use of Canadian Ports

21
Import TEU Propensity

Bound for Canada

Entering via

U.S. Ports

TEU routed through 

the U.S. per 1,000 TEU 

bound for Canada

2000 1,307,863 141,132 108

2001 1,319,614 136,222 103

2002 1,581,849 149,392 94

2003 1,702,207 137,256 81

2004 1,880,439 174,509 93

2005 2,053,263 214,494 104

2006 2,103,192 145,064 69

2007 2,153,563 150,086 70

2008 2,212,179 149,580 68

2009 1,895,013 128,825 68

2010 2,241,342 137,372 61

Import TEU Bound 

for Canada

Source: Table adapted from CP Rail's response to the NOI citing 

Transport Canada as the data source.

0 

20 

40 

60 

80 

100 

120 

140 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Propensity

Table 4: Canadian Importers' Use of U.S. Ports

22
Export TEU Propensity

Originating in Canada

Leaving via

U.S. Ports

TEU routed through 

the U.S. per 1,000 TEU 

originating in Canada

2000 1,402,822 150,175 107

2001 1,355,766 151,009 111

2002 1,431,683 139,404 97

2003 1,581,888 164,595 104

2004 1,747,440 194,748 111

2005 1,788,275 211,486 118

2006 1,774,205 206,402 116

2007 2,041,566 233,582 114

2008 2,051,746 228,416 111

2009 1,919,938 214,096 112

2010 2,007,192 216,478 108

Export TEU 

Originating in 

Canada

Source: Table adapted from CP Rail's response to the NOI citing 

Transport Canada as the data source.

0 

20 

40 

60 

80 

100 

120 

140 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Propensity

Table 5: Canadian Exporters' Use of U.S. Ports

23
FMC Estimates based on U.S. Surface Transportation Board Data

The information in the tables that follow has been tabulated using the STB confidential 

Carload Waybill Sample dataset to estimate the absolute volume and the relative share 

of US waterborne import containers that move through US west coast and Canadian 

ports to inland regional destinations in the United States. The dataset contains rail 

shipment data such as, origin and destination points; type of commodity; number of 

cars, tons, revenue; length of haul; participating railroads; interchange locations; and 

shipment variable cost estimates. To convert from carloads to TEU, the number of 

carloads was multiplied by 1.7.

 

Since the Waybill Sample contains confidential information, it is not available for public 

use and any aggregations of confidential data must guard against inadvertent disclosure 

of individual shipper or individual railroad data. Two rules of confidentiality are followed. 

First, the Three-Shipper rule states that at least three shippers’ data are included in the 

level of aggregation being released. Second, the Individual Railroad rule states that 

when the aggregation involves exactly two railroads, both railroads must operate at 

least two stations. These rules are applied to both origin and destination. The 

aggregations that fail one or both of these rules have been redacted.

 

Four tables are presented showing estimates for import containers leaving each of four 

gateway regions by rail – the ports of LA/LB; other major US west coast ports (Oakland, 

Seattle, Tacoma and Portland); western Canadian ports (Vancouver and Prince 

Rupert); and eastern Canadian ports (Halifax and Montreal). Import container volumes 

leaving each gateway region are shown in terms of carload units, metric tons and TEU. 

Total rail revenues generated by these movements have also been tabulated along with 

estimated revenue per carload and revenue per TEU. Having to adhere to the rules of 

confidentiality resulted in just two inland regions being used – the “Midwest states” and 

“all other US states.” At these levels of aggregation, none of the annual data for 

container imports leaving the ports of LA/LB and “other US west coast ports” by rail had 

to be redacted. This was not the case for the western Canadian ports and eastern 

Canadian ports regional aggregations. For both gateway regions, all the annual data 

involving the US Midwest could be disclosed, but the available data for all other US 

states failed to pass the required confidentiality tests in several years and had to be 

redacted.13

The growth in carload and TEU rail volume from the western Canadian ports region to 

the US Midwest states since 2006 is noteworthy, given that this increase seems to 

mirror the introduction of Prince Rupert.

 

13 We also note that, while we were unable to use its data for this report, the North American 

Transportation Statistics Database also contains useful information regarding trade and other commercial 

data between and among the United States, Canada, and Mexico.

24
CARLOADS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 652,408 759,520 767,280 771,600 868,080 882,080 1,115,040 1,090,840 954,280 

All Other States 534,032 568,080 580,908 623,600 689,880 795,520 906,240 861,520 782,280 

Total US 1,186,440 1,327,600 1,348,188 1,395,200 1,557,960 1,677,600 2,021,280 1,952,360 1,736,560 

METRIC TONS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 8,788,440 9,752,240 9,752,040 9,526,800 10,474,480 10,715,280 13,899,320 13,531,480 12,017,760 

All Other States 7,414,960 7,732,360 7,630,180 7,860,280 8,415,280 9,928,560 11,432,640 10,863,760 10,016,280 

Total US 16,203,400 17,484,600 17,382,220 17,387,080 18,889,760 20,643,840 25,331,960 24,395,240 22,034,040 

REVENUE 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $482,003,952 $578,709,440 $581,833,680 $586,554,040 $695,435,480 $749,449,920 $999,095,640 $1,018,401,720 $965,627,040 

All Other States $370,209,160 $407,088,360 $413,353,224 $446,332,720 $558,149,320 $674,176,680 $829,509,560 $833,643,400 $856,674,920 

Total US $852,213,112 $985,797,800 $995,186,904 $1,032,886,760 $1,253,584,800 $1,423,626,600 $1,828,605,200 $1,852,045,120 $1,822,301,960 

REVENUE/CARLOAD 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $739 $762 $758 $760 $801 $850 $896 $934 $1,012 

All Other States $693 $717 $712 $716 $809 $847 $915 $968 $1,095 

Total US Rev/Carload $718 $743 $738 $740 $805 $849 $905 $949 $1,049 

ESTIMATED TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 1,109,094 1,291,184 1,304,376 1,311,720 1,475,736 1,499,536 1,895,568 1,854,428 1,622,276 

All Other States 907,854 965,736 987,544 1,060,120 1,172,796 1,352,384 1,540,608 1,464,584 1,329,876 

Total US 2,016,948 2,256,920 2,291,920 2,371,840 2,648,532 2,851,920 3,436,176 3,319,012 2,952,152 

EST. REVENUE/TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $435 $448 $446 $447 $471 $500 $527 $549 $595 

All Other States $408 $422 $419 $421 $476 $499 $538 $569 $644 

Total US $423 $437 $434 $435 $473 $499 $532 $558 $617 

Source: STB Waybill Sample

Midwest States include Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South Dakota, Tennessee, and Wisconsin

Table 6: Estimated US Container Imports through LA/LB to US Regions by Rail

25
CARLOADS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 379,996 319,180 330,840 348,360 391,200 511,440 486,320 374,800 350,520 

All Other States 43,800 43,000 60,000 73,000 83,920 113,800 114,200 47,840 95,880 

Total US 423,796 362,180 390,840 421,360 475,120 625,240 600,520 422,640 446,400 

METRIC TONS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 4,808,720 4,162,160 4,447,400 4,992,920 5,388,880 6,946,160 6,195,000 4,672,240 4,429,200 

All Other States 585,600 622,560 846,720 1,049,400 1,172,040 1,483,240 1,357,600 558,040 1,202,480 

Total US 5,394,320 4,784,720 5,294,120 6,042,320 6,560,920 8,429,400 7,552,600 5,230,280 5,631,680 

REVENUE 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $297,651,528 $256,476,360 $265,280,280 $281,333,200 $333,209,000 $443,894,960 $458,095,960 $376,916,120 $381,459,520 

All Other States $32,181,720 $31,464,440 $44,692,120 $51,679,520 $67,579,040 $102,082,520 $113,628,320 $52,060,840 $127,744,920 

Total US $329,833,248 $287,940,800 $309,972,400 $333,012,720 $400,788,040 $545,977,480 $571,724,280 $428,976,960 $509,204,440 

REVENUE/CARLOAD 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $783 $804 $802 $808 $852 $868 $942 $1,006 $1,088 

All Other States $735 $732 $745 $708 $805 $897 $995 $1,088 $1,332 

Total US Rev/Carload $778 $795 $793 $790 $844 $873 $952 $1,015 $1,141 

ESTIMATED TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 645,993 542,606 562,428 592,212 665,040 869,448 826,744 637,160 595,884 

All Other States 74,460 73,100 102,000 124,100 142,664 193,460 194,140 81,328 162,996 Total US 720,453 615,706 664,428 716,312 807,704 1,062,908 1,020,884 718,488 758,880 

EST. REVENUE/TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $461 $473 $472 $475 $501 $511 $554 $592 $640 

All Other States $432 $430 $438 $416 $474 $528 $585 $640 $784 

Total US $458 $468 $467 $465 $496 $514 $560 $597 $671 

Source: STB Waybill SampleOther US West Coast Ports include the Ports of Oakland, Portland, Seattle, and TacomaMidwest States include Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South Dakota, Tennessee, and Wisconsin

Table 7: Estimated US Container Imports through Other US West Coast Ports to US Regions by Rail

26
CARLOADS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 17,480 15,680 53,120 63,640 53,840 51,720 46,280 50,000 102,120 All Other States 2,760 5,760 3,440

Total US 55,880 69,400 55,160 

METRIC TONS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 266,800 221,920 844,120 1,008,720 789,440 770,080 716,320 667,880 1,265,400 All Other States 54,000 96,240 37,960

Total US 898,120 1,104,960 808,040 

REVENUE 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $13,215,360 $11,750,320 $44,442,080 $56,344,320 $52,303,240 $52,948,280 $50,058,080 $55,567,480 $126,922,080 

All Other States 4,701,600 8,969,200 8,898,400

Total US $49,143,680 $65,313,520 $61,846,680 

REVENUE/CARLOAD 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $756 $749 $837 $885 $971 $1,024 $1,082 $1,111 $1,243 

All Other States 1,703 1,557 2,587

Total US Rev/Carload $879 $941 $1,121 

Table 8: Estimated US Container Imports through Western Canadian Ports to US Regions by Rail

ESTIMATED TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 29,716 26,656 90,304 108,188 91,528 87,924 78,676 85,000 173,604 All Other States 4,692 9,792 5,848

Total US 94,996 117,980 93,772 EST. REVENUE/TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $445 $441 $492 $521 $571 $602 $636 $654 $731 

All Other States $1,002 $916 $1,522

Total US $517 $554 $660 

Source: STB Waybill Sample

Western Canadian Ports include the Ports of Vancouver and Prince RupertMidwest States include Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South Dakota, Tennessee, and Wisconsin

Data in these cells are suppressed because of confidentiality concerns

27
CARLOADS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 142,100 131,560 139,560 147,600 159,960 152,840 140,880 132,920 126,360 All Other States 5,160 8,480 3,160 2,480 1,640 2,280

Total US 144,720 156,080 156,000 143,360 134,560 128,640 

METRIC TONS 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 2,191,140 2,171,000 2,381,800 2,553,680 2,657,680 2,520,600 2,332,920 2,141,800 2,008,080 All Other States 83,960 121,040 48,200 29,040 21,040 35,000

Total US 2,465,760 2,674,720 2,568,800 2,361,960 2,162,840 2,043,080 

REVENUE 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $87,650,860 $80,728,400 $86,486,000 $92,810,960 $103,270,840 $97,045,600 $95,845,920 $91,677,520 $91,259,600 All Other States $4,184,480 $8,058,480 $4,822,000 $5,241,640 $3,385,600 $6,769,200

Total US $90,670,480 $100,869,440 $101,867,600 $101,087,560 $95,063,120 $98,028,800 

REVENUE/CARLOAD 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $617 $614 $620 $629 $646 $635 $680 $690 $722 

All Other States $811 $950 $1,526 $2,114 $2,064 $2,969Total US Rev/Carload $627 $646 $653 $705 $706 $762 

Table 9: Estimated US Container Imports through Eastern Canadian Ports to US Regions by Rail

ESTIMATED TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States 241,570 223,652 237,252 250,920 271,932 259,828 239,496 225,964 214,812 All Other States 8,772 14,416 5,372 4,216 2,788 3,876

Total US 246,024 265,336 265,200 243,712 228,752 218,688 

EST. REVENUE/TEU 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Midwest States $363 $361 $365 $370 $380 $373 $400 $406 $425 

All Other States $477 $559 $898 $1,243 $1,214 $1,746

Total US $369 $380 $384 $415 $416 $448 

Source: STB Waybill Sample

Eastern Canadian Ports include the Ports of Montreal and HalifaxMidwest States include Iowa, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, South Dakota, Tennessee, and Wisconsin

Data in these cells are suppressed because of confidentiality concerns

28
History of Diversion: Regulation, Adjudication and 

Legislation 

Some have perceived the term “diversion” to have a negative connotation, associating 

the expression with an inference of misconduct. The Canadian Government commented 

publicly that they and their many partners are “...concerned by the inference that US 

cargo is somehow being ‘diverted’ through Canadian ports given the deeply integrated 

North American transportation system, welcome the opportunity to dispel any 

misconceptions regarding Canadian transportation policies and practices.”14 The 

Canadian Chamber of Commerce echoed the sentiments of the Canadian Government, 

stating that “the term ‘diversion,’ which suggests that it is improper for trade from one 

our countries to use infrastructure provided by the other, are against the very nature of 

our integrated economy and represents a repudiation of free market competition.”15

However, the use of “diversion” by commentators is rooted in the history of American 

regulation of common carriage, and is not unique to this study. The term originated in 

late 19th century cases of the Interstate Commerce Commission (ICC) based on rail rate 

disparities. Domestic “diversion” cases throughout the 20th century followed, involving 

disputes over “naturally tributary” cargo under the jurisdiction of the Federal Maritime 

Board (FMB), United States Maritime Commission (USMC) and FMC. Therefore, the 

term itself was decided on long before the maritime industry began to see the 

movement of U.S. bound cargo through foreign ports.

Cargo Diversion

The idea that market actors may change behavior to avoid the constraints of regulation

and its associated costs is not new. The concept of diversion is rooted in the history of 

American regulation of common carriage, originating under the jurisdiction of the ICC in 

the late 19th century. In Investigation of Overland and OCP Rates and Absorption, 12 

F.M.C. 184 (1969) the FMC recognized the Supreme Court holding in the Import Rate 

Case, 162 U.S. 197 (1896), that the ICC was “...‘empowered to fully consider all the 

circumstances and conditions that reasonably apply’...including competition that affects 

rates in the case of traffic originating in foreign ports as well as the competition that 

affects rates in the case of domestic traffic.”16 A carrier under ICC jurisdiction could 

therefore legally charge export and import rates between a port and an interior point 

less than it charged for domestic carriage domestic rates between the same points.17

 

14 Government of Canada response to NOI, 2.

Long before the notion of cross-border cargo diversion had been established, the FMC 

15 Canadian Chamber of Commerce response to NOI, 2.

16 Investigation of Overland and OCP Rates and Absorptions, 12 F.M.C. 184, 190-91 (1969) (citing Import 

Rate Case, Tex. & Pac. Ry v. Interstate Commerce Comm’n, 162 U.S. 197, 233 (1896)).

17 Id. at 191.

29
and its predecessor agencies,

18 as well as several Federal courts, heard cases 

regarding domestic cargo diversion.

19, 20

 

The majority of these domestic diversion cases stemmed from issues arising under 

Sections 16 and 17 of the Shipping Act of 1916 (1916 Act).

21, 22 In general, these 

sections addressed concepts of “undue or unreasonable preference” and unjust 

discrimination.23 Section 16 forbade a common carrier by water from making or giving,

“any undue or unreasonable preference or advantage to any particular person, locality, 

or description of traffic to any undue or unreasonable prejudice or disadvantage in any 

respect whatsoever”

24 Section 17 stated that a common carrier by water in foreign 

commerce could not demand, charge or collect “any rate, fare, or charge which is 

unjustly discriminatory between shippers or ports...”

25

These domestic cargo diversion cases have often involved disputes regarding “port 

equalization”26 or overland “transshipment.”27

 

18 The United States Shipping Board was created by Congress in 1916, followed by the United States 

Maritime Commission from 1936 to 1950. In 1950, the regulatory programs of the United States Maritime 

Commission were transferred to the Federal Maritime Board at the Department of Commerce, where they 

resided until the creation of the Federal Maritime Commission in 1961. Federal Maritime Commission 

Website: History<http://www/fmc.gov/history.aspx> (last visited June 6, 2012).

In Intermodal Service to Portland, 

Oregon, 14 S.R.R. 107,121-122 (F.M.C. 1973), Stockton Port District (Stockton) argued 

that port equalization occurs “when a carrier calls inbound at a port other than that 

nearest the consignee, provides for transportation of the cargo overland to the 

consignee, and absorbs that portion of the cost of inland transportation which exceeds 

what the consignee would have paid had the cargo been delivered at the port nearest 

19 See Portland v. Pac. Westbound Conf., 5 F.M.B. 118 (1956), modifying 4 F.M.B. 664 (1955), aff’d 246 

F.2d 711 (D.C. Cir. 1957); Intermodal Serv. to Portland, Or., 14 S.R.R. 107 (F.M.C. 1973); Beaumont Port 

Comm’n. v. Seatrain Lines, Inc., 2 U.S.M.C 699 (1943); Mobile v. Balt. Insular Line, 2 U.S.M.C. 474 

(1941).

20 1956 is the well-accepted genesis of the age of containerization with the sailing of the SS Ideal X from 

Newark to Houston. Marc Levinson, The Box: How the Shipping Container Made the World Smaller and

the World Economy Bigger 50 (2006).

21 See Footnote 19. 

22 46 U.S.C. §§ 815-816 (1976). When Congress passed the Shipping Act of 1984 (1984 Act) with respect 

to international cargo shipments, the 1916 Act’s jurisdiction was limited to the U.S. domestic offshore 

commerce. Section 17 was completely abolished and parts of Section 16 were abolished when Congress 

passed the Interstate Commerce Commission Termination Act (1995). The remaining portions of Section 

16 are a part of the current 1984 Act and are codified at 46 U.S.C. § 41101 (E)(8). 

23 Dart Containerline Co. LTD. v. F.M.C., 639 F.2d 808, 812 (D.C. Cir. 1981).

24 Id. (citing 46 U.S.C. § 815). See supra Footnote 22. 

25 Id. (citing 46 U.S.C. § 816). See supra Footnote 22. 

26 See Investigation of Overland and OCP Rates and Absorptions, 12 F.M.C. at 211-12.

27 Intermodal Serv. to Portland, Or., 14 S.R.R. at 121-122.

30
him.”28 Stockton also maintained that transshipment occurs when cargo is offloaded at a 

port other than that of the cargo’s final destination port and transported at the carrier’s 

expense to the port of final destination by another carrier, either by water, truck or rail.29

The Commission held that both were “merely variations on the common theme of 

serving a port without directly calling [at that particular port].30 The Commission went on 

to say that these practices were unlawful if they “deprive[d] a port of [its] naturally 

tributary cargo or subject[ed] it to undue prejudice or unjust discrimination.”

31

 

Actions brought under sections 16 and 17 of the 1916 Act usually involved not only 

claims of port equalization or overland transshipment, but also claims that the diverted 

cargo was naturally tributary to the offended port.32 The FMC developed the concept of 

naturally tributary cargo from Section 8 of the Merchant Marine Act of 192033 which 

“speaks in terms of ‘territorial regions and zones tributary to...ports’ and which demands 

the investigation of any ‘matter that may tend to promote and encourage the use by 

vessels of ports adequate to care for the freight which would naturally pass through 

such ports.’”34 The Commission has acknowledged that this Congressional policy 

should “be given weight.”35

 

Port equalization gave rise to a violation of Section 16 of the 1916 Act “...where it (1) 

diverts traffic from a port to which the area of origin is tributary, to a port to which the 

area is not naturally tributary, and (2) is not justified, in the shipper’s interest, by lack of 

adequate service of the port from which traffic is so diverted.”36 In Intermodal Service to 

Portland, Oregon, 14 S.R.R. at 125 (F.M.C. 1970), the Commission stated that “...the 

concept of naturally tributary cargo has as its purpose the maintenance of the 

movement of cargo through those ports which, because of a combination of geographic, 

commercial, and economic consideration, would naturally serve such cargo.”37

 

28 Id. 

29 Id. 

30 Id. at 130.

31 Id. 

32 See Dart Containerline Co., 639 F.2d at 813; Port of N.Y. Auth. v. F.M.C., 429 F.2d 663 (5th Cir. 1970); 

Stockton Port Dist. v. Pac. Westbound Conf., 6 S.R.R. 1105 (F.M.C. 1966) aff’d sub nom., Stockton Port 

Dist. v. F.M.C., 369 F2d 380 (9th Cir. 1966), cert. den. 386 U.S. 1031 (1967); Intermodal Serv. to 

Portland, Or., 14 S.R.R. at107; Sea-land Serv., Inc. v. S. Atl. and Caribbean Line Inc., 6 S.R.R. 1105 

(F.M.C. 1966).

33 46 U.S.C. § 867 (1976). This is currently the Shipping Act (after 1998 OSRA amendments) codified at 

46 U.S.C. § 50302. 

34 Dart Containerline Co., 639 F.2d at 812 (citing Port of N.Y. Auth. v. F.M.C., 429 F.2d 663, 668-70 (5th 

Cir. 1970). 

35 Port of N.Y. Auth., 429 F.2d at 670.

36 Sea-Land Serv., 6 S.R.R. at 1111. 

37 Intermodal Serv. to Portland, Or., 14 S.R.R. at 125.

31
Therefore, in considering whether a complainant has a valid claim relating to cargo 

diversion under Sections 16 and 17 of the Shipping Act, 1916, the Commission was

tasked to first define whether the allegedly diverted cargo was naturally tributary to the 

complaining port. Answering this legal question has not always been an easy task, and 

the Commission as well as Federal appeals courts have been wary of awarding the 

claim of naturally tributary cargo to a single port. In Port of New York Authority v. 

F.M.C., 429 F.2d 663 (5th Cir. 1970), the Fifth Circuit was hesitant to allow certain ports 

to claim Midwestern cargo destinations as their own, stating “...we are not prepared to 

hold that the Midwestern portion of the United States is naturally tributary to petitioner 

ports. No authority has been called to our attention which would extend the natural 

tributary scope of [Section] 8 to such limits.”38

Later, in an effort to diminish some of the ambiguities associated with the legal definition 

of cargo diversion, the Commission outlined key principles39 that guided courts in 

subsequent cases. In Council of North Atlantic Shipping Associates, et al v. American 

Lines, 18 S.R.R. 774, 779 (F.M.C. 1978), the Commission gave a clear and concise 

definition of naturally tributary cargo, stating:

Certain cargo may be naturally tributary to a port, but any “naturally tributary zone” 

surrounding a port is constantly changing. In a particular case, this zone is determined by 

consideration of: (a) the flow of traffic through the port prior to the conduct in question, 

including points of cargo origin or destination; (b) relevant inland transportation rates; (c) 

natural or geographical transportation patterns and efficiencies; and (d) shipper needs 

and cargo characteristics.40

Additionally, the Commission added that not only will a port’s tributary zone vary over 

time, but also with the nature of the commodity shipped.41 After outlining the criteria 

pertinent to the definition of naturally tributary cargo, the Commission gave guidelines 

for what constituted diversionary tactics that would give rise to a Section 16 and 17 of 

the 1916 Act claim, saying:

A carrier or port may not unreasonably divert cargo which is naturally tributary to another 

port. When diversion of naturally tributary cargo occurs, the reasonableness of the 

practice must be determined. The reasonableness of the particular practice is determined 

by consideration of: (a) the quantity and quality of cargo being diverted (is there 

substantial injury?) ; (b) the cost to the carrier of providing direct service to the port; (c) 

any operational difficulties or other transportation factors that bear on the carrier’s ability 

to provide direct service (e.g., lack of cargo volume, inadequate facilities); (d) the 

competitive conditions existing in the trade; and (e) the fairness of the diversionary 

method or methods employed (e.g., absorption, solicitation).42

 

38 Port of New York Auth., 429 F.2d at 670.

39 Dart Containerline Co., 639 F.2d at 813.

40Council of N. Atl. Shipping Ass’ns v. Am. Mail Lines, LTD., 18 S.R.R. 774, 779 (FMC 1978). 

41 Id. 

42 Id. 

32
The Commission declared that these guidelines should be considered in all future 

proceedings where Sections 16 or 17 of the 1916 Act are alleged based on cargo 

diversion from a port.43

The notion of domestic diversion was made moot by the deregulation of domestic rates 

with the passage of the 1984 Act and the Interstate Commerce Commission 

Termination Act (1995). 

Applying the Concept of “Diversion” to Adjacent Foreign Ports

The international maritime community has grappled with the issue of containerized 

cargo diversion for decades. Scholars, jurists, and veterans of the maritime industry 

alike accept that some American exports and imports will flow naturally through 

Canadian ports. The unanswered question, which has lingered since the late 1970’s, is 

whether this diversionary trend is one of natural cargo flow and competitive influences, 

or of an artificial legislative catalyst.

Representative of these cargo diversion concerns was Austasia Container Express 

(Austasia). Austasia, and the subsequent litigation in which they were involved, was the 

topic of a 1984 law review article that shed light on the trend of U.S. exports and imports 

moving increasingly more through Canadian ports.44 The authors, (current FMC 

Chairman) Richard A. Lidinsky Jr., then of the Maryland Port Administration, and Robert 

E. Hellauer Jr. sought to explore the history of Canadian cargo diversion and the 

American response to those cargo diversion trends.45, 46 

The particular concern with diversion at the time consisted of Canada based carriers 

targeting and soliciting cargo from U.S. exporters, transporting it by rail or truck from the 

U.S. to a Canadian port, and then shipping it overseas on their vessels; this process 

was also reversed for imports.47 Austasia and other Canadian carriers engaged in this 

practice.48 Austasia argued that, 

the language of section 1 itself connotes port-to-port service; legislative history 

demonstrates that section 1 requires actual United States port calls for carriers in both 

domestic and foreign commerce...the “through route” portion of section 18(b)(1) is 

inapplicable to through routes not involving U.S. ports...the “through route” language of 

section 18(b)(1) was intended to cover only through arrangements among water 

 

43 Id. 

44 Richard A. Lidinsky Jr. & Robert E. Hellauer Jr, American-Canadian Cross Border Container Traffic: 

Innovation or Cargo Diversion?, 15 J. Mar. L. & Com. 103 (1984).

45 Id. 

46 Id. at 114.

47 Id. at 104-105.

48 Id. at 109, n.26

33
carriers...section 536.16 is inapplicable to its NVOCC service because the Commission 

lacks jurisdiction over the inland portion of the intermodal movements.49

In Austasia Container Express v. F.M.C., 580 F.2d 642 (D.C. Cir. 1978), the D.C. Circuit 

agreed, and held that the FMC’s jurisdictional authority did not include cargo originating 

from or ultimately bound for U.S. inland destinations that was exported or imported 

through a foreign port.50

Other carriers, such as CAST North American Ltd., moved cargo in the same fashion as 

Austasia, and cited ports like Montreal as their preferred port of entry for U.S. bound 

cargo because of its uncongested facilities, and the added efficiency provided by 

technology such as the trans-Atlantic computer system that had direct on-line access to 

CAST’s branch operations centers.51 Presumably, though, these carriers were also 

taking advantage of the jurisdictional gap that allowed them to operate free from FMC 

regulation. There were Congressional efforts to address this gap beginning with the 95th

Congress.52 These efforts proved ultimately to be unsuccessful, and the issue went 

unaddressed legislatively.53

As such, the FMC’s authority regarding the regulation of U.S.-bound cargo through 

foreign ports has changed little today.54

Passage of the HMT and Subsequent Legislative Action

After the Austasia cases made clear the FMC 

lacked jurisdiction, the issue was put to rest until this current competitive controversy. 

In 1986, Congress passed the Water Resources and Development Act, establishing the

HMTF, which is funded by the HMT. Originally, the HMT was levied at 0.04% of the 

value of the imported, exported, and domestic cargo handled at a port.55 The same 

percentage was levied per cruise ship ticket. The revenues were originally designed to 

cover 40% of the United States Army Corps of Engineers (Corps) port operation and 

maintenance costs, and 100% of the Corps’ operation costs for the St. Lawrence 

Seaway.56

 

49 Austasia Container Express, A Division of Austasia Intermodal Lines, Ltd. – Possible Violations of 

Section 18(b)(1) and General Order 13, 19 F.M.C. 512, 517 (1977).

 

50Austasia Container Express v. FMC, 580 F.2d 642 (D.C. Cir. 1978).

51 Lidinsky & Hellauer, supra at 104-105,n.5 (citing R. Kursar, Cast North American Plans Expansion of 

Intermodal Container Operation, Traffic World, Jul 7, 1980).

52 Lidinsky & Hellauer, supra. at 110-111

53 Id. at 114-115.

54 See Gum Tree Fabrics, Inc. v. Ever Logistics Int’l Forwarding Lmtd., F.M.C. Informal Docket

No.1916(1)(2011).

55 John Fritelli, Cong. Research Serv., R41042, Harbor Maintenance Trust Fund Expenditures 1-2 (Jan.

10, 2011).

56 Id. Water Resources Development Act of 1986, Pub. L. No. 99-662 § 1406 (1986). 

34
The WRDA also called for a study of cargo diversion that could result from the 

implementation of the HMT, specifically the diversion of cargo from U.S. ports to ports in 

Canada and Mexico. The Secretary of Transportation (in consultation with the United 

States ports), Secretary of the Army, and the U.S. Trade Representative were 

specifically listed in the WRDA as the individuals who were tasked with carrying out this 

study. The Act required the report to be submitted no later than one year from the day of 

enactment. The Commission attempted to locate a copy of the study, but has found no 

indication that the study was ever conducted.57

There was some concern from members of the House of Representatives regarding the 

possibility of the HMT causing cargo diversion that would be detrimental to U.S. ports. 

Beginning in 1985, Representative Don Bonker (WA) voiced concerns about the 

proposed “port-user fees.” His concern was mainly with the HMT’s effect on the ports in 

the Pacific Northwest. More specifically he felt, “the operating margin of exporters using 

these ports [was] not adequate to take on a new tax”, and he feared that, “the exportimport business in Washington State [would] shift to Canada where the government 

[played] a more supportive role in their transportation system.”58 Another voice of 

concern during the 1985 House debates was Representative Robert Borksi (PA). He 

voiced opposition to raising the HMT. He also felt that the user fees would diminish the 

competitiveness of the United States’ foreign commerce and the U.S. Merchant 

Marine.59

In January 1986, the Senate Committee on Finance submitted a report on the Harbor 

Maintenance Revenue Act of 1985. In this report, the Committee stated that the .04% 

charge on the value of cargo would not cause competitive or economic burdens on U.S. 

ports.60 However, the Committee amendment did require the Secretary of the Treasury 

to study whether this charge would result in cargo diversion from U.S. ports to Canada 

or Mexico.61 Later, Senator Slade Gorton (WA) proposed an amendment that would 

allow U.S. ports that competed with Canadian ports to be exempted from paying the 

HMT.62 The argument in favor of this amendment was that having to pay this tax would 

put these ports at a competitive disadvantage.63

 

57 Water Resources Development Act of 1986, Pub. L. No. 99-662 § 1406 (1986).

Senator William Bradley supported

Senator Gorton’s amendment. He was concerned that thousands of jobs would be in 

jeopardy if the HMT were passed, and that the .04% tax would create a substantial 

shipping cost for some shippers. He concluded that, “a maintenance tax that [raised] the

58 131 Cong. Rec. 31613 (1985).

59 Id. at 31,614-15.

60 S. Rep. No. 99-228, at 5 (1986).

61 Id.

62 S. AMDT. No.1692, 99th Cong. (2nd Sess. 1986))(amending S.1567, 99th Cong. (2nd Sess. 1986). 

63 132 Cong. Rec. 6238 (1986).

35
cost of the United States ports for cargo that could be diverted to Canadian ports 

[would] kill the business on which the tax was based”.64

In 1990, the HMT was increased to .125% of the value of the imported and exported 

domestic cargo, and cruise ship tickets.65 This was to cover 100 percent of the Corps’

port operation and maintenance costs.66 In 1992, legislation to reduce the HMT back to 

the 0.04% and to expand the uses of the funds was proposed.67 In 1995, 

Representative Jim McDermott (WA) introduced H.R. 1138 that proposed reducing the 

HMT to an amount equal to the applicable percentage of the value of the commercial 

cargo involved, if the trust fund became over funded.

68

In 1995, the U.S. Court of International Trade (CIT) held that the collection of HMT on 

exports violated the Export Clause of the United States Constitution.69 The U.S. 

Supreme Court reexamined the issue in United States v. United States Shoe 

Corporation, 523 U.S. 360-361 (1998) and upheld CIT’s original ruling.70 The Court also 

held that even though the HMT was a tax on exports, exporters were not necessarily 

exempt from all user fees that were designed to mitigate the cost of harbor development 

and maintenance.71 In another case, the CIT determined that the HMT as it applied to 

exports was a tax, but that the HMT on imports was a user fee and not a tax.72 

The year 1998 also saw challenges to the HMT under the General Agreement on Tariffs 

and Trade (GATT) and provisions enforced by the World Trade Organization (WTO).73

The European Economic Community (EEC, now the European Union) cited concerns 

with the United States’ obligations under Article I, II, III, VIII, and X of GATT 1994 and 

the WTO Understanding on the Interpretation of Article II: 1(b) of GATT 1994.74

 

64 Id.

Following the request for consultations by the EEC on March 3, 1998, Canada

65 Id. 

66 Id.

67 H.R. 5896, 102nd Cong. § 1 (2nd Sess. 1992).

68 H.R. 1138, 104th Cong. § 1 (1st Sess. 1995). 

69 U.S. Shoe Corp. v. United States, 907 F.Supp. 408 (Ct. Int’l Trade 1995).

70 United States v. U.S. Shoe Corp., 523 U.S. 360-361 (1998).

71 Id.

72 Thomson Multimedia Inc. v. United States, 219 F.Supp.2d 1325 (Ct. Int’l Trade 2002).

73 Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154. 

(GATT was incorporated into the new agreements for the World Trade Organization during the Uruguay 

Round of the GATT trade round discussions).

74 Request to Join Consultations by Canada, United States – Harbour Maintenance Tax WT/DS118/2 

(Mar. 3, 1998).

36
requested to join the consultations as they had “substantial trade interest[s]” involved.75

No further actions beyond consultation were pursued. 

There have been more recent proposed revisions to the HMT. In 1999, the Clinton 

Administration proposed the Harbor Services Fund Act.76 The bill proposed a charge on 

commercial vessels based on a vessel capacity unit.77 The bill had provisions that if the 

amount appropriated in any given fiscal year was less than the amount collected in fees 

for the prior fiscal year, then the rate of the fee for a given category would be reduced in 

the year of the appropriation so that the collections did not exceed the total appropriated 

for the Harbor Services Fund.78 This particular bill was reintroduced by the Clinton

Administration in the FY2001 budget, but failed to pass again.79 

In 2002, the U.S. Port Opportunity and Revitalizing Trade Act was proposed.80 This bill

proposed to revise the HMT so that any port that was within 200 miles of a container 

port of Canada or Mexico would be exempt from the HMT.81 The Short Sea Shipping 

Tax Exemption Act was proposed in 2005.82 This bill would have exempted cargo in 

intermodal containers loaded and unloaded by crane or wheeled technology in one port 

in the mainland United States and destined for another port in the United States by 

coastal route or river from the HMT.83

Congressional Research Service Report

Neither of these bills has passed into law.

In January, 2011, the Congressional Research Service issued a report on the HMTF 

entitled, Harbor Maintenance Trust Fund Expenditures. The report provided detail on

the surplus in the HMTF at the time. In FY2010 the HMTF surplus was expected to be 

over $5 billion.84

 

75 Id. 

The interest on collections exceeded $100 million. The main use of the 

HMTF is to pay the costs of harbor maintenance by the Corps. This ranges from $525 

76 H.R. 1947, 106th Cong. § 2 (1st Sess.1999).

77 Id.

78 Id.

79 Energy and Development Appropriates for Fiscal Year 2001: Hearing on H.R. 4635, H.R. 4733, and 

H.R. 4733 Before the Subcomm. of the S. Comm. on Appropriations, 106th Cong. 7 (2000). (Statement of 

Dr. Joseph Westphal, Assistant Sec’y of the Army, U.S. Dep’t of the Army Civil Works).

80 S. 2787, 107th Cong. § 2 (2nd Sess. 2002). 

81 Id. 

82 H.R. 3319, 109th Cong. § 2 (1st Sess. 2005).

83 Id. 

84 The actual amount of the HMTF surplus at the end of FY2010 was over $5.6 billion dollars. The current 

HMTF balance is over $6 billion. 

37
million to $700 million annually.85 The fund is also used to cover the costs of the 

operations and maintenance of the St. Lawrence Seaway ($15 million to $20 million 

annually), and the administrative costs of collecting the HMT by Customs and Border 

Protection (CBP) ($3 million annually).86 The report also described several ancillary 

activities that are covered by the HMTF. HMTF funds can be used for, among others, 

the construction costs for dredged material disposal facilities ($10 million to $15 million 

annually), and a standby emergency dredge ($5 million annually).87

According to the report, as of 2005, the top five ports that generate HMT revenue, in 

descending order, are: Los Angeles, New York, Long Beach, Houston, and 

Charleston.88 Together they generated 48.5% of the total value of the imported cargo 

that enters the United States.89 Imported oil generates more funds for the HMT than any 

other commodity. Consumer goods including vehicles, clothing, toys, furniture, etc., 

collectively, generate a significant amount for the HMT as they account for more than a 

third of the total value of imported goods.90 

The Congressional Research Service report also states that though, “the top ten ports 

account for nearly 70% of the total value of foreign goods shipped through U.S. ports, 

these ports have received about 16% of total HMTF expenditures over the past 

decade.”91 Of the top 25 ports that generate the most value of imported cargo, the 

report noted that the ports of Los Angeles, Long Beach, Tacoma, and Seattle stood out 

as ports whose customers generated a substantial amount of HMT revenues that were 

spent on maintaining other harbors.92 Also noted was that the ports of Los Angeles and 

Long Beach received less than a penny, and the ports of Seattle and Tacoma received 

just over a penny on every dollar of HMT paid by shippers who use their ports.93

Current Issues and Proposals Regarding HMT

In FY2010, the Obama Administration proposed a Low Commercial Use Navigation 

Pilot Project. The purpose of the project was to make some of the larger net HMTF 

recipients, with little commercial traffic, self-funding. The FY2010 budget included a $1.5 

million project that would develop and encourage alternative means to fund 

 

85 John Frittelli, Cong. Research Serv., R41042, Harbor Maintenance Trust Fund Expenditures 9 (Jan. 10, 

2011).

86 Id. 

87 Id. 

88 The Ports of Seattle and Tacoma were sixth and eighth, respectively.

89 Id at 7.

90 Id at 8.

91 Id at 16.

92 Id.

93 Id.

38
maintenance of the low commercial use harbors and waterways.94 The project would 

identify which Federal harbors and inland waterways supported lower levels of 

commercial use, and their non-Federal sponsors. The project would also develop long 

term methods for funding and operating these facilities.95

In January 2011, the Realize America’s Maritime Promise Act (RAMP Act), was 

proposed. If passed, the RAMP Act would require that the total budget resources made 

available from the HMTF each fiscal year be equal to the level of receipts plus interest 

credited to the HMTF for that fiscal year. These funds would only be made available for 

harbor maintenance programs.96 It would also guarantee that no funds would be 

appropriated for harbor maintenance programs until that amount had been provided.97 

The above and additional alterations to the HMT will be discussed in greater detail later 

in this study.

 

94 FY2010 Budget for the Army Civil Works Program, Hearing, Before the Subcomm. On Energy and 

Water Dev. of the S.Comm. on Appropriations, 111th Cong. 5 (2009). (Statement of Terrence C. Salt, 

Acting Assistant Sec’y of the Army, U.S. Dep’t of the Army).

95 Id. 

96 H.R. 104, 112th Cong. § 2 (1st Sess. 2011).

97 Id. 

39
“Natural” Competitive Factors

Ocean Freight Rates

Comparison of Aggregated Freight Rates

One of our first lines of inquiry to try to understand why importers, who are obviously 

well aware of the HMT not being applied at U.S. land border crossings under relevant 

provisions of the North American Free Trade Agreement (NAFTA), might choose to 

utilize services calling at neighboring foreign ports was to determine what sort of rate 

differentials might apply between services calling at Prince Rupert and those calling at 

U.S. ports. Service contracts filed at the FMC between shippers and carriers are done 

so with an understanding of confidentiality. As such, we cannot divulge the actual rates 

that shippers and carriers contract for. Therefore, in order illustrate the difference 

between Canadian and west coast port rates, we aggregated the total freight rate 

differentials based on the rates themselves. 

 

This data includes the ocean freight rate, terminal charges, and the rail rate. We did not 

take into account bunker, inland fuel charges, or Alameda Corridor charges as these 

charges are not uniform, and would skew the data. Additionally, as intermodal rail 

contracts are confidential between railroads and carriers, we are unable to determine 

what factors in addition to rail line haulage are used to determine how carriers establish 

pricing for final cargo destinations. 

We expressed the lowest aggregated rate as the “base rate” and then provided the 

increased aggregated rate differentials for other ports in dollars. In general, we found 

that freight rates via Prince Rupert and Vancouver to Chicago are generally less costly 

than via U.S. west coast ports. Rates from Shanghai to Memphis via Prince Rupert are

also generally less costly than the equivalent rate using U.S. ports, although we note 

that for a 20’ container, LA/LB is the least expensive option, and Prince Rupert the most 

expensive.

To: Chicago

To: 

Memphis

20' 40' 40' HQ 20' 40' 40' HQ'

Via:

LA/LB 160 200 275 BASE BASE 150

Seattle/Tacoma 120 150 225 40 50 200

Vancouver 92 115 100 20 25 25

Prince Rupert BASE BASE BASE 60 BASE BASE

Table 10: Aggregated Total Freight Rate Differentials: Shanghai to Chicago/Memphis via Canadian and 

U.S. West Coast Ports

40
The Average Cost of Shipping One FEU Through Prince Rupert

In comparing the average cost to ship one Forty-foot Equivalent Unit (FEU)

98 of cargo to 

Chicago via Prince Rupert and west coast ports, we found that the differential 

increases, when factoring in HMT. For the purposes of this study, we calculated the 

average HMT per FEU to be $109. 

We added the aggregated freight rate differential to the average HMT per FEU, and 

determined that Prince Rupert is less costly than all west coast ports. We again did not 

factor in bunker or inland fuel surcharges, though this differential would only increase for 

west coast ports if we had, as U.S rail fuel surcharges are generally 10% higher than 

those of CN, the only rail provider to Prince Rupert. (See Images 4 and 5 below)

While these figures would seem to suggest that Prince Rupert is simply a less 

expensive corridor for cargo heading to the Midwest, even prior to the inclusion of the 

HMT, discussions with importers suggest that this may not be the case. In fact, it has 

been suggested that rates through Prince Rupert are lower to offset higher 

transportation costs at other places in the supply chain. For example, many shippers 

have made infrastructure investments closer to rail facilities operated by U.S. railroads. 

In order to utilize Prince Rupert, the cargo must travel by rail on CN; the lower ocean 

rates are offered to account for the increased trucking cost to move containers from the 

CN railhead to the ultimate destination. As such, it is difficult to conclude that 

transportation costs are significantly lower when importers opt to use Prince Rupert as 

their seaport of choice.

 

98 One FEU is the size of two TEU. Most U.S. imports arrive in forty-foot containers.

41
Commodity USATO Value USATO Weight

USATO 

Value/Mton

PIERS 

Mtons

PIERS 

TEU

PIERS 

Mtons/TEU Value/TEU HMT/FEU

Wgt Ave 

Contribution

Apparel 62,857,446,905 4,329,847,893 14,517 4,495,794 1,142,278 3.9 57,137 $142.84 $31.62

Electronics 74,888,834,957 6,187,302,950 12,104 3,190,297 656,667 4.9 58,803 $147.01 $38.77

Furniture 26,791,264,221 8,198,717,388 3,268 6,940,717 1,667,062 4.2 13,605 $34.01 $3.21

Woodenware 5,238,205,017 3,982,782,114 1,315 1,172,303 141,064 8.3 10,930 $27.32 $0.50

Toys & Sport 

Equip 23,135,787,966 2,904,945,027 7,964 2,954,589 691,766 4.3 34,016 $85.04 $6.93

Autos & Auto Parts 32,437,873,713 5,027,862,515 6,452 1,346,869 192,571 7.0 45,124 $112.81 $12.89

Plastic Products 21,046,301,183 6,151,721,586 3,421 2,172,638 399,972 5.4 18,584 $46.46 $3.44

Beverages, Spirits 

& Vinegar 13,606,282,475 6,394,435,078 2,128 6,786,019 582,863 11.6 24,773 $61.93 $2.97

Hardware 4,313,174,814 607,793,580 7,096 1,973,624 259,566 7.6 53,958 $134.90 $2.05

Footware 19,644,070,280 1,672,597,600 11,745 1,611,718 449,037 3.6 42,155 $105.39 $7.29

Total 283,959,241,531 45,458,005,731

Weighted 

Avg: $109.67

Table 11: HMT Averages/FEU by Commodity (Source: USA Trade Online/PIERS Interactive)

42
Chicago via Prince Rupert 

Transit Time = 18 days 

+$0/FEU HMT

Chicago via Seattle/Tacoma 

Transit Time = 17 days (Tacoma) 

+$109/FEU HMT

Chicago via Los Angeles/ Long Beach 

Transit Time = 18 days 

+ $109/FEU HMT

Prince Rupert

Seattle/Tacoma

Los Angeles/Long Beach

Chicago

Image 5: HMT and Transit Time Map

43
Total Transit Times Vary Little

It is widely acknowledged that the Canadian port of Prince Rupert is closer to North Asia 

than U.S. west coast ports. Many have commented that Prince Rupert is preferred by 

shippers because of its geographic proximity to Asia. Logically, one would assume that 

because Prince Rupert is closer to North Asia, the overall transit times to inland 

destinations in the U.S. would be faster. Our research has indicated that this 

assumption is not necessarily true. 

The faulty rationale in the perception that transit times via Prince Rupert are faster than 

U.S. west coast ports lies not in Prince Rupert’s proximity to Asia, but in the Canadian 

ports’ distance from the U.S. Midwest, which can be clearly seen in Table 1 below. 

COSCO and Hanjin Lines both have ten day transits out of Shanghai to the Port of 

Prince Rupert. This beats the best transit times offered by APL, Maersk, and Hanjin 

Lines into the ports of LA/LB by two days (10 vs.12 days), but COSCO and Hanjin’s 

faster transit times into Prince Rupert do not always translate into faster delivery to U.S. 

inland points. Both COSCO and Hanjin Lines provide a service out of Shanghai to 

Chicago, with an eighteen day transit time, via the port of Prince Rupert. This same 

transit time is offered by APL via the port of Los Angeles. Orient Overseas Container 

Line (OOCL) actually bests COSCO and Hanjin transit time by one day (17 vs. 18 days) 

via the port of Tacoma.

The same can be said for cargo moving to Memphis. COSCO and Hanjin Lines calling 

Prince Rupert direct offer a transit time out of Shanghai to Chicago of 20 days 

(COSCO), and 18 days (Hanjin). Hanjin beats its own transit time into Memphis by 1 

day (17 vs. 18 days), via the port of Long Beach, and American President Line (APL)

matches Hanjin’s Prince Rupert transit time of 18 days, via the port of Los Angeles.

 

44
Table 1: Transit Times: Shanghai to Chicago/Memphis via West Coast Canadian and U.S. Ports

 Prince 

Rupert

Vancouver, 

BC Tacoma Seattle

Los 

Angeles/Long 

Beach

Chicago via 

Prince 

Rupert

Chicago via 

Vancouver, 

BC

Chicago 

via 

Tacoma

Chicago 

via Los 

Angeles

Memphis 

via Prince 

Rupert

Memphis via 

LA/Long 

Beach

 

APL 13 12 18 18

COSCO 10 18 20 20

HANJIN 10 12 18 18 17

 

MAERSK 15 12 12 23 22

OOCL 13 13 17 19

45
The transit times advertised by Prince Rupert are general and only reference certain

origin points and destinations. As such, Prince Rupert is not a viable port for cargo 

originating from, and destined for, large swaths of the United States. While Chicago and 

Memphis are important industrial areas, and do represent the destination for a 

considerable portion of U.S. imports, we spoke with importers who indicated that they 

have distribution centers located all over the country, and cargo destined for these 

locations in places like Pennsylvania, California, or Texas would likely never be routed 

through Prince Rupert. Likewise, Prince Rupert's claims of rapid transit times only 

currently apply for cargo being sourced from northern and central China, Japan, and 

Korea; importers who are sourcing cargo from the rapidly growing industrial centers in 

Southeast Asia or the Indian Subcontinent have no access to direct services calling at 

Prince Rupert.99

The vast majority of the impact of infrastructure differences comes from independent 

logistical decisions made by specific shippers. Each importer builds and maintains a 

supply chain in which the seaport of entry is only one small part; these chains also 

include warehouses, trans-loading facilities, distribution centers, and retail stores. The 

location of these facilities often has a far greater impact on the decision to use a specific 

seaport, and often does not involve the seaport at all, only the railroad line that carries 

the cargo inland. In some cases, importers reported that their logistics facility 

investments afforded them no option to change to a different seaport of entry due to a 

reliance on CN or one of the U.S. railroads.

Finally, while the on-ocean transit time is important for importers who cite speed-tomarket as a reason for preferring Prince Rupert to U.S. ports, access to regular services 

is just as vital: three days less at sea for a container is only valuable if they do not 

spend those three days at terminal waiting for a vessel to depart. As can be seen in 

Images 5 - 7 below, the use of Prince Rupert significantly reduces the available service 

strings and frequency of sailing vs. larger ports on the U.S. West Coast. For example, 

two ships leave Shanghai each week for Prince Rupert compared to 23 sailings per 

week for LA/LB and 14 to Seattle-Tacoma. Moreover, the latter sailings include some

"express services" which offer transit times competitive with those of Prince Rupert.

 

99 We note, however, that the opening of transport corridors utilizing ports in Mexico may provide such an 

alternative entry point.

46
Comparison of Weekly Service Frequency and Ocean Transit Times from Hong Kong & 

Yantian to Prince Rupert, Seattle-Tacoma and Los Angeles-Long Beach

Hong KongYantian

 Image 5

Data source: CI-Online, Liner Services

47
Comparison of Weekly Service Frequency and Ocean Transit Times from Shanghai 

to Prince Rupert, Seattle-Tacoma and Los Angeles-Long Beach

Shanghai

 Image 6

Data source: CI-Online, Liner Services

48
Comparison of Weekly Service Frequency and Ocean Transit Times from Busan 

to Prince Rupert, Seattle-Tacoma and Los Angeles-Long Beach

Busan

 Image 7

Data source: CI-Online, Liner Services

49
Port Diversification to Mitigate Risk

Nine respondents to the FMC’s NOI included Prince Rupert in their port selection 

process to mitigate risk and avoid supply chain disruptions. By employing the use of 

more than one port to import and export products in and out of the United States, they 

reduced the chances of supply chain disruption, both by forces that occur naturally and 

those that result from human influence. 

Natural forces come about in various forms. Some of the most common are torrential 

rains, blizzards, hurricanes, tornadoes, and forest fires. All the aforementioned events 

can disrupt or delay the movement of cargo along the entire length of a supply chain;

from the cargo’s place of origin to its final destination. The cost of these delays can run 

into the hundreds of millions, sometimes billions of dollars, depending on the extent of 

damage to the port, supporting infrastructure, and the time it takes to bring these assets 

back into use. 

Recent examples of supply chain disruptions caused by natural forces include 

Hurricane Katrina, which all but wiped out the ports of New Orleans, Baton Rouge, 

Mobile, and Gulfport. The 1995 earthquake in Kobe, Japan, destroyed the majority of 

the port’s infrastructure, leaving only nine berths intact out of a hundred and eighty 

six.100 Roads to and from the port were severely damaged. More recently, 2010’s 

tsunami in Japan virtually destroyed the port of Sendai, Japan. Certainly any shipper 

using just one of the aforementioned ports would have its supply chain severely 

disrupted, either by having their cargo diverted to another port, or by delays caused by 

congestion due to the ports damaged infrastructure. Japan’s auto makers are just now 

getting their supply chain back on track following last year’s devastating earthquake in 

Sendai province, Japan.

Events resulting from human influence are equally capable of disrupting supply chains. 

The 2002 lockout at west coast ports was so severe that ships were forced to start 

calling at Canadian and Mexican ports to discharge cargo. The congestion that resulted 

backed up cargo for months, as ships waited their turn to unload. The disruption at the 

west coast ports interfered with the flow of goods to U.S. retailers just before the 

Christmas season, and of auto parts to U.S. auto makers. By some estimates, the cost 

to the U.S. economy was $2 billion per day.101 

The 2012 strike at Canadian Pacific Rail in Canada left cargo standing at ports like 

Vancouver, and at inland points in Canada and the U.S. The strike cost millions of 

dollars as shippers sought other means to move their cargo. Cross border traffic 

between Canada and the U.S. was also affected as U.S. auto makers with plants in 

Canada had to look at alternate means to supply their plants in Canada with parts, and 

deliver final products to markets in the U.S.

 

100 http://www.city.kobe.lg.jp/life/access/harbor/english/shinsai_e.html

101 http://money.cnn.com/2002/10/02/news/economy/ports/index.htm

50
Past disruptions at ports and other points along the supply chain, whether caused by 

nature or human influence, have taught major retailers, insurance companies, and 

logistics companies to mitigate risk by introducing multiple entry and exit points to their 

supply chain. They have seen over the years that one entry and exit point in a supply 

chain can have devastating consequences when disruption occurs. A shorter transit 

time, or a less expensive freight rate does not necessarily have a positive effect on a 

company’s bottom line if the supply chain is disrupted by a natural or artificial event.

Rail Rates

While rail contract rates are confidential, BNSF, UP and CN all publish their monthly 

intermodal fuel surcharge on their websites, which are available to the public. CP is 

unique whereby it publishes an inland fuel surcharge twice a month. Note CN’s 

published intermodal fuel surcharge is generally 10% less than BNSF and UP. The fuel 

surcharges for the first six months in 2012 can be found in Table 12 below. Note that for 

CP, the percentages are different for the first half of the month vs. the second.

Table 12: Intermodal Fuel Surcharges (%)

As railroads and ocean carriers sign confidential contracts, we are unable to verify 

whether or not the tariff filed inland fuel charges assessed by each railroad is charged at 

face value or if there are any discount provisions offered.102

“Artificial” Legislative/Regulatory Factors

Liability, General Oversight, and Security

When evaluating different options for the transport of cargo overland to inland 

destinations in the United States, one of the issues that must be addressed by importers 

is that of liability: if something happens to a container while it is in a foreign country, how 

is liability determined? Under current U.S. law, the Carriage of Goods by Sea Act 

(COGSA) is likely to cover cargo moving through U.S. ports; and it may also be 

extended to cover non-carrier parties and multi-modal “door to door” shipments.103

 

102 We note that, while we list rail rates as a form of natural competition, there have been suggestions in 

the past that Canadian railroad regulations may allow for the lower rates charged by CN and CP. We 

were unable to find any proof of these allegations, but neither did we demonstrate any free-market reason 

for them to charge a lower fuel surcharge given the distance required to travel from Prince Rupert to 

destinations in the U.S.

On 

103 See e.g., Kawasaki Kisen Ltd. v. Regal Beloit Corp., 130 S. Ct. 2433, 561 U.S. __ (2010); Norfolk S. 

Ry. v. James N. Kirby, Pty Ltd., 543 U.S.14 (2004). This case also affirmed the FMC's intermodal 

authority.

BNSF UP CN CP

January 27.5 34.5 18.06 33.2 (1-15) – 31.6 (16-31)

February 26.5 34 18.29 33.6 (1-25) – 32.8 (16-29)

March 26 35 18.75 32.4 (1-15) – 34.4 (16-31)

April 27.5 37.5 20.13 35.6 (1-15) – 35.6 (16-31)

May 29 38 20.13 34.4 (1-15) – 34.4 (16-31)

June 29 36 19.44 33.2 (1-15) – 30.0 (16.31)

51
the other hand, cargo moving over Canadian or Mexican ports to a final U.S. destination 

would be subject to domestic Canadian or Mexican law and therefore their cargo liability 

regimes, though it appears that the regimes are generally similar.104 By using a U.S. 

seaport, importers and steamship lines can have greater certainty as to the applicability 

of U.S. law for the entire movement.

While the inspection processes appear to be somewhat different, there do not appear to 

be any significant advantages related to U.S. bound cargo moving through Canadian 

ports.105 The main difference between the U.S. inspection process and that of Canada 

appears to be what is known as the “10+2” program, which recently imposed 

requirements on U.S. importers to enhance security. The “10+2” program does impose 

a burden on importers to the United States that is not currently imposed on importers to

Canada; it is anticipated that Canada will implement a similar program soon. 

Additionally, CBP has 58 operational Container Security Initiative (CSI) ports that 

prescreen more than 86 percent of United States destined containerized cargo; 

Vancouver, Montreal and Halifax are CSI ports, Prince Rupert is not.

Harbor Maintenance Tax

Trends over the last decade in the propensity of U.S. shippers to route container cargo 

through Canadian ports were described and briefly discussed earlier in this document. 

To properly understand those trends, and the factors that may cause those propensities 

to change, one must gain an appreciation of the basic supply chain strategies used by 

U.S. importers and what influences the shape of those strategies. 

Economist Dr. Robert C. Leachman has conducted extensive empirical studies of the 

market dynamics of container flows through the west coast ports of North America.106

 

104 The adoption of the Rotterdam Rules (United Nations Convention for Contracts for the International 

Carriage of Goods Wholly or Partly by Sea, G.A. Res. 63/122. Annex, U.N. Doc. A/RES/63/122 (Feb. 2, 

2009)) by all three jurisdictions would appear to resolve any difference in these cargo liability regimes and 

hence any advantage that may result from the cargo routing.

He developed a rather complex spatial-economic multimodal transportation simulation 

model for U.S. west coast ports that determines optimal (i.e., least generalized cost) 

container flows from the ports of importation to the inland distribution points for final 

consumption in the U.S. Simulation models are used in this context to capture the 

105 The Canada Border Services Agency (CBSA) and U.S. Customs and Border Protection recently 

established several initiatives to enhance security while simultaneously accelerating the speed with which 

cargo moves from Canada into the United States. They include the CSI, the Customs Trade Partnership 

Against Terrorism (C-TPAT), Partners in Protection (PIP), the Free and Secure Trade Program (FAST), 

the Border Information Flow Architecture Program, and the Beyond the Border Initiative, which was 

announced jointly by Canadian Prime Minister Stephen Harper and President Obama in June 2012.

Through FAST, Canada and the United States coordinate customs clearance processes for commercial 

shipments. The Border Information Flow Architecture (BIFA) is a partnership between the U.S. Federal

Highway Administration, the U.S. Department of Transportation, and Transport Canada.

106 Leachman & Associates, LLC. “Port and Modal Elasticity Study,” September 2005 & “Port Modal 

Elasticity of Containerized Asian Imports via the Seattle-Tacoma Ports,” December 2007.

52
anticipated changes in container flows under different scenarios in order to evaluate 

port competitiveness and to study relative trade-offs between important parameters 

used in the model (as between transit time and inventory cost, for example). 

Leachman’s model, and others like it,107 are also used to assess the effects of 

congestion and the responsiveness of container flows to port users fees of different 

magnitudes (i.e., to assess the price elasticity of demand). The underlying premise in 

each of these applications is that U.S. importers seek to minimize the total generalized 

cost (i.e., the transportation, in-transit, and inventory storage costs) of moving 

containers from overseas sources to their final domestic destination markets.

One key finding of Leachman’s work has substantial implications for this study of U.S. 

importers’ propensity to route containers through Canada and/or Mexico, and it relates 

to an inherent trade-off between transportation and inventory cost. Leachman’s study 

found that small importers with few final destinations, and importers bringing in 

comparatively low value products, tend to minimize their overall transportation and 

inventory costs by shipping inland directly from the port because they lack the scale or 

the scope to transload marine containers into larger but fewer domestic containers. In 

contrast, according to Leachman, nationwide importers who ship imports to multiple 

destinations, or importers who have moderate to high value products and have sufficient 

overall volume, tend to minimize total transportation and inventory costs by transloading 

their imports in the immediate hinterland of one or more ports of entry. The process of 

transloading, which is used commonly by large volume importers and importers of 

moderate-to-high value products that move in sufficient volume, involves 

deconsolidating the contents of marine containers and then consolidating those 

contents into a fewer number of larger domestic containers for onward U.S. domestic 

distribution.108

 

Transloading of U.S. bound cargo at a Canadian port of entry, however, is considered 

infeasible because, if U.S. bound containers were devanned in Canada, both Canadian 

and U.S. duties would be assessed.109 In this situation, the U.S. shippers most 

susceptible to routing containers through Canada’s west coast ports are those who ship 

comparatively small volumes and those who ship comparatively low value products. 

These key influences on U.S. shipper’s import supply chain strategies, identified by 

Leachman and others, suggest that Canada’s west coast ports are likely constrained in 

their ability to attract large volumes of U.S. bound containers.

 

107 Meifeng Luo & Thanas A. Grigalunas. “A Spatial-Economic Multimodal Transportation Simulation 

Model for US Coastal Container Ports.” University of Rhode Island Transportation Center, July 2002.

108 The contents of three standard 40 ft containers typically can be accommodated by two 53 ft domestic 

containers.

109 Leachman (2007), p. 39. (It is possible this situation may have changed since 2007.)

53
Shipper Volume Low-to-Moderate Value Moderate-to-High Value

Small-scale importers

Direct shipping using 

nearest ports for low-tomoderate value products 

(e.g., tires, appliances) 

Direct shipping using 

west coast ports (time 

savings) for high value 

products (e.g., 

electronics)

Large-scale importers

Direct shipping to nearest 

port for low value 

products (e.g., flatpacked furniture) 

Transload at LA-LB for 

high value products (e.g., 

shoes, apparel)

Transload at multiple 

ports for moderate value 

products (e.g., auto parts, 

toys)

Table 13: Import Supply Chain Strategy as a Function of Import Volume & Product Value110

In 2010, an estimated 236,436 TEU of U.S. import cargo entered Canada’s west coast 

ports of Vancouver and Prince Rupert and crossed the border by rail.111 How much of 

this container volume could be regained if HMT were eliminated, or if an equivalent fee 

was imposed at the border, will depend on the price elasticity of container demand for 

discretionary container movements. Using cost models that simulate the sensitivity of 

container flows to changes in price and other cost inputs, several studies have 

examined the extent to which container volumes shift from one optimized route to 

another based on changes in costs or fees. Leachman, for example, applied this type of 

model to obtain long-run estimates of container demand elasticity at the San Pedro Bay 

(SPB) ports of Los Angeles and Long Beach and also at the ports of Seattle and 

Tacoma.112 Lou and Grigalunas applied a similar model to evaluate the impact on 

container demand of varying port user fees at the Port of New York/New Jersey.113

Subsequently, Lei Fan and others used this type of model to evaluate the diversion of 

container traffic from U.S. west coast ports due to non-price factors such as congestion 

and poor landside infrastructure.114 

With respect to the ports of Los Angeles and Long Beach, Leachman estimated that an 

increase in fees of $100 per FEU at that complex relative to all other west coast ports in 

 

110 Adapted from Leachman (2007), p. 13.

111 The FMC estimates that for 2011, based on published sources, 289,888 TEU crossed into the U.S. 

over the Canadian border by rail from Canada’s west coast ports.

112 Leachman 2005 & 2007, op. cit.

113 Meifeng Luo & Thanas A. Grigalunas, “A Spatial-Economic Multimodal Transportation Simulation 

Model for US Coastal Container Ports.” University of Rhode Island Transportation Center, July 2002.

114 Lei Fan, William W. Wilson, & Denver Tolliver, “Optimization Model for Global Container Supply 

Chains: Imports to the United States.” North Dakota State University, 2009.

54
2005 would reduce the ports’ discretionary (Inland Point Intermodal, IPI) container 

volumes from 43 percent of the ports’ total volume to 27 percent. Given that the average 

cost of an IPI container moved from Asia to the U.S. Midwest was about $4,000 at the 

time the study was conducted, an increase in fees of $100 per FEU is equivalent to a 

change in price to the shipper of 2.5 percent. A reduction in the share of discretionary 

(IPI) container volume from 43 percent to 27 percent as a result of this price change 

(+2.5%) at a price point of $4,000 per FEU, represents a reduction in demand of 37.5 

percent. This set of relationships implies that the long-run elasticity of demand for 

discretionary IPI containers at the SPB ports was about 15; that is to say, a positive 

change in price of x percent would result in a negative change in volume of 15x percent. 

Discretionary IPI volumes would appear to be highly elastic.115 With respect to container 

volumes at the ports of Seattle and Tacoma, Leachman later estimated that an increase 

in fees of $60 per FEU relative to all other ports would reduce container volumes by 30 

percent, implying in this case a long-run price elasticity of about 20 depending on the 

initial price point assumed.116 

As was demonstrated in Table 11 earlier, we believe that $109 is a reasonable 

approximation of the average weighted HMT charged per FEU at U.S. ports. If U.S. 

importers were relieved from paying this tax or, equivalently, if a fee of this magnitude 

was imposed at the border on U.S. bound containers having used Canada’s west coast 

ports, a portion of the U.S. cargo that comes through the ports of Vancouver and Prince 

Rupert likely would revert to using U.S. west coast ports. The long-run elasticity 

estimates derived from Leachman suggest that up to half of the U.S. containers coming 

into Canada’s west coast ports could revert to using U.S. west coast ports if these fee 

adjustments were made. Based on 2010 container volume, this would amount to up to a 

maximum of 118,000 TEU and up to a maximum of 145,000 TEU based on 2011 

container volumes.117

Using data for calendar year 2010, an estimate is made below of the maximum volume 

in 2010 of U.S. import containers that entered through west coast ports that was at risk 

of being routed through Canada. The data for this vulnerability exercise come from 

several sources. U.S. container imports overall and into individual west coast ports were 

obtained from PIERS. U.S. import containers routed into Vancouver and Prince Rupert 

are derived from the STB Waybill Sample file. This latter file also was used to derive the 

 

115 Long-run estimates of the sensitivity of changes in container flows at any given location to changes in 

costs or fees that are derived using cost-based models tend to over-estimate the amount of containers 

that may shift to other lower cost alternative routings. This is because such models fail to properly 

account for anticipated dynamic responses from other actors in the market who likely will alter their 

economic behavior to mitigate any potential loss. Behavioral models based on actual observation of 

responses to increased fees, etc., most likely would produce more accurate (and possibly lower) elasticity 

estimates.

116 The paper by Lou estimated that an increase in port charges of $80 per FEU at the Port of New 

York/New Jersey relative to other ports could reduce container throughput by 42 percent.

117 As these figures are derived from the long-term elasticity estimates developed earlier, but it should be 

recognized that a shift in container volumes of these magnitudes would not occur immediately but rather 

over a period of years. 

55
inland distribution of U.S. import containers from each west coast port of entry to each 

U.S. state. The STB Waybill Sample file in conjunction with PIERS data was used to 

derive the percent of containers leaving each port of entry by rail. The data from these 

sources are used to assess the vulnerability of U.S. bound containers to further 

incursions by Canada’s west coast ports. The volume of U.S. import containers that are 

most at risk of being routed through Canada’s west coast ports are estimated by 

quantifying the volume of containers that moved from U.S. west coast ports to individual 

U.S. states in the Midwest served by CP Rail or CN Rail from Vancouver and Prince 

Rupert; these flows are viewed as being the most at risk of being routed through 

Canada. 

As shown in the tables below, 2.6 percent of total U.S. import containers that entered 

through west coast ports came through Canada in 2010.

Total US import containers through North American west coast 

ports, 2010 

9,268,022 TEU

US-bound import containers through Canadian west coast ports 236,436 TEU

% of west coast U.S. bound import containers routed through 

Canada 2.6%

 

Based on 2010 data, the table below contains an estimate of the proportion of import 

containers handled by the ports of Los Angeles and Long Beach that potentially are IPI 

and Midwest destined, and therefore are most likely to be routed through Canada’s west 

coast ports.

2010 import container volume at POLA & POLB 6,872,943 TEU

Of that number, estimated volume of IPI containers 2,949,760 TEU

Of that number, estimated IPI volume to Midwest states 1,303,764 TEU

Percent of POLA/POLB container volume in 2010 that was at 

risk of Canada routing 19.0%

The equivalent figures for other U.S. west coast ports (Oakland, Seattle, Tacoma, and 

Portland) are presented below on a consolidated basis.

2010 import container volume at other US west coast ports 

(combined)

2,105,319 TEU

Of that number, estimated number of IPI containers 692,376 TEU

Of that number, estimated IPI volume to Midwest states 561,816 TEU

Percent of container volume in 2010 at these US ports that was 

at risk of Canada routing 26.7%

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Using 2010 data, the table below summarizes the extent to which import containers 

bound for west coast gateways may be vulnerable to incursions by Canada’s west coast 

ports.

US bound import containers sent through Canadian west coast 

ports

 236,436 TEU

Estimated IPI volume from US west coast ports to Midwest 

states 

1,865,580 TEU

Of the above “at-risk” cargo, the percent routed through Canada 

in 2010 12.7%

The total size of the U.S. market targeted by the APGC initiative is almost two million 

TEU (based on 2010 data). In 2010, about 1-in-8 IPI containers destined for the 

Midwest from west coast ports entered through Canada, representing a container 

volume of 236,436 TEU.

Based on the above numerical exercise, and its underlying assumptions, it seems clear 

that removal of the HMT would drive some U.S. discretionary cargo going through 

Canadian ports back to U.S. west coast ports, but by no means all. That being said, the

HMT does appear to be one competitive force that is not based on natural competition, 

but may indeed be a legislative disadvantage on some U.S. ports.

Congressional Policy Considerations 

The FMC has an interest in ensuring that U.S. ports remain competitive in the 

waterborne commerce arena. This task is not simple, as there are many factors 

involved. U.S. ports are competitive internationally; however, it would appear that the 

HMT makes the challenge more difficult. This is especially the sentiment of the ports 

that are competitive with Canadian and Mexican ports. According to Tay Yoshitani, CEO 

of the Port of Seattle, “A lot of factors go into the routing of cargo and a lot of 

carriers/shippers want diversity in how they get cargo to warehouses...cost is always an 

issue, and the HMT clearly disadvantages us against Canadian Ports.”

It is clear that HMT is one of many factors affecting the increased use of foreign ports 

for cargo bound for U.S. inland destinations. While a user fee is necessary for U.S. 

ports to grow, the number of proposals in both the House and Senate as well as from 

other sources, suggest that amendment to the current HMT structure should be given 

consideration.

The majority of the nation’s bulk commodities and containerized goods are shipped via 

the U.S.’s national ports and waterways. When the HMT was originally implemented, its 

purpose was to cover 40% of the Corps’ port operation and maintenance costs. The 

HMT was later increased to cover 100% of the Corps’ port operations and maintenance 

costs. Millions of dollars are collected every year from the assessment of the HMT and 

those monies make up the Federal funding for the maintenance of navigation channels 

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in U.S. ports. It cannot be used for the expansion of water and landside facilities, or 

dredging alongside wharves.

There have been calls from members of Congress to use the HMT to its full potential. 

Reports by the Corps tracked 59 of the nation’s ports that handled the largest amount of 

tonnage. Thirty-three percent of the time, the ports were not dredged adequately, which 

resulted in vessels being forced to carry smaller loads so that two vessels would be able 

to pass each other in the channel.118

Currently, there are several proposals to allow for a more efficient use of the HMT. The 

Revitalize America’s Maritime Promise Act (RAMP Act) would restructure the HMT 

collection process so that the total budget resources made available from the Harbor 

Maintenance Tax Fund for a given fiscal year equal the level of receipts plus interest 

credited to the Harbor Maintenance Trust Fund for that fiscal year. Under the RAMP 

Act, all of the HMT collected would be spent on harbor dredging and maintenance.

On February 16, 2011, Senator Frank Lautenberg (NJ) and others introduced S. 371: 

Focusing Resources, Economic Investment, and Guidance to Help Transportation 

Act of 2011. While this bill does not specifically address the HMT, it would take steps 

towards establishing a national transportation policy, and provide funding for 

infrastructure projects.

The Ports of Los Angeles, Long Beach, and Tacoma have created a joint proposal for

the reformation of the HMT. The draft proposed Harbor Maintenance Tax Reform Act 

of 2012, incorporates sections one and two of the RAMP Act, but expands the uses of 

the HMT in section three. Section three proposes amending Section 9505 of the Internal 

Revenue Code of 1986 (relating to the expenditures of the HMTF), to include 

subsection (d), which would allow ports who collect $25 million/year and whose 

expenditure of HMT collected at the port is less than 1/10 of the amount collected for 

the previous five fiscal years and whose channels are built to the authorized widths and 

depths, to receive monies from the HMTF annually, beginning with the following (6th) 

fiscal year, to spend, 

(1) on any improvement in or adjacent to the navigable waters in or near such port that 

the Secretary of the Army is authorized to make, including environmental mitigation and 

habitat construction; 

(2) on any improvement in berthing areas in such port pursuant to a channel widening 

project; 

(3) on maintenance of berthing areas accessible from Federal navigational channels in 

such ports; and 

(4) dredging and disposal of clean sediments unsuitable for ocean disposal that are in or 

that affect the maintenance of Federal navigation channels, or that are in berths

accessible by Federal channels. 

 

118 R.G. Edmonson, Ramping Up Dredging Support, THE JOURNAL OF COMMERCE ONLINE (Feb. 13, 2012 

5:00 AM), http://www.joc.com/government-regulation/ramping-dredging-support. 

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On January 17, 2012, former Congresswoman and FMC Chairwoman, Helen D. 

Bentley (MD), delivered a speech at the 25th annual Tacoma Propeller Club meeting. In 

this speech, she proposed that the Harbor Maintenance Tax be replaced by a system 

wherein a uniform user fee of $100 per container would be charged for each container 

entering the United States, regardless of the mode of transportation.

P.L. 112-141, The Moving Ahead for Progress in the 21st Century Act, or MAP-21, 

was signed into law on July 6, 2012. Among other provisions in this sweeping 

transportation bill is a provision that would recommend that the Administration fully use 

the HMTF to operate and maintain navigation channels of the U.S.

Maintaining the competitiveness of the U.S. ports requires in part, improving port 

infrastructure. Prince Rupert, for example, is geared toward handling intermodal rail 

traffic and has on dock rail facilities that allow the gang to make fewer moves with the 

cargo. The design of the Port of Prince Rupert allows a single gang to move the cargo 

from ship to train and then move the train to the switching yard. In other ports, there are 

separate gangs that discharge the cargo, move the cargo to rail sidings, and then to 

switching yards to be consolidated with other flatcars. 

The new proposed bills, and former Congresswoman Bentley’s proposal, have been a 

part of a larger movement to promote the concept of a national transportation policy as 

Congress moves to resolve these issues.119 Currently, many U.S. ports, highways, and 

bridges are slowly decaying due to lack of investment and strategic long-term planning. 

Our closest competitors, Mexico and Canada, have national transportation policies that 

ensure that their ports, highways, and bridges, all of which play important roles in the 

intermodal transportation of commerce, are sustained. Our country’s decisions 

regarding infrastructure investments today will directly impact our ability to 

compete in a global economy for years to come.

 

119 As part of the We Can’t Wait Initiative the Obama Administration announced on July 19, 2012, that 7 

nationally and regionally significant infrastructure projects will be expedited to help modernize and expand 

5 major ports in the United States, including the Port of Jacksonville, the Port of Miami, the Port of 

Savannah, the Port of New York and New Jersey, and the Port of Charleston. 

<http://www.whitehouse.gov/the-press -office/2012/07/19/we-can-t-wait-obama-administrationannounces-5-major-port-projects-be-ex> (last visted July 19, 2012).

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