Ports Criticize Double-Tax Hurdle For U.S. Domestic Shipping

A tax that the United States charges shippers on the value of their cargo upon entering U.S. ports needs to be altered if the domestic maritime industry is going to better compete with trucks and trains, according to second-tier ports.

Money collected from the Harbor Maintenance Tax (HMT) is fed into the Harbor Maintenance Trust Fund, a critical account used to keep ports dredged to levels needed to accommodate large ocean-going vessels that carry the nation's imports and exports .

But for imports that are subsequently transloaded onto smaller vessels and barges, the cargo is taxed again upon arrival at the secondary port. It's a "double-jeopardy" situation that some contend is a major reason why U.S. domestic shipping lanes, and port projects located on them, are having trouble generating business.

"The HMT [.125 percent] ad valorem tax sounds like a small amount, but in an industry where margins are razor-thin, any cost that's added just makes it that much less competitive" with truck and rail, said Jonathan Nass, CEO of the Maine Port Authority, testifying on June 19 before the Maritime subcommittee of the U.S. House Transportation and Infrastructure Committee.

Those testifying at the hearing, titled "Short Sea Shipping: Rebuilding America's Maritime Industry," all pointed to the HMT as a point of contention.

"I'm not sure how that will be fixed – the issue has been raised repeatedly," said Mark Buzby, head of the U.S. Maritime Administration (MarAd), which is tasked with overseeing the health of U.S. domestic maritime industry. "It's been made to work in some places, depending on the market, the commodity, the circumstances, but it can be more of a challenge in keeping some of the projects moving forward."

Those projects are part of MarAd's America's Marine Highway Program (AMPH), a program created in 2007 that awards competitive grants to spur development of 25 designated marine highways with the purpose of reducing freight delays caused by over-the-road congestion while reducing air pollution. To date, the program has awarded $24 million in grants that support six new and two existing marine highway services, according to MarAd.

A recent project being supported by the program, the North Atlantic Marine Highway Alliance, plans to use barge services to offset the use of trucks and supplement rail cargo to and from the Port of New York and New Jersey.

The program has so far been slow, however, in diverting freight from roads and rails. Data from the U.S. Department of Transportation estimated that grant-funded projects in 2016 had saved approximately $1.5 million in road maintenance and congestion costs, increasing to $3.6 million in 2017 and $4.9 million in 2018.

Larger ports have taken issue with the HMT as well. The ports of Seattle and Tacoma have complained for years that Asian imports destined for the U.S. have been able to avoid the tax by importing into the nearby Port of Vancouver in Canada and railing shipments to midwestern hubs such as Chicago and St. Louis.

"It's not only a disincentive to use the West Coast ports, it's also a disincentive to come into the Great Lakes ports," testified James Weakley, president of the Lake Carriers' Association. "Cargo is offloaded in Montreal and railed to Detroit and Chicago – I see them crossing the [international] bridges all the time. It prevents ports like Cleveland from becoming a feeder port to Europe."

Representative John Garamendi (D-California) said that the double taxation problem for domestic shipping "should be the foundation for an amendment to our current tax law, so that we can eliminate this financial disincentive."

Garamendi used the opportunity to ask for support from the Maritime Administration for legislation he plans to reintroduce next week to promote U.S. exports of liquefied natural gas (LNG). His bill, which had stalled in the previous Congress, would require an escalating annual percentage of LNG exports to move on U.S. flag ships.

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