Closing The Harbor Tax Loophole And A Milestone Transit

Cargo shouldn’t pick ports based on loopholes. We unpack why a long-ignored gap in the harbor maintenance fee has pushed high-value containers toward Canada and Mexico, and how a renewed push from the Federal Maritime Commission is putting Section 6 of last year’s executive order back on the table. You’ll hear a clear breakdown of what the proposal aims to do—require foreign-origin cargo that first hits North America by vessel to pay applicable duties and fees even when it crosses the U.S. border by land, plus a 10% service fee—and why that could realign incentives back to U.S. gateways.

We also celebrate a milestone that puts maritime education front and center. The Patriot State, a new National Security Multi-Mission Vessel, is making its first Panama Canal transit, giving cadets a rare, hands-on training experience while showcasing the promise of the vessel construction management model. By leveraging commercial best practices and a single construction manager, the NSMV program is delivering ships faster and closer to budget, with each sister ship improving on the last. That matters for readiness, disaster response capability, and the pipeline of skilled mariners who keep the supply chain moving.

Rounding it out, we break down a fresh court ruling upholding the Jones Act against a port preference challenge. The decision underscores that cabotage rules apply uniformly and support national security, workforce preservation, and commercial resilience. Taken together, these moves signal a shift from policy talk to action: leadership is in place, stakeholder engagement is ramping up, and legislative follow-through could lock in lasting change. If the loophole closes and SHIPS Act elements advance, expect meaningful impacts on port calls, jobs, and inland networks.

If you enjoyed this deep dive, follow the show, share with a colleague, and leave a quick review. Your feedback helps more maritime pros and curious listeners find us and join the conversation.

Chapters

• 0:00 Signals Pointing To Spring Moves
• 2:59 Leadership Installed And What Comes Next
• 4:56 FMC Spotlight On Executive Order
• 7:45 Harbor Maintenance Fee Loophole Explained
• 12:02 Bipartisan FMC Context And Jobs Impact
• 15:24 Patriot State’s Historic Canal Transit
• 18:48 NSMV Fleet And VCM Model Results
• 22:00 Jones Act Court Win And Port Preference

Transcript

SPEAKER_00: 0:18

I think we're looking at some maritime signals that I've been watching. We have a thank you out of the DOT that I kind of think might hint a fresh chapter for flow. We have the FMC applauding a major move that actually happened last April, but a really cool announcement. We are also tracking a historic transit through the Panama Canal for the Patriots Date, the training ship out of Mass Maritime. And we also have to talk about a landmark legal victory for a Jones Act case and its supporters. So stick around. We have a lot to cover in today's breakdown. Hi, welcome back to Byland and by Sea, an attorney breaking down the weekend supply chain, presented by the Maritime Professor. Me. I'm Lauren Beegan, founder of the Maritime Professor, former FMC International Affairs Attorney, and founder of Squall Strategies. By Land and by Sea is your go-to resource for navigating the regulatory side of global ocean shipping. As always, this podcast is for educational purposes only and should not be considered legal advice. There is no attorney client privilege created by this video or this podcast. And if you need an attorney, contact an attorney. All right, well, let's jump right into it. The first signal that I'm watching, we saw, and maybe I'm reading too much into this, but this week the flow team, the freight logistics optimization work, that's a project out of the Department of Transportation, extended their sincere appreciation to several inaugural executive board members. Now we saw the FMC do something similar. I think it was in December. They thanked their inaugural National Shipper Advisory Committee and SAC members. And now we're seeing FLO do the same thing, thanking their executive board members that are rolling off this year. So we had Andy Huang of Wanhai, we have Brian Jackson of Port Liberty, we have Paolo Magnani of MSC, we have Jennifer McNeil of True Value, we have Giuseppe Napoli, WBCT, Rafaela Nuna, CMACGM, and Ralph Tonga of Ralph Lorraine. Now, just a nice thing, right? Appreciation for outgoing members. I think it's a nice thing. But I'm also, it's kind of lining up, right? I keep saying that I think we're going to start to see things happen in the spring. And so what we're seeing already, right? We were waiting on the leadership to get installed. We have the maritime administrator fully installed. We have Steve Carmel in that role. We have Sang Yi, who we've gotten to know through the years or through the months. And actually, was the first interview on this podcast when we launched in September our season five. So we got to know Sang a little bit more. He's the deputy maritime administrator. He's still around. He's doing fantastic things still. And we are so excited and already so encouraged by what Maritime Administrator Steve Carmel is doing. But look, I think that it's also suggestive that if they're thanking those who are rolling off, perhaps, perhaps there is a way or perhaps this is a signal that we will be moving into the next round, right? Perhaps what's going to have to happen, at least for NSAC, is we're going to have to see a call for nominations. Keep an eye out on those. I'll be sure to keep watching those. But for Flow, I'm not exactly sure how the board leadership positions are established, but I expect, as a general statement, to continue to see supportive areas, stakeholder engagement to probably keep rolling out in the next few weeks, maybe months. I think now that we have the leadership, we're going to be moving over and hopefully we're going to start seeing some of that stakeholder engagement, that private engagement, that experts in the industry kind of being slotted into roles of help. And I mean, that's where I think we really start to take off, right? A key component to this effective decision making during this once-in-a-lifetime juncture is to have engagement with the industry, right? We want to make sure that it's done correctly. We want to make sure that it's done efficiently. We want to make sure that it's done as the industry can benefit from it. And that happens from individual conversations, but also hopefully larger stakeholder groups, such as National Ship Advisory Committee. I'd love to see that stood back up. And hopefully, Flow will get going soon. So signaling, bringing it up, I'm bringing it to your awareness because I may be hopeful, maybe recognizing that it's a signal, maybe I'm hopeful that it's a signal, but either way, want to bring it to your attention. Thank you to the inaugural members that were on it, and best wishes to maybe new members. We we hope to find out. All right, segment number two, the FMC. Of course, it wouldn't be an episode without talking about the FMC at least once, right? So this week, Commissioners Max Vecich and newest Commissioner Laura DeBella issued a strong joint statement. I thought it was a fantastic joint statement, applauding the administration for the massive move that actually happened last April, but it was restoring American maritime dominance. The executive order, April 9th is when it came out. We talked about it at that time. And also we have been watching it kind of take shape in different ways. Now, we haven't heard a lot about this section, or at least I haven't heard a lot of chatter about this section. So even though it was last April that this maritime executive order came out, I appreciate that it's coming back up. Section six is what the commissioners pointed to. Now, section six is the harbor maintenance tax land border loophole. So what's happening for decades? Cargo could dodge a harbor maintenance tax by potentially docking in Canada or Mexico and trucking into the U.S. What this executive order seeks to do, and I'm actually going to read the language here, section six, enforce collection of harbor maintenance fee and other charges in order to prevent cargo carriers from circumventing the harbor maintenance fee. Now, this harbor maintenance, I want to stop here for a minute. This harbor maintenance tax or this harbor maintenance fee is an ad valorum tax. So it's based on the value of the goods coming in on imported cargo. And it's supposed to be used for dredging, harbor maintenance, right? It's it's kind of main purpose or main focus or main thought of what it's used for is dredging. And so some ports don't really need a lot of dredging, right? There's other ways of maintaining a harbor, but dredging is kind of that big ticket item. So not every port actually benefits from it, but everybody has to collect this harbor maintenance tax. So on those ports, especially that don't really maybe need that harbor maintenance tax, and and that's another conversation of how many are actually able to access it, but not every port needs it. And so they might not even be needing it, having to charge it, and then also having perhaps a cargo diversion happening where then it goes into Canada or Mexico. And that's kind of what's the issue here, and that's what this seeks to address. So, in order to prevent cargo carriers from circumventing this harbor maintenance fee on imported goods through the practice of making port in Canada or Mexico and sending their cargo into the United States through land borders, and to ensure the collection of other charges as applicable, the Secretary of Homeland Security shall take all necessary steps, including proposing new legislation as permitted by law to. So again, this is I'm reading section six. We're about to do A and B. So A require all foreign origin cargo arriving by vessel to clear the customs and border protection entry process at the United States Port of Entry for security and collection of all applicable dues, customs, taxes, fees, interest, and other charges. So they're saying all foreign origin cargo arriving by vessel. And then now they're saying ensure any foreign origin cargo first arriving by vessel to North America. So they're pointing to Canada and Mexico. The CBP process at an inland location from the country of land transit, so Canada or Mexico is assessed applicable customs duties, taxes fees, including the HMF is what they call, but it's a lot of people know HMT, harbor maintenance tax or harbor maintenance funds, interest and other charges, plus a 10% service fee for additional cost to the CBP. So let me finish this and then I'll break it down. So long as the cargo being shipped into the United States is not substantially transformed from its condition at the time of arrival into the country of land transit, with discretion for such decisions to be determined by CBP. So what they're saying is look, if you bring a vessel into Canada and then you kind of immediately bring the cargo down through a land border, it's hard to see if that's not a diversion of coming into a U.S. port, right? So that's partly what's happening. But now they're saying, look, if you're gonna do that, and I'll note that they said not substantially transformed from its condition. So sometimes it might go into a Canadian port, it might get transformed, maybe vehicles, right, or something like that. But there are certain things that happen that can make it kind of not the same thing passing through. We're really kind of talking about like you come in through the port and you come right in through a land border. Now you're gonna get slapped with a 10% service fee, according to this executive order, which is gonna have to be turned into legislation, right? That's what they're saying, proposal, new legislation. So that's what we're talking about here. Harbor maintenance tax. If you come into a US port, you could assess this ad valorum, right? Value-based fee. And if you go to a Canadian border and then you come down, or Mexican port and then you come up, you don't get it because it's a harbor maintenance tax, it's not a land maintenance tax. So now they're saying, look, this is part of one of the fees for imports if you were kind of immediately on water recently. So I'm interested to see. I still have a few questions with this. I love the impetus behind it. I think that this actually makes some sense. If we are going to have a harbor maintenance tax, it makes sense that you would close that loop because otherwise you are kind of incentivizing perhaps avoidance of the higher value goods coming into U.S. ports versus going up to a Canadian or Mexican port. But also, I do have some questions about it, right? A harbor maintenance tax being charged at a land port. Now, I like that they kind of signal, and this is reacting not to the commissioners, but to the executive order itself. I like that they signal that it's got to be kind of immediately or somehow tied to, not substantially transformed from its condition, kind of like insinuating that it's got to be kind of clear that it went from a non-US port just down, kind of back into the US. And it it kind of looks like you're avoiding maybe some of those port fees. I like that it's tagged at that, but I guess my question is we we have to still kind of square up this land transit piece of it, right? Because it's a harbor maintenance tax being assessed at a land border, maybe just for the simple, maybe I'm oversimplifying it, right? Maybe there's no problem there. Maybe other fees are assessed that way too. But something that I have kind of, once I saw it, I was like, oh, it's a loophole, it's a loophole closure, which is great, close loopholes. But on the other hand, it's also like, well, it's a maritime tax that now is going to be on a surface like port of entry, right? Land border, something to think about, something to hopefully see in legislation. And the point of today is I want to bring up that the FMC highlighted this, or two commissioners of the FMC, I should say, so not full FMC action, but it brings it back to the attention, right? It brings it kind of back around to things that you might be talking about again out of this executive order. The announcement also talks about a 2012 study. It was a cargo diversion study. It was basically looking at the ports of that are in Canada and in Mexico that the FMC did. And in that report, they actually confirmed that up to half, nearly 50% of US bound containers entering through Canadian's West Coast ports could revert to using U.S. ports if the advantage were eliminated. So if this harbor maintenance tax or some sort of cargo diversion, not necessarily harbor maintenance tax directly, but cargo diversion wasn't there. So back in 2010, the FMC actually identified that over 26% of container volume at the ports of Seattle, Tacoma, Portland, and Oakland were at risk due to this tax disparity. So that was an old study. It was the cargo diversion study, kind of colloquially called cargo diversion study from 2012 out of the FMC, where it looked at cargo diversion happening on the West Coast ports and going up and down to Mexico and Canada. I recommend that you actually go take a look at that report, but that's kind of what this is all tying back to, right? The harbor maintenance tax diversion that sometimes happens and also the closing of that loophole and then hoping that the diversion actually stops happening, right? And then if you're going to pay it plus 10% going through a land border, you might as well just bring it back to the maritime border because it'll be 10% cheaper. So what the commissioners actually said here is we applaud the administration for recognizing this threat and taking steps to counteract it through the restoring American maritime dominance executive order, as well as for its robust maritime agenda. Commissioners say jointly we look forward to implementation of Section 6 to fully close this land border loophole. Doing so will staunch the bleeding of maritime jobs to Canada and Mexico and create new employment opportunities for U.S. longshore workers, truck drivers, and others, and provide the U.S. maritime industry a much needed boost. Now, what I also found really interesting here is, you know, the FMC, as I mean, at least for the last 10, 15 years, feels less worried about actual partisan politics and more concerned about the overall general health and well-being of the supply chain and the ocean shipment in the fair and efficient movement. Because what we're seeing here is this two different parties, right? We have Laura De Bella, one of the newest Republican commissioners, the newest commissioner, and the newest Republican commissioner coming to the FMC. And we have Max Vecich, who is coming from the Democratic side. He he's a Democrat commissioner. So it doesn't really matter. We've talked about this before. There's five commissioners at the FMC. They are three of one party, two of the other, and they tend to work not even along party lines, they just tend to work with each other based on kind of different competition approaches. But really, we've had a very friendly FMC that tends to get along. We have, you know, issue-based discrepancies that maybe there's a dispute or excuse me, um, dissent in one of in some of the FMC final decisions that come out. But really, it doesn't go so much for like infighting or politics. It's more just, well, I don't know if I would have seen it that that way, right? I mean, the there are a few lawyers in the bunch, so of course they're going to have different interpretations of different things. But that's why I wanted to bring that up. I think that it's important that we pay attention to the harbor maintenance tax. Um, I think that we also pay attention to the harbor maintenance tax fund. There have been some questions and concerns over this harbor maintenance tax fund and not really being able to effectively be used by some of the ports, but that's a conversation for another day. In the meantime, this executive order, like we mentioned, is proposing to close that loophole. And I'm I'm hopeful to see if we actually are able to close that loophole. All right, segment number three. Right now, right now, if you're watching this live, right now, it's okay. You can leave the live, you can watch it on on demand later. Right now, the training ship Patriot State is transiting the Panama Canal. I just posted a post about it. It's going through the first of the Atlantic side locks. It's it's going through the locks. You can go check it out. You can go see it. Either check it on Marine Traffic, or I actually posted the link so that you can go and see the specific location and actually see the vessel go through. It's kind of cool. But yeah, so I want to bring this up because Mass Maritime Academy posted that it was transiting the Panama Canal today. This is the first time in her history. This is the new NSMV vessel, the training ship, Patriot State. It's transiting the Panama Canal. It's an iconic milestone and a proud moment for all people involved, cadets, crew, alumni. This is so fun whenever a vessel gets to go through the Panama Canal, anyways. But this is really showing maritime education emotion. Fantastic just that the cadets are able to get this experience. Now I want to break this down, right? Training ship, Patriot State, it's part of the NSMV fleet. So that's the national multi-mission. Oh, I'm forgetting the MV, multi-mission vessel, national security multi-mission vessel. And so it's a fleet of five that are in this NSMV program under a VCM, so a vessel construction management model. We talked about this at length in a previous episode. Go check out that episode. But essentially the first one was the Empire State delivered in 41 months to SUNY Maritime Academy. That is record fast. And then the next one was the Patriot State that we're talking about today, was delivered in September 2024 to Mass Maritime Academy. The next one we're expecting is State of Maine. You might recall this fall I went to the christening of the state of Maine. We're hopeful that she'll be sailing soon. We have the Lone Star State on deck. That's Texas AM. And the final vessel of this class is the Golden State, which will be delivered to California State Maritime Academy sometime between 26, 27. Since we have a few in the docket, I would expect it to be probably closer to 27. But this VCM model, this vessel construction management model, we talked about it in a previous episode, but it's historically government shipbuilding had cost overruns, had change orders, had all these things that would happen. Under the vessel construction management model, Merritt actually hired a private company for a public-private partnership so that they could be the general contractor of sorts. They could be the vessel construction manager, they could manage it all, utilizing commercial best practices. For this VCM, for this NSM V fleet, all five, it's tote services. They are the general contractor. And while traditional contracting, I mean, it can be expensive, the VCM model is delivering them for the most part on time and either on budget or perhaps a little bit under budget. As each vessel comes out, you're able to kind of copy and paste. But of course, there's going to be little fixes here and there. But it is a fantastic model. It is something to kind of continue to build on and something that I hope we see take off across shipbuilding generally, because the copy and paste, right? The cookie cutter build and kick it out is hopefully the way that we continue to move. All right, the last segment that we're going to talk about today is the Jones Act, right? So the U.S. District Court has officially dismissed a constitutional challenge to the Jones Act. So it was Chief Judge James Bosberg ruled that the Jones Act is neutral legislation that further establishes the U.S. commercial and national security interests. So the argument, the port preference clause, was brought up. I'll admit I had to look it up what the port preference clause was, but what it is, it's Article 1, Section 9, Clause 7 of the Constitution. It says no preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another, nor shall vessels bound to or from one state be obliged to enter, clear, or pay duties in another. Okay. Just says, look, we can't give preference to one port over another, right? We are one United States, and so all ports should be, they can be propped up by funding, but they can't be preferential. And so it's it's a fine line. I'd like to see more case law on how this actually comes through. If there is a lot of case law here, I maybe there isn't. But the ultimate ruling here was the plaintiffs argue that the Jones Act preferred mainland ports over Hawaii and Alaska. However, Judge Bosberg was definitive saying the Jones Act is neutral because. It applies uniformly across the country. It does not actually prefer one port. It furthers the national interest of a strong merchant marine and supports 650,000 American jobs. So this is a win for Jones Act supporters. And I would like to also mention the Jones Act and Cabotage. So Cabotage is US, US owned, US run, all the kind of US requirements that the Jones Act brings is not unique to the U.S. There are a multitude of other countries that have something similar for similar reasons. National security is one of the major ones that I always hear brought up for Jones Act, and having U.S. flags being the ones that go essentially from a U.S. port to another U.S. port, having it be a U.S. flag vessel. Because if you were to go U.S. port up inland, in perhaps up the Mississippi, it's important to kind of make sure that that is that's part of the idea here, right? And the national security of it all. So something to that I wanted to flag for everybody. I thought that it was important. All of these things, this is a kind of a shorter episode today, but I wanted to make sure that I was flagging things for you so that you could see what I'm seeing, which I think is that the regulatory landscape, or at least the intention, is really shifting from theory to reality, right? We're seeing it in a few different signals here, and maybe I'm just getting my hopes up. But we're starting to see it. I thought we were going to see the leadership start to get installed. We saw that. Now we're starting to see a few thank yous to our previous members. Perhaps that signals a new phase of new members for these stakeholder engagements. We're also seeing the executive order be brought back to the light, which I'm also waiting on the SHIPS Act. I'm interested and hopeful that the SHIPS Act is still going. The SHIPS Act will be the difference maker. The executive order is nice, but until we get congressional approval and congressional action, it's gonna that will finally put teeth into it. And we're seeing this NSMV program, this NSMV vessel do fantastic things. Go take a look at marine traffic. Look, if you like this episode, visit the maritimeprofessor.com for more plain language training and webinars. Or if you want to bring this kind of information to your team, reach out for customized training programs. And if it's regulatory or legal guidance you need, check out my legal company Squall Strategies. The industry is moving fast and the rules are changing even faster. Keep it here. I'm Lauren Beegan. You just listened to By Land and By C. Thanks for listening, and we'll see you next time.