Great Lakes Short Sea Shipping

Short Sea Shipping
In recent years, transportation planners have been struggling to identify ways to move people and goods more efficiently.  Congested highways - particularly in urban areas - hinder the flow of commerce and create a drag on the North American economy.  Likewise, rail capacity is limited in many areas.  The expansion of highway and rail infrastructure is expensive, difficult and time consuming.  Today, there is a real concern that our nation's transportation system is constraining economic growth.

The European Union confronted these same challenges a decade ago and found relief in greater utilization of its waterways for the movement of freight.

Great Lakes Short Sea Shipping
In response to these transportation challenges, several new shipping services have been proposed for the Great Lakes with the goal of moving trucks around the region on so-called "freight ferries."  By initiating such new vessel service, commerce will flow more efficiently, highway congestion will be relieved and air quality will be improved.

Today, there are four specific freight ferries being proposed in the Great Lakes region:

1) Detroit, MI - Windsor, ON (existing)
2) Cleveland, OH - Port Stanley, ON
3) Erie, PA - Nanticoke, ON
4) Oswego, NY - Hamilton, ON

In addition to these projects, additional projects are likely in the Milwaukee, Chicago and Duluth/Superior areas.

Harbor Maintenance Tax
A key impediment to the establishment of these freight ferries is the U.S. Harbor Maintenance Tax.

Because the Harbor Maintenance Tax is only assessed on cargo if it moves by ship, the tax serves as a disincentive to move trucks and their freight by water.  As such, the tax actually encourages greater highway congestion and resulting fuel consumption and air pollution.

Harbor Maintenance Tax Background
The U.S. Harbor Maintenance Tax (HMT) was enacted by Congress in the Water Resources Development Act of 1986 (P.L. 99-662). The HMT is an "ad valorem" tax, meaning a tax on the value of cargo. Originally, the HMT was set by Congress at 0.04 percent of the value of cargo.  In 1990, the tax was increased to 0.125 percent of the value of cargo.  The tax is not paid by the vessel owner, nor the port, but rather, by the owner of the cargo in each ship.  While the original tax applied to all cargo transported by ship (with a few exceptions), in 1998 the Supreme Court struck down the taxation of export cargo as unconstitutional.

Thus, today, the Harbor Maintenance Tax is assessed on cargo transported between U.S. ports, and cargo imported to U.S. ports from other countries, but not on exports.

The purpose of the HMT is to generate revenue from port users for port maintenance conducted by the U.S. Army Corps of Engineers.  Specifically, the Army Corps of Engineers maintains federal shipping channels by conducting periodic dredging.  Such dredging is necessary to remove sand and silt that naturally accumulate in shipping channels.

Harbor Maintenance Tax receipts are placed in the Harbor Maintenance Trust Fund, which serves as a source of revenue for the Army Corps of Engineers' dredging budget.  However, there is no direct link between the inflow of tax revenue to the federal government and the outflow of dredging funds.  Tax collections are determined by the volume of trade, which has grown over the last two decades.  Expenditures are determined by the Congressional budget and appropriations process.  With tax collections growing and budgetary pressures constraining spending, the Harbor Maintenance Trust Fund has accumulated an excess balance of more than $3.8 billion (as of Fiscal Year 2007).

Great Lakes Exemption
The Great Lakes Short Sea Shipping Enhancement Act of 2007 (H.R. 981) was introduced in the House of Representatives by Rep. Stephanie Tubbs Jones (D-OH) and Rep. Phil English (R-PA).  Both legislators are members of the House Ways and Means Committee, which has jurisdiction over tax policy.  An identical companion bill was introduced in the U.S. Senate by Senator Debbie Stabenow (D-MI), Senator Carl Levin (D-MI) and Senator George Voinovich (R-OH).

The bills would provide a narrow exemption to the Harbor Maintenance Tax for the movement of non-bulk commercial cargo by water in the Great Lakes region.  This includes the movement of freight and people between U.S. ports on the Great Lakes and between Canadian and U.S. ports on the Great Lakes.  The exemption does not include any other region of the country.

Benefits
The legislation should create a win-win situation for the public and private sectors in the following ways:

• the legislation should clear the way for new shipping services to be offered on the Great Lakes, creating jobs in the maritime sector

• such new shipping services will offer trucks alternatives to congested highways and enable commerce to flow more efficiently

• relieving highway congestion should reduce the amount of wear and tear on the region's roads.

• diverting trucks off congested highways will reduce air emissions and improve air quality

• such new shipping services would be "local" (typically within a single lake) and would not contribute to the introduction of foreign aquatic invasive species.

Legislative Developments

• H.R. 981 has been scored by the Joint Committee on Taxation (JCT), which has determined that if enacted, the legislation would only result in a loss of $50,000.00 per year to the U.S. Treasury.  This represents an insignificant budgetary impact.

• In letters to the House Ways and Means Committee and Senate Finance Committee, Transportation Secretary, Mary Peters, communicated the Bush Administration's formal support for H.R. 981 / S. 1683 on July 31, 2007.

• On November 13, 2007, the provisions of S. 1683 were approved by the Senate Finance Committee and included in S. 2345, the "American Infrastructure Investment and Improvement Act of 2007."

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