Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 9 - Evidence - March 13, 2007 - Morning meeting
VANCOUVER, Tuesday, March 13, 2007
The Standing Senate Committee on Transport and Communications met this day at 9 a.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: Good morning. We are quite pleased to be here in Vancouver, and I am sure I am speaking for my colleagues, who are here around the table. We will be asking a lot of questions, I am sure, following the visits we had yesterday in the Port of Vancouver, which was very interesting. We thank you very much for this visit.
This morning we are continuing our examination of containerized freight traffic. As our witnesses, from the Vancouver Port Authority, we have Captain Gordon Houston, President and CEO; and from the Fraser River Port Authority, we have Captain Allan Domaas, President and CEO.
Welcome to our committee and we are looking forward to hear from you, and I am sure the senators have already prepared many questions.
Captain Gordon Houston, President and CEO, Vancouver Port Authority: Thank you very much, Madam Chair. I am glad to hear you mention your day yesterday; I hope it was very informative. It is always much easier to see what is happening than to just hear about it. We always find that a very valuable part of the experience, if it can be done.
I apologize for not having the French translation of my remarks. They are still being translated and will be forwarded to the secretary when they are ready.
Canada has an unprecedented opportunity now to capture trade for the benefit and economy of Canada and Canadians in general. The West Coast Gateway here in the Lower Mainland is absolutely critical and key in Canada's ability to capture much of the growth that is coming across the Asia Pacific.
I would like to give you just a very brief overview about the Port of Vancouver. The communities around Vancouver have grown up over the last 140 years. Very much today, we are still dealing with a road network that was laid out just after the great fire in Vancouver. The road network was established before the turn of the last century, and the rail systems were laid out around 1886. Since then, the population has grown from about 10,000 people to about 2.5 million people in the Lower Mainland as a whole. Therefore, we are constrained very much by those original arterial routes that were chosen and laid out long ago.
The pressure of growth in the communities has caused some problems for us in the transportation industry. We are now handling much more than even 10 years ago. In fact, last year, the Port of Vancouver handled around 80 million tonnes of cargo, both export and import — mainly export. To try to move forward, we are talking about amalgamating the ports in the Lower Mainland, which I am sure we will get to as part of the questioning.
That 80 million tonnes of cargo is mainly bulk cargo. The Port of Vancouver very clearly is a bulk port. Around 76 per cent of what we handle is bulk cargo: sulphur, grain, coal, potash et cetera. The balance being either brick bulk cargo, lumber, steel, some agriculture equipment et cetera, and containerized cargo. Clearly, we are a bulk export port and very much part of the Canadian resource industry in getting their goods to market.
We have also, in the Port of Vancouver, one of the highest container growth rates on the West Coast of North America. By circumstances outside the control of the port, in 2006, our container volumes increased by 25 per cent. We handled about 2.2 million twenty-foot equivalent units, TEUs, in total. We are serviced here in the Lower Mainland by three Class 1 railways and are one of the few ports in North America that have three Class 1 railways to service them. The Port of Vancouver has almost no draft restrictions. We are a very deep water port. We can handle the largest post- Panamax container ships. We service them with on-dock rail facilities. All our terminals in the container business have on-dock rail facilities.
The business objectives that we have set for ourselves at the Port of Vancouver for the next few years are very much to try to make sure the growth is contained, accommodated and that we can move forward into the future. The three objectives are to improve the reliability, performance and competitiveness of the supply chain that starts here on the ground in the Lower Mainland.
To insure the sustainability of the Port of Vancouver, our board has endorsed a sustainability mantra. It is now part of our mission statement and is in all our action plans to make sure that we follow the three legs of sustainability; the economy, the social and the environmental. There are some critical areas that we need to make sure of as we move forward with these three objectives; one is service provider accountability. I believe all of us in the supply chain need to be accountable to our customers. They need to understand the drivers that we have as service providers, and we need to understand what their needs are as customers, but we need to be accountable to each other.
The ports are wonderful places, and we can build the infrastructure for the port, but without a good road and rail network behind us, the port is actually nothing. Therefore, it is a combination of working together.
All levels of government investment, in these various aspects to make the port efficient, are vital.
``Social licence'' is a term first coined by a colleague of mine in the Port of Melbourne. We operate here, as I said, amongst 2.5 million people. We impact their lives constantly with trucks on the road, rail noise, whistles at night and ships coming and going. We can only work because they allow us to; that is our social licence. If the community around here lost faith in the ports in the Lower Mainland, we would be closed down, and I am not sure what would happen because there is no other site on the West Coast of Canada such as this one to handle these goods.
With respect to partnerships, we are working very closely with our colleagues in the rail and on the road networks, the provincial government, federal government and their terminal operators. We understand this is a partnership: Not one of us owns the whole piece, and it can only work if we work together.
Regulatory certainty is a term I am sure you have heard before, but we are making massive investments. The Port of Vancouver's investment over the next 10 years will be around $1.4 billion to provide the infrastructure. There is no point in me asking my board for that $1.4 billion if I do not know about the road and the rail networks behind us. The regulations can change to make that investment not as valuable as we would hope it would have been, and there are some potential circumstances that can confuse that. The railroads, for instance; one of them invested $168 million two years ago. They need to know that over the next 10 or 15 years the regulatory system around them will not change and that therefore their investment is well-founded. It is the same for us all. Making a $1.4-billion investment to find that local regulations have hindered the container business — as is happening here in the Lower Mainland — puts those investments in doubt and, hence, that whole supply chain on which we are working. Another issue, which I am sure we will get questions on, is this business of port integration. These are the important facts with which we are dealing.
We are not just looking at the port anymore. We really believe that all the service providers and the whole logistics chain need to work together, and we are working very hard with many of those people. We are also working very hard to actually monitor and benchmark our services as a chain. Without knowing what we are capable of, how do we know if some of the partners are working to their full capacity along with the rest of us? It is part of that accountability that I talked about.
We need a transportation policy. The country needs a national transportation policy — a framework that we can use to monitor, review performance and insure that the system that is in place is effective and capable of growing in the future.
One of the areas we would point to is the Surface Transportation Board in the United States. They hold regular hearings of customers and users of this transportation system, which gives them an opportunity to talk about changes, needs, complaints or penalties. Canada would do well to have a regular forum or a set forum where we could, as service providers and as customers, come together and speak to a national body that could make some decisions.
The time has come, I believe, if we are to experience the growth that we know is potentially coming within this Lower Mainland Gateway. We will be handling around 7 million TEUs by 2020. Today, we are handling about 2.3 million TEUs as a gateway. Therefore, we are looking at tripling what we are capable of doing today. It goes back to that case of social licence, when the impact on those communities around us will be quite large. Many of these people did not come to live here because they wanted to be on a train route, or on some national freeway that rolls trucks and such past their houses all the time. I feel the time has come to consider a transportation corridor through the southern end of British Columbia where we could move trains and trucks across and get them out of the urban areas as soon as possible. The obvious example is the Alameda Corridor in California. It is a very expensive exercise, but I really believe if we are talking about tripling the volumes of just containers, then we need to make sure that the communities around us can live in peace while that is happening. Hence, I believe government investment is absolutely key in what we are doing.
The Asia-Pacific Gateway and Corridor Initiative is a wonderful start with around $600 million, but $600 million will not cover the whole scenario. Now, obviously, the Port of Vancouver, we have already talked. We have a $1.4- billion expansion program underway, which is part of the gateway. The railroads will also contribute, and I am sure provincial governments will contribute. However, it will be a very expensive exercise and governments need to be realistic as to the amount of investment that is needed.
A recent study that we did, in the Roberts Bank Railway Corridor, points to a number of overpasses that are needed. We are trying to put a partnership together to provide that. I believe the way we will manage to grow the business in future is by working in partnerships with each other.
The transportation infrastructure has to service the needs of industry. It is not just about moving people, but moving people in an urban area, such as Vancouver or the Lower Mainland, which is a very important part. Today, we are seeing that mix of industry and commuting. There has to be easier ways. We are trying to move our business into the evening and into the night to make it easier for both commuters and transportation of goods. Movement of goods is critical. The trucking industry have a wonderful phrase: If you bought it, it came by truck. It is almost impossible to think of something you bought recently that did not, at some point, have a truck involved. It is this mix of commuting and transportation that is a problem.
The transportation industry in Canada and the port system really need planning consistency and certainty. The size of these investments require us to make sure that we know, first, the business is coming; and, second, that everybody else in the chain will be there when they are needed. This involves a mixture of private industry and federal agencies, such as the ports. It is very difficult for these businesses to understand where each other is going in the future. There are many initiatives happening amongst us to try to make sure that we all understand what each other needs to do and that we can support each other as we move forward together. Operationally, we had a bit of a meltdown here at the end of 2003. We realized that, operationally, we were not talking to each other. Everybody was doing their own thing. Since then, we have really changed. Operationally, we now contact each other every day. We know what is coming. We know where the problems are in each other's industry. We have gone, in the last 10 years, from about 1 million TEUs to 2.2 million TEUs. Much of that growth — 25 per cent in the last year — has been because of these operational changes. We now need to have the same strategy with infrastructure. If I am about to build a new terminal and invest about $1 billion, I need to know, and the railway needs to know, when that will be finished, so they can plan their investment. The provincial government needs to know, so they can plan the road network around it. We all need to be talking together, not only operationally, but also strategically, for the next 10 or 15 years. That way we can all understand what it is that we are doing.
I was in China last year and was very disappointed to hear about a conference in India where one of the subjects for discussion was the problem with Canada's transportation system. When other nations are having conferences and talking about our transportation system in Canada, clearly something needs to change. Some of the remarks that I have made — and I am sure answers to the questions — would speak to how we can make the situation better. It was very disappointing for me to understand that other nations were talking about problems within Canada.
The last point I would like to make is about the amalgamation. The amalgamated port authority will have a significant economic impact for Canada. The ports individually do have an impact today. However, as a collective agency, we would be much better able to provide infrastructure; coordinate our land use planning with the municipalities around us; and try to move toward the understanding that we are all growing together and how we can make sure that the impact of that growth is minimized in communities, while still providing the benefit, jobs, taxes and so on. We really believe that this is the way we can move forward, and the amalgamation of the port authorities in the Lower Mainland will certainly do that for us.
The Chairman: Captain Domaas, do you have anything to add?
Captain Allan Domaas, President and CEO, Fraser River Port Authority: Just one item, Madam Chairman. Capt. Houston did a very thorough job of describing the Pacific Gateway, so I will not go into that. I want to reinforce his comments around a national transportation policy, just expand on that for a moment. In the past, Transport Canada has been an excellent regulator. They have looked at the modes individually — as rail, road and air — and done a tremendous job creating safety in those modes. However, as the Scott committee pointed out almost 10 years now, Canada is a trading nation. This issue of national transportation policy is not one of how we regulate it, but it is how we integrate transportation with our trade policy. Canada is on a very interesting path at the moment with the B.C. gateway emerging, seeing the response from our colleagues in Atlantic Canada wanting to form the Atlantic gateway. Much work is being done right now to form the Great Lakes-St. Lawrence corridor. Suddenly our nation is a system with doors at either side and some connectors between, but there is no policy that talks about how we will go forward with that. It is a chance to craft some new policy in this country that would perhaps put trade and transportation at the lead of our economy. In addition, perhaps to drive a statement, such as to fund health, education, and welfare, we need to develop a robust transportation economy yielding the revenue for those programs. Interlink the pieces, and now we can go forward, as Capt. Houston said, to understand why we are making those infrastructure investments, what some of the rationale is and why we are building them.
The Chairman: I would like to know if you have the percentage of containers that are moved to and from the port by rail and by truck, respectively.
Capt. Houston: Sixty-three per cent of our container traffic goes to Ontario and Quebec, so it truly shows you the reach of what happens. Sixty-five per cent of the containers that leave the Port of Vancouver go by rail and 35 per cent of them go by truck; so that 35 per cent is really the local market and the 65 per cent is the rest of the country.
The Chairman: What percentage of Vancouver's container business is with Canada, and what percentage is with the United States?
Capt. Houston: Six per cent of our business in 2006 was to the United States direct from the Port of Vancouver, ergo 94 per cent of it was for Canada. We only track the shipments that go from the port directly to the border. If it goes to an intermediary, such as an off-dock facility or a deconsolidation centre and then across the border, we do not track that. We would class that as a domestic move because there is an intermediary in between.
The Chairman: What kind of environmental management system has the Port of Vancouver put in place, and what is the budget of the port for the initiatives on the environmental front?
Capt. Houston: We have a very strict environmental regime. We were the first point in North America to have its own environment department. We started that 18 years ago. We have a very strong culture of the environment. In fact, environment is one of our core values at the port.
We usually track our budget by project. For instance, in the expansion that we are doing right now — which you saw under way yesterday — we have 35 separate regimes in there making sure that the project is done environmentally. That project alone has a budget of around about $12 million for the environmental works that have to happen. We do not attribute all that to the department. The department actually has a fairly modest budget. It is probably around $2 million, but that is just the workings of the department and some of their initiatives. We do it mainly by project. Right now — I will have to confirm this figure to you — I would imagine we have about $16 million to $18 million in projects under way.
Senator Tkachuk: You spent quite a bit of time talking about regulatory regime. Perhaps you can be more specific on what some of the regulatory impediments are that you would like to see removed, which are causing unnecessary problems or perhaps contributing to inefficiency.
What do you see when you talk about future projects? Governments will always poke their nose into something. Therefore, the idea that you can have a 10- or 15-year project — an investment — and not have one of the three governments poking their nose in somewhere is difficult. However, where do you see the greatest fear would be as to where they would poke their nose? Where do you want certainty, in other words, and what are your priorities for certainty? If you can be more specific on that, that would be helpful to us.
Capt. Houston: For instance, within the Department of Environment, they were contemplating putting in rules that the port authority would have to supply oily water disposal sites, oily wastes. This is quite a problem for port authorities, certainly here in Vancouver, because we have three private businesses that do that. Here we would have a regulation that would make us get into a business in which, frankly, we do not deserve to be. It would be to the detriment of three local businesses that currently do that. It would be a very expensive exercise for the vessels coming in because, if we did that, we would have to charge the customers to make it work. That would be very expensive, much more expensive than for the private businesses that are doing it.
It is not so much the regulatory regime. We understand, as you so correctly point out, these issues change with time. However, we would really like to be involved in these regulations as they are being crafted and understand how we can do it such that industry gets some certainty about what is required, and also whoever is making the regulations can get their certainty as well.
There was an announcement by Transport Canada about passing regulations to make the ships cold iron — in other words, plug into the shore. We have done a study on that subject here at the Port of Vancouver on behalf of one of our cruise customers. It would cost about $3 million per berth to do that. We have 75 berths here at the Port of Vancouver. That equals over $200 billion to do something, which, frankly, as an ex-mariner, I do not believe is very beneficial at all. To put a cruise ship alongside, it will cost us $3 million and the ship about $1.5 million to be able to do that. What benefit is there to the environment in that very small portion of time that the ship is here? We could probably do more good with the $3 million in some other project, such as habitat.
We have been trying to get Canada to go to the United Nations or the International Maritime Organization, IMO, to declare the West Coast of North America a sulphur emission controlled area, SECA, because of the sulphur that they burn in their fuels. If that was done, we could reduce the sulphur emissions by 50 per cent in this area, which would have much more benefit than spending $3 million per berth.
To light up a cruise ship, to plug in a cruise ship, we would probably have to fire up another hydro plant here in Vancouver. It is the cradle-to-grave approach that needs to be looked at, not pick out those individual factors.
Another example is radiation portals within customs — Canada Border Services Agency, CBSA, as they are today. There was much dialogue back and forth about the best place to put these. Where they are siting them on the terminals — despite our objections — has a serious impact on our business. We reckon around 10 per cent to 15 per cent efficiency will be lost because of where these are being sited; yet if we had worked on it together in a more amenable fashion, then I am sure we could do that and still maintain our operations. These are the types of situations that happen to us.
Capt. Domaas: With regard to regulatory certainty, we would also like to see some regulatory flexibility. By flexibility, I do not mean reducing or tampering with the standards, but the practice of how we deliver it. Between Vancouver Port Authority, ourselves at Fraser River Port Authority and North Fraser Port Authority, we fund a cooperative organization, the Burrard Inlet Environmental Action Program and the Fraser River Estuary Management Program. Within those programs, we are joined by Environment Canada, British Columbia Ministry of Environment, Transport Canada, Fisheries and Oceans Canada and Greater Vancouver Regional District. We have been advocating for a very long time that this would be a tremendous forum to deliver the products that the Canadian Environmental Assessment Act requires, rather than having to go out to Ottawa and have folks come back. Let us try to do it regionally.
Back to my previous comment, circumstances are changing in Canada. Our port, when it is created, will be the fourth largest in North America. It is not as though we are a small port working in an isolated area that needs oversight because there may be a potential for an environment insult. Our port is integrated into our community. There is no room for us to try to shave the rules to save a dollar. It is about putting the best facilities in at the best mitigation possible. We understand what government wants, and that is the other part, we are agents of the federal Crown. Therefore, we would like to suggest that there is an opportunity for looking at how to deliver these assessment projects in these reviews of capital works. It is more effective, timelier and yields as good or better a product than we are getting today.
Senator Tkachuk: You talked about the transportation corridor. The federal government, over the years, has been spending quite a bit of money on infrastructure. Cities have benefited quite substantially by infrastructure spending. In the City of Saskatoon, there is a tremendous amount of activity over the last number of years from the way the government has decided to fund infrastructure projects. We have all kinds of transportation projects happening in our city to make transportation easier and more efficient. I have been coming to Vancouver for a long time for one reason or another. I find the traffic in Vancouver terrible for a city this size. It is a tragedy that the traffic moves so poorly here. I can understand people wanting to live in Shangri-La, but at the same time, there is a price to pay for so many people living in Shangri-La. When you talk about a transportation corridor, what has the City of Vancouver done with the money that they received on infrastructure spending to make traffic easier, faster and more efficient from the ports? From which not only does Canada benefit, but the City of Vancouver, all the workers et cetera, benefit greatly. I do not really see an improvement. Maybe you can tell me whether they have got a plan themselves for moving traffic along that government can join in with, so we do not get involved in something that the City of Vancouver and protest groups say they do not want — and then pretty soon we are in a bad situation. Where does Vancouver, the region, want their highways? What do they want and how much will they contribute?
Capt. Domaas: Well, actually you make an interesting point. Being from the south side of the port, let me just spend a moment to talk about the terminology. When we talk about the City of Vancouver, it is actually a very small piece of the region. There are 21 municipalities here; that is why we are not seeing the flow. I live in New Westminster, the most traffic-calmed city in North America. However, it is the geographic centre of the Greater Vancouver Regional District. Through our regional policy, we have the Livable Region Strategic Plan, for instance, which is a great plan that talks about green space, quality of life and residential use, but does not have a transportation or an economic component in it. It is one of the aspects that we are looking forward to as the new amalgamated entity, to have a footprint for our port that is the same size as the regional district, to be able to talk about the transportation needs for the district. I believe that is probably one of the fundamental pieces that we would like to see — I speak for myself, not for my colleague — but we need less municipal government, or more consolidated municipal government in this region. Twenty-one municipalities is just not a regional model to look at in an integrated transportation system.
Senator Tkachuk: You talked about the Surface Transportation Board in the United States, which was sort of an intriguing idea. Is there a forum where users and service people do get together presently, even though it is not around a government board such as you talk about here?
Capt. Houston: Actually, there are several forums. Here in Vancouver, we have two organizations that do exactly that. One is the Western Transportation Advisory Council, WESTAC, of which most of the folks in the transportation field are members. They get together twice a year — all of us — and also many times a year on meetings and such. WESTAC will be presenting here either today or tomorrow.
The other one is the Greater Vancouver Gateway Council, GVGC, which both the Fraser and Vancouver Port Authorities are members. The Greater Vancouver Gateway Council produced a document in 2003 called ``Major Commercial Transportation System.'' It was the result of a study over about four or five years. Out of that came a plan for the major road network around the Lower Mainland. We believed that the GVGC would be the solution to many of the problems. We know that congestion here costs about $1.3 billion a year. Now, we are happy to say, that most of the work in the provincial Gateway Program — and also a lot of the work in the Asia-Pacific Gateway and Corridor Initiative — actually is based upon that study that came from the GVGC. The GVGC, again, have rail, road, air and sea — the marine side. We are all members of the GVGC as well. Those are the four major groups on the West Coast for that type of activity.
The Chairman: I want to mention that section 5 of Canada Transportation Act contains the National Transportation Policy. This committee will be looking at amendments to this section in Bill C-11; we will be studying Bill C-11 soon. I thought I would let you know.
Senator Zimmer: Good morning, Captain Houston and Capt. Domaas. You are right, to be able to have an opportunity to see the operation yesterday on the water was very helpful. It gives us a good impression of what we are dealing with today.
Captain Houston, you indicated that you do planning and are now talking with the other three levels: road, rail and government. How far out do you long-range plan because you are talking about speeding up the process of approval? How in-depth do you discuss those plans with your other partners: rail, surface, and especially the federal government?
Capt. Houston: That is a very interesting question. When we put a piece of infrastructure on the ground — such as you saw yesterday being built out at Deltaport — that is there for about 100 years. Therefore, we have to have a fair idea of what the business will be over the next 15, 20 or 25 years to make sure we can get a return on that particular investment. We need to be able to plan around 15 to 20 years with a fair amount of certainty. After that, it is kind of impossible to tell what will happen. Our planning horizon is based, from the business perspective, on that 15 to 20 years, but knowing our infrastructure will be there for around 80 to 100 years.
Senator Zimmer: In addition to that, once you have done the planning, you indicated that the federal government sometimes could speed up the process. Is that mainly because of regulations? Is that affected by different regulations that are changed by acts of parliament? What would slow that process down if you are communicating 10 to 15 years out?
Capt. Houston: In Canada, we have probably the most complex environmental system anywhere in the Western world and maybe even beyond that. It is an extremely convoluted and complex process. It is very rigorous and we have to have rigour. We are talking about the environment and future generations. Nobody would want to try to make this a less rigorous process, but we have to do the process twice. We have a provincial government, and we are affecting some of the provincial sphere of influence. Therefore, we have to do the environmental process with the provincial government. It is then done again by the federal government because we are either in federal waters, or we are a federal agency et cetera. There is a harmonized process, but it is not what you and I would believe is harmonized. Harmonized to me would be that we give the same information to both parties and together they assess it, try to fix it or look at it to see if there is any mitigation requirement. That is not what happens. One government body processes it, waits until the results are given, sends it to the other level of government, and then they do it all over again.
That one berth, which you saw yesterday, took us over three years to get approval to build. It is very difficult. For our customers, who are paying for this infrastructure, they are on a very slow road: maybe this will get approved and maybe it will not. That is not what industry needs. They need to understand with a fair amount of certainty where we are heading in timeframes.
Senator Zimmer: I understand about 65 per cent of the exports handled at the port is by rail. I lead into a question whereby I heard a conversation yesterday that you are advised that a train will arrive into the port. In doing so, you will hire maybe a hundred workers to get ready for that train to arrive. The train does not show up and you are left with a hundred workers standing there and no train. What relationships do you have with the railway, and what is done at that point? Is there a penalty that the railway pays? Is there an incentive or do they just say, ``Sorry, we just did not make it. We will send a train in the near future''? My question is does it happen and if it does and the workers are there, what can you do within the limits of power that you have?
Capt. Houston: The circumstances arise exactly like you say, and there are all sorts of reasons why trains do not arrive on time. It is a very complicated business. They work very closely together to try to avoid these types of issues. Recently, they went into a system in Vancouver called co-production, where they will run on each other's lines, et cetera, to try to avoid those very circumstances. We can influence, but we cannot demand. The Vancouver Port Authority is very much affected by what goes on within any of the service providers. That is why when we talk about a revised national transportation policy with some benchmarks, monitoring and ability, it is to bring accountability to everybody in this. I am not just picking on railroads, but referring to anybody in the service industry who is not living up to their commitments. There needs to be some ability for censure or whatever by the rest of the industry, who are equally being affected. You are right, we will hire three or four gangs of longshoremen, and the train does not turn up, so now we have just paid several thousand dollars to have them stand by. It is a huge problem.
Coupled with that, though, is winter in Canada. I believe this is probably the worst winter that I have seen in this business. Since November, we have either had gales, freezing rain or snow. There were two avalanches yesterday on the rail system. It is a very complex business, and we have to mitigate those types of complications with service delivery. It is what you can actually do and commit to that is the important aspect.
Senator Zimmer: There are the acts of God that you have just described, but there are also some other relationships and situations that occur. Is there anything that we can do in legislation to enhance that or improve the communication with the railways and ports, anything we can do through legislation to help you?
Capt. Houston: I am not sure that legislation is the way to do it. For instance, almost two years ago, the Port of Vancouver signed a cooperative agreement with CPR; and Fraser River Port Authority signed one about four or five months after that as well; we talk about how we will work together, service deliveries together. A regime that is done by willing partners is much more powerful than a regulated regime. I would like to try to encourage the others in the industry to have similar types of agreement with each other.
Senator Zimmer: Captain Domaas, you mentioned in your report that your containers have dropped from 373,000 TEUs in 2005 down to 95,000 TEUs and the reason for that is that ships are coming in now that require deeper water facilities. Is there anything you can do, or do you have any plans to be able to accommodate that? Do you have any plans to create a deeper water facility in your port or will you just have to deal with it the way it is?
Capt. Domaas: That is a very interesting question. First off, let me just preface some remarks. By coming together, we are actually building a full service port. Capt. Houston made a great description of the almost unlimited capacity of the current Port of Vancouver facilities. However, not every ship that will come to the Greater Vancouver Gateway will be a 6,000-, 8,000- or 9,000-TEUs service. Our port believes, and we have seen borne out, that as the size of ship goes up, the time alongside takes a little longer as there is more handling. There will be a set of cargoes that will be high value, which will want a value-added service. That is very much what we are trying to put in place, so we will be niching for ships. We will be adding more water in the river. We can get to a deeper ship, but we will max out at about 5,000 TEUs per ship.
Our port is interesting in that the terminal at Fraser Surrey Docks is within two miles of the Thornton CN yard and with co-production, container trains are able to be loaded on dock and be in Eastern Canada in five days. Therefore, it is quite a high level of service that will attract a small customer with high-value goods paying a premium for the service. Again, that builds out the gateway as a full level of services: bulk, high volume and high value.
Senator Zimmer: Is there anything the federal government can do to help your situation?
Capt. Domaas: Yes. One of the challenges that we have as the existing port authority is that there is the maintenance dredging regime that goes on to keep the bed of the river in equilibrium between the dikes to mitigate damage from high flows. Now, a piece of that is certainly about making trade and transportation occur. However, another piece of that work is still about protecting people in the floodplain. We have made the case for a number of years about that the current program. It is about a $10-million dredging program that, through the sale of sand, we are able to recover about $6.5 million of that. We have maintained that that $3.5 million is a public good that should be funded from the public purse. By freeing up that money, it adds another $3.5 million because we are not-for-profit. Therefore, all of our net income from one year becomes capital the next year; that then becomes more capital that we, the new port, can put into road, rail and infrastructure on terminals.
Senator Mercer: Thank you both for being here, and thank you also for the hospitality at the port yesterday. It was very informative.
I want to follow up on the transportation issue of the ground transportation, which Senator Tkachuk brought up. I, too, have been coming to Vancouver for many years with various hats on. I have always been fascinated and frustrated with the lack of a highway system here. With the 2010 Olympics soon upon us, I am still amazed that there is no highway from the airport to downtown. It seems to me that every time we talk about transportation in British Columbia — or ground transportation — we get bogged down in environmental concerns. You have brought up the number of municipal units involved, and the map in your presentation demonstrates the number. How will you get around this? To me, this is critical. You have managed to do it out at Roberts Bank, but you have created a whole new infrastructure. Where does the highway go if there is no other highway system with which to connect?
Capt. Houston: That is a very good observation. That is actually what the whole question of the South Fraser Perimeter Road is about. It is exactly that issue. The federal and provincial governments are putting some money into that. I believe, as the Port Vancouver, we will probably have to put something into it as well. It will connect Deltaport along the Fraser River to Highway 1 to allow the road traffic to move outside of the community. The amount of traffic is a huge problem, but this road would bypass that area and provide easy access to the freeway.
We work individually with the municipalities that we affect; certainly the Port of Vancouver and with the City of Vancouver to improve that Knight Street corridor, which is the one you probably drive down from the airport. We have put several million dollars into helping relieve the congestion on that road. This is something you will find port authorities doing in the future much more. Certainly, an amalgamated port authority, I hope, would start to consider their affect on the communities around them. Building the marine infrastructure is not difficult nowadays. Terminals are so valuable that we get inundated with offers from other companies wanting to invest in the terminals with us. It leaves us with the capacity, then, to start thinking about the arterial routes that lead into the port.
You are right; there is no highway system that comes right downtown. The Knight Street corridor is the one that carries the brunt of the container traffic. Of course, with the rail, there is a bunch of grade crossings all over the rail system in the Lower Mainland, which affects the traffic as well. Many of those need to have overpasses and such. Those are the ways that we will do it. Plus, as a coordinated port working with the Greater Vancouver Regional District, we can amalgamate, I hope, their Livable Region Strategic Plan and, as Capt. Domaas said earlier, with a transportation section and an economic section in that plan.
Capt. Domaas: We need, and Capt. Houston alluded to it earlier, the big dream, the big picture to provide to the citizens of this region. I am sure if you have not got it, the librarian can provide it, but the Province of British Columbia's strategic action plan for infrastructure lays out about 30 years of infrastructure needed in this region. It includes the South Fraser Perimeter Road, the North Fraser Perimeter Road and bridge crossings. Unfortunately, because the province is talking about the B.C. gateway and the federal government is talking about the Asia-Pacific Gateway and Corridor Initiative, yet they have not actually brought that together and told people that that is the same project, we find that as projects in the region come forward, people see them as one-offs; for instance, the North and South Fraser Perimeter Roads. In my community, there was a huge push during the municipal elections last year to ensure the South Fraser Perimeter Road was built, so we would not need the North Fraser Perimeter Road. Well, in this region, it is not a case of either/or in this infrastructure. It all has to be built, and that is where the new port authority — back to hopes that Capt. Houston and I have for the new entity — has the opportunity to be a leader in bringing the public education campaign forward. However, this is a bundle of infrastructure and policy initiatives; it is not pick and choose from a menu.
Senator Mercer: I wish you a lot of luck with that because it seems, to me, that it will be the stumbling block. I sympathize with you; I come from Halifax, where one of our piers is isolated in the south end of the city and the traffic has to come through city streets to get their containers out.
I do want to switch to one of my other hats as a member of the Standing Senate Committee on Agriculture and Forestry. A constant complaint, which we have heard from producers of pulse products, is the lack of availability of containers; empty containers on the Prairies, in particular; and that they ship many of the products to Vancouver to be repackaged in containers here. When they get containers, they are not in the condition necessary for shipping such products as lentils, chickpeas and all the other pulse products, which we produce so well on the Prairies. Perhaps you could address that issue. I continue to ask people if we have enough containers, hopper cars, and railcars mainly because we produce railcars in my province. I am interested in selling more, but I continue to get the answer that there are enough. Well, if there are enough, they obviously are not on the Prairies where they need to be for people to package pulse products to get them to the Port of Vancouver to ship them overseas.
Capt. Houston: It is a very complicated issue. I am not trying to avoid your question because I just do not know the answer. We have been working with the railroads for about 10 years on this very issue, and with the producers in the Prairies to try to help them out with exactly this problem. I cannot answer it for you, I really do not know. I am sure somewhere in your travels you will be meeting with the two national railroads that provide that service. I am not qualified to answer it for you.
Capt. Domaas: Just to build on Capt. Houston's comment, I believe it does beg the question: What does transportation look like in Canada in the future? Clearly, we have two mismatched plans at the moment. The Prairie farmers would love to see the unit trains stop and provide them with containers. Conversely, in our gateway, we see many industries, such as forestry, consolidating their entire inventory because there are empty containers here. Therefore, it may be a question of where the inventory goes and how we direct it back and addressing that. Going back to Capt. Houston's comment, this is the kind of work that we have to do with the railways to understand how the supply chain will look and operate.
Senator Mercer: I will continue to ask everybody this question until somebody actually gives me an answer because it is tough enough farming without running into the problem of not being able to get the product in good condition to the marketplace.
I want to switch for a moment to security, two different kinds of security. I was interested, as I looked at a map of Roberts Bank, how isolated it is; it sticks out there. I made the comment yesterday that, from a security point of view, it is good news because it is isolated. However, I also live on the coast, so I know what the ocean can do. We have seen what it can do around the world with tsunamis and hurricanes. What protection do you have at Roberts Bank for forces of nature such as tsunamis and hurricanes? Even though it looks high, it is not really that high in comparison to what the ocean can do.
Capt. Houston: That is another excellent question, senator. When we planned the infrastructure out there — I believe 1992 or 1993 — we did some extension work on seismic events. It was one of the reasons we chose Roberts Bank. Roberts Bank was originally just a subsurface island. It is a rocky island surrounded by sand. We chose that deliberately because of the seismic issue, rather than the protection it would give.
As far as tsunamis are concerned, we are blessed here in British Columbia in the Lower Mainland because we are protected by Vancouver Island. Vancouver Island is a breakwater for us. It is the same usually during the winter storms et cetera. The fetch — the distance that the wind can move the water — is reduced because of Vancouver Island. Therefore, the minor wave action and such that we get here inside is much less than they would get elsewhere. If there was a tsunami here because of some event offshore, we would see abnormal tides, high tides and that sort of phenomena, but it is unlikely that we would see a very large wave coming in.
Senator Mercer: Fortunately, you do not live in Victoria.
I was also impressed by the number of parks that you have along the Port of Vancouver yesterday when we were out on the boat. While it is very nice and seems to be used by many of the local residents, it does put people in close proximity to your fence and to products and containers that are just inside the fence. What are you doing to protect the security of the containers and vice versa? What special measures have you taken there?
Capt. Houston: The international standards for port security — which came out July 1, two years ago, I believe — make the port authorities responsible for their area. In the case of the Vancouver Port Authority, that includes the roads, rails, bridges, overpasses and so forth. The responsibility for the terminal security lies with the terminal operator. We have been working with the terminal operator because we do not want 25 different systems within the Port of Vancouver. We have, in fact, developed a single, unified system for everybody. We have provided cameras and other equipment and technology.
In fact, over the next five years, the Port of Vancouver will spend about $31 million on enhancing our security system and making our road system much better in terms of operations and security. We are blessed at the Port of Vancouver with a security chief who believes that security needs to enhance operations, not deter from them. There is a very complex electronic system that guards with cameras and so on, which are monitored.
Senator Mercer: Is it centralized?
Capt. Houston: Yes, it is. It is centralized in Canada Place. We use the operation centre there — it already existed — and that is where, collectively, it is monitored.
Senator Mercer: From that office in Canada Place, can they observe every fence and entranceway to all of the various aspects of the ports in Vancouver?
Capt. Houston: All the ports within the Port of Vancouver's district, yes. I believe we have over 300 cameras altogether.
Senator Adams: Thanks for coming. My first question is about the huge problem you say we have with transportation right now. You said, I believe, to Senator Tkachuk, that Canada needs a national transportation policy. Are you talking about other countries? You are not talking about only Canada. Are you talking about Asia and the United States, that you have difficulty between shipping?
Capt. Domaas: No, I believe we are talking about building a Canadian policy that will be more responsive to what we see offshore. When Capt. Houston and I visited China the last two times with the minister's trade trips — because it is a controlled economy — they are building the roads, rail and infrastructure at a rapid rate, all with government support. It was very clear from the statements they and the carriers made, that Asia is doing all they can to provide the cheapest goods possible for the world market. The carriers are doing all they can to bring the goods here as cheaply as possible. However, if the goods get to the store and there is a $5 or $10 premium on them that the consumers are unhappy with, it is the Canadian infrastructure system that will to have to be accountable for that. Therefore, our comments are: Let us build the policy in Canada that will encourage all the levels of government, all the departments of government to focus on this need. Otherwise, the very taxpayers that are funding the system will be hampered and not given what they expect.
Senator Adams: How will you go about it? Will the Government of Canada have to say that we need to work with another country and make a policy?
Capt. Houston: Senator Adams, I believe the changes in the national transportation policy would be a matter for Canada. We believe we need accountability within its service providers, be it the port, road, rail or whoever. It is to provide a mechanism because that accountability is not there today. Accountability would go a long way toward answering questions, such as Senator Mercers' about railcar delivery, consistency and the question about ordering longshoremen when the infrastructure does not turn up to make it work, those types of issues. These issues are very much an internal Canadian issue, but I would certainly recommend that we examine other countries' national policies to make sure we get the best of breed if we will be changing it at all.
Capt. Domaas: On that topic of policy, senator, it is a bit bold of us, but we should be asking the question: Just because we have done things in the past, are they the right things to do in the future? We commented previously that both of us report to Transport Canada; they make no bones that they are a regulator. However, our act says that we are to facilitate trade. How do we facilitate trade when we report to a person who wants, not to put the handcuffs on, but certainly to have a very tight set of rules? We have actually contemplated over coffee whether or not we are reporting to the right minister. Should we, as ports, report to Foreign Affairs and Economic Trade Canada? This is the type of question that if we had a policy discussion that was not focused on what the mode is, but what the outcome is, then we might have a much more interesting and productive discussion.
Senator Adams: I live in the Arctic, in Nunavut, and we now have concerns about climate change. I believe you people mostly come with goods between Manitoba and Saskatchewan and maybe other provinces. I just want to find about the future of climate change if you are talking about another 20-year plan to try to upgrade the transportation. I was up in the High Arctic in June; there is hardly any ice up there now. Now it is at Ellesmere Island that that perimeter of ice moves a little bit every year. In the future, instead of happening in the Arctic, it will move down to the East, between Halifax and Montreal or as far down as New York. Does climate change affect your company in the future? Will it reduce your costs? Maybe you do not go to those regions.
Capt. Houston: Senator Adams, I think it is fair to say that both the ports are very concerned about sustainability, the environment and climate change. In fact, we briefed our board on climate change just recently. I believe the ports are in a unique position to be able to make some of the changes that need to be made. If we look at the new direction from the federal government on air quality, for instance, I know that the ports here in the Lower Mainland have done a lot of work with companies that provide biodiesel to reduce emissions. We have done a lot of work. In fact, we helped fund a company that developed an additive for diesel oil — burned in deep sea shipping — which reduced its noxious emissions by 50 per cent. In fact, one of the shipping companies that runs out of Vancouver now uses the additive in all their ships. We use it on the docks and on the terminals.
We just recently, at the Port of Vancouver, changed all our security cars over or will be changing them over to be hydrogen-fuelled. There is a lot we can all do. Many of the terminal operators are now using hybrid dock equipment. Some of those big gantries, which you saw yesterday, are massive; some of those are now hybrid. Just as a hybrid car, they run on batteries and, naturally, the movement of the goods generates the power for the battery. We all do whatever we can between us to make sure we are environmentally aware because we live in a very crowded area.
If we need any guidance on this whatsoever, we only have to look at Long Beach in Los Angeles to see what we do not want to be. Therefore it is important to put that equipment and those measures in place now to try to avoid those problems.
Senator Adams: We heard that in the future, in the United States, especially Seattle and San Francisco, they will have many ships that come from Asia. I heard from the department in Ottawa, that a company is taking over the ports, in the near future, for shipping from Asia. Do you ever have a problem with that kind of issue, or have you negotiated with any other companies from places such as Asia for shipping? Mostly, we are talking about Wal-Mart and Canadian Tire and so on. Now, you have millions of tonnes shipped to you from Asia every year. Do you see any future takeover or do you not have any problem with that issue?
Capt. Houston: If I understand your question, Senator Adams, it is about the ownership of the terminals and suchlike.
Senator Adams: Yes.
Capt. Houston: We do have that type of regime here in the Port of Vancouver, but you have to understand that the terminals and the port are owned by the port authority via the federal government. With respect to the United States and DP World buying ports in New York or anywhere in the United States, they were not buying the port, the terminal or infrastructure of any type. They were actually buying the operating lease to run the terminal. That is exactly what we have here in the Port of Vancouver.
Centerm, which is one of the container terminals you saw yesterday, is owned by the Port of Vancouver, but the lease to operate that terminal is owned by DP World from Dubai. They do not own any of the infrastructure whatsoever; that is all owned by the Canadian people.
Senator Dawson: I will be asking a question that has probably been asked for the last hundred years in this committee. The major complaints yesterday were about CN and CP, and how we make the railway companies accountable for the way they service the ports and the way they cooperate with the city. When we write the report, it is probably one of the questions we will have to address. When you get to your concluding point, if you had to make recommendations of what we should have in our report, feel free at the end maybe to conclude on a few high points because we will have to make difficult choices on what we prioritize. However, for us, it is becoming an issue where the railway companies are not cooperating with the end users, be they the operators, and are not cooperating with the port authorities. What can we, as a committee, recommend to the government to make them more accountable?
Capt. Houston: Senator Dawson, that is exactly what we are suggesting with a review of the national transportation policy. It is not just railroad: Every member of that supply chain needs to be accountable; every single person who is involved needs to be accountable; and every company that is involved in that supply chain needs to be accountable to each other and to their customers. That is possibly what all of us over the years have lost sight of. As Allan mentioned, we are not-for-profit. We are economic generators, so everything we do gets ploughed back in to the system. However, many of the others in the system are actually publicly-traded companies or privately-owned companies, and they have a different outlook. That is why I believe the amalgamated port can go a long way to influencing some of the behaviours. We are seeing a change. The head of CP Rail — not the current, not Fred Green, but Rob Ritchie before him — said to me one day, ``We never ever worry about CP not supporting the growth at the Port of Vancouver.'' He said, ``You are our only port outlet in Canada. As you grow, we have to grow.'' I feel that the very agreement that we have signed with each other is them starting to realize that they need to be accountable to people such as ourselves, other providers in the system and their customers. Therefore, I believe you will see that that change is coming. However, again, we would go back to changes or a recreation of a new national transportation policy to cement that into legislation.
Senator Dawson: My colleague Senator Mercer talked about the containers and asked where they are. There has been talk, and we have heard in committees over the last few months, about electronic identification of containers. That would facilitate the sharing of information between the train, port authorities and terminal operators. They would know the container's location and, most likely, depending on how the system works, the container's contents or if it is available but not being delivered to the Western farmers. However, at least we will know its location. Is there any work being done or are you participating in trying to develop that system?
Capt. Houston: Yes. In fact, we made a presentation to Transport Canada and other levels of government just recently in Ottawa about that very thing. We call it our dashboard because it is just like the dashboard of a car. It has lots of information and a choice of what we want to see. The movement and goods of containers — where they are — is all part of that program. The information is known today. You do not actually need electronic tags on the container. It is just that together we need to share the information that each of us has and the picture is there, the information is there. We just need to translate it better.
Capt. Domaas: If I could go back and just build on that, Capt. Houston hits a point, which we should reiterate, in that we are working closer and closer with all members and partners in the supply chain. To go back to this new paradigm in Canada, I am not sure that we will be able to regulate anybody to do anything. It is about building the economic supply chain and drive people by what is in it for them, their value in it. That is why we are working very hard to focus on the supply chain — and actually if you read the Province of British Columbia Strategic Plan, it focuses on the supply chain. We are getting away from directing people, but instead looking at economic incentives to bring in people.
Senator Dawson: You mentioned, Captain Houston, that 65 per cent of the goods are transported country-wide and 35 per cent locally. Is that historically stable? Has it always been around 65 per cent to 35 per cent?
Capt. Houston: It fluctuates depending on which terminal we are talking about. That is the average figure. At Deltaport, where you were yesterday, the percentage may be near 50/50, but the average for the port comes out around 65 per cent.
Senator Dawson: Historically, it is been the same amount.
Capt. Houston: It is in that range.
Senator Dawson: You also mentioned that 94 per cent of what you get here goes to Canada.
Capt. Houston: Yes.
Senator Dawson: However, when you say it goes to Canada, that means it goes to an inland port. Does anybody care where it goes after it leaves the inland port? If they did, they might realize that some of that 94 per cent would be sent out East and from there, south to the United States. Does anybody follow that trend? Does anybody have statistics on how much of that 94 per cent stays in Canada and how much of it goes down to the U.S.?
Capt. Houston: Actually, we do try to collect that information. It was very difficult information to get because many of these containers that come in are not full of one shipper's goods. Many shippers do not have enough goods to fill a container, so they put them through what they call a consolidation centre. They try to get the right number of people to fill a box. It then comes in at this end and is deconsolidated. Some of that may be bound for Canada, some of it may be bound for the United States, and this is where the system becomes very complex in trying to track it. I do not know of anybody who is actually tracking that. The railroads will be able to tell you. For instance, when we say 6 per cent of our traffic is going to the United States, they have a figure that is much higher of transporter cargo that they are carrying. That is because they are collecting it from the consolidation or deconsolidation centres. It is a very complex issue.
Senator Dawson: I was also impressed by the security measures and the fact that you were sharing with parks and other utilizers. One of them is the heliport and the floater airplanes where, when we go to any airport, we are searched. We check our baggage. We are not allowed to go in with our shampoo. We get on those planes, they weigh our baggage, they put it in the plane and then they leave. You could have anything in the baggage because nobody, from what I saw, is checking anything that is happening with that baggage. Then you have 20 potentially flying bombs and nobody would have any control. They are flying over your containers and your cruise facilities. There is — from what I saw yesterday — very little or possibly no control whatsoever, such as Canadian Air Transport Security Authority, CATSA, or Transport Canada maintains in airports. They are your partners and your clients. Do you not feel a little insecure, because the rest of the system is very secure? That, at least, seems to be a bit of a weak point.
Capt. Houston: Actually, you are right. The Coal Harbour Airport, which you saw yesterday, is the third largest airport in B.C. after the airports in Vancouver and Victoria, so it is a very large airport. I am sorry; I am just totally unaware of what Transport Canada's regulations are for domestic flights of that type. There is a limit to how much the Vancouver Port Authority can do. Transport Canada does that, and obviously they should be able to answer that question for you. I am afraid I cannot.
Senator Dawson: I will probably be asking that question because it did surprise me as sort of a weak link in the security system.
Capt. Houston: Yes. In fact, I would encourage you to ask them because the helicopters fly directly over my office.
Senator Dawson: I will name you when I ask the question.
Senator Eyton: I want to pick up, first of all, on your proud statement that the Vancouver Port Authority owns all the land; there are leases that apply, but you own the land. You also mentioned that you own the entire infrastructure. Therefore, in effect, what we see is owned by the Vancouver Port Authority and operated by other privileged individuals — judging on the price people pay to operate companies recently. There has got to be some sort of a breakdown on that. We had a fascinating tour of Deltaport yesterday. We realized that, in, say, a 10-year time frame, somebody has put together a very impressive facility with all kinds of equipment and magnificent cranes — very impressive.
The Vancouver Port Authority would not own all of that equipment. It would not own the cranes, for example, or else the prices people pay to operate companies do not make any sense; $2 billion or $3 billion or $4 billion is not simply the right to operate it. It must include equipment and facility. Therefore, I wonder if you could describe for me the two aspects in that regard. When I look at all that stuff, what is the split of ownership and responsibility? How do the operator and the port cooperate to make decisions on new equipment, new gantry changes and so on? It seems to me that they both have to be involved.
Capt. Houston: Historically, the Port of Vancouver, used to buy the cranes and put them on the terminal, but those were historical reasons because we were a Crown corporation. Before that, we were a harbour commission. We were only able to issue five-year leases. There was never the ability for an operating company to get a return on that investment if it was only for a five-year period. Now, we have the ability to hand out 60 year leases, so it has made it a much better investment climate for the terminal operator.
Today, the ground — the terminal grounds itself — and sometimes the administration building is provided by the Vancouver Port Authority. The equipment, cranes, gantry cranes and all the stuff that you see running around on the terminal is the province, it is owned by the terminal operator.
Senator Eyton: Can you help me now. I assume that if they are, for example, putting in a new gantry crane, the decision making has to be joint, does it not? They looked expensive — $15 million, maybe $20 million.
Capt. Houston: They cost about $8 million.
Senator Eyton: Thirty-eight million dollars?
Capt. Houston: No, no, eight, just $8 million.
Senator Eyton: Eight million dollars — oh, it is a bargain. I will buy one. The decision making has to be joint though, does it not? You are the landlord; you have responsibility for the overall operation. If they are putting in more cranes or a new berth, for example, how is that coordinated, how do you work together?
Capt. Houston: Putting in a new berth is an arrangement between us and the terminal operator. For instance, the work you saw going on yesterday is being provided by the Vancouver Port Authority. We will provide the berth. We will provide the backup land behind it. They will put the surface on, all the services that require electronics, et cetera, and the equipment to run it, so it is very much a joint venture. It is just a matter of negotiation as to where the split comes.
Capt. Domaas: Back to your question, senator, the terminal operators invariably bring a business case showing where the business opportunity is and what revenue streams come off that. Then, looking at the increase in the rent, ensuring that we make our internal rate of return, that is how the final decision is made.
Senator Eyton: Now, as an operator, I have a wonderful port, wonderful equipment, but are you satisfied with the state of your overall port facilities, those owned by the operators and those owned by yourselves? Are you satisfied with that state today or does it require significant new investment on the port, on the actual handling of the vessels when they come into berth, unloaded and then sent away? Are you satisfied that you can hold up your end of this supply chain?
Capt. Domaas: Capt. Houston made the comment — just before you arrived, unfortunately — that in this gateway, in particular, the terminals are the easiest part with the plans and the facilities in place today. Even including Prince Rupert, we believe the entire West Coast of British Columbia can provide capacity up to the year 2020. The difficulty is on the back side of the terminal connecting with the railways and the roads.
Senator Eyton: I cannot help but say I was immensely impressed yesterday. It seemed to me that the business cut to its smallest features — although you have to have a facility — is mostly the logistics of handling all that stuff and getting it to the right place at the right time. We heard yesterday, at Deltaport, that in general the port would know about a vessel and its contents about 24 hours before the vessel arrived in port and that the logistical planning for that vessel would start 12 hours before arrived. It struck me that that really was not good enough, that, somehow or other, there should be more advanced planning than that. Picking up on your point, that really you are only part of the terminals, a kind of an easy part, where the harder part is to load the goods onto railcars or onto trucks as quickly as possible and to unload and get it on its way to the right destination as soon as possible. In a seamless set, you would know five days beforehand that a particular vessel was coming in loaded with certain destinations in mind. The railways and the trucking companies would have information shortly after that. You could all be planned kind of homogeneously, so that the loading was quick and efficient, and the railway cars or trucks could move out. To what extent do you cooperate with shippers, trucking companies and railway companies in that planning?
Capt. Houston: There is a very close cooperation between all those service providers. The trucking industry works after the goods are cleared because it is the local destinations with which the trucking industry deals. After those goods are cleared through customs, the trucks are there to pick that up. They know in advance when they expect that to happen, usually a day before, sometimes more.
Senator Eyton: Would they have the appropriate trucks there at the right time to pick it up?
Capt. Houston: Yes.
Senator Eyton: Generally, are you satisfied with the kind of linkage you have with the trucking industry?
Capt. Houston: Yes. The trucking industry has changed its model of operations considerably over the last 18 months; it runs much better. We used to have line-ups of three and four kilometres outside the gate because they would just come on the chance of something happening. That does not happen so much anymore.
The railroads are kept advised by the terminal operator when they know the ship is coming. They know four or five days out what is on that ship, and they know how much is bound for what destination. The system that you are describing is exactly what happens.
What you previously described sounds to me very much as though one of the terminal operators in a container terminal — maybe out at Deltaport yesterday — told what you they do. Ordering labour can only be done 12 hours in advance, and that may be what they were referring to, but, as far as organizing the yard, it is done several days — maybe five days — in advance of the ship. There is lot of pre-work happening.
Senator Eyton: I take it that the railways are not quite as efficient in holding up their end of the shipment moving out as is the trucking industry.
Capt. Houston: The railroads have a particular problem. The trucking industry runs around the Lower Mainland. As you saw yesterday, the weather here can be quite nice at times. The railroads have an issue of running through the middle of a country where it can be minus 40. Trains get a lot shorter in very cold weather, and that causes a problem because the goods are still coming in, so they need more trains.
The other issue is that the rail network is not only handling containers, but also goods that are going into Canada and do not come anywhere near a port. They are also handling 65 million tonnes of bulk cargo on the same lines. Therefore, as each sector grows, it starts to impinge on the others.
Senator Eyton: I have read much recently of the efficiency of our two major Canadian railway companies. CN, by some measures, is said to be the most efficient railway company based on some sort of operating ratio in North America. However, it seems to me, that if someone is really efficient with their equipment, somebody else will partly pay that cost; for example, the availability of railway cars when you need them. It is much easier to be short on them and ship them and then their operating ratios, presumably, are improved. Is that a problem, the availability of railway cars?
Capt. Houston: It can be a problem. Right now, for instance, as I said earlier, there were two avalanches yesterday, which sealed off the Port of Vancouver. The goods keep getting produced either for export or coming in for import. Therefore, it builds up on either side until the avalanches are cleared. It is a factor of winter in Canada. Is it a problem? Yes, sometimes it is; other times, it is not.
Senator Eyton: No. I was not really talking about natural phenomena; they occur and have to be dealt with. I was talking about the planning and management of railway cars opposite the need in the terminal itself.
Capt. Houston: Operating ratio is a financial measure. You can translate that into operating efficiencies. There have been some issues with railroads in the past, but it is more their customers who you should ask, rather than an entity that is not really involved in it.
Capt. Domaas: In our region, because they have to get through the Prairies and the Rockies, you are not able to separate CN's operating practices from the weather. I believe Capt. Houston's point — we may be focusing on that quite a bit — is that CN would like to run a 16,000-foot train year round. On paper, that would generate more than enough capacity to run this terminal, these ports. However, when it gets really cold, those trains are down to 4,000-foot long. We cannot overemphasize that the Canadian weather affects our ability to compete.
Senator Eyton: I have thousands of questions, but I will restrict myself to one more. There has been aggressive bidding for the operating companies in ports all over the world, but particularly in North America. It seems to me that they are falling one by one. Does that concern you, and to what extent do you get involved, if at all, in the change of ownership of the operating companies?
Capt. Houston: Certainly, within the Port of Vancouver, we have to approve it. As the leaseholder, we have the right to decide whether they can transfer that lease or not. Therefore, we do some very rigorous work to make sure that whoever is bidding has both the financial wherewithal to uphold their part of the expansion — or whatever the agreements are that we have with these people — and also that they have the operating expertise to do it. However, it is not the purchasing of any of the infrastructure; it is just the operating lease, as you said.
Capt. Domaas: Your question is: How do we feel about it? Previously, when we saw the Ontario teachers and then the offshore interests buying in, the first concern was that for the dollars they are paying for them, would they believe these are huge revenue generators and take that revenue out? Through the due diligence that we have done, and I am sure Capt. Houston has done, we are finding that these are all investors looking for a long-term investment, who are willing to bring more capital, and that is a key piece for us. These people are willing to bring capital and put it in at a relatively modest return, which is really what this Gateway needs. Therefore, they are the right people for the time.
Senator Tkachuk: Do you lose stuff? With all those containers rolling in, it must be complicated. With all these ports and so many containers that have to be put on trains and transported to their destinations in North America, do goods get lost?
Capt. Houston: Last year, as I said, 2.2 million containers came through the Port of Vancouver, and I suspect, at some point, somebody lost one for a few days, but there is a finite place for them; they are always there at the end of the day.
Have we ever had one stolen out of the port? Not to my knowledge. I know there has never been an insurance claim on one because that is one of the questions I ask the terminals regularly.
Senator Tkachuk: I was impressed yesterday with the docking system out at Deltaport. I mentioned to the operator, who was giving us the tour, that perhaps he could write a letter to Air Canada because we have been having trouble getting a dock when we land. I would like you to follow that up with a letter on how not to lose luggage. If you can handle all those containers and not lose any, that is quite an impressive achievement.
Capt. Houston: I will write to Mr. Milton for you, senator.
Senator Tkachuk: Thank you. That is called synergy within the transportation system.
Senator Mercer: I wanted to follow up on you saying you sat down over coffee and discussed whether you should be reporting to the Minister of Transport or perhaps another minister. What was the conclusion of your discussion?
Capt. Domaas: If we had the ability, and it did not upset the apple cart, we believe there may be more synergy in a different department such as Foreign Affairs and International Trade Canada.
Senator Mercer: Which different department?
Capt. Domaas: I imagine the Ministry of Economic Development.
Senator Zimmer: The reason that Senator Dawson and I sit side by side is that we ask reciprocal questions. The containers come in and then they go inland, some may go down to the United States, but you indicated that you did not have any empirical evidence of that. First, do you compete against Seattle; does the same situation occur; do the products come in there and some are shipped up into Canada? Second, who are your major competitors; is Seattle a competitor; are there other competitors? Third, do you have a marketing plan to deal with that?
Capt. Houston: We do compete with the Port of Seattle. Do goods come into Seattle and then into Canada? Yes, they do. About 14 years ago, 35 per cent of the Canadian goods came across the border from Seattle. It is now less than 5 per cent. We have captured a large part of that market, mainly by building Deltaport, and that is exactly why we built Deltaport. It does not sound like much, but Deltaport is actually three hours closer to the Orient than Seattle, and that was the difference. That is how finely these people calculate the business.
With respect to competition, we not only compete with Seattle and Tacoma, but also with Portland, Los Angeles, Hong Kong and Shanghai. We compete because the ships are on regular routes. They have a circle called a string. We are competing to get somebody maybe from one that does not go through Shanghai, to somebody who wants to come through Shanghai. Therefore, we compete for these strings, not just against the ports, but actually with the ports on the other side of the country — on the other side of the ocean — as well. It is an interesting business.
Senator Zimmer: Do you have a marketing plan to deal with that?
Capt. Houston: We certainly do, and that is why we are being successful with our competition south of the border. We also opened an office in 1994 in Beijing. We were one of the very first foreign companies to open an office in the new China, which has been a very successful venture for us. We have also opened an office in Chicago to try to attract business into that Midwestern area. That is part of our plan on how to grow our business.
Senator Zimmer: The original company colours at the terminals were orange and blue, but local residents objected to those colours. You were very conscious of their sensitivities and, apparently, you painted it grey on the side that they could see. I commend you on your social and environmental conscious.
The Chairman: As you see, we have many questions to ask during our stay here in Vancouver, so thank you for your presentation.
Capt. Houston: Thank you for the opportunity.
The Chairman: We have as our next witnesses Kevin Ouellette, President of the West Coast Container Freight Handlers Association; David Peacock, Vice-President and General Manager of Westran Intermodal; Rick Cowan, Vice-President of Euro Asia Transload; and Ross Hanson, Executive Vice-President of Fraser Surrey Docks.
Welcome to our committee. We will hear first from Mr. Ouellette.
Kevin Ouellette, President, West Coast Container Freight Handlers Association: I did not realize Ross Hanson was presenting as well, so this will be interesting as he is with Fraser Surrey Docks and part of my presentation. We touch on the dock operators, so there may be a bun fight at this side of the table.
Thank you for allowing our group to present this morning. We are honoured to be here. We believe we have information that will be useful to take back to Ottawa to help us solve some of our problems on the West Coast.
First, the West Coast Container Freight Handlers Association is a local group that started about two years ago because of problems we experienced in the Port of Vancouver. We represent 14 local companies who provide export loading service to the forest and agricultural sectors of the economy. We currently load over 275,000 TEUs of cargo as a group per annum. We have invested capital in excess of $200 million and directly employ over 500 people here in the Lower Mainland.
As a group, we encourage government support, but want a balanced approach between business and government. In our view, the local terminals are over practical capacity. The railways growth plans lag due to investment. This problem is not isolated to intermodal freight, but to all commodities. The two groups, business and government, manage independently, creating inefficiencies in our sector. The trucking problems east of here are only a symptom, but they receive a disproportionate amount of attention and investment.
In this port, we have seen tremendous growth in import cargoes, and that growth is straining our supply chain. Ships are larger, faster, more expensive and they are coming in from China. Today, Canadian exports take a back-seat to the China explosion. We believe this country was built as an exporting nation but we have been pushed off to the sidelines as the import, or as we call it, the sexy side of the business, continues to gain the attention.
Canadian manufacturers, our customers, are losing orders and customers because their product is stuck in our warehouses with no ability to move it to the ports, and then overseas to their customers. As such, they will start to lay off people. We have started to lay off people and currently have people on layoff because of our inability to move cargo efficiently into the terminals.
We believe we need all stakeholders to have some level of accountability in the supply chain. Railroads are currently behind and blame the weather. The last time I looked, winter happens every year. When railcars are not delivered timely to our terminals, we have no recourse. When product remains in a railcar longer than a day, we pay a penalty. We have no ability to collect for the costs we incur from their service failures. We suggest the Canadian Transportation Act, CTA, be tightened and that the act require railways to develop service agreement with third-party terminals. This language needs to spell out accountability and provide our industry with the opportunity to deal with large, fundamental issues as a group. Today, we have no spectrum, yet we have millions of dollars invested. We are floundering out there. The railways have a commercial relationship with the shippers, and no relationship with us, but we take on the burden of the cost inefficiencies. Why would they not have some type of relationship with us that we can work with them on service accountability?
As an industry, we are financially damaged by rail service problems to our own terminals, but to the local container terminals as well because we recently finished a rail strike, and we have cleaned up from that. Now, we cannot deliver. We ask why? It is because of rail problems at the terminals. Proverbially, we are the meat in the sandwich. The rail hits us from behind the warehouse and it hits us in the front, and we sit there with large investments not able to utilize our assets.
Further on accountability, container terminals take on volume with the view that they can physically handle it, but that is if no problems exist. We are in the transportation business. Problems, environmental, weather and labour, always exist. We are in British Columbia so we have the problem of strikes. We need to understand our capacity. In an effort to control our own costs, we, as an industry, now load the same volume of containers, but we need to spread it over 16 hours instead of eight. We are using two shifts to do the same amount of business, to facilitate their growth and their inefficiencies. Where is the balance and who pays for that?
Some steamship lines accept traffic in the Far East regardless of rail and dock capacity in Vancouver. When the ship arrives, it chokes the system. The steamship lines are over their allocations. There needs to be accountability as our members are paying the price.
Exports are not allowed onto one local terminal today. Another terminal has now reduced our ability to deliver exports. Those two terminals are the two largest container terminals in town. We sit here with full warehouses and no ability to deliver. Again, we are told, maybe next week or the week after.
We have families to feed as well, we have employees and we have concerns, but through everything we have not had a voice. We are here today with our voice and we want to make ourselves heard that we are an important part of the supply chain. We think that we understand some of the problems.
With terminal infrastructure slow to build, we believe changes need to be made to the Canadian Marine Act to change policy to allow the ports and private enterprise to come in and invest in projects that make commercial sense. The worldwide figures show growth, but we seem slow to react. We are behind the curve. I think that wave will cut off at some point and we will need to rebuild. Then, hopefully, that wave will come back at us. It has never been more evident that the law of diminishing returns exists in the Port of Vancouver. I ask, and our members ask, why the port forecasted a ten-per-cent growth in volume, yet the railways have said they will tool up for a five-per-cent growth in volume? People wonder where we have a disconnect. These are obvious when we face the constraints we have today, but we suggest something similar to what the U.S. Surface Transportation Board does. They place some accountability with the railways, shippers and so forth, to make sure we balance that trade. The railways can handle only five per cent. We should have a balanced flow, because if we do not our supply chain is broken. Unfortunately, we are not big enough and strong enough to absorb all of that problem. Freight will flow backwards because we will need to go to our customer, who is a Canadian exporter, and say because of these problems, the customer will need to pay for that. As business people, we do not know how much the exporter can afford and stay globally competitive.
I want to table something here for the members, which is a study that we participated in with the bulk terminals, the forest product terminals, the intermodal terminals and the off-dock terminals. The study is of rail service and capacity issues in the Lower Mainland. We paid for it. We think it has a lot of the answers you may be looking for and we want committee members to have a copy.
The Chairman: Thank you very much. We will distribute copies to our members.
Ross Hanson, Executive Vice-President, Fraser Surrey Docks: I am not sure why Kevin Ouellette suggested there might be a bun war here because, listening to his comments, ours are similar. I have been asked, as all the presenters have, to speak to which government policy should be amended to increase capacity and improve Canada's competitiveness. I am a relative newcomer to the marine terminal industry, so I am not the best person to ask for feedback on that point. However, I can offer some tangible ideas to reduce the container sector's systemic congestion that plagues the entire gateway, ideas that are obvious to even a newcomer. Then, hopefully, those people more experienced in government affairs can determine which policies to effect.
Echoing Kevin Ouellette's comments, we have all seen the graphs predicting the rapid growth in trade with Asia. It is almost a certainty that this trade will continue as Asia increasingly becomes the world's workshop. Of course, nowhere is this trade more evident than on trans-Pacific routes, which then places Vancouver squarely in the crosshairs for a bottleneck.
It seems to me, as we add capacity and look to eliminate bottlenecks, we should do so in steps. First, we need to maximize the potential of our existing assets before we add any additional capacity. Then, after we maximize our existing assets, we add capacity, starting with the least expensive options and working to the more expensive ones. When I say expensive, I mean in economic, environmental and social terms. I believe that the Fraser River and Fraser Surrey Docks meet both those criteria. They have immediate capacity available today and the potential to add more at a comparatively low cost.
I will give a bit of background on Fraser Surrey Docks. Unfortunately, I missed the presentation by Captain Domaas this morning, so I am not sure if he covered this information but bear with me. Fraser Surrey is located 25 kilometres inland on the main arm of the Fraser River. The site is 130 acres. We have, approximately, 35 full-time employees on our payroll, as well as somewhere between 75 and 400 longshore employees, depending upon the vessels and the activity on the terminal at any given time.
The terminal is unique in that it is both a container terminal and a break-bulk terminal. Efforts were made to expand greatly the container terminal side of the business about four years ago. In that period, we went from handling 50,000 TEUs a year to 350,000 TEUs in the span of only two years.
We have worked with, arguably, the most reputable container designer in the world and we now have plans in place to take that capacity to 850,000 TEUs.
In the last few years, the Fraser River Port Authority has done a commendable job increasing the cargo handling capacity of the Fraser River. In doing so, the ports transformed the main navigation channel into a cargo pipeline of sorts. Containers are brought inland by ship to an area of the Lower Mainland with low land costs and ample room for expansion. Containers are then sent on their way by road or rail to local or eastern markets in Canada and the U.S.
As the terminus on the Fraser River for overseas containers, Fraser Surrey Docks is a key part of this pipeline. By working closely with the port, we have become a capable and dependable link in the flow of international goods to and from Canada. Fraser Surrey is ideally located in the heart of the region's growing logistics hub. This location means that we have excellent access to all the main road arteries, including the planned South Fraser perimeter road outside our doorstep, and we are serviced by all three transcontinental railroads providing service to B.C.: Canadian National Railway, Canadian Pacific Railway and Burlington Northern Santa Fe Railway.
Fraser Surrey's intermodal facility and the port's rail yard are immediately adjacent to the terminal. While the port invested in improving the navigation channel, Fraser Surrey has invested extensively in developing intermodal infrastructure, so a few words about the intermodal side.
At its peak, CP Ships sent, approximately, two-thirds of its volume by rail to eastern markets. At the time, Fraser Surrey Docks handled, approximately, 250,000 TEUs for CP Ships. We catered to this demand by assembling complete trains on site before transferring them to the port's holding yard. The railways could then arrive, hook and haul direct to the eastern markets bypassing their own sorting yards in the process, so the situation was win, win. By assembling complete trains, we were able to receive excellent service from the rail lines, and they were able to deliver the cargo far more quickly because they could go direct to market without having to stop in their own sorting yards and adding to the pipeline's congestion. In fact, cargo frequently arrived at Fraser Surrey Docks, was loaded onto a train and arrived in Chicago within five days.
Currently, the terminal is well below capacity. Unfortunately, Fraser Surrey lost its largest customer about a year ago when CP Ships was acquired by TUI, which chose to redeploy its vessels elsewhere. We have been working hard to restore that business, but it has not been easy.
Although the river can handle all but the largest ships, the perception overseas is that access is severely restrained. Ironically, much of the cargo bound for the gateway originated at river terminals much like Fraser Surrey Docks. The port continues to make improvements but has limited resources for substantial changes. As for any organization, there are many demands on its capital. Only now it has found the budget to develop plans to expand this cargo pipeline, but much work still needs to be done.
Let me sum up and close my comments by restating the key ideas. As we look to improve the competitiveness of Canada's position and increase our own throughput, we should maximize the potential of all our existing assets. Once we have done that, we will then look to bring on additional capacity starting with the lowest cost alternatives and gradually working towards more expensive ones. I believe that the Fraser River and Fraser Surrey Docks represent good examples for doing both. Once the port has completed their planning efforts, I expect that their results will demonstrate that enlarging the capacity of the Fraser River will be an extremely attractive option. It will bring ocean cargo to the doorstep of the existing rail and road infrastructure and permit substantial capacity to be added at a comparatively low cost. I urge this committee to support their efforts in whatever way possible. Thanks for allowing me to tell the story.
The Chairman: Thank you very much. We know that container dwell time is related to the free time policy in the container yard at the port. A witness before our committee was of the opinion that reducing the amount of free container storage time encourages containers to be shipped out sooner. A competitive port will try to reduce container dwell time to three days and minimize truck turnaround time. Do you agree with our witness?
Mr. Ouellette: I do, yes. I think that is the railway school of economics: charging a fee changes behaviour. To create capacity, we need to move things quicker. We have to be careful to ask if that apples only to local cargo. On that basis, will that freed-up space allow the export to come on or will it allow more import to come because if it speeds up movement and it brings only more import, we have not found a solution. However, I believe that putting penalties on will create some capacity.
The Chairman: If our country is able to find the best policies to respond to the challenges of transportation as a whole and integrated system, we may have a tremendous competitive advantage in the international marketplace. Also, if Canada is not ready to make its efforts — its ports are the natural choice for companies looking for access to North America — the risk is high to see those companies going to the United States or Mexico. Being ready for the challenge will require both investments in capacity and also in efficiency: enhancing measures such as intelligent intermodal transport. Do you think that the Canadian government and the business community are up to the challenge with regard to increasing efficiency and implementing your approach of intelligent intermodal transport?
Mr. Ouellette: Honestly?
The Chairman: You are honest, Mr. Ouellette.
Mr. Ouellette: Yes: I do not think at this stage we are ready. I do not think the commitments are there, personally.
What do the others think?
Rick Cowan, Vice-President, Euro Asia Transload, West Coast Container Freight Handlers Association: Certainly, they are not, for the infrastructure. We need direction or movement there to facilitate the movement of cargo.
Mr. Ouellette: Yes: Listening to Ross Hanson from Fraser Surrey Docks this morning, I have a question: if we have capacity there and yet we seem to keep running into the brick wall at the other terminals, why is that capacity not being absorbed? I do not have an answer.
As we listened, my mind started to work and I thought about something that was said to me the other day, and I will repeat this. A vessel recently went to Fraser Surrey Dock to relieve some of the congestion at Deltaport, but that was a stopgap. It discharged the cargo but it would not be put on the rail for two to three weeks, so they let the cargo ship leave, but the cargo sat. Unless Fraser Surrey can move the cargo efficiently on the rail, then all we have done is create a new storage location.
To answer your question, the question should probably go to the railways because they are the ones that have a large investment; there is no doubt about it. I truly wonder whether they have the appetite or whether they want the business. They like to manage growth and their operating ratios are good, so at the end of the day, I do not know.
Mr. Hanson: If I can jump in to two parts of that question, I can speak only from the point of view of Fraser Surrey Docks and I believe that we are ready for intelligent container links with the rail lines. I know that we have those systems in place with the shipping lines now. I do not see any reason why we cannot develop similar links with the rail lines. We are ready if they are. However, with regard to Kevin Ouellette's point, the rail line must come to the table. He is right: we took an overflow vessel a couple of weeks ago simply because no berth space was available. We were promised railcars that did not materialize and so, unfortunately, Kevin is correct: a lot of the cargo stayed on the dock for two or three weeks. Had the cars been available, we are confident that we could have repeated our past performance of loading all that cargo onto rail within 48 hours. Clearly, rail plays a role here as well.
We were offered an opportunity to help with another overflow vessel. As keen as we were to take it, and we had the capacity to do so, in the end the shipping line advised us that CN would not supply railcars. Therefore, they needed to find another terminal alternative, so clearly the rail lines need to step it up if we are to relieve this congestion.
The Chairman: The same witness I mentioned in my first question was of the opinion that planned expansions in the West Coast probably will not create enough capacity to eliminate congestion. The large vessel can now handle 8,000 to 10,000 containers and these vessels require specialized marine terminals: unloading containerships this size is a sophisticated process. What can be done to improve the unloading process in Vancouver? My question is addressed to anyone who wants to answer it.
Mr. Hanson: I cannot speak for the other terminals. I can only offer up the view from Fraser Surrey Docks. Again, we are located 25 kilometres inland, so a vessel arriving from overseas must sail up the Fraser River. Again, the port has done a good job of expanding river capacity to handle these larger vessels. Today, we can handle only a 270-metre vessel, but from working with the pilots, we are confident that number can be grown. Will we be able to, or will the river be able to, handle the largest post-Panamax vessels being delivered today: probably not. Will we be able to handle much larger vessels than today: almost certainly. Will the Fraser River provide a vast untapped potential for adding capacity to the gateway while the world seemingly marches toward these ever larger vessels: no, it will not. Can it play a role in relieving systemic congestion: absolutely.
The Chairman: Do you want to add something, Mr. Ouellette?
Mr. Ouellette: Yes: I do not operate a deep-sea terminal, so I am not intimate with the operations side, but part of the struggle, in talking with the terminal operators — Ross, you can correct me if I am wrong — is with the balanced scheduled railway that comes into play. Part of the problem, I think, in unloading the vessels is also that when a train comes into a terminal, it is loaded. It has empty containers and it has export loads, so we have to work it. Before we can reload it with the Hudson Bay, Wal-Mart and Canadian Tire cargo to go back to eastern Canada, that whole operation has to be done. Without creating maybe more rail lines, I am not sure how the terminal operators can turn any quicker. It is a physical operation. You can handle only so many containers per hour on a productivity basis, so the question is difficult. It is a good question. It begs a question: why are other railways not involved in the cargo coming out of the port terminals? Is it because they cannot get a railway line in? I do not know. Should we look at another car supply from a competitive basis?
Senator Tkachuk: In the present study, we are focusing on imports, to see if there are any opportunities for handling and distribution, thinking that the exports would be self-evident: there would not be much of a problem because this stuff would be top priority. We are finding that is not so, and that news is disturbing for an export country. Would it be fair to say that the Vancouver Port Authority is in competition for imports with other ports on the West Coast, be it California, Seattle, and who knows, Halifax, but it is actually a West Coast monopoly for exporters.
Mr. Ouellette: Yes: because of this dispute, we have been delivering cargo to Seattle. We have been able to utilize some outlets, but not on a regular basis. We moved 130 containers there last week. Customers requiring service, their letters of credit to their regular customer overseas, they must be looking at it from a cash flow basis. Pulp markets are good right now, X amount per tonne, and we need to move 4,000 tonnes at $700. That is a lot of cash flow for the companies as well. Cargo sitting in our warehouse does not provide anybody with anything. You are right in the sense that for western ports — or this port right now for the most part, a good amount of forest products comes on one railway inbound to the port. The other railway probably does not have — I should not say that because there is a balance — we are talking forest products, but we have a problem with sulphur and potash and all the other bulk trains too. Forest products is our business, but if we look at it from a total export scenario and talk to the Neptune Bulk Terminals, the Lynnterm Terminal and whatnot, we would see the magnification of these problems as well.
Senator Tkachuk: In the Prairies, we talk about railcars all the time and the inability of the railroads to deliver enough railcars. Senator Mercer has brought this topic up before with previous witnesses: for grain, pulse crops, oilseeds and, of course, our resource products, how do we create more competition to move these products out of the country and to move other export goods out of the country? How do we create more competition? Do we build better highways, maybe four lanes all the way through the mountains so that trucks can be competitive to the railroads right now? Maybe with the two lane roads, railroads need more competition, but we must solve the problem. We must move this stuff.
Mr. Ouellette: Yes.
Senator Tkachuk: Then, of course, we must get it out the door. How do we create more competition for this to happen? If it must go to Seattle, if I am a manufacturer of a product in Saskatoon, I do not really care how you get it out of the country as long as you get it out of the country and on its way to my customer.
Mr. Ouellette: Yes.
Senator Tkachuk: How do we make it easier to get stuff into Seattle or get stuff wherever, to give competition, so people here pay more attention? What can we do to make it more competitive because that is the only thing that will drive it in the end?
Mr. Ouellette: Yes, you are absolutely right. Right now, there are two railways. If we look at it from an exporter's standpoint, do they use one or the other? There is not that ability for our railway customers. For example, if they are a mill in Prince George, they cannot use CP. If they are a mill in Cranbrook, they cannot use CN. Their leverage is not there. I have been in conversations or meetings where the railway knows they have the customer and the debate is how much the railway will reduce the increase, not whether the customer can negotiate on price, but there is an expectation that costs are going up. From the shipper's standpoint, the shipper absorbs the cost until the cargo can be shipped by truck and then the shipper can go to competitors, so how do we bridge the difference on the competitive nature? I do not know, with the Rocky Mountains and all those other things, how we can bridge that. It is difficult. Maybe it is rail access, I do not know. Maybe we need models that allow for —
Senator Tkachuk: Have models been contemplated? These old ideas somehow keep coming back, but rail companies have a social responsibility because they are monopolies. CN was built by the state. CP was built with government largess. These companies were given land holdings. They were not small entrepreneurs who mortgage their houses and try to start businesses to manufacturer widgets and either succeed or fail by their own brilliance or stupidity. Why do we not have other railroads travel on the same rail? Is it possible to take away that monopoly? Have your thought about that? Have you discussed that: to have your own railcars on your own railroad —
Mr. Ouellette: Yes, from that standpoint, there has been a lot of discussion. I am sure many groups have discussed it. There have been discussions on whether there should be a Lower Mainland railway in the sense that there is a company that creates a service model for the whole Lower Mainland. I know the port was hot on that idea a few years ago. I do not know what happened to it. The railways say they like to hook and haul from here to Chicago or from here to Toronto: that is where they make their money, which sounds reasonable. They do not make their money switching cars into places like ours. Why would they not create something outside where all they do is hook and haul? They pick up their train, it is already assembled and boom, boom, boom. Theoretically, it sounds good. I do not know if it would work.
On the other side, I do not know what the legalities are for BNSF running on CN track. I am not sure how that works, but, again, they will come back to, it is their investment, their money. How do you allow another railway to go in and service their customers. I am not sure if there is a legal challenge, being their asset.
Senator Tkachuk: Phone companies used to tell us that when they extorted money. I remember that. Cable companies now do the same thing.
Mr. Ouellette: Yes: Now we are seeing competition in the phone business. Telus seems to make money, still.
Senator Tkachuk: Sure, they do.
Mr. Ouellette: They only need to be innovative. Yes, that is a good example.
Senator Zimmer: I want to continue in the vein that Senator Tkachuk followed. I asked this question of the previous witnesses. I gave the example that sometimes a train is scheduled to come in, the port hires all the workers, prepares the trucks and the train does not arrive. I understand acts of God — avalanches and weather — but as you have said, winter happens every year. My question is, what type of relationship do you have with the rail lines, and in working together with all the bodies of rail, surface and ports, do you receive any responses as far as what happened? Is the problem administrative? Is the problem a management one or is it, they just did not arrive?
Mr. Ouellette: Yes.
Senator Zimmer: That is my point.
Mr. Ouellette: Yes, and part of my presentation touched on that. We have no commercial relationship with the railway. I pay them nothing but they bill me. It is a strange relationship. I guess we had a problem here with Rogers a number of years ago. It was called negative billing. They do the same thing. They send us an invoice that I have to take through my accounting department, my CSRs and everything else, and we have to prove that it is not ours. It was not ours in the first place, but they keep sending reminders.
To go back to that question, we have been told now that, first off, any of our terminals should go with the expectation that we will get service tomorrow because our agreement, in theory, is that they will bring us the railcars that we have ordered.
We bring in our manpower, clerical help and so forth, and they do not show up. There is no accountability. We have paid all the labour. We have paid all the machinery. We have all the fixed costs. We phone the railway and they say, ``You know, Kev, I do not know when we are going to get there.'' I ask, ``What is the problem?'' They say, ``We cannot get an engine.'' I ask, ``Do you not operate a railway?''
It would be like me saying to my customers, ``Sorry, I do not have any forklifts today.'' What are they paying me for? Anyways, it is difficult because heaven forbid, we leave that pulp in that railcar for one extra day. We receive that invoice the next morning. We want to be fair. We do not expect to use the railcars for storage. First off, the only way we earn money is to unload railcars, so, on that side, we want to unload them but they have an eight- to twelve-hour allowance for delivery time. If we could go to Air Canada and say, I will be there sometime today, hold that plane, that would be a good business model, would it not? We wait until everybody trickles in and all the seats are full and, boom, we are gone: ``Honey, I will be home when the plane fills up.''
Senator Tkachuk: They are starting to do that, though.
Mr. Ouellette: Yes, I know. We made had a presentation to them last week. There is no set operational requirements. My operations manager who works dayshift talks to CN every night at nine o'clock or ten o'clock at night: ``Are you coming? I have a midnight crew coming in. Let me know because we do not want to have people in the facility and no work. It is expensive.''
We have invoiced them and said, ``You can pay for our labour.'' They shoot the invoices back and say, ``We do not pay those kind of bills.''
Mr. Hanson: Senator, if I can chime in here, Fraser Surrey Docks experiences the same thing. We order the labour and if the cars do not show up, then we eat that bill. You asked the question, what is the relationship with the rail? It is pretty much as Kevin Ouellette outlined: we take what we are given. Our practice is perhaps a bit different than some of the other terminals, though. Whatever cars they send us, we will work them, even if it is highly inefficient for us and it costs us to do so because the alternative is, we may not get any cars at all and so we do the best darn job we can with whatever we are given.
Senator Zimmer: Previous witnesses indicated that they try to have all parties negotiate, to work together on a 5-, 10- or 15-year plan, to improve these situations. You indicate, or as indicated, your objective is to encourage this dialogue. Do these planning meetings take place? Do you have an opportunity to sit down and discuss these problems with the other parties and deal with them in a 10- or 15-year program whereby you can eliminate these situations? Does that dialogue exist at all?
Mr. Ouellette: I have never been invited to one of those meetings. We do not even know about them.
Senator Zimmer: For the second part, one of my other hats is national security and defence. We are currently examining containers and the movement of containers because of the security issues. Do you know if security causes delays or inefficiencies in the system? Is security a major problem or a minor problem?
Mr. Ouellette: Speaking for the exporter side, it has become problematic, and the only reason for that is, if we are shipping product, for example, to Asia, and the container line that will carry that product will call on a U.S. port before it makes its journey across the pacific, then our delivery time to the terminals is reduced because they must have the 24 hours.
To give you an idea of how our business is structured, in 1999, we had 10 days to deliver an order to the deep-sea terminals. Two years ago, that time was reduced to five days, cut in half. With the introduction of regulations for the freight remaining on board, FROB, we are down to three days. With congestion, we are down to two days, sometimes — well, you had an incident — one. We have gone from 10-day delivery time of an order to occasionally — this week or last week — one day. At three o'clock in the afternoon, we receive notification that we have one day to deliver 50 containers to the terminal. When we phone the terminal, they give us six appointments. Something is wrong with that math. That is the only security issue I can speak of that we have shortened our delivery. I should broaden that a little bit. We have to provide the container and the seal number for U.S. Customs, which is fair. We cannot even pick up the containers sometimes or deliver them, so we almost need to have them all sitting in our yard so some people have an advantage that other people will not have. It becomes a difficult part of the business so it does have an impact. We are dealing with that part.
Senator Mercer: Thank you for being here, all of you. Mr. Ouellette, thank you for your hospitality yesterday.
Mr. Ouellette: You are welcome.
Senator Mercer: We appreciate it.
It seems to me that the railroads are like automobile insurance companies. They almost legalize extortion in some ways. Everybody has told us about weather. We are all from different parts of the country. We all know what the weather can be like, but it happens every year. There is a storm or an avalanche as there was yesterday. What do the railroads do to pick up the slack after a storm or after a slide?
Mr. Hanson: Make excuses.
Senator Mercer: Pardon?
Mr. Ouellette: Make excuses.
Mr. Hanson: They make excuses.
Mr. Ouellette: There is no plan.
Senator Mercer: Do they not put on extra cars or extra trains? How do you ever catch up?
Mr. Cowan: I think everything that can be moved is moving at all times. I do not think we have the equipment to support moving emergency volumes from one sector to another. I think everything that can roll, rolls. That is the efficiency of the railway: 58 per cent operating ratio.
Senator Mercer: Are you saying that all the equipment they have is on the move?
Mr. Cowan: Yes.
Senator Mercer: I told you I would sell railcars before this was all over because we make railcars in Nova Scotia and we want to sell more. Is the issue capacity, as opposed to inefficiency?
Mr. Cowan: That is correct in a lot of cases. I have mills that send me product by rail daily. On occasions, there are no railcars to support those mills, so the mills truck it. They truck it all the way from Whitecourt, Alberta to the Vancouver port for loading.
Senator Mercer: It does not seem like an efficient way of doing business.
Mr. Ouellette: It is for the railways. It is not for the rest of us. Railways are efficient because they have no accountability. They have this many assets and they keep rolling them. If they become stuck, oh, well. If we fill up and we cannot move our customers' trucks, all these other costs go up. We cannot take any more of these costs, but they are doing okay.
Senator Mercer: We may have stumbled on what our next study will be. I was concerned when you said that you have no commercial relationship with the railway, other than the fact that they send you a bill. How is the price set?
Mr. Ouellette: They work with, for example, our customers, CanFor or West Fraser. They set the freight rate from the mill to a terminal. We are the terminal. We are the unloader of the car so we are not involved with the actual freight negotiations. Rates are negotiated by a forest product company or an agricultural company. We then contract with the company, for example, West Fraser, to unload the cars. We charge West Fraser, CanFor, Miller Western or whomever to provide that service to store it, pack it and to deliver it to the terminals, so the railway is out of that as well. The railway does not have us on their radar except that we have a track number that they deliver the cargo to. If that railcar is delayed for a couple of hours or does not show up at all, we do not really exist in that whole supply chain. They do not come and meet with us operationally. Rick Cowan's needs may be a little different than mine or David Peacock's. Different cars carry lumber, eggs, and I am working with pulp. At the end of the day, we are all trying to move product, but there is no relationship with the railway to say, can you bring us this and do that, and if this does not happen, let us know. There is no commercial relationship.
Senator Mercer: Our friends at the Port of Vancouver told us they were one of the first Canadian ports to open an office in Beijing and other parts of Asia. Does Fraser Surrey Docks and other businesses related to the port have offices outside Canada or do you tie in with the Port of Vancouver's office?
Mr. Hanson: We do not have offices outside of Vancouver.
Mr. Ouellette: We do not either.
Senator Mercer: Would there be any benefit to having trade offices in, for example, Asia and India?
Mr. Ouellette: In our business, our customers or the people that we negotiate with are all Canadian exporters, so we deal with people in the mills in Western Canada, for the most part.
Mr. Hanson: Virtually all the shipping lines that arrive in Vancouver have local offices, both in Vancouver and oftentimes in New York or around the eastern seaboard, so we visit those people and they visit us frequently. Plus, we make frequent trips overseas to make sure that they can put a face to the name, but we are not of sufficient scale that we could afford to have offices in each of the jurisdictions. We deal with Korea, China, Japan, South America and numerous ports in Europe. For us to maintain that infrastructure would be prohibitively expensive.
Senator Mercer: Does the Department of Foreign Affairs and International Trade, or the Government of British Columbia through its trade office, offer any assistance?
Mr. Hanson: There is nothing I am aware of.
Senator Mercer: I have been in Taipei, and I have seen the Government of British Columbia's trade office. I happened to be in the same facility and bumped into it. That office does not offer any assistance to you?
Mr. Hanson: They offer no assistance that I am aware of, although I should not be so pointed. One individual who coincidentally is in Taipei works for, I believe, European Economic Community, EEC. Although this is not necessarily his mandate, because we know him from another movie, he has been helpful in gaining us audience with key decision makers in Taipei.
Senator Dawson: We have received a lot of complaints about the railways. Do you complain to the Canadian transports agencies?
Mr. Ouellette: Yes we do but, again, we came together as a group because, as an individual company, if Coast 2000 takes on the railway, I am out of business. We gathered together as a group because we recognized that the Canadian Transport Agency, CTA, allows certain disputes to be handled, but first off, they must be individual. We have no commercial relationship, so we have no leverage. We banded together to look at these things and say, we are small business people and we are getting hammered here. Do not get me wrong: we make our mistakes too and have our struggles, but it is a David and Goliath situation from our standpoint of being small operators. We put our association together and we talked to the wharf operators locally and found out that the bulk and the break-bulk side, the agricultural and grain terminals, were experiencing the same type of issues. We all came together and provided the money for this study: our groups and the other groups within the community on export primarily, although the intermodals are covered through the terminals, TSI Terminal Systems and P&O — I am not sure if Fraser Surrey was involved, but I think at the time Peter was for a short period — so that is a pretty good representation of the local infrastructure on the rail side.
Senator Dawson: At least you are here to air your grievances and we will address some of them in our report. I can understand that type of inefficiency that relies on the relationship with railways, but what about federal regulatory inefficiencies? Are there rules that we could recommend changes to that would make your life more efficient, without having to go into expansions and spend money? Is innovation being hampered by regulation? Are there types of regulations that we should address that would make your life easier?
Mr. Ouellette: From an investment standpoint, I cannot think of anything simple on our side of the business that would make a huge difference immediately. I think, from our standpoint, we need the ability to have some recourse on the service level, to make the railways accountable by saying they need to deal with the terminals, and they need to develop and sign off on a service plan. That planning will flow back to the exporter or whomever as well because they need to be part of it. It would go a long way to allowing us to plan our business efficiently: there is a huge opportunity.
Senator Dawson: Mr. Hanson, in your case in the operation of a terminal, are there recommendations?
Mr. Hanson: Clearly, rail is a critical component in all of this, and I cannot speak to what the government might do to enable better service from the rail lines. Frankly, I have no idea. What I can offer, though, is specifically from the point of view of Fraser Surrey Docks, back to capacity, we have capacity today except there is a perception overseas that they cannot take a vessel up the river. From Fraser Surrey Docks' perspective, what would be helpful is help from the port authority. The port authority has done a commendable job with the resources available to increase the capacity of the pipeline, if you will, but they need more.
Unfortunately, Captain Domaas is not here to speak to some of the particulars, but they are living under letters patent that I do not believe have evolved with the times. One of them is that their borrowing cap is restricted to $25,000,000. That number might have been appropriate at the time it was put in place, but it is not today. When they want to make additional investments into improving capacity, their hands are tied. They simply cannot do it. That is one area. I believe that issue is being addressed in this merger process of the respective port authorities, so I might be speaking in the past tense on that point, but I have no idea what is to emerge from this new entity.
Senator Dawson: I presume that will be in the study. We will have to read it, but the notion of inefficiencies in the use of the railway by different railway companies, and the fact that you say all the equipment that can move is moving, would there be more efficiency if there were open access to the rail lines? Would there be more efficiency if other railways could use the same tracks, for a cost? Is there something the government can regulate or that we can recommend that we would make that type of inefficiency that exists because of legislation or because of historical, parallel monopolies of railways that would make your life easier, both as an exporter but obviously on the import side too?
David Peacock, Vice-President and General Manager, Westran Intermodal, West Coast Container Freight Handlers Association: Stuff has been done, or suggested, in the past. Recently, Deltaport implemented a decrease on their imports of 25 per cent to all their shipping lines but they had to stop it. This point goes to why Fraser Surrey is not busy yet because they said those imports needed to go elsewhere where no other Canadian railroad was. To send this ship or two to Fraser Surrey to help congestion, all it does is send it to the same railroads. It is not the solution.
The BNSF Railway has been around in the past and has tried to enter Deltaport and that has been squashed, for whatever reasons, but the BN is available. They can get access: that would be one.
Mr. Ouellette: Yes: The access and then, if you look at some of the equipment we deal with, I am sure there would be either private business people or customers and manufacturers that would be prepared to invest in their own fleet of railcars.
Senator Dawson: We have somebody who is ready to build them.
Mr. Ouellette: Yes: I do not think that is out of the question if the mill knows that they will be able to utilize their own supply based on their own production. A lot of times, we receive calls from the mills that they are sending trucks because they cannot get any railcars. As Rick Cowan says, customers are shipping by truck from Northern Alberta or Meadow Lake in Saskatchewan because there is not enough rail capacity. I also understand we cannot build a church for Easter Sunday, but we need some ability to have a few more masses.
We have focused on the railways, but the other reason that we were formed was because of the problems we were having with the deep-sea carriers as well. They accept cargo on the other side. They bring it over and dump it, I will not say at Fraser Surrey yet, but that probably will come. They drop their problems on the dock and they go back eventually to the Far East and grab some more cargo. It is a good business plan. We are left to deal with it. Again, we need accountability for the shipping community. We can beat up the railways. We could stay here all day. It would be fun but I think they do certain things for certain reasons. At the end of the day, I think the other side of the equation is that the steamship lines see all this manufactured cargo when they go into their terminals in Beijing and other places and they load it up on these brand new, big vessels. They arrive here and dump it on the dock, knowing the railway said they want only five-per-cent growth, but steamship managers have said they have 10-per-cent growth. We are experiencing that disconnect now. That is why we cannot blame the railways for all our problems. We would like to, but they are not totally at fault. They have some help.
Senator Dawson: When a shipping company is deciding whether to use to your facility, somebody else's terminal, what factors weigh in for them, and which of those factors can we help with to become more attractive to them when they make that choice?
Mr. Hanson: I can describe what we understand to be the key factors. You can draw your own inference about how you can help on those fronts. The first is price. Interestingly, price becomes a big challenge because if companies concentrate all their volume in one terminal, they receive volume discounts that are attractive. If we try to steal away, say, 10 per cent of the business and redirect it to our terminal, by definition, the 10 per cent we try to steal is at the cheapest rate because those companies benefit from the biggest discounts. That is a big challenge. Prying business away is an economic challenge.
Then, they look at access: is your terminal so congested that no berth window is available? An earlier witness reported that these vessels are on strings: regular, typically weekly, rotations. If a dozen ports are in a string and it is necessary for a ship to be at your port on a Wednesday, they cannot arbitrarily move that to a Thursday or a Tuesday. It does not work that way. Unfortunately, a lot of the strings are on a similar rotation because the goods originate in Asia and oftentimes, they are loaded at more or less the same time. Then those vessels arrive here at, more or less, the same time, so there is a lot of congestion around the middle of the week because, of course, the goods originated that way and nobody wants to work on a weekend because they pay premiums for doing so. The second thing is the berth window.
A third piece for us is, of course, we are located on the Fraser River. Again, there is ample capacity for all but the largest ships today to come up the river. However, to do so, they require tidal assists. They must wait for the tide to come, then they come to the port, discharge their cargo, wait for the tide and then off they go. Interestingly, because of the congestion in the gateway right now, waiting for the tidal windows is really nothing because berth congestion elsewhere gives them the impetus to come to us. However, the river restricts the size of vessel we can handle. Frankly, the perception is that we can handle a much smaller vessel than we can, and there is more capacity there.
Those are the key drivers. You asked the question earlier on, do we complain when we receive poor rail service? We do not. We do not have a commercial relationship with the rail lines, so it is hard to hold them accountable if we do not also hold their cheque. Instead the relationship is with our customer, between the shipping line and the rail. I do not want to be too crass about it, but the shipping line — and Kevin Ouellette spoke of this — brings the cargo, drops it off on the dock, and if the cargo sits, it is the customer who feels that pain. We work with the customer, for example, Loblaws or Canadian Tire, to make sure the company understand that the reason the cargo sits at our terminal has nothing to do with our performance. It sits there because we did not have the railcars. We tell them we had this many cars and how quickly we loaded them, thinking that they will then go to the shipping line and say, the performance you are delivering is not meeting our standards. Then, the hope is that the shipping lines can then work with the rail lines, but the route is circuitous to deliver the message back to the root of the problem, if you will. I do not know if that answers your questions, but a shipping line looks at those kinds of key determinants in deciding which terminal to go to.
Senator Adams: Sorry, I was not able to accept your hospitality yesterday. I come from the North. You remind me that there are penalties every time that we get into an airplane. Where my home is, if a plane cannot land, the airline says they are not responsible, and we have to pay for our own hotel, taxi and everything. In 1980, we did some work to bring in a railway system, privatized short runs and CN. How much do you people work with CN and the short runs, which are now mostly privatized? Where I live around Hudson Bay, most of our supplies come from Winnipeg to Churchill, Manitoba. You are talking about boxcars, flatcars, railways and stuff like that, but as soon as you get into good transportation, where do they go? Is CN possible? From there, CN transfers to a private system, but how does that system work right now with CN?
Mr. Ouellette: Locally, I guess B.C. Railway still has a short line from the container terminal at Deltaport. The Lower Mainland, for the most part, is serviced either by CN or CP, depending on which line someone is on, but there is one local short line railway, Southern Railway, and they have a smaller geography.
Do they provide service to Fraser Surrey or is it CN that provides your service?
Mr. Hanson: CN provides most of the service. It has reversed. It used to be CP provided most of the service, but with the loss of CP Ships, now CN provides more service, but the other two do as well, on a smaller ratio.
Mr. Ouellette: Yes: we have a short line, Southern Railway, owned by Dennis Washington. It provides some switch service. The cars come in from their geographical area, their territory, which is close to Fraser Surrey Docks, as well as Annacis Island for the most part and a little bit of Abbotsford. CN or CP will hand those cars off at certain points in the Lower Mainland for those destinations and then Southern Railway will be the delivery carrier. On the export, I believe they take some product to the border and then hand it over to CN, CP, BN or something like that, but there is little activity on a short line basis here in the Lower Mainland.
Mr. Hanson: At Fraser Surrey Docks, because we have our own switch crew, we assemble the trains in our yard and move them out into the port authority's holding tracks right next door. Again, the CNs, the CPs and the BNs can come in and hook and haul, so we do not need to use Southern Railway as much, although from time to time they bring cars in.
Senator Adams: My question is about late penalties. You say you load here in B.C., you go to a destination and CN is still part of that. The boxcar is transferred to the private railway, but CN still charges for the delays?
Mr. Ouellette: Yes, even on the private cars.
Senator Adams: CN still charges you for the delays?
Mr. Ouellette: Yes.
Senator Eyton: What are the commercial terms for shipping, FOB where? Typically the terms would be FOB destination of some sort. At least, it seems to me logically, it should not be FOB terminal, the docks. The question of who is paying for the delay is relevant and FOB whatever will tell you who pays for that delay. Is that a sensible question? I am curious.
Mr. Ouellette: Yes.
Senator Eyton: You import something from China: When is the seller of that merchandise entitled to payment? When have they done what they are supposed to do?
Mr. Hanson: We are not privy to the commercial arrangements between the shipping lines and the importer or the owner of the cargo, but if damages occur to the goods in transit, the claims come from the importer, which suggests that the goods are probably shipped FOB terminal. That means that the shipping line is responsible while the freight is on the ocean, but as soon as it hits land, then the customer is.
Senator Eyton: I can see then why they simply unload and scuttle back to wherever they came from because they are entitled to payment and they are gone. That is curious.
Mr. Hanson: Not to make excuses for the shipping lines, but it is evident that they are under tremendous rate pressure these days, frankly largely of their own making, because they have added so much capacity both on the Atlantic and trans-Pacific routes that their vessel utilization rates are dropping and they are suffering losses.
Senator Eyton: What it should mean logically is that if the buyer of those goods has paid for them and they are at the terminal, there should be tremendous pressure on the buyer to finish the journey, load them on a train and deliver them to wherever they are going: to Toronto, Barrie, Saskatoon or wherever.
I want to learn more about West Coast Container Freight Handlers Association, partly because we had the tour yesterday and it was constructive and useful, although I did not understand some of the factors that impact on you. What is your particular mandate and when were you formed?
Mr. Ouellette: We were formed two years ago. Our mandate is to provide a forum for our members, who are primarily export forest product and agricultural container loaders, to work together for the benefit of the exporter. A lot of forest products move out of this port in ocean containers: pulp, lumber, craft liner board, newsprint and those types of things. Although I compete with Rick Cowan and David Peacock — we compete for a lot of the facilities you saw yesterday: the inside, what we do, technology and those types of things — at the end of the day, moving a truck from West Coast to the terminal, moving a truck from Euro Asia to the terminal or from David's Westran facility at the end of our site to the terminals is similar, so we have a lot of common goals. Our mandate is to provide assistance in moving issues forward, such as participating in the rail study.
Senator Eyton: As I understand it, the association is focused on exports as opposed to imports?
Mr. Ouellette: That is right.
Senator Eyton: The warehouse we saw yesterday was certainly more than two years old. It looked good but it was more than two years old.
Mr. Ouellette: No, the association is two years old. We were brought together for two reasons. One, we were all experiencing the same difficulties with the railway. We were receiving bills and we were receiving poor service. We were experiencing a lot of problems but we would pick up the phone and nobody would even call back. We would phone the railway, nobody would call back, so we were becoming frustrated. I would run into Rick Cowan somewhere at an event and I would say, how are things? He would say, I just cannot get any satisfaction, or I would see David Peacock. I talked to people I knew on the North Shore that were involved in the bulk business. They said they were experiencing the same problems in a bigger picture because they use unit trains, so we set up an association. We said, as an individual, we have no place. As for Coast 2000, I would not be here today if we had not formed this association. We are now recognized in the port as somebody to call for assistance and input. We now have a voice in what goes on in the Lower Mainland, so the first issue was rail. As we went into the rail problems and started the study, the terminals started. We are now involved in trying to move hours, delivery, openings and those types of things collectively because, again, at the end of the day, we all load railcars and we deliver to the port. How we do it, what we do and who we do it with are all different, so those are our competitive factors. At the end of the day, though, we want equal access. We want accountability. We are fighting for those things for the export community.
Senator Eyton: From what I understand of your comments and comments from the others today, this was a grand experiment. You say it is two years old, you have invested a couple hundred million dollars and you have 500 employees, but it does not sound as if it has been entirely successful.
Mr. Ouellette: It is difficult. Within that, it is not only our company but our industry. We are struggling to provide basic service. We are good service providers. If you talk to any of the forest product companies, when things are fluid we move a lot of cargo and we move it well. We are now at the point where we have hit the wall and every time we try to do something else, we hit a wall, so, yes, it is difficult.
Senator Eyton: As I looked around yesterday and we saw some of the warehousing, you had pulp, nickel and paper. I guess those products are the three principals ones. It made perfect sense to me that you were adding additional capacity. You could move containers off the terminal lands. You can be complementary in so many ways. You can help customers organize their shipments. I did not understand that it was so focused on export market, but it should be a help. I find it hard to imagine why there is not more cooperation and more room for you. Partly, it is my instinct, and I do not know the numbers but I can get them easily, that we are importing all kinds of stuff, for example, China is a tremendous exporter to Canada, and we find room to ship them across the ocean and ship them wherever they going in Canada and we use up capacity. I would have thought that the trade, particularly in consumer products and manufactured goods, going out, the export part, would be much less than the imports. Therefore, it seems to me, containers must be available, capacity must be available or there must even be a need to fill up as much as you can, so then, on the return voyage, you should represent Canadian exporters and you should be able to do that because there is space. What is wrong with that analysis?
Mr. Ouellette: If you look at trade with Canada, or the volume, our forest product volume is flat, so we handle around the same tonnage. The problem has become physical limitations. Therefore, when we have an operational problem, we must reduce something. It is as simple as that. We cannot continue to accept the same amount of cargo because we will never get ourselves out of the problem. The terminal operators had to make a conscious decision and that decision was to cut the export.
Senator Eyton: There must be room. To put it simply, there must be empty containers going back.
Mr. Cowan: We are suffering from equipment shortage in a lot of cases. For a lot of the bookings I do, I am scrambling to find empty equipment that I can load my product into. I do this on a daily basis. It is all interwoven with the congestion that has occurred. There is a cause and effect everywhere down the line. We have tried, as an association, to open lines of communications to help resolve some of these webs and find highways rather than side roads, but there should be lots of empty equipment. That empty equipment is not necessarily coming back to Vancouver from the Chicago area. It could go out through the Port of Halifax or it could be preloaded onto something and then eventually go out as an intact container directly to the vessel. I am waiting for 150 containers that I hope come in on the rail that I can start loading and booking. I have maybe 24 hours to load them and get them down to the docks. I have restricted hours on the docks.
We have hardly touched on the docks at all. CN is not the only problem. The docks have difficulties too. They are open eight hours a day. Now, with the help of the industry, they are starting to open up for longer hours, but I am open 24/7, not because I need to, but when there are windows of opportunity, I have to take advantage of them and move my cargo. If there is a late gate at a port at Centerm on a Monday or Deltaport on a Monday night, I will run 80 or 100 containers there on that nightshift to move them off my dock because I have only 25 appointments: I am allowed to take only 25 containers back in the daytime.
Senator Eyton: I still do not understand why you are the last people called because it seems to me that your role is to organize and containerize, and you would be the easiest people to deal with. Fraser Surrey talked about making up their own trains. That makes terrific sense to me. I do not know why both the terminals and the railways would not embrace someone in the middle that does not use up valuable space that we require in terminals, and where the customers, one way or another, do not have the responsibility of putting the trains together, figuring it all out and looking after containers. I would think that service is valuable, but apparently it is not being utilized.
Mr. Cowan: It is physical space.
Mr. Ouellette: Part of that reason is that we are already in trouble. When we are in trouble, it is tough to plan because we are trying to dig out. We have gotten ourselves into this problem. We have to get ourselves out, but I do not think we can get out without a commitment from the whole industry. Again, I guess the dock operators had to pick something. They stopped the lines. I think David Peacock said they reduced inbound freight 25 per cent, so they finally took a stand with the steamship line and said, reduce your inbound volume 25 per cent. Where that has gone, I have no idea, or did they leave it in China? We are not sure but there is an overall reduction to the steamship lines. Those guys were told that.
Now, on the physical side, they are not allowing us to deliver the cargo, so we cannot go to Vanterm right now. They say their lanes are plugged with import cargo because they are waiting to put it on the rail. The problem they have again is that railcars come in and they are loaded. They have those empty containers that RickCowan wants, but they cannot allow a truck on the dock to pick it up, so they have to put it on the ship. We have serious problems. Operationally, we only have this much room.
Senator Eyton: How much time do you have?
Mr. Ouellette: I am sorry?
Senator Eyton: How much time do you have if you are in trouble?
Mr. Ouellette: We seem to live like that. My next problem will be staffing. We have a hot labour market and people in my organization are ready to quit: people I have invested a lot of money in for training, that do a great job, and all they want to do is succeed one day. I mean succeed by moving the cargo: that is their job. Now they are moping around. To answer that question, we had yesterday. Now I have to do some stroking and other things to keep my people happy because they are discouraged. At the end of the day, if we look at it and say, this industry has a lot of growth. That growth is a good thing and we are all happy about it, and we all invested because we saw the growth. It is only that we have been consumed with the problems. We seem to be taking them on as an industry and that is why we came together, because we need to stand and deliver the messages.
Senator Eyton: Is your organization non-profit?
Mr. Ouellette: Yes.
Senator Eyton: Looking at all of that, there has been a suggestion that the CTA impose, or provide for, ``service agreements.'' My last question is: What will the service agreements do for you? What are we looking at?
Mr. Ouellette: What we are trying to drive home is, we are physical, fixed-cost businesses, so we are building our businesses on moving X amount of product. We want the ability for the railways to come to the table with us and have some accountability. If they do not deliver, why is there no penalty, because if we do not unload, there is a penalty? We want a fair playing field, so there is accountability on their part. Most of the time, it is not a matter of us unloading the cars. We have had our occasions, but it is a matter of business principle that says, we need to work together: here are the roles, here is the business process and we are a partnership. They want to use as few cars as possible. We will help them do that, but we need to have the ability, if they do not deliver, to send them a bill. We do not have that ability. We need the ability, as a group, to sit down with them and maybe put them into arbitration. We do not have that ability. Today, we have a single, commercial vehicle. We put our group together and the railway now recognizes there is some group. There is a wharf operators' group and so forth, but all we can do is communicate. We have no hammer. We have no anything. We are investing as well. Maybe we do not invest as much as the railways, but we are small business people that are entrepreneurial, that are hiring and that are putting our money on the line, but our business is run by somebody else.
Senator Tkachuk: Do the American exporters face the same problem that the Canadian exporters face because of the huge increase in volume from Asia?
Mr. Ouellette: They do not, to my knowledge.
Mr. Peacock: If you go California, their exports are negligible compared to their imports.
Mr. Ouellette: Yes, we are balanced. We have a fairly large export economy and only one gateway whereas they can spread it along, even through the Gulf and other areas, too, so I do not hear about the problems down there.
Mr. Peacock: I travelled to Japan and our export community, Canada, B.C. and Vancouver, has a terrible reputation overseas. We are a joke, whether it is a truck strike, a rail strike or port congestion. I think that is one thing our customers struggle with. Sometimes, it is not the quality or the price but our reputation for getting the product to market — we do not get the product to market and we are back in that shoe right now. Whether the issues are rail issues or terminal issues, they are enormous for us. We have seats on many of the stakeholder groups in the port. I sit on two stakeholder and appointment committees myself, so we try but our reputation over there is not good, and it surprises me when people do not know that.
Senator Tkachuk: Well, they will not tell us, but I am glad you are telling us.
Mr. Peacock: It is poor.
Senator Tkachuk: Sorry to interrupt. Go ahead.
Senator Eyton: My last query is: Have you considered, or perhaps have you prepared, some precise enunciation of the amendments you want to the Canada Transportion Act?
Mr. Ouellette: Yes, we did, as part of the other groups. I have not seen the last version, but from what I understand, it has been reduced from the scope that we originally introduced a couple of years ago. I have not seen what will be introduced, in the last little while. We have been so focused, between the CN strike and the trouble we have been in since the beginning of the year here, in the last 60 odd days, it has been difficult.
Senator Eyton: Has that material been tabled with this committee?
The Chairman: What material is that?
Senator Eyton: I am talking about the amendments they want to make to the CTA.
The Chairman: No.
Senator Eyton: Can you manage that? Would you do that for us?
Mr. Ouellette: Yes.
Senator Zimmer: Thank you for your candour. We would not know that we have a bad reputation. Has that reputation driven some of the market down to the States, especially coming through Seattle?
Mr. Peacock: I do not know if that has done it. From what I understand, on some of our products to the States, I know we lose lumber to Sweden, and areas like that to Japan. Our facilities supply 50 per cent of the market in Japan for lumber. One of their big things is other offshore lumber supplies. I think we have lost market to them more so than, say, to Tacoma or Seattle. Every strike, we ship to Tacoma, Seattle and Portland, but the forest products and stuff, I think they come from other places and other markets.
Mr. Cowan: The buyer has the option of buying Canadian or buying pulp, let us say, from Brazil, metals from Australia and finished woods from Northern Scandinavia, so buyers have competitive options out there. The reality is, our workers are good. We have produced excellent products but cannot get them to markets in a timely manner.
Mr. Ouellette: We are not reliable.
Mr. Hanson: Not reliable.
The Chairman: I wish to thank you all for your presence here today. We have learned a lot from you and I think it will be important when we send our report to government around June. We have a lot to write about.
Mr. Ouellette: We appreciate the opportunity.
The committee adjourned.