Analysis: major money moves needed from Transport Canada’s port authority review

Grain elevators and bulk cargo ships loading in the Port of Vancouver. As with other major North American ports, infrastructure investment is critical for keeping Vancouver competitive in the global cargo-handling sector | Chung Chow

There’s little argument that Canada’s port authority system needs review.

Transport Canada’s March 12 announcement kick-starts the first since the Canadian port authorities (CPAs) that run the country’s 18 largest ports were created in 1998.

There will be argument, however, over how to improve the operations of the country’s major trade gateways.

Geography favours Vancouver and Prince Rupert in the competition for cargo shipped via the rich transpacific trade route. They have consequently become major contributors to local, regional and national economies.

Overall, CPAs now handle more than 60% of Canada’s commercial cargo volume. That worked out to about 334 million tonnes in 2017 and just over $200 billion that generated $2.1 billion in taxes.

But the country’s ports need help. Cargo competition is fierce, and digital disruption in the global shipping sector is rolling in on a riptide.

Geography helps Vancouver and Prince Rupert, but cargo movement costs and efficiencies are the real marketplace differentiators.

Transport Canada says its review will identify potential policy, legislative and regulatory changes. But it needs to do far more.

International shipping lines are not going to care much about how ports consult with local communities on infrastructure projects. They want to know how fast their ships will be loaded and unloaded. Freight forwarders want to know how long it will take to get their products to market.

Consistency, reliability and efficiency are the coin of the realm here.

The good news for B.C.: its ports have built good reputations in the global shipping sector over the past decade.

Vancouver Fraser Port Authority (VFPA) 2017 cargo statistics released earlier this year showed a year-over-year increase of 5% compared with 2016, led by an 11% rise in container traffic.

Prince Rupert, one of North America’s fastest-growing container ports, has become a key North American asset for DP World. The Dubai-based company, which operates 78 container terminals around the world, unveiled a $200 million expansion of its Fairview terminal in Prince Rupert last August, and it plans future investments in the northern B.C. facility to increase its capacity.

Year-to-date container traffic through the Port of Prince Rupert as of December 2017 was up 26%.

Shipping analysts are generally bullish on global container traffic growth for 2018.

But container cargo buoyancy in the wider world does not guarantee it will flow through Canadian ports.

Competitors elsewhere in North America are out to eat West Coast ports’ lunch.

The US$1.6 billion project to raise the Bayonne Bridge in New York, for example, has opened the way for larger container vessels that can now pass through the expanded Panama Canal to use more terminals in the New York-New Jersey area.

Houston and other Gulf Coast ports are continuing to increase their share of transpacific container traffic at the expense of their North American West Coast counterparts.

Technological disruption, meanwhile, is poised to drastically change port operations, as companies all over the world are scrambling to develop technology to plug supply chains and shipping into the digital world.

Disruptive changes in manufacturing wrought by advanced robotics, 3D printing and other digitally enabled technology could also radically redraw trade patterns by allowing more manufacturing to be done locally.

McKinsey & Co.’s Container Shipping: The Next 50 Years noted that new manufacturing technologies that make labour costs less relevant and shrink supply chains could generate a wave of “reshoring” and “nearshoring.”

Add in technology’s ability to miniaturize and reduce the size of products and the McKinsey report said growth in container trade will likely be slowed.

The transportation sector, in many cases labour-intensive, expensive and inefficient, is also a major target for automation.

Drewry noted in a March 13 webinar that many port investors around the world are looking to retrofit current infrastructure rather than invest in new facilities.

The U.K.-based shipping consultancy said that only 3% of container terminals worldwide are automated. That leaves a huge market waiting to be retooled for the new trade reality.

Trade protectionism in the Donald Trump era also threatens to stall trade and slow business for North American ports.

So Transport Canada’s port authority review is long overdue. But so is decisive action on critical transportation issues.

Investment in infrastructure is atop that list.

The federal government’s plan to allocate $10.1 billion over the next decade for trade and transportation projects is welcome. But only $2 billion of that is earmarked for the National Trade Corridors Fund.

That’s not enough.

As Wendy Zatylny, president of the Association of Canadian Port Authorities (ACPA), pointed out to Business in Vancouver, “there is already [approximately] $9 billion in requests” for that trade corridors funding.

Compare that with port infrastructure investment in the United States.

According to the American Association of Port Authorities, its member ports plan to spend US$155 billion on infrastructure over the next five years.

Capital project investments for Los Angeles-Long Beach over the next 10 years alone will be approximately US$5.6 billion.

CPAs are at a funding disadvantage compared with U.S. ports, which have numerous government and private-sector options. In addition to collecting port operating revenue, they can issue bonds, apply for grants and receive funding and subsidies from all levels of government. Many American ports can also levy property taxes.

CPAs have to rely on operating revenue and land leases.

They need alternative financing options.

A C.D. Howe Institute report released last year offered one such option.

Casting Off: How Ottawa Can Maximize the Value of Canada’s Major Ports and Benefit Taxpayers estimated that involving private capital investment in the country’s four major ports alone could generate between $2.6 billion and $3.4 billion for federal transportation projects.

The inventory of usable port industrial land in urban Canada is also dwindling.

In Metro Vancouver, VFPA president and CEO Robin Silvester estimates usable land will run out in less than 10 years.

The letters-patent amendment process that governs how port authorities acquire, trade or switch land for their operations is cumbersome and counterproductive.

Zatylny described it as “a two-years-long black-box process that involves three federal departments and cabinet.”

“So if you are operating in a commercial environment where somebody is trying to sell land, the port authority is either forced into … leasing land at a premium so they can hold on to it while they chug through the process, or risk losing the land.”

The ACPA and individual port authorities like the VFPA issued statements welcoming Transport Canada’s review.

And welcome it is, but the increasingly complex role of CPAs as multimodal transportation hubs needs that review to produce more than cosmetic regulatory embroidery.

They need a bold vision so they can compete effectively in the new digitized world of cargo movement. However, judging by the federal government’s box score on delivering that vision on issues of national economic importance, the country’s port authorities are up against long odds at best. •

trenshaw@biv.com
@timothyrenshaw