Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 4 - Evidence - October 25, 2006
OTTAWA, Wednesday, October 25, 2006
The Standing Senate Committee on Transport and Communications met this day at 6:15 p.m. to examine and report on current and potential future containerized freight traffic handled at, and major inbound and outbound markets served by, Canada's Pacific Gateway container ports, east coast container ports and central container ports and current and appropriate future policies relating thereto.
Senator Lise Bacon (Chairman) in the chair.
[English]
The Chairman: Honourable senators, today we are pleased to have as our witness Dr. Michael Ircha from the University of New Brunswick. Thank you for your patience, Mr. Ircha. We are pleased to have you with us today. Please proceed.
Dr. Michael C. Ircha, Professor of Civil Engineering, University of New Brunswick, as an individual: Thank you. I want to talk about containers and containerization at a fairly high level. In the past, you have had presentations from others dealing with transportation in North America, and it is important that we recognize that containerization and transportation are part of an integrated North American continental transportation system. We have containers coming into Canada through American ports, and we have containers going from Canadian ports into the American Midwest and the American system. It is a porous and vibrant system. There is an issue about providing more container terminals for the growing trade in containers. You have had evidence in the past that this is a rapidly growing area. I believe that the Canadian ports can provide an answer to the growing dilemma of how we are to handle the anticipated growth in container trade into and out of North America.
Depending upon your interest and the time that I have, I propose to deal with the following: the growth of containerization; the Suez versus the Panama routing; container hub ports and their characteristics; the East Coast of Canada — rather than the West Coast, because I believe you have heard about that before — and the opportunities for hub container ports in Atlantic Canada; and, finally, federal policy issues that could help the development of containerization and the growth of containerization in Canada.
Compared to past trends in container volumes, worldwide we have had a tremendous growth in containerization. In the last decade, we have seen an increasing shift from the previous trade, which used to be from Europe to the East Coast of the United States. In the last few decades, we have seen a significant shift of the major trades being focused in Asia, either Asia eastward to the West Coast of the United States or Asia westward to Europe. Now we are getting some of that trade coming into the East Coast of the United States. This growth in containerization reflects the growth of economic globalization. Marc Levinson recently wrote a book entitled, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Using his data and other sources, the World Trade Organization has shown that world trade is actually growing much faster than the gross domestic product worldwide.
If we look at an index developed by the World Trade Organization in 2002, we see that if the exports in 1950 equal 100, those in 2002 equal 10,140. However, the world GDP in 2002 was only 704 compared with 100. In other words, export growth around the world from 1950 to 2002 grew 14 times faster than the gross domestic product. We find that containerization and the movement of high-value, low-volume manufactured products in containers was a revolution that had lubricated world trade. We see that significant growth.
I do not want to bore you with figures, but in 1970 there were 450,000 containers in the world; by 2004, we had 19.3 million containers. If we look at the container throughput in ports, in and out, in 1970 we were dealing with 7 million TEU, which is a twenty-foot equivalent unit — a 40-foot container is 2 TEU. In 1970 we had 7 million TEU; by 2004 there were 332 million TEU through world ports — a growth of 46 times.
The major container trade groups in the world today are Asia eastward to the West Coast of North America, Asia through the Suez Canal to Europe, and Asia and Europe to the East Coast of the United States.
It is basically a two-way flow, either westward through the Suez Canal or eastward to the West Coast and some traffic through the Panama Canal. As you know, the Panama Canal has problems dealing with larger container ships. It is limited to about 4,500 TEU vessels. Our vessels are considerably larger today and much of that traffic is not now going through the Panama Canal. You know on this past Sunday there was a referendum in Panama that the public approved to expand the Panama Canal so that in 2015 it will be able to handle larger vessels anticipated to be 10,000 to 12,000 TEU.
In September of this year, the latest large container vessel was christened in Rotterdam, a vessel called the Emma Maersk. It can handle 11,000 TEU, the biggest ship that we know of on the waters today for containers.
When I looked at the specifications of the Emma Maersk and compared them with the proposed expansion of the Panama Canal just approved, I noticed that the Emma Maersk cannot go through the new locks; it is too wide for the locks. This is 2006. What will happen in 2015? It is a big question.
Containerization is a major part of world trade. Fifty per cent of maritime trade by value — not by tonnage — is carried in containers.
The projected growth is phenomenal. Ocean Shipping Consultants Limited — and this is in my paper — shows that on a global scale we anticipate by 2010 we will have 498 million TEU and by 2015 it will be up to 645 million TEU.
In North America, the trade is expected to grow to 57 million TEU by 2010 to 72 million TEU by 2015, which is very large growth.
This growth, as you are aware, is causing problems in the ports that the goods are coming through, in particular the ports of the West Coast of the United States and Canada. There were problems in Vancouver two years ago, with congestion and delays, some of which have been addressed by CN and CP cooperating and by other technology changes, such as changes in types of equipment to stack higher in the container terminals inside Vancouver. Prince Rupert is now on line as being constructed to provide 500,000 TEU by the year 2007. Other steps have been taken in other West Coast ports to overcome the congestion. However, that will not address the problem.
Doug Tilden, who is the president and CEO of a major terminal in the United States, argues that to deal with the issues of the growth of trade from Asia into North America we would need a port the size of New York-New Jersey — which is about 4 million TEU a year — added each year for the foreseeable future.
We are not getting there by what we are doing.
The other concern affecting this idea of a super hub port is that shippers are getting anxious about route diversity. They are anxious about being tied to only one port. They have seen problems in Vancouver with the trucker's strike. They have seen potential labour problems in U.S. ports. They say they do not want all their eggs in one basket. We have seen some of the major shipping companies of Wal-Mart, Canadian Tire and others saying, ``We do not want to ship everything into one port. We want to have distribution centres at two or three ports in North America so that if there is a problem with one we will go to the other.'' Route diversity is, therefore, becoming important.
Let me shift quickly to the subject of the Suez Canal versus the Panama Canal. We have talked about the eastward movement from Asia through the Suez Canal. That is a viable route. The Suez Canal is considering widening to allow two cohorts of ships running back and forth. Right now, it is limited to one-way flow of traffic. This will allow the handling of more efficient ships. The Panama is looking to expand, as just discussed, and, hopefully, it will provide better service, but it will still not address the problem of very large container ships. We will still see them coming through hub ports in various parts of the world.
The larger ships that we anticipate coming onto the marketplace are what we call the Malacca-max, referring to the Strait of Malacca between Malaysia and Indonesia, the major sea route westward from Singapore up through the straits. Studies carried out at Delft University argued that the largest ship that would go through that would be an 18,000 TEU vessel. We anticipate the largest size we will get to will be 18,000 TEU. We are at 11,000 TEU now; we are moving in that direction.
My third topic is the hub container ports and some of the characteristics we look for in designating hub container ports. The first is location — it is like real estate: location, location, location. I do work with the port of Saint John. It is a container port, but does not handle much traffic because it is not near the main sea routes. It would be a 12- to 15- hour diversion for ships to come in to Saint John and then go back out, whereas it is only a two- to three-hour diversion into Halifax. Thus, Halifax gets the trade from the North Atlantic route, Saint John does not. Diversion is a big deal. It is important to be on the main sea routes, the great circle routes that lead to Europe or Asia.
Prince Rupert is in an advantageous position because it is closer to Asia than Vancouver. One reason that Prince Rupert is developing a container terminal is because of its location. A port must be near a major shipping route, or must be the terminus of what we call a pendulum loop, in the sense that it starts from Asia and goes to the last port. Diversion is not an issue because the ships are not going further. Terminus ports can be off the main shipping routes.
Security, route diversity and port diversity are becoming major challenges. These concepts are changing from earlier days.
Larger ships cannot spend too much time in port. They are expensive items; they only make money when they are at sea. They need to be turned around fast. We need to talk about how to deal with large ships. In some of the evidence you received earlier, you heard that Canadian ports do not work 24/7. They do in Asia, but not here. We have issues about traffic on our streets. We have labour issues in our ports. These all affect the efficiency of our port system.
With respect to hub ports, we must consider a number of factors: water depth, which requires 15 metres or more to serve the large ships — the Emma Maersk, I believe, was 14.5 metres; the length of the berth, to adequately handle these large ships — the Emma Maersk is longer than the Queen Mary II; the number of quayside gantry cranes to load and discharge the ships; and the outreach — that is, how far out over the ship we go.
Today, people are buying super post-Panamax cranes — we have two coming into Halifax and there are several of them going into Vancouver — designed to handle containers that are 22 abreast on the ships. The standard vessels used to hold 13 containers, and we thought were big, but we are now moving to 22 plus. Some of these outreaches are very long. We must also consider air height. To serve the ships quickly, two or three or four of these cranes, depending on the length of the ship, are needed, so purchasing these super post-Panamax cranes becomes an expensive commodity.
Obviously, there is a productivity issue — that is, how quickly we can move the containers off and on to the ship. The number of movements per hour on a quayside gantry crane is an issue. There are technological ways aimed at improving productivity.
If large container ships — 10,000 TEU vessels, for example — are brought into a port, they will discharge most of those containers, and they have to be stacked somewhere as they will not be dissipated inland as quickly as offloaded from the ship. They may stay in the container yard for three to five days. A large amount of storage capacity is required for the outbound and the inbound containers. Finally, we must have a good transshipment facility and inland, road and rail connections as well as short-sea shipping to move the containers to other destinations along the coast. That is an issue in both Canada and the United States. I will address that later.
When we talk about hub ports, we must consider stacking density, how high we are stacking, and what kind of density. I mentioned that in Vancouver they have converted their container handling equipment in their container yard from straddle carriers to rubber tire gantry to increase the stacking height in the yard in order to hold more containers. That comes with a price. There is an efficiency problem, particularly for import containers. Inevitably, when a trucker arrives to pick up a container it will not be at the top of the stack, but at the bottom. The higher those containers are stacked, the more they must be repositioned to allow access to that container. Putting in new equipment allows density to increase, but productivity decreases unless strategic decisions are made on stacking heights on import boxes.
We have talked about crane productivity. In the past, we talked about 30 movements per hour; we are now looking at moving 50 containers per hour. There are ways of achieving that.
Container dwell times have been a big issue in West Coast ports, in particular, how long the container is allowed to stay in the port without incurring charges for storage. The intention is moving from six days down to three with incentives for people to pick up their containers and get them out of there.
In regard to the turn around time for trucks, getting them in and out, we used to talk about 60 minutes. I heard recently that Vancouver is looking at a 20-minute turn around time, which is phenomenal.
Canadian ports provide rail access on dock, so we can move our containers from the container yard onto double- stacked container trains and get them out of port quickly. Those are some of the characteristics we should look at.
I will shift now to the Atlantic Canada port locations. The West Coast is congested; shipping lines are now looking to alternative routings to avoid some of the congestion occurring on the U.S. West Coast. Singapore used to be the divide between travelling westward through the Suez Canal to North America or eastward to the West Coast of the United States. Ships coming from Thailand would go through the Suez Canal. Ships coming from China would go west. That divide seems to have been moving up the China coast. Presently, it is at the Pearl River in Hong Kong. Some of the commodities from Hong Kong are coming westward through the Suez Canal; some are going across the Pacific. There is talk of moving that divide farther up China's coast. This congestion on the U.S. and Canadian West Coast is forcing people to take a longer haul; but it has the probability of a quicker discharge at East Coast ports instead of West Coast ports. Thus, the trade itself is shifting to adjust to congestion on the West Coast.
In regard to the East Coast, there is competition from New York-New Jersey that affects Halifax and, to a degree, Montreal. New York-New Jersey is a port that is handling 4.8 million TEU a year; it grew by 7 per cent between 2004 and 2005. Halifax is receiving containers that have been shipped to the American Midwest that would have gone to New York, but there has been offloading in Halifax because of draft and water depth restrictions in New York. New York-New Jersey spent a decade going through environmental approvals to be able to dredge its harbour. It has finally received it and it is spending $750 million on dredging the harbour deep enough to handle today's and tomorrow's generation of large container ships.
That is an impact for Halifax. Halifax can handle up to 17-metres; New York is dredging to 15-metres. New York will be in a position to handle that. New York has other problems: Urban congestion, inability to expand in the urban area, intermodal services and various other things. However, New York is a competitor for Halifax.
Halifax itself, as you know from some of the evidence you have received, is currently operating under capacity. The two terminals in Halifax are both operating with far less containers than they could handle. We need to find a way to encourage container traffic through Halifax. I will speak to that later.
Presently, Halifax, in a list from the American Association of Port Authorities on port ranking by TEU, is ranked 21 out of 50 container ports in North America. Los Angeles is ranked number 1; Long Beach, number 2; New York, number 3; Vancouver, number 10; Montreal, number 13; and Fraser River is ranked at number 23. Vancouver and Fraser River together, in 2005, would have handled just over 2 million TEU. Therefore, if they were combined, they would be ranked number 6 in North America, between Seattle and Tacoma.
Halifax is a top-up port that aims to pick up cargoes from large ships that are travelling on the North Atlantic route, diverting into Halifax to reduce their load so they can get into New York because of the dredging issue. When the dredging is completed, Halifax may face problems unless we can do something to make it a hub port.
There are a number of alternative places for hub ports on the East Coast. Sept Iles, which sits on the St. Lawrence River, could be a terminus hub container port. It has very deep water and is experienced in handling large ships. It could serve as a feeder station for vessels travelling down the St. Lawrence to the Great Lakes and vessels travelling down the East Coast of Canada and the United States, if we can deal with the short-sea shipping issues.
The port of Canso is another possibility. It has deep water, large turning basins, lots of land for industrial and port development. It is connected by rail, although the rail needs to be upgraded to the railhead at Truro. It has all the makings of a greenfield site for container terminals.
Halifax has two container terminals currently under capacity should fill up to capacity before considering a new terminal; however, Halifax has looked at building new terminal facilities. You may have heard that Maersk Sealand, about four or five years ago, was asking Halifax to bid on a new container terminal in competition with New York- New Jersey and Baltimore.
The Port of Halifax was looking at a new 750,000 TEU terminal in the Bedford Basin, expanding the existing Fairview Cove terminal along the Bedford Basin. There are some environmental problems with that. The port is in front of expensive residential areas, and I am not sure people understood the environmental consequences of building a container terminal.
Another alternative is the former military base at Shearwater, which could be used as a container terminal — it has deep water. However, there is a difference in elevation between the airfield and the wharf, and that would lead to operational difficulties.
The Port of Saint John also is a very viable contender for a major container terminal on the East Coast. It has very deep water, moving out to sea from the existing ports, toward Partridge Island. The Port of Saint John's long-term master plan is to move that way and have deeper water. The Port of Saint John is connected to Maine and into the New England states by New Brunswick Southern Railway and is also connected to the Canadian National Railway.
There are other contenders along the U.S. East Coast: Quonset Point in Rhode Island; New York-New Jersey itself; possibly Norfolk, Virginia; Savannah, Georgia; and Freeport in the Bahamas has developed a deep-water off-shore port handling over 1 million TEU, transshipping it back into the United States.
I will conclude with my comments on federal port policies. There are issues that bear consideration by your committee: There are financial restrictions, namely, limits on capital borrowing, on Canadian Port Authorities introduced in the Canada Marine Act; they are also ineligible for direct financial support for any activities they wish to undertake.
These issues have been fleshed out and have been addressed clearly in the Canada Marine Act review of two years ago. That review is in the hands of government, and we at the ports have been waiting for some action to occur with respect to that. Those recommendations deal with many of the issues we are talking about. They were very favourably disposed to having the ports play a more direct role in development in their facilities.
Presently, the problem with ports is that with limits on their borrowing authorities, they cannot be major players in the activity. In Prince Rupert, my understanding is that CN is spending over $100 million on track improvements, the provincial and federal governments are each contributing $30 million, the private investor and the terminals in New York are putting $60 million, and the port itself is putting in $25 million. The port is a small player in its own activity and future. We must deal with the issue of the ability of the ports to borrow money. This is an important aspect for the federal government to recognize and tout the opportunity that Canadian ports have to serve the North American market, not just the Canadian market. We could provide support to the Americans by dealing with some of their security issues.
You may recall, several months ago, a couple of congressmen or senators were proposing a bill to restrict containers. They had a bill going forward saying there would be no container allowed into the United States unless it had been screened, X-rayed and radiation-detected prior to arrival. If that bill had been successful, it would have opened an opportunity for Canadian ports to screen all containers going into the United States. We can still provide security.
Building or developing new container terminal facilities in greenfield sites in small urban or remote areas is sort of a dangerous territory from a security perspective. Americans are concerned about a dirty bomb coming into New York or Los Angeles. I am not saying we want a dirty bomb coming into a small port in Canada, but the collateral damage would be far less than at a major, urban American port. There may be an opportunity for Canadians to consider those kinds of issues. We need to take this up with the Americans.
The other issue is the short-sea shipping issue. I will not talk about it very much; it is a North American free trade issue. There was a conference in April and another one in June, I believe, that led to a declaration of the three parties to say they will set up a framework for discussion about developing short-sea shipping. It is a great first step. It is the first time Americans have allowed us to put the issue on the table.
Short-sea shipping is the coastal trade, and it would allow major hub ports to be located in Canada and goods shipped to American ports and Canadian ports without dealing with cabotage issues. We need to continue to move on that front.
We must demonstrate to Americans that there are efficiencies of using Canadian ports to provide container throughput. This may be a very economic solution because American ports, to allow them to build major container terminals, must do a lot of dredging. In the American system, dredging is almost impossible, given the environmental restrictions Americans have. We do not need to dredge at many of our ports, allowing us to have the deep water facilities that we need to handle the larger ships.
There is a need for the Canadian government to continue to consider enhancing the Gateway concept in Atlantic Canada. We need to improve rail connections from the Maritimes into the U.S. East Coast, into the New England states. We have CN, which moves down as far as Saint John, we have NB Southern from Saint John into Brownville Junction, Maine, connecting up to the Bangor and Aroostook, which goes down to Boston and eventually into New York. We must have improvements on those private rail lines. We need to improve our border crossings and highways and, finally, deal with the short-sea shipping issue.
Another issue for the federal government to consider is the continued and improved support to public-private partnerships. These large hub container terminals will not be built without a private partner. There are several international firms, mostly tied to existing ports or shipping lines around the world, that are developing major container terminals, but they are looking for government involvement in the process.
Therefore, one finds major companies, such as Hutchison Whampoa of Hong Kong, operating container terminals around the world. The Port of Singapore Authority set up a private company, the PSA, which operates containers around the word. NYK, a major Japanese shipping line, I believe they operate Ceres Terminal in Halifax today.
There are many big investors who would like to invest in the system, but we must find a way of marrying what we have in Canada with those investors and all the partners to make them aware of it. This is exactly what happened in Prince Rupert; it is a marriage of private and public partners in a great opportunity.
Finally, I believe it is important to continue the steps toward port rationalization. There are ongoing discussions between the boards of directors of the Vancouver Port Authority, the Fraser River Port Authority and the North Fraser to come up with one consolidated port for Vancouver to avoid competition, to rationalize the services and effectively increase the ability to handle more trade through the Port of Vancouver. I applaud that. Many of us in the ports industry have talked about this in the past, much to the chagrin of port managers that we deal with. Now, I believe the minister has stepped in to say this is a good idea, this should be considered, and things are happening.
That is all I want to say at the moment. I would rather answer your questions at this stage and we can go from there.
The Chairman: Thank you very much, Mr. Ircha.
In your paper entitled, ``Characteristics of Tomorrow's Successful Port,'' on page 3, you tell us that as a consequence of the continual increase in size of specialized cellular container ships, there is a need for deeper approach channels and a much greater amount of landside storage capacity.
You also mention that one expert, Gustaaf de Monie, suggested in 1996 ``that a global fleet of 15,000 TEU vessels would likely need only four major hub ports to serve them,'' with ``one on each of the east and west coasts of North America.''
Can a Canadian port — for instance, Vancouver or Halifax — be one of those major hub ports in North America?
Mr. Ircha: I am glad you raised that point because I did not cover it in my material.
Gustaaf is a colleague; I know him well. Circumstances have changed since he wrote that paper. He wrote it as a position paper, a discussion paper to get people thinking. In 1996, talking about a 15,000 TEU vessel was a very radical idea. People could not believe that we would ever have vessels that large.
In his paper, Gustaaf talked about building two super container hub ports, one on the United States West Coast and one on the East Coast, serving Europe and Asia. He also said in his paper that because of the draft restrictions in the American ports, we would have to build an offshore container terminal — much like the Japanese have done in Osaka with the airport — build an offshore facility in deep water and then try to ship into the United States.
He has actually done some of that. He has worked for Freeport, in the Bahamas, and helped them develop the Freeport facility, which is effectively an offshore island port.
I discussed this with Gustaaf in the past — and there are several other colleagues who have written similar papers on how to deal with the massive growth in containerization, these super ships and what will we do with them.
In 2001, I wrote a paper that said there is a Canadian solution to this. In that paper, which is the basis of all this other material that you have received, I identified four possible ports — Prince Rupert and Vancouver on the West Coast, and Canso and Halifax on the East Coast. These are deepwater, large turning basin facilities that are connected with rail, all with attributes needed for hub ports. Therefore, why are we not talking about a Canadian alternative rather than building an offshore island, which is extremely expensive, to transship into the American system? I believe some of that has been picked up in the industry.
The Chairman: Unlike many major ports around the world, not all Canadian ports operate on a 24/7 basis. The lack of around-the-clock operations through gates reduces efficiency and productivity. Would you provide us with more details about the Pier Pass program introduced at the ports of Los Angeles and Long Beach? What can we learn in Canada from such an initiative?
Mr. Ircha: The Pier Pass initiative did not come easily in Los Angeles-Long Beach. There was a lot of resistance; in fact, I believe there was a one-day trucking strike and they were talking about more strikes.
The Pier Pass program is a demand management tool, which enforces a surcharge of U.S. $40 per TEU to move containers through the port during the peak period. However, after the peak period, it is free.
The incentive is for trucking companies to go in the evening or at midnight as opposed to daytime; and the terminal operators will be open to ship and receive containers during those off-peak periods.
The truckers did not like it because they said they are used to working during the day and now they must work at night. They did not see any incentive as they were not being paid extra money for working overtime or working night- time hours. Somehow there was a settlement and it was resolved.
The Pier Pass program now works, and it caused a shift in the traffic through the ports. It is no longer peaking; it is being spread.
The Port of Vancouver is doing something similar: they do not have a Pier Pass program, but they are extending the hours at the gate. They are also using web-based reservation systems. That is part of the reason they are getting a 20- minute turnaround on their trucks — they know when the truck is going to arrive.
In other words, the trucking company reserves an arrival time on the website to pick up containers X, Y, Z and the port can have them ready to be loaded on the truck when it arrives. Previously, the truck would arrive at gate with no prior notice of time or container information and the port would take 20 minutes to locate and move containers. In the meantime, the truck sits there idling, creating air pollution and delaying the turnaround.
Those are the kinds of efficiencies that the ports are taking on to improve productivity and to try to prevent the delays that we saw in 2004.
Senator Tkachuk: We are doing our best to develop some expertise in the Senate on the question of ports, which is one of the main reasons we initiated this study, because so much of what we do in Canada depends on trade. There has not been a debate or discussion about ports for a long time in our chamber that I have been aware of or that I have seen. I am very interested in what you have to say.
Our Canadian ports have lots of disadvantages. For example, Halifax does not have a lot of people, so when a container full of TVs is dumped, it is not like New York, where there is a big audience for the TVs right there. However, we have deep water and we have railroads. I was fascinated to find out that the Americans do not have railroads coming into their ports, but we do. Those are two very significant advantages for North America.
Should ports be given the same independence as airports to operate?
Mr. Ircha: Okay.
Senator Tkachuk: That is one question. I have a few more to follow up but let us start there. They seem to be moving very slowly to take advantage of what, I think, are fairly significant advantages compared with other ports in North America.
Mr. Ircha: First, you have indicated that the Senate has not dealt with ports very much. Actually, very few people in Ottawa deal with ports very much — and for good reason. You indicated trade is very important to Canada, but 80 per cent of our trade is to the U.S. and most of that is by road and rail. Therefore, the real focus in Transport Canada, when we deal with those folks, is road and rail.
The port side is important; it is important to people, like me, who work in the ports industry. However, like some of my colleagues, I understand why you do not pay that much attention — and we are so thankful that you are paying attention.
Senator Tkachuk: In a grain buying area, where I come from, this is really important to us.
Mr. Ircha: To some people, it is very important; but to many it is not. There is a story — we do not know if it is an urban myth or not — that on one of the American talk shows there was a person saying, ``I do not want all these containers on my highway; they make all this noise and they are very disruptive. We do not need containers. I do not want containers. I buy all my stuff at Wal-Mart.''
Excuse me? People do not understand what this is all about, what the logistics chain is.
You talked about the depth and on-dock rail and you are absolutely right. We do have the advantage of on-dock rail. Some American ports are building on-dock rail, or they are trying to deal with that.
In Los Angeles-Long Beach they spent $2.1 billion building the Alameda Corridor to move containers just from the port to the rail yards about 20 miles away to try to speed up that process. It was very expensive.
On the organizational structure of ports, you made a very interesting comment: Should they be like airports? Before the Canada Marine Act — I was intimately involved in the process back then — Doug Young, the Minister of Transport at the time, appeared in several locations and told the ports people that he intended to bring forward legislation to create ports like the airport authorities. I happen to know about airport authorities because I serve on the board of the Greater Fredericton Airport Authority. I see the difference between what we can do at the airport and what happens at the Port of Saint John, for example. There are far more constraints placed on Canadian port authorities, because they are federal agencies, than we have at the airport authority. It is a little bit different, as you would expect.
The initial intention of the legislation was that we would have ports acting like airport authorities. Something happened between Doug Young's initial presentations on what he saw the legislation being and the final Canada Marine Act about four years later. There was a lot of dialogue, lobbying and discussion. We got a watered down version of what we could have had. The Canada Marine Act review report tries to tighten that up and tries to make the ports more businesslike than they are. Have they gone far enough? That is beyond my ability to comment here.
Senator Tkachuk: It obviously has not. You commented earlier in your discussion about the port's ability to borrow money and its authority. How could you solve that problem unless you gave it more independence to get into partnerships with business people? If governments do that, it will take them forever, and meanwhile some other city in North America will have it all done.
Mr. Ircha: The restraints on the Canada Port Authorities say they cannot borrow on federal lands. You own the land. Therefore, they can only borrow on the revenues they generate from activities on that land. They cannot use the land itself as collateral to borrow money. They are sitting on $100 million or $200 million worth of assets against which they cannot borrow because of Treasury Board rules and federal government rules that may be legitimate, but do constrain their activities. There are borrowing restrictions. There is the cap. Once the Canada Marine Act was put in place and Letters Patent came out, the Letters Patent said the Port of Halifax can only borrow up to $25 million. Even though the Canadian Port Authorities are independent agencies, there is always a fear with the federal government that they have deep pockets, and if the Port of Halifax goes wrong and there is a real deficit in financing, people will find a way through the labyrinth to get into their pockets. The federal government said, ``No, we will only allow you to borrow up to a certain limit that we believe you can handle.'' The Port of Vancouver has a much higher limit because it has much more traffic.
Senator Tkachuk: From what I have read, rail transportation is a heck of a lot cheaper than trucks, yet containers are being unloaded onto trucks as well as rail. What kind of container would be taken onto a truck? In other words, what economic decision would be made to put it on a truck rather than putting it on a rail car, which is much cheaper?
We are trying to follow these containers to see how efficiently we move them from the port out to the marketplace. Where do those containers go? We have heard a lot of talk about inland terminals, which is still a fuzzy concept in my mind. Fuzzy though it is, there is one being built in Edmonton for pulse crops right now. What kind of products would lend themselves to inland terminals?
Mr. Ircha: When we talk about containerization, one reason for putting things into containers is that it reduces the handling of the commodity. If, for example, you are shipping computers from Asia, you want to put those computers into the container properly stuffed at the factory, and not have it opened until it gets to the warehouse where it will be distributed in Canada. The containers should not be de-stuffed anywhere along the route unless it is inspection for customs purposes. The efficiencies and benefits of containerization only occur if you get the container moving from origin to destination without de-stuffing.
We do have some inland clearance depots or inland container depots, as you mentioned, which are basically inland ports.
I talked about full container loads. These are containers full of computers going to one consignee. Many of the containers that come into the country could be less than container loads. There could be two or three different types of commodities all stuffed into one container. That often happens in the port. People will bring in truckloads of merchandise, and it goes into the container freight shed where it is stuffed into a container going to Singapore. It comes out at Singapore and is stripped. In other words, the container is opened, the goods come out in the container freight shed, go into trucks and are delivered locally. Those are local things.
When you talk about an inland port like Edmonton or the Montreal-Toronto ports, you are talking about bringing containers in from overseas into Halifax, putting them on a train, double-stacked one on top of the other for high efficiency, and shipping them to Toronto. They never stop in Halifax. In Toronto, at the inland port, they are unloaded into the container freight shed, de-stuffed and then distributed to people in the Toronto region. They remain on the train if they are going to Winnipeg and then would be de-stuffed in Winnipeg.
We have this odd situation right now in the Atlantic region where we have full containers of commodities being shipped from Halifax onto trains to Toronto-Montreal, being put onto trucks — or even the container being taken off — and then being shipped back to the Atlantic region. Some of my colleagues are looking at a container depot in Halifax itself, not in the port but outside the port, where truckers would move the containers and strip the ones for the Halifax area and the Maritime region rather than shipping them to Toronto and back again. The dynamics of this are quite different than you would think.
You asked why you would put containers on trucks versus rails. Shippers like trucks because of the flexibility and time. Railroads work to a schedule, sometimes, and delays have to built in. A trucking company will deliver a container as fast as they can, and they will get it to the destination, not just to the city where transport has to be arranged to get it to the destination. Trucking gives a more personalized service, which in this day and age means something.
In the traditional transportation sense, we usually think of 900 to 1,000 kilometres as the divide. If it is less than 900 kilometres, trucking makes sense. If it is more than 900 kilometres of long haul traffic, usually rail makes more sense economically.
Some of the trucks going in and out of Vancouver or Halifax are going to the region, or if it is going by train it is going inland. It is either going to Edmonton or Chicago and then into the U.S. Midwest, so there are lots of different movements.
Have I answered your questions?
Senator Tkachuk: Yes, thank you.
Senator Phalen: Thank you very much for your presentation. My questions are about Atlantic Canada. According to Transport Canada, Halifax is the only Canadian port that is doing short-sea shipping to the United States.
Mr. Ircha: Yes.
Senator Phalen: It seems there are numerous benefits to short-sea shipping, everything from environmental to road congestion to energy efficiency to safety, yet the European experience shows us that the financial incentives are necessary to encourage short-sea shipping.
What regulatory changes do you believe the Canadian government could or should make to encourage short-sea shipping?
Mr. Ircha: This is a difficult question because it is not just the Canadian government; it must also involve the American government.
Let me go back a few steps in time. When the North American Free Trade Agreement, NAFTA, was being negotiated — and I was following it in the literature — everything was going quite well. We were fast-tracking. You will remember that NAFTA had to be approved by November of that year, for the American rules and so on, to fast- track the legislation.
During that summer, Canadian negotiators were talking to American negotiators about opening up cabotage, reducing cabotage for Canadians ships, treating Canadian ships like American ships, so that Canadian ships could go to multiple American ports and American ships could go to Canadian ports, all of which makes sense in a free-trade situation.
By that summer, literature showed that the American marine industry was waking up. I started seeing editorials and articles asking whether these people knew what they were talking about, which was getting rid of or weakening the Jones Act.
This is a very sacred icon in the United States for the marine transportation industry, and they do not respond well to it being touched, although it is happening more now. It has been around since 1916 or 1918. The act was created because the Americans found during World War I, when they were not a belligerent, that they could not get ships to carry their goods. They had to have a protected maritime shipping industry to ensure that in time of war they always had ships to carry their goods, so they established the Jones Act to protect their shipping trade.
The Jones Act is very restrictive. Canada has a similar act in respect of cabotage restrictions. American ships cannot go willy-nilly through Canadian ports, and neither can we through theirs.
We need to talk to Americans in a meaningful way to demonstrate that because of the benefits you listed of short- sea shipping, the need to develop hub container ports and to ship to the ports, we must address this question for Canadian and American ships operating the coastal trade. That requires discussion, which has started.
In April of this year, the Ministers of Transport reached an understanding, at a conference in Vancouver, for Canada, Mexico and the United States to set a general framework for discussion on short-sea shipping. The Americans are becoming aware of the need.
The I-95 highway from the Maritimes to Florida is very congested and they have a hard time expanding it because of environmental problems. There will either be a gridlock or we will find an alternative, and the alternative is short-sea shipping.
Senator Phalen: Is it true that they can only go to one port in the United States now?
Mr. Ircha: We can go to many ports, but we cannot pick up and go to another port — participate in trade. We have the Kent Line from Saint John, for example. There was one company who took paper rolls from Saint John to several ports on the U.S. East Coast. They would go to New York, Norfolk and into Florida to drop off paper rolls. They were dropping off, not picking something up and taking it somewhere else. In fact, they did not do it for very long; they got out of the business. It did not make much economic sense.
Senator Phalen: You mentioned in your documents the potential for locating a 750,000 TEU terminal in Rockingham and you mentioned one of the disadvantages of that, such as congestion. Are there any advantages to it?
Mr. Ircha: Putting it in Rockingham at Bedford Basin, you mean?
Senator Phalen: Yes.
Mr. Ircha: There were advantages and disadvantages. The advantages were that there was lots of land. The foreshore could be developed and there was an existing container terminal that could be expanded. It was on the CN switching yard, so that there was good rail access and direct movement out of the Halifax region into Central Canada and the U.S. Midwest.
The disadvantages were that the foreshore was not public land. For some reason, it was owned by the Canadian National Railway. They were a partner in it and wanting to discuss the issue.
The other disadvantage is that behind it was Clayton Park and Mount Saint Vincent University and all these other fairly influential communities. I am not sure people really understood what this meant. I know that when I talked to the president of Mount Saint Vincent University, she pointed out to me that the port authorities had talked to her about putting in triple glazing on all of the windows of the university facing the port. That was to mitigate the environmental consequences.
The issue is not just noise. Other issues are the loss of the scenic vistas, light pollution at night coming from the port, noise and air pollution from dust. It goes on and on. We have seen environmental consequences become difficult in place after place around the world when people try to develop container terminals in an urban environment. Container terminals in Australia were shut down because of the growth of urban development around them.
Senator Phalen: That leads me to my next question. You said that Canso is a deepwater port and large enough for a turning basin. How deep is the port? Will it handle these large container ships?
Mr. Ircha: Yes. I believe it is 20 to 30 metres deep. I know that it is deeper than Halifax. It is handling 350,000-tonne oil tankers coming in.
Senator Phalen: You indicated in your documents that Saint John, New Brunswick is not located on the main shipping route. Is Canso located on the main shipping route?
Mr. Ircha: It is located on the same shipping route as Halifax. The shipping route comes from southern Newfoundland, off Cape Race, and then swings down toward New York. This is the Great Circle Route from Europe to New York. It swings down along the south shore of Nova Scotia. A diversion into Canso is equivalent to a diversion into Halifax. There may be a slight variation, but it is roughly the same.
Senator Phalen: Would there be any advantage in the Port of Halifax having an offshoot operation at Canso?
Mr. Ircha: That comes back to the question of port rationalization. We have the first initiative for port rationalization with Vancouver, Fraser and North Fraser. If that works, if we can get those players together and rationalize what is happening there, I believe that will open up opportunities for further rationalization.
I know people have talked about Halifax-Canso. In New Brunswick, people have talked quietly about Saint John- Belledune. There are these kinds of possibilities.
Senator Mercer: I could see the Fairview Cove terminal in Halifax from where I lived growing up, and my father grew up a stone's throw from there and used to fish and swim off of Fairview Cove, where the terminal is now, so I am fairly familiar with the layout.
We have been told several times that the Halifax terminals, both of them, are working at 40 per cent capacity and that the unused capacity, the remaining 60 per cent, is roughly equal to the maximum capacity of Prince Rupert.
Mr. Ircha: Yes. Those are rough figures.
Senator Mercer: I have difficulty when I hear this talk about expansions of ports when we have two very good port terminals in Halifax that are not reaching their maximum load.
This morning in the news, the leader of the Bloc Québécois suggested that Quebec City might be part of the Atlantic Gateway. He corrected himself afterwards and said he was not excluding Halifax.
With a 60 per cent unused capacity in Halifax and the fact it is on the main shipping route, does an enhanced terminal in Quebec City make any sense?
Mr. Ircha: That is an interesting question. I cannot attest to the 40 per cent capacity. I have heard from various sources it is under capacity. To what extent, I do not know.
You indicated the 60 per cent under capacity would be equivalent to the Prince Rupert terminal. That is correct; it would be equivalent roughly to the first phase, but the Prince Rupert terminal is looking at multiple phases from 500,000 TEU to start, moving up to 1.7 million TEU down the road.
The question about Quebec City is an interesting one. My understanding is that it is limited in the size of vessels it can handle because of the depth restrictions in the St. Lawrence: they are restricted to 4,500 to 5,000 TEU vessels coming down there.
There was talk in the past, within the ports industry, of perhaps a similar relationship, like that between Halifax and New York, with Quebec and Montreal. Quebec City could serve as a top-up port, so that larger vessels could come into Quebec City, drop off some containers, which would then be shipped by rail into Central Canada, then sail on to Montreal and drop off the rest of the containers.
Those discussions, and I am not privy to what went on within the ports, but they never saw the light of day. The issue with Quebec City is the water depth problems. That is why people are looking at Sept Iles and then transshipping vessels down into Montreal and maybe even beyond to the Great Lakes.
Senator Mercer: One of the many advantages of the two terminals in Halifax is its proximity to the rail at both terminals — the railroads are right there. In particular, the Fairview Cove terminal is quite large. Indeed, they have just purchased the adjoining land that may double or triple their actual capacity.
In your presentation, one of my concerns is that containers were spending three to five days in the terminal. It seems to me, the less time it spends in the terminal, the better off everybody is. When it lands in Halifax, we then put it on either a truck or a train. A train would be preferable because that is more environmentally efficient; it is cheaper and does not require a large infrastructure. Why can we not get them out quicker than three to five days?
Mr. Ircha: Let me explain this in two ways. Let me talk about the rail side first.
When we load containers onto a ship, the heavy containers must be put near the bottom of the ship and the lighter containers up top. A container ship with a lot of containers on deck means most of those are empty and being re- positioned to be loaded somewhere else. When containers are taken off a ship, the light ones are usually first.
The same problem occurs on the double-stacked railway car: the heavier container must be on the bottom with the lighter one on top, so the train is not topsy-turvy going around curves. Thus, the light containers have to be removed first where they are ``grounded.'' Next, the heavy containers are removed and placed on the railway car. Then we have to return for the light containers and place them on top. That is the simple version.
We are unloading the cells and putting them in a rail yard somewhere; there is a whole zoning issue, where to put them and how to handle them. Customs will want to inspect 4 or 5 per cent of containers coming from overseas for radiation or open them and ensure the manifest reflects what is in there.
Therefore, part of the delay is customs. If the containers are going by truck somewhere inland, there are also delays. After contacting the consignee, they may have to arrange for a truck. All that takes time.
If we are putting it on a rail system to go to an inland port, such as Toronto or Montreal, we could do the inspection in Montreal or Toronto. We do not have to hold the container up here if customs allows you to put it on there in bond.
We do not have to deal with a consignee because we are just putting it on the rail car and shipping it out. We get high productivity for rail-bound commodities and lower productivity for truck-bound commodities, but there are always delays. When we are unloading 1,000 containers off a ship, we are not getting 1,000 out the door at the same time. There is a delay.
The objective, as you rightly say, is to reduce the dwell time of those containers to as low as possible. We then must check with the port authority or the terminal operator to see their policies on free time in the container yard. They may provide six or 10 days of free time. If I am the consignee and do not need the commodity, I might as well leave it there. It is safe storage.
In some of the courses I teach, we talk about getting the policy of the port to reflect the need for efficiency and reduce the dwell time to three or four days or whatever is reasonable under the circumstances. Then, perhaps, after four days the price goes up.
Los Angeles-Long Beach reduced their six-day free time to three days, about a year ago. There is a charge of $100 each day it is in the yard, which encourages consignees to get their containers out.
Senator Mercer: Would the use of inland terminals help solve that problem? I see the congestion we are causing at the terminals themselves. If we can get it off the ship, onto rail cars immediately and move them someplace else, it relieves congestion at the terminal. In the case of the Fairview Cove, if we can move them to a place like Truro, we can reshuffle things. It might be more efficient. We could clear customs and do all the inspections there.
Mr. Ircha: Those are techniques other ports have tried and are using, such as in Vancouver. They would be storing their empty containers off dock. They can be stored anywhere, in anybody's yard somewhere else. There are a lot of techniques to increase productivity, which would be triggered if there were capacity problems. The trouble in Halifax is they do not have capacity problems; they do not have a problem storing containers today.
Senator Mercer: Hopefully, we will in the future.
Senator Eyton: I have a number of relatively simply questions.
First, in terms of ports, what is the relative value of shipping on the East Coast and West Coast?
Mr. Ircha: I am not sure.
Senator Eyton: Do you have any idea of the size? I am talking West Coast Canada and East Coast Canada.
Mr. Ircha: In terms of the amount of traffic coming at each place?
Senator Eyton: In terms of container traffic.
Mr. Ircha: Vancouver-Fraser River is about 2 million TEU per year, in 2005; Halifax brought in 550,000 TEU in 2005; and St. John about 50,000 TEU. Basically, they brought in 600,000 TEU on the East Coast and 2 million TEU on the West Coast.
Montreal was bringing in 1.25 million TEU in 2005. Does that answer your question?
Senator Eyton: Is it the same between American ports and Canadian ports generally? Do we have our fair share of container traffic in North America?
Mr. Ircha: I would have to do some analysis of this table, but I do not believe so. This is off the top of my head, because I have not looked at the numbers. I can provide these numbers to you. It seems to me that we are getting less than 10 per cent of the total traffic coming into North America. We could be getting more.
Montreal receives 1.25 million TEU. Most of those containers are being shipped into the U.S. Midwest, in and out from the U.S. We do a lot of diversion.
I know you looked at figures for Vancouver. The diversion is not as great in Vancouver. That is because it competes with Seattle and Tacoma, two large container ports on Vancouver's doorstep. Americans are bringing in through those ports and Canadians are bringing in through Vancouver.
There are reasons why the diversion is not as great in Vancouver. If you talk to the Vancouver Port Authority, as I am sure you will, they will tell you of the uneven playing field that exists between Vancouver, Seattle and Tacoma. The Canada Port Authorities must provide a percentage of revenues back to the federal government based on their gross revenue. They must pay property taxes.
Seattle and Tacoma do not pay property taxes. In fact, they have taxing authority: They tax the local municipalities to help operate the port. They do not provide any subsidy or funding back to their state government.
The Port of Vancouver has statistics they can show you indicating this uneven playing field between Vancouver and these other ports. That is why we do not get many American containers coming through the Vancouver Gateway, because the cost differential is not there.
Senator Eyton: We talked about Canadian and U.S. shipping. I would like to look at a port that does it exactly right. In your view, looking the world over, which ports do it exactly right, and in a hundred words or less, why have they done it exactly right?
Mr. Ircha: Let me preface my remarks by saying that if we look at the world's biggest container ports that do it right, we are looking at Hong Kong and Singapore. However, those are both transshipment ports. They are very efficient. They handle more than 20 million TEU per year. Most of the containers coming in are going right back out on other ships. They know the container is coming off the ship; they can stack them very high in the yard, reload them on ships and they are gone. They operate differently from general ports.
If we are looking at efficient North American ports, we are looking at Los Angeles-Long Beach. Vancouver is right in there amongst them as one of the top ports.
Senator Eyton: Ports are only part of the equation.
Mr. Ircha: Yes.
Senator Eyton: We have some good ports and good port facilities. On their own, they are really nothing. They need people, contracts, roads, railroads, et cetera. I would have thought it is very complex and costly. You mentioned earlier that you believed a possible scenario would be two ports on the West Coast and two on the East Coast. In my opinion, to try to save money, we should be looking at one port on the West Coat that is truly good and properly supported with the right infrastructure, and one port on the East Coast that has the same advantages.
Mr. Ircha: I do not dispute you. You misunderstood what I said. Perhaps I did not say it right. When I talked about two ports on the West Coast and two on the East Coast, I was only saying there are alternatives. We have at least two on each coast that would serve as super hub ports. I was not suggesting we need two, although on the West Coast we are getting two. I was just saying that there are places you can go to without having to build this offshore island off the American coast.
Senator Eyton: I have a curious question that you may not be able to answer. Why did you never once in your testimony mention the Northwest Passage and that an open shipping lane may be available there, given the benefits of global warming?
Mr. Ircha: That is a possibility. I have not looked at that situation. When we talk about the Northwest Passage, we talk about using a slightly different ship. Only ice-rated vessels can go through that passage. Many of our container ships are not ice-rated, except the ones that service Montreal, because they go down through the wintertime. There is a different type of ship that must be designed for that particular service.
That is an off-the-top response.
Senator Eyton: I was not entirely serious, but we understand global warming is with us.
The Chairman: Thank you, Professor Ircha. You have made this dossier interesting tonight. Thank you for answering our invitation with such short notice. Feel free to send us any other information if you feel the need to do so.
Mr. Ircha: The material I sent to you was put together quickly. I will see what else I can provide, now that I understand more about the issues you are interested in. Feel free to ask me again.
The committee adjourned.