Posted on November 9, 2017
Dithering on privatisation is not distracting Canadian ports from building their business, says Martin Rushmere
Depending on whom you ask, cargo volumes through Canadian ports will rise between five and 10% this year, with containers likely to hit the 6m teu mark and, according to ultra optimists, perhaps reaching 7m teu. Half-year volume figures show that business is indeed booming, as the teu numbers year-on-year to the end of June were up 5% to more than 5m.
The biggest port, Vancouver, recorded a 10% increase to just over 2m teu for the eight months to the end of August.
Few quibble with the overall feeling of optimism, but there is some doubt about how much of the total traffic the US will account for. The consensus is that for the next two years it will stay about the current level of 10%-20%. Uncertainty, and a rising feeling of nervousness, surrounds the forecasts for the years after that, largely because political factors are becoming so much more prevalent.
“Scuppering of, and changes to, trade agreements, is what it’s all about,” says an analyst. “Apart from the Trans Pacific Partnership being thrown into the trash heap, we now have eruptions of US animosity over Bombardier aircraft to accompany all the arguments we have over trade deals with other countries.
“US traffic through Canada could plummet because of the uncertainty and unpredictability,” says the analyst. “Canada could get fed up and make trade agreements with new countries that could completely upset the logistics flow and put a strain on its transport system because so much is geared to American markets.”
Europe and Canada recently signed the Comprehensive Economic and Trade Agreement (CETA) to eliminate European tariffs on key Canadian exports while phasing in free-market access on other products,
Competitive charges
Ultimately, the strongest card that Canadian ports can play is much lower terminal handling charges than the US, more than 70% cheaper than Los Angeles/Long Beach in some cases. An analysis by Ocean Shipping Consultants in 2016 found that handling charges at the two California gateways were $355 per 40 foot container, compared with $185 at Prince Rupert and $193 at Vancouver.
The traditional US view that size matters above all also comes into play. Even if Canada was to snatch 15% of US business, the more-than-somewhat disdainful view from south of the border that it would be too small to matter would probably prevail.
Domestically, a potentially big political worry is the federal government’s thinking on the ownership structure of all the ports. A report commissioned by the government and produced by Morgan Stanley has looked at the financial windfall to be gained from privatising the ports. An independent analysis by Toronto think-tank CD Howe Institute has suggested that the government has much to gain and estimates the asset value of the four biggest ports at about $3bn.
When the Howe report came out there was a muted outcry from shippers and ports themselves that going private, or selling an equity stake in the manner of the UK, would help fill government coffers without improving port efficiency. Since then nothing has been heard and there are suggestions that the Morgan Stanley report was a political sop to prove that the government is serious about eliminating the budget deficit.
Port authorities, answerable to the federal government through Transport Canada, are leery about taking sides on the issue. Says the port of Halifax: “In February, 2016, the Minister of Transport tabled the Canada Transportation Act (CTA) Review Report in Parliament. The Government is currently conducting preliminary analytical work concerning the recommendations on port governance.”
Eyes on airports
Public attention has also been drawn away by the possible privatisation of airports. “The government has realised this and has buried the ports issue deep in the bowels of some department,” says an Ottawa insider. “Officials are much more interested in the public fascination with airports.”
The likely outcome is seen as a decision on airports, gauging the public reaction and then some action on maritime ports.
A complication has arisen as a result, with the public, and some policy makers, assuming that there is little difference in the ownership and administration of the two.
This is a mistake, warn industry experts. Says John Martin, principal at Martin Associates: “Airports are each one physical entity while maritime ports have different terminals, protocols and operating systems to contend with. It is much more complicated to deal with ports.”
Trevor Heaver, Professor Emeritus at the Sauder School of Business, University of British Columbia, takes an approach of “if it’s not broken, don’t try to fix it”. He notes that the existing structure works well. “I find it difficult to identify rationale for fundamental change, although of course there are always aspects of any business that can be changed or improved.
“Port corporations in Canada already have a commercial mandate built in, while also being “responsible for protecting the environment and maintaining effective liaison with local communities,” says Prof Heaver. “These are the functions of any port organisation and I don’t see any overriding shortcomings with the existing system.”
Vancouver prominence
Vancouver will continue to be the main conduit for Canada for years to come, with between 30% and 40% of the country’s goods, depending on the type, flowing through the port. Overall tonnage in the first half of 2017 rose 4% to 69m tonnes over the previous year, of which 43m tonnes was dry bulk. Export tonnage was largely agricultural and outstripped imports by four to one.
Forecasts of container traffic by Ocean Shipping Consultants put the volumes at about 3.6m teu in 2018, rising to 4.8m teu in 2025.
Prof Heaver agrees that Vancouver will continue to be the country’s gateway. “US business is the icing on the cake. Its main function is to enhance Canada trade and it does not specifically target US trade, and does not need to expand US business in the same way that Prince Rupert does.”
The consultants’ report for Vancouver puts its competitive position as 92% versus 74% for Prince Rupert, based on 10 factors such as productivity, handling costs and customer metrics. For comparison, Los Angeles/Long Beach are put at 88%. In three of these – customer base, regional hub and local demand – Vancouver is assessed as being far superior.
On Canada’s eastern seaboard an existing port is creating greater interest. Halifax was the fastest growing port in North America last year, with 17% growth in 2017 (year-to-date) following 15% growth in 2016.
“We are seeing growth through our gateway via east-west trade lanes and the new Alliance offerings through Halifax, and we see potential in those trade lanes,” says spokesperson Lane Farguson. “We are actively going after new business in Asia and in Europe, especially with the implementation of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union earlier this month.
“The Caribbean is another very important market and we see growth opportunities with new services to that market. We also see potential for increases in north-south trade along the East Coast of North America with the arrival of increasingly larger vessels.”
Big welcome
Halifax can berth and service vessels up to 16,000 teu. The South End Container Terminal, operated by Halterm, has unobstructed ocean access, 16 metres depth, 660 metres continuous berth, 2,400 metres double-stack on-dock rail and super post-panamax cranes. The first vessel over 10,000 teu arrived in June this year.
“We are looking at ways in which we can expand or develop the necessary pier length required to berth and service two vessels over 10,000 teu/400 metres length overall simultaneously,” says Mr Farguson. “We are exploring various options to fully understand what is possible and how it can be developed in an efficient, cost effective manner, looking for a solution that will serve the economy of the region well into the future.
“Ultimately, the cargo owner will decide what is best for them after carefully weighing both time and cost, “he says. “Our model provides cost advantages to those looking for a reliable and efficient way to move cargo inland. The key for us is working with partners to ensure the cost remains competitive, and not promising more than we can deliver.”
Mr Farguson emphasises that there is not just one single factor that makes carriers and shippers choose between ports. “There are several that need to line up in order for a cargo owner to move goods through not just our gateway, but any gateway.
“Cost is certainly high among those factors but it not the only one. Transit time is important. So is consistency and reliability. At the end of the day, when you put all those factors together, what you come up with is value, and that’s what you bring to the marketplace. The cargo owner will look at the value you present, weigh that against other options and make a decision that works best for them,” he says.
MELFORD SEEKS CARRIER SUPPORT
Executives at the Melford Terminal on the Strait of Canso say they are about ready to go with a full proposal to a major shipping line. Richie Mann, vice-president of marketing says: “We will only start full construction when we have a major carrier. There is no magic date or deadline on when the project will start. Our strategy is much like that of Prince Rupert, starting small with 100,000 container moves.”
The project will be scalable. “We plan to start with two berths with four or six cranes as required,” says Mr Mann. “Full build-out would be three berths. Based on the experiences at Prince Rupert but with our much larger footprint, phase one should easily accommodate 750,000 teu.
“We have 1,800 acres purchased or under option. This is part of a 15,000-acre industrial reserve which is currently untouched. Really no limit on handling and storage capacity.”
Cost is estimated to be about $300m. “This is low compared to costs of comparable projects,” says Mr Mann, “because dredging will not be needed and we don’t have to bring in aggregate materials for construction because they are all available locally.”
Another distinctive feature is that the terminal and land are all privately owned – along with the water – which has made the regulatory process easier.
“As the closest port to Europe and Asia via Suez, we are aiming for intermodal cargo into the Ohio Valley and the US East Coast,” says Mr Mann.
PORTS MULL DIGITAL OPTIONS
Technology is being taken seriously but, like US ports, is not being seized on the moment it is developed, as is the case in South East Asia and China. Blockchain is the new flavour of the moment but is being greeted dispassionately, as part of overall the overall digital programme.
At Halifax, “we have been redesigning existing digital properties to make it easier for shippers and cargo owners to track their cargo”, says spokesperson Lane Farguson. “[The port’s] website has undergone an extensive refresh, placing additional focus on containerised cargo. This provides existing users with a convenient one-stop digital location to find information about their cargo through container tracking and route maps.
“The upgraded system allows people to subscribe to specific alerts, choose their specific field, receive alerts via email or SMS, and bulk upload multiple containers to track,” he says.
“The functionality is largely the same, but the information is better integrated with the new platform. This material is all in one area making it more user-friendly and easier to compare different data sets. Users can receive updates via email or SMS.
“The system is based on container movements,” says Mr Farguson. “We track one container at a time. It is not GPS-based. Once a container leaves by truck, we no longer track that container; for rail, we provide an estimated time of arrival at the destination based on the rail schedule. For us, the focus is on container movements through Halifax Port Authority facilities from arrival to departure.
“For Phase 2 of the project, our goal is to provide current and historic information on gate wait times and truck service times, and we are working to have that available in the coming months. For the Truck Traffic Monitoring System (TTMS) we are installing readers at various locations at both terminals so that we can provide gate wait times (how long it takes to queue before entering the terminal) and truck service times (in-gate to out-gate).”
Canadian ports are also taking a measured approach to automation. Full automation is off the agenda for the moment and ports are at pains to emphasise how good the relations are with the ILA and ILWU dockworker unions.
Says Mr Farguson: “We are fortunate to have a dedicated and reliable work force. Members of the ILA are partners, plain and simple, with a vested interest in the long-term success of our gateway. The current agreement was announced in March of 2014; more importantly, we have not seen disruptive labour action for decades.”
Source: portstrategy
