The Federal Maritime Commission's current inquiry into the Harbor Maintenance Tax is no trifling issue. It could lead to a trade war with Canada and higher costs for shippers.
Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
Does the Harbor Maintenance Tax (HMT) on U.S. imports encourage the diversion of cargo through Canada and Mexico?
That question—the subject of an ongoing Federal Maritime Commission (FMC) inquiry—may sound like an obscure exercise in policy analysis. But the inquiry has evolved into a debate over much broader issues, including whether government policies are putting U.S. seaports at a competitive disadvantage and are thereby restricting the country's economic growth.
Depending on how the government chooses to respond to the FMC's findings, there could be several potential outcomes: Congress could change the way the HMT is assessed and its funds allocated, the United States could end up in a dispute with Canada and the World Trade Organization (WTO), and costs could rise for many importers and exporters.
Washington's complaint
Currently, U.S. importers pay a Harbor Maintenance Tax (HMT) of 0.125 percent on the declared value of imported merchandise. Established in the 1980s, the tax and its associated Harbor Maintenance Trust Fund are designed to help fund the U.S. Army Corps of Engineers' harbor maintenance projects, including dredging. The fund has built up a multibillion-dollar surplus, which critics say is being used to help reduce the federal budget deficit instead of paying for needed waterways improvements.
The tax generates an average fee of between $84 and $137 per 40-foot container, according to estimates. For high-value cargo such as auto parts, that figure can be as high as $300. For commodities like lumber and refrigerated produce, it can be less than $20.
However, containers that enter the United States by truck or rail via Canadian and Mexican seaports are not subject to the HMT. As the volume of such shipments has grown—notably at the ports of Prince Rupert in Canada and Lázaro Cárdenas in Mexico—lawmakers in California and Washington state have voiced concern that the HMT is at least partly to blame for their neighbors' rising fortunes.
The FMC's inquiry was sparked by an Aug. 29 letter to FMC Chairman Richard A. Lidinsky Jr. from Sens. Patty Murray and Maria Cantwell of Washington. In the letter, the senators asked the FMC to examine the extent to which the HMT and other factors influence diversion of cargo from U.S. West Coast ports to Canadian and Mexican competitors. The exemption for overland shipments, they wrote, has given Mexican and Canadian ports a competitive advantage over U.S. seaports, causing an increase in cargo diversion, a reduction in revenue for the Harbor Maintenance Trust Fund, and the loss of U.S. jobs. They also asked the agency to offer "recommendations for legislative and regulatory responses" to those concerns.
The FMC agreed to take up the matter and in its November 2011 notice of inquiry (Docket 11-19) asked for comments on the HMT's influence on cargo routing as well as suggestions for actions the U.S. government could take to improve the competitiveness of U.S. ports. That request drew dozens of responses from private industry and government organizations across North America, as well as from the governments of Canada and Mexico.
Sparks fly in Puget Sound
The primary battleground of the dispute is the Pacific Northwest, where the Puget Sound ports of Seattle and Tacoma on the U.S. side of the border, and British Columbia's Prince Rupert and Vancouver on the Canadian side, have long battled it out for market share.
In recent years, Seattle and Tacoma have been on the short end of the stick. According to data compiled from various port sources, the two ports accounted for nearly 16 percent of containerized traffic on the West Coast of North America in 2010, down from about 18 percent in 2005. During that same period, the market share for British Columbia ports rose to 12 percent from about 8 percent.
Washington state interests insist that the HMT is, at least in part, to blame for the shift in market share. In their comments, the Seattle Metropolitan Chamber of Commerce, the Washington Public Ports Association, and the Port of Seattle asserted that the HMT's "land-border loophole" provides incentives for shippers to avoid U.S. ports. They have requested that the federal government change the law to eliminate any such incentives.
Few others, though, believe the HMT is a significant factor in routing decisions. "When the FMC completes its investigation, what [it] will find out is that the reasons for using [Canadian West Coast] ports have nothing to do with avoiding the 0.125 percent fee on the value of the cargo," says Peter Friedmann, Washington counsel for the Coalition of New England Companies for Trade (CONECT) and the Agriculture Transportation Coalition.
The main reason, he says, is that Prince Rupert is a day and a half closer to Asia, and rail service from Prince Rupert and Vancouver to the U.S. Midwest is faster and more affordable than service from U.S. West Coast ports.
Shipper groups agree. "Shippers, including retailers, who are using ports such as Prince Rupert are choosing these ports because of their operational efficiencies, and it is our view that any change in U.S. tax policy will have no impact on shippers' routing decisions," the National Retail Federation (NRF) said in its comments.
Washington state port executives have a different view. "It's difficult to believe ... that any factor that can increase the cost of moving a container by $150 plays no role," said Sean Eagan, director of governmental affairs for the Port of Tacoma, in an interview.
Ironically, the haggling is not over torrents of U.S.-bound cargo pouring into Canada. According to the Canadian Embassy, just 2.5 percent of U.S. containerized imports moved through Canadian ports in 2010. By contrast, about 6 percent of Canada's containerized imports passed through U.S. ports, according to data from the embassy.
What if ...
Puget Sound groups argue the tax should be structured in a way that does not put U.S. gateways at a competitive disadvantage to Mexican and Canadian ports. In its comments to the FMC, the Port of Seattle said, "User fees must be applied universally and equitably to all U.S.-bound cargo." The Seattle Metropolitan Chamber of Commerce and the Washington Public Ports Association want the U.S. government to close the "land-border loophole" by imposing the HMT or an equivalent fee on international cargo passing from Canada by land across the U.S. border. However, such a move could invite retaliation from Ottawa, leading to a potentially costly trade war between two closely aligned trading partners, according to Friedmann.
"Canada has already stated that if the United States considers imposing a tax on containers arriving from Canada, it will consider imposing a similar one on cargo that comes through the United States and moves up to Canada," he says. "That would impose additional fees on U.S. exporters, while having no impact whatsoever on the choice of ports for those who import."
Friedmann and others note that expanding the scope of the HMT may violate certain provisions of the World Trade Organization's General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). The United States, therefore, could find itself on the receiving end of two sets of penalties and sanctions.
Furthermore, the tax would conflict with other U.S. trade policies, such as the new "Beyond the Border" agreement with Canada, which is designed to reduce barriers to cross-border trade.
Domestic debate
For all the discussion about Canada and Mexico, the HMT uproar may be as much about U.S. domestic tax and infrastructure policies as anything else.
The HMT is assessed on imports at all U.S. ports, but not all of them require dredging or other harbor maintenance work. Consequently, HMT revenues are redistributed from big import gateways with naturally deep channels—such as Los Angeles, Seattle, and Tacoma—to ports with smaller import volumes that require dredging to maintain channel depths and widths. According to a January 2011 report by the Congressional Research Service, these and similarly positioned ports typically receive just one penny's worth of benefit for every dollar of HMT revenues their imports contribute to the Harbor Maintenance Tax Fund.
That disparity—along with the unspent billions of dollars in the fund—is as big a concern for U.S. ports as cargo diversion. Numerous filers asserted that the HMT system is broken and must be fixed now.
The Port of Seattle's filing summed up a widely supported prescription: Fees assessed against freight movement should be spent on improvements to the freight system; fees collected from one gateway or trade corridor should benefit the users of that gateway and corridor; and user fees must be applied universally and equitably to all U.S.-bound cargo, without putting U.S. gateways at a competitive disadvantage to Mexican and Canadian ports.
Ultimately, some filers said, the HMT is just one symptom of a larger problem: the failure of the U.S. government to develop and implement a national freight transportation strategic plan with sufficient, dedicated funding for infrastructure projects.
In an ironic twist, a number of U.S. ports suggested that the solution to some of the problems covered by the FMC's inquiry would be for the United States to be more like Canada. Canadian ports pay for harbor maintenance out of their own revenues. Much of that money comes from fees collected from the carriers serving the nation's ports. As a result, the funds that are collected from port users directly benefit those users.
Furthermore, Canada has made the development of transportation infrastructure and trade corridors a national priority, and is funding large-scale freight projects that will improve the country's competitiveness, several U.S. ports said.
The nearly 70 comments filed with the FMC represent many different points of view, but it can be argued that one theme underlies them all: If the United States is going to help its ports become more competitive, perhaps it should stop wasting energy on blaming its neighbors, and focus instead on implementing a national freight transportation strategy that benefits not just ports but the nation as a whole.
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."