Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 9 - Evidence - March 14, 2007 - Morning meeting


VANCOUVER, Wednesday, March 14, 2007

The Standing Senate Committee on Transportation and Communications met this day at 9:02 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: This morning we have the pleasure of having Cliff Stewart, who is from DP World Vancouver. From TSI Terminal Systems Incorporated, we have Morley Strachan.

Welcome, gentlemen, to our committee. We will hear your presentation and senators will ask you questions.

Cliff Stewart, Vice-President, Operations, DP World Vancouver: Thank you, Madam Chairman. This morning, I thought I would give you what I call Container Terminals 101 to explain what a container terminal is, and what it does. It seems obvious, but, as ever, the devil is in the details, and it is often in the details that the infrastructure of container movement succeeds or fails.

First of all, some of the jargon: A 20-foot equivalent unit, TEU, is how the shipping lines and the railroads are paid.

A move, a lift, or a throughput, which is the service of lifting a container on or off an ocean-going vessel, is how the terminal is paid.

Demurrage is a charge for storing a container after the free time. Free time is the normal time it takes a container to transit on or off a marine terminal before demurrage applies.

A reefer is a refrigerated container.

Rail footage, which is how the railways speak of their business, translates roughly in Western Canada for CN to about 18 feet of rail footage per TEU and for CP to about 20 feet, which makes it easy to calculate; a 6,000-foot CP train has about 300 TEUs.

The average container for Centerm, my terminal, is between 1.7 TEUs and 1.75 TEUs: About 80 per cent of our containers are 40-foot containers and about 20 per cent are 20-foot containers, and that average is highly variable around the world. A terminal operator in Asia would have a much higher percentage of 20-foot containers, sometimes as much as 50 per cent or even 60 per cent.

Another term you will run into is Panamax, which is the size of ship, the largest size of ship that can fit through the Panama Canal. Most container ships in the trans-Pacific service now are called post-Panamax. Historically, in Vancouver ships have a capacity in the range of 4,000 to 5,000 TEUs. We are now seeing those ships move out of this service, and they are being replaced by larger ships in the range of 8,500 and even 10,000 TEUs.

There are bigger ships out there called super-post-Panamax ships. The largest in the world now is a vessel called the Emma Maersk, which has a capacity of about 12,000 TEUs. Generally, the length of the vessel varies, but the width also varies. A Panamax vessel would be probably 14 containers wide, maybe up to 16. A post-Panamax vessel would be 17 containers wide and the super-post-Panamax vessels up to 22 containers wide.

What exactly does an ocean container terminal do? We discharge laden and empty containers from the vessel. We load laden and empty containers to the vessel. We deliver import containers to truck or rail, and we receive export containers from truck or rail. We deliver empty containers from rail to truck, and that point is important to remember because delivering from rail to truck has nothing to do with ocean carriage.

We provide power for reefer containers. Primarily, we provide the throughput, not storage, of containers, and that point is important because, all other factors being equal, the ultimate capacity of a marine container terminal is inversely proportional to the dwell days. In other words, if a terminal has an average dwell of containers of five days and it reduces that dwell to two-and-a-half days the terminal has doubled the capacity of that infrastructure. I believe the committee is interested in infrastructure and port infrastructure can be increased in several ways: It can be built, which is expensive and increasingly difficult in these times of extreme environmental scrutiny, or it can be operated more efficiently. Fundamentally, increased efficiency has been the focus of the terminals here in Vancouver for a number of years. About five or six years ago, the Port of Vancouver advertised that it had about 1.6 million TEUs of terminaling capacity. Last year, those same terminals moved 2.2 million TEUs. Although we have now done some work to increase our capacity, the capacity did not come online until the end of the year. Therefore, capacity is highly variable depending on how it is operated. Historically in Vancouver, we had lots of terminaling capacity chasing rather less custom, so what tended to happen was that, to attract customers, we offered all sorts of incentives. When Morley Strachan and I started in this business, we stored containers for up to 30 days for certain types of customers, particularly tire importers. Over the past ten years or so, as the business has grown, those types of capabilities have disappeared. What was once the buffer, if you will, in the transportation system, the marine terminal, has ceased to be able to provide that function. If you think of container transportation from, in this case Asia to North America or North America to Asia, it is like a pipeline in that what is put in one end can only come out the other end at the rate of the slowest part of the system, unless there is some buffer. Historically, we have been that buffer here in Vancouver. We are no longer able to provide that service, and that inability is showing up the cracks and kinks in the rest of the infrastructure, both on the ocean carrier side and on the land side, particularly in the rail service.

It is also important to note that while about 70 per cent of the containers arriving in Vancouver by ocean leave directly from marine terminals by rail, of the other 30 per cent that leave the marine terminal by truck, ultimately about 90 per cent or more of that 30 per cent leaves the region by rail. Cargo is transloaded from 40-foot marine containers into 53-foot domestic containers. We load the cargo into the larger containers because we can put two 53-foot containers on the same rail car that we can put two 40-foot containers but the two 53-foot containers will hold the capacity of three 40-foot marine containers. The rail freight cost goes down by a third. Conversely, those three 40-foot marine containers may be transloaded back into themselves so that instead of having a container full of beach balls and a container full of pianos and a container full of bathing suits, we end up with three containers, each with a third of those three items, and they can then be sent perhaps to Edmonton, to Montreal and to Toronto with no further handling.

The key issue is that somewhere north of 95 per cent of imports leaves the region by rail. Conversely, on the export side, while for my terminal about 16 per cent of the total throughput is exports that arrive by rail and a further 22 per cent of my throughput is exports that arrive by truck, for exports that are loaded here in Vancouver that arrive at the marine terminal by truck, virtually all the commodities in those containers arrive in Vancouver by rail because virtually none of those commodities are produced in Vancouver.

That is a long and roundabout way of saying that the most important piece of infrastructure in a marine terminal operation is the railroad.

What is new at Centerm, my terminal: We now have a capacity of about 750,000 TEUs to 800,000 TEUs, or about 435,000 lifts. That capacity has more than doubled since 2005, and I will speak about that in a moment. We now have 16 rubber-tired gantry, RTG, cranes. We have 2,400 metres of rail pad tracks, tracks where we can load and discharge the rail cars. That number is up from about 800 metres in 2005. We have 550 plug points for refrigerated containers. We have five container cranes: two super-post- Panamax and three post-Panamax. We have two berths with a total length of 645 metres with greater than 15-and-a-half-metres draft. We are deploying optical character recognition technology at our truck gates to speed the flow of trucks in and out of the terminal. We now operate 13 hours a day, five days a week on the truck gate to increase the available trucking capacity. We are also proud to be the first terminal outside the Middle East to be certified by Lloyd's Register as ISO 28000 for supply chain security. I am sure you will have lots of questions about security. It is one of the coming important issues in container transportation.

What is coming: We are in the final stages of placing an order for a sixth super-post-Panamax crane and three additional RTG cranes. We will deploy optical character recognition technology to speed up and enhance the processing of rail and vessel side, on the cranes. We will install real-time reefer monitoring. In co-operation with the Canada Border Services Agency, CBSA, we will install shortly radiation-scanning portals so that a hundred per cent of inbound containers will be scanned for illicit radiation at the time that they arrive on the terminal.

What are the challenges facing the industry here in Vancouver and by extension across the country? Before I go into that, it is important to understand that people think of containers and consumer goods coming from Asia but, in fact, one of the largest single commodity groups passing through Vancouver in containers is what are called completely knocked down, CKD, auto parts: auto parts that feed the manufacturing heartland in Ontario. You may remember that during the CN strike last month, Ford shut down because the containers with the parts they wanted to assemble were sitting on the docks in Vancouver. We are handling not simply consumer goods for retailers, but we also feed the heart of the manufacturing industry.

What are the challenges? One challenge is off-site storage capacity for both empty and laden containers. I spoke earlier about the buffer in the system that we can no longer provide. Greater Vancouver is a constrained region; we have the ocean on one side, the mountains on another, the United States border on the third and the Agricultural Land Reserve spreading east to the mountains. Finding places to store these containers is difficult. There are 22 municipalities in the region, none of which believes that their core function is to provide the national transportation network. Creating container parks is it not a popular thing to do anywhere. Without those off-site facilities, we simply cease to be able to grow the capacity of the container transportation network.

Local and regional rail capacity is a problem. We are discovering now that the reliability of the rail network between here and Eastern Canada is also a problem. Rail car supply is a problem. Although the railways tell us that they have lots of cars, Morley and I will be make the point that those cars are of no use to us if they are somewhere other than Vancouver.

People: This business is set to triple in size over the next six to ten years. We have entered a period when something like one new applicant chases 2.6 jobs that become vacant because of retirements. Recruiting, training and keeping the people that we need to run this industry will be a challenge.

Changing cargo make-up: Vancouver historically has been unique in the world in that imports and exports were balanced, but as more and more imports come from Asia, more and more empty containers are exported to Asia and that begins to change the dynamic of how the business operates.

That is all I have prepared for remarks and I am prepared to answer questions.

Morley Strachan, Vice-President, Operations and Business Development, TSI Terminal Systems Inc.: Good morning Madam Chairman and distinguished Senate committee members. I hope I do not repeat too many statistics and figures that Cliff Stewart has presented, but that generally gives you an overview of Container Terminals 101.

I emphasize again that we compete in a world marketplace, both of us. We welcome the business coming through here and the challenges of handling import and export business internationally. We believe that we are a door to the gateway. I say a door because, unfortunately, when things do not go well, the door can shut, either through pressures from the ocean carriers bringing in more than we can handle, which happens sometimes, or because the drain, the take- away, which is the railroads or truckers, are not there to help us. We become not only the gateway door but we also become the lock if things do not flow fluidly. You will hear the word ``fluid'' in almost all the transportation and supply chain comments because fluid is what makes things move. When anything in the system breaks and we are not fluid, we jam up quickly, which you probably read about in the newspapers locally.

Let me digress and go back a little bit. We are part of the pipeline, as Cliff Stewart mentioned. I mentioned the word gateway. It is all part of a supply chain. When the supply chain works, it works well, but if there is a weak link or a link breaks, the whole chain fails. That is what we are concerned with. We think we are part of a strong potential chain. However, there are weak links and the weak links show that we are failing and that has become unacceptable to the international trade and domestic trade that we both are working on.

I wan to give a little background on TSI because I think it is relevant to know that there are changes. We were recently bought by Ontario Teachers' Pension Fund in the New Year. The holding company is now called Global Container Terminals Inc., GCT. It has four terminals under its wings, two of which belong to TSI — we have not changed our local names yet but that will probably happen. TSI has two terminals. Deltaport is located at Robert's Bank. It is our gem, but, unfortunately, it is also a bit tarnished now with the infrastructure breakdowns we have seen. The other terminal is Vanterm in the inner harbour adjacent to Cliff Stewart's facility. We also have two terminals in New York and New Jersey, so we will now operate the four terminals as one company, looking for synergies and gateway opportunities on the East Coast and West Coast. That information is important later when we talk about what the ocean carriers have as decision-making modules of where they put their freight, and where we, as a company, invest our money.

Over the last few years, TSI has invested hundreds of millions of dollars in infrastructure to operate and expand those two terminals. We are embarking on an expansion of $150 million for a third berth project at Deltaport, which has been seven years in the planning, and started construction in January. One of the dilemmas we have is how long it takes projects to go from the drawing board to fruition.

We are committed to this gateway but, as Cliff mentioned, we also rely on the railroads as a lifeline. The economic impact: I am not sure if the Vancouver Port Authority and the Fraser River Port Authority told you about the economic impact of container trade but it is significant. For TSI alone, the economic impact is $150 per container, in our payroll and benefits packages to our employees. I think the figure I heard from the Vancouver Port Authority, VPA, is in excess of $1500 to $1700 of economic cascade downstream effect to the other economic benefits of Canada.

Of the 2.2 million TEUs of terminal capacity that Cliff mentioned, TSI handles in excess of 1.7 million TEUs so we are the predominant container handler. With Cliff's expansion projects at DP World Vancouver, his percentage will grow. Our next expansion growth, a third berth, will not be completed till late 2009 and that expansion will take our facility to a capability of another 30 per cent, 40 per cent or 50 per cent.

I will give you two last figures. Vanterm completed an expansion last year taking the capacity from 500,000 TEUs to 850,000 TEUs, and we are currently at that maximum right now. Deltaport was technically at 850,000 TEUs. We have been operating over capacity for the last two years and, in 2006, we exceeded 1 million TEUs at that facility without any real pains until this current infrastructure dilemma. With the third berth, we think we can approach 2 million TEUs at Deltaport, so we have significant plans. Our challenge is what happens between now and 2009 for both the inner harbour, the external harbour and for Vancouver and the Pacific Gateway projects that both the federal and provincial governments have on plan.

I want to commend both the federal and provincial governments for the injection of funds and the support of the Pacific Gateway initiative. It has been substantial and I think it is leading-edge in terms of showing support jointly by two government factions. The support allows the private sector to bring our expansion plans to fruition, keeping our fluidity.

Cliff provided a good explanation of the imbalance in the influx of the imports versus the exports and that imbalance will always be a dilemma but that Pacific Gateway initiative is extremely vital to our continued growth. Unfortunately, that initiative is a little ways off but it is a start.

We also support the recommendations that have been made regarding the Canada Marine Act and the Canada Transportation Act. We would like to see those recommendations enacted. We think they give strength and flexibility to the private sector and to these projects to continue, and we think they should be implemented rapidly rather than delaying them any further.

I want to mention again the group of terminals I talked about with respect to the global container terminals that we rely on. The supply chains and the world trade that we are involved in are global and therefore fluid. Those ships are not locked into any one port, and that is our concern. We need to show that the ports we operate can maintain the fluidity. They can support the visits from the federal and provincial ministers supporting the gateway but as I mentioned at the outset, and you probably heard recently from other players including Cliff Stewart, we are concerned that that supply chain has some weak links. Cliff mentioned possible alternatives, off-dock terminals, to keep it going. The current railroad situation is exacerbated by the weather. However, no contingencies were in place before the weather happened. That situation demonstrates to us again a concern that if no contingencies are in place for the supply chain, it may be an expensive cost to the system but I think the system is prepared. I am talking about the ocean carriers and the terminals. The railroads must realize that if they want to play in this trade, they need to build in some cost to maintain fluidity because the ocean carriers will find alternative ports to go to if this one does not work. I think carriers are prepared to pay a higher cost of accessing this corridor as long as the port works. Again, contingency plans did not seem to be in place for any glitches. Similarly, we are concerned as to what the future is for that infrastructure: if that infrastructure is robust enough to continue growth, let alone get us out of our current jam. There are two issues here: contingency to get out of our current situation, and contingencies or growth plans of infrastructure changes, whether they are at the terminal, off-dock hubs on the inland sections, rail hubs, intermodal transport facilities, additional rail track and additional rail storage areas. If those changes do not become a reality, we will continue to be seen by the overseas world trade as a somewhat unreliable, unpredictable gateway, and that is not how we want to be seen.

Environmentally, we have been conscious of making our terminals clean and of operating them efficiently. We work on using new technology and new fuels to reduce emissions. We are conscious of that in everything we do at both our sites and I am sure Cliff has a similar goal. We are trying to be upfront in keeping anything we do environmentally friendly or leading-edge. We have looked at equipment types, new technology that has never been used before but that we feel is environmentally responsible.

I think I have covered most of that issue. We are probably open to questions now.

The Chairman: My first question is for Mr. Stewart. Asian ports have the ability to establish brand new ports using the most modern features. Canada is working with older ports that need to be upgraded, and some countries can leap forward with the benefit of new technology. Labour and work practices at Asian ports are not at the same standards as Canada. The most productive ports tend to operate 24 hours a day. Can we achieve a similar level of performance for Canadian ports?

Mr. Stewart: Absolutely.

The Chair: Do we have the labour force?

Mr. Stewart: The project that we recently completed at Centerm is a great example. We have doubled the capacity of that terminal but we have not changed the size of the footprint at all. We accomplished that by deploying the latest technology. Notwithstanding some unusual practices, I would stack up the labour in Canada against labour anywhere in the world. One challenge we have faced historically is that the business has tended to ebb and flow. As in anything, people become good at what they do when they do it every day. Now, we are seeing that opportunity for people to work five days a week, 52 weeks a year, and we are starting to see the kinds of productivities we see at terminals in Asia. It is always important to remember that the vast majority of big terminals in Asia are what are called transshipment terminals, and they count every container twice. They count it once when they take it off the ship and they count it again when they put it back on the ship. Our terminals are origin and destination terminals, so the container comes off the ship and goes somewhere, or comes from somewhere and goes on a ship. We count it only once. The terminal I operate now is approaching the kind of numbers that Morley Strachan already sees at Deltaport and Vanterm. Those terminals are in the range of 10,000 TEUs per acre, which compares favourably with the 20,000 TEUs per acre that we see in Asian transshipment terminals. Where we will always struggle is in the large ports in Asia. What tends to happen is that a large ship comes in, comes alongside and they put four, five or six cranes on. They empty everything out of a given hold and then they fill it all back in again, so the crane may sit in the same place for a day or two. It is an efficient operation. Vancouver tends to be what I call a topping-off port. The same ship may come in and we may move a quarter of what is on the ship but we do it from every hatch and hold, and so we are moving all over the ship rather than sitting in one place. That movement has a huge impact on productivity, there is no question.

I mentioned earlier that the challenge is finding, training and keeping labour. The employers' association here in Vancouver has been working with the unions in the last couple of years to make that challenge a key focus.

It is important to remember that the overall employment on the waterfront in Vancouver declined from 1973 until about three years ago. It declined for nearly 30 years, and in the last three years, it has increased back to the levels of 1973. All of that growth has been because of the growth in containers. Probably a third of the workforce in the container handling sector has been in the business for three years or less. As those new hires gain experience, we are seeing the increase in productivities that we need to see here. In terms of deploying technology, none of the players here are afraid to deploy the technology. We recently spent $150 million. We have another $30 million worth of equipment either on order or about to be on order so technology is not an issue.

The Chairman: Container ports will attract large ships if they can process them quickly. We are told that shipping lines only make money when their vessels are at sea. To be more competitive, terminal operators try to minimize waiting because it is expensive. Is a one- or two-day wait an unusual circumstance, and what are the main recent technological developments to help ports process large ships more rapidly? Any one of you can answer.

Mr. Strachan: Do you mind if Cliff and I trade off on these questions because some answers may be similar and some may be different. As Cliff says, we are proud of our labour. They do a good job. The circumstances of working the ships here are different than in Asia, as Cliff has described. However, we are proud of the fact that we keep the ships on consistent schedules. Our schedules are precise. The ship lines have targeted days that they arrive every week at that terminal. Let us say it is Tuesday. A certain shipper comes in, and I expect that shipper back here next Tuesday and the following Tuesday. They are regulated, as you correctly indicated. What they call vessel service integrity is absolutely paramount to the ocean carriers. They want to ensure vessel service integrity at all ports so it does not jeopardize the rotation of the carrier to the various ports. I am proud to say in both terminals we turn those ships in an expeditious manner. What we have encountered lately, because of the infrastructure breakdown at Deltaport, we are delaying the ships by five to seven days. The carriers are sitting there five to seven days. Vanterm has now started to delay their ships by two to three days. That delay is absolute hell for ocean carriers. The reason is congestion. I will use only this one analogy about the sink syndrome, where the tap is on and that is the imports coming in. The terminal is the sink, and the drain is the railroads or any other combination that takes the freight away. If the drain is not large enough to keep the sink fluid, eventually we start to overflow. The tap keeps running and that is exactly what we face right now until someone builds a bigger drain, opens that drain up or we turn the tap off. That is our concern. The delays are caused only by those issues that are terminal-related and that allow congestion. If we cannot move the product through, we cannot take the product off the ship. Similarly, we probably cannot even load it on the ship on time. The technology that we are employing is basically planning the terminal out. Deltaport is switching to a new terminal operating system designed exactly to let the computer tell our equipment where the next most productive move is for people and equipment, rather than have people only in one area of the terminal focusing on that little section of the terminal, and not knowing there is a better use of equipment somewhere else. We found the technology to beneficial. The concept is that humans are good but sometimes the computer can work faster with the equipment's messaging and allow that equipment to be used always in the most productive manner. That concept applies from the dock gantry crane that works the ship to what they call bomb carts or tractor trailers that supply the crane with the chassis either to receive the container off the ship or deliver the container to the crane to put on the ship. The absolute paramount thing is to keep that crane in constant motion in the most productive manner even though, as Cliff says, we have to bounce around the ship. The whole terminal must be fluid to keep going. I do not know if you want to add to that, Cliff.

Mr. Stewart: I think the other thing to talk about in technology is cranes. The equipment we deployed in Vancouver was state of the art when we ordered it three years ago. Morley has the same type of equipment: what we call twin-lift- capable cranes. They are capable of loading two loaded 20-foot containers for a total potential weight of 62 tonnes. However, the crane business marches on quickly. The state of the art now is what is called quad-lift, which lifts four 20- foot containers or two 40-foot containers. A crane has about a 20-year life. One challenge is looking in the crystal ball when we order a piece of equipment with a 20-year life, figure out what has not been invented yet, then order it and deploy it. When building a new terminal from scratch, as they have done at the new terminal in Shanghai, they have the ability to order the latest and greatest. We need to fit the equipment to the terminal we have and I will give you a good example. The standard gauge for cranes now is between 100 feet and 120 feet; in other words, the distance between the front rail and the back rail that the crane sits on. When we ordered our last two cranes, we had three cranes already on the dock and they were 80-foot gauge. We needed to make the decision whether to convert those cranes to 100-foot and buy new cranes at 100-foot, or find a good design to work with a twin-20-lift with an 80-foot gauge, which is what we ended up choosing. That decision does not make us less efficient. It does not make us less able to compete.

The Chairman: Officials from Transport Canada told this committee that a number of initiatives are under way to track containers and even their contents. Currently, there is no integrated system to track containers across different shipping companies or transportation modes in Canada. What can be done to solve the lack of integration on a short- term basis?

Mr. Stewart: Ultimately, we need to ask the question, why do we want to track the container? The reason I say that is, we can have good visibility of where a container is, given that the majority of containers move from ocean carriers to terminals to railroads. If the container is on the ocean carrier, we know where it is because we know where the vessel is. If it is on the marine terminal, we know where it is because we have excellent visibility through our operating system where the container is on the terminal. If the container is on the railroad, we have excellent visibility as to where it is because the railroads have car readers located across the country and can tell us with good precision where that container is. The question of that visibility is really one of integration: what I would call back-office integration. The issue is really a software issue. The question is, why do we need to know and who wants to pay the cost of making those systems talk together? If the issue is security, we should catch that problem before it ever gets into the country. If not, then we should catch it right at the docks, which is where, for example, the radiation portal program is going. We have good visibility now of the containers coming at us on the railroads, and our customers do as well.

The Chairman: Do you want to add something, Senator Tkachuk?

Senator Tkachuk: Yesterday, witnesses from the West Coast Container Freight Handlers Association talked about the problem of exports. They were not able to move product out of their place into your place onto a ship. That problem was becoming serious, and perhaps your concentration was more on the imports rather than the exports. I am not sure if they said that but that is what I concluded. My conclusion may be wrong, but I will ask you to comment on that and what their issues were.

Mr. Strachan: I will take this one because I think our terminal caused that issue. Our contracted customers, the customers that pay us, are the ocean carriers, so we are guided by some of their desires. We also are a tenant of the Vancouver Port Authority so we have to abide by their wishes. In this case, the exports you refer to are the export truck local market: The export rail market is continuing. I will spend a few seconds giving you a little bit of history to give you an appreciation of how we came to that decision and what happened. Deltaport started to melt down, if you will, on November 10 of last year and it is still in meltdown mode for a variety of reasons, mostly weather-related. I mentioned to you the reason we are not out of that situation is there have been no contingencies and no way to work through the backlog. The backlog continues while the new volumes continue to come. The railroads take away what they can in a small overflow, digging into backlog, but as that became more and more impeded —

Senator Tkachuk: I do not mean to break your train of thought but as you explain, can you be more specific on the backlog because I do not know what you are talking about — weather, et cetera. Then, follow through with the rest of the story.

Mr. Strachan: Okay, fine: The ships come in with a certain amount of import cargo and we know what that is. We also have a daily rail-handling capability and daily terminal-handling capability. That is historical, we know what our capacities are, and both CP and CN supply the rail to meet the demand. As a local market, that is not an issue. The capacity for local market truck is not an issue because we have what we call extended gates, late night gates or speed gates. Typically, a truck gate opens at seven in the morning and closes at five o'clock at night so we still have the evening and midnight that we can work the truck gate if we take the cargo to warehouses that are open 24 hours. Both our terminals work 24 hours a day, seven days a week, 360 days a year. The only ones that do not are the truck gates, truckers. We do not have a capacity issue with trucks, typically. Again, the issue is making sure the rail comes in and out. When the imports come in, let us say at a thousand moves, and the rail supplies 800, there are 200 deficient and that creates a backlog. If that happens every day, the backlog builds up and eventually we hit a capacity breakup. I have changed the numbers to make it simple but that is what happens.

The railroads like to be balanced both ways and, as Cliff mentioned, that balance is not happening because there are not enough exports to meet the import demands. We have an imbalance. The terminals do not really care about that balance. It does not matter to us because we only load the ship off and on. The railroads care but they seem to focus on balance, and we are stuck with the imbalance of what is over and above the rail car supply to meet the import. I know that all the rail carriers work together to meet that demand but there is that mismatch between the supply of rail cars and the import demand. Over time, that imbalance in what is left on the dock and what is taken away is the sink syndrome that I mentioned. Then, we need to make some decisions so the terminal can at least stay open and try to service the ships that are already starting to be delayed. It is now March, and Deltaport started that on November 10. The ships starting idling: we would hold them at berth or have them at anchor in the harbour until we created space on the dock so we could allow that ship in. Even when we started on that ship, we would only put one or two gangs on it instead of three or four gangs, while the terminal was slowly being depleted and we were making space. Then we can allow space to come on from the ship. That is the import side. The export side is the reverse.

When Vanterm started to melt down as a result of CP's weather issues, we did not have the luxury of building up the backlog slowly. The situation went quickly from lukewarm, warm, to white hot in a short period of time. We had a conference call with our ocean carriers, the railroads and the Vancouver Port Authority and said, we know what happened at Deltaport and the realities of what happened at Deltaport. We gave the carriers a choice: we could idle their ships or — and we took a risk on this one — we could shut off their export truck for a short period of time until the rail catches up to allow that space to keep going. We did not want to cut off the rail export because we need the rail car to take the imports. It was a matter of, if we shut off one leg we do not have that opportunity to offload the ship. Some of the ocean carriers call at both terminals. They said we do not want to go through hell at Deltaport with our ships — going back to the point about the importance of the service integrity of the ships — so we will take the export shutdown for a period of a week or so. We thought it would take a one-week shutdown at Vanterm of shutting off the truck exports. Unfortunately, with the continued weather, we became jammed. We were never able to open up truck exports again, and we ended up keeping the truck exports shut off locally at Vanterm. On top of that, we started idling ships. It is not a decision we are proud of. We took a risk based on promises that we would get car supply and it never happened.

Senator Tkachuk: What happens — I am still not sure — is that the railroads decide how large a train they bring in by the amount of exports they have filled into their containers. They bring the train to the West Coast and they unload it. What they are trying to do is match the amount of exports that they bring in, the number of containers, with the imports they take out?

Mr. Strachan: Yes, either they start from the export side or they start from the import side. They want balance moved both ways. They do not want to move empty cars.

Senator Tkachuk: They do not approach it the other way around by filling up the imports and then working hard to fill up the exports, as they move across the country.

Mr. Strachan: No, they are an origin-destination kind of operation. When the train leaves here and goes to Toronto they want to start in Toronto and go all the way back to Vancouver without picking up exports along the way. They want to originate, if possible, in Toronto because that is where the last car was sent to. I think Cliff mentioned that there is an increase in export of empty containers to take back to the Orient to pick up those valuable imports. The railroad does not care if the container is empty or loaded. It is paid for putting something on that rail car. The railways do not want to send an empty car across the country. That is the dilemma. It costs them money or whatever to send us an empty rail car to meet that imbalance to import.

Senator Tkachuk: That is why we, in the Prairies, suffer for a lack of containers and a lack of rail cars, according to our exporters. That is what they are complaining about.

Mr. Strachan: I would say yes. There are two reasons. One reason is the cost of repositioning: someone chooses not to pay that cost. I think you will find a growing trend here that the ocean carrier does not want to bother with this railway hassle. They would rather dump the freight in our port, move it to a local deconsolidated or transfer facility and give it to somebody else to take the contents out of that container. Move the container by the consignee and not by the ocean carrier. I see that as a growing trend. Some of the ocean carriers say they do not want to go from Shanghai to Toronto. They want to go from Shanghai to Vancouver and let someone else take care of it. On the Prairies, the repositioning question is, how do they relocate that container to you, then have it reloaded and back on the railroad? That does not happen necessarily — the train will pick up in Saskatoon or Winnipeg, but they prefer to go on a direct line and, as much as possible, to minimize switching. It becomes either the railroad's choice to reroute it at their cost or the ocean carrier's to pay for that cost. The third thing that is part of this economics is the value of the commodity they are picking up. The ocean carrier may say they only receive $300 for that container to go all the way from there to Shanghai, they have incurred all these costs to reposition it and they spent $600 to pick it up. They would rather send that empty container back on the rail car to the port on the ship, send it to Shanghai and bring over a $2,000 import load.

Senator Tkachuk: As a prairie boy, I can blame the railroads and I can blame Toronto. If I could find a way to blame the banks, I would have a perfect political platform.

Mr. Stewart: To reinforce what Morley said, it is critical to understand that exports in containers are subsidized by the imports. As soon as the cost of handling that export exceeds the value of the subsidy, then they will not be available. It is something that the West Coast Container Freight Handlers Association does not like to hear but that is the reality. Morley said $2,000. I think he was being a little conservative. I think it is more like $3,000 to go from Shanghai to Vancouver. If that stop in the Prairies takes that container from, say, six round trips a year with six $2,000 legs going eastbound and drops it to five, then not only have they lost money on the stop in Saskatoon, they have also lost the opportunity to make another $2,000 eastbound trip. That is the reality of the economics.

Senator Tkachuk: I am not sure if Mr. Stewart or Mr. Strachan mentioned that people living here may not find the idea that pleasing of an inland terminal piling up all kinds of containers. We will not have that problem in the Prairies, even though we can see it from 500 miles away. Yesterday, we had a group from Saskatchewan who talked about a smart terminal focused around Moose Jaw, Regina and Saskatoon that would provide an inland terminal in the Prairies. Do you think that is workable or even practical? Do you think that would help the system or hurt the system?

Mr. Stewart: There are a couple of issues. You are probably talking about agricultural exports. Agricultural exports go in what are called high-capacity 20-foot containers. In other words, they can use a 20-foot container: they do not need a 40-footer. That business was growing significantly until a couple of years ago. Looking for an average weight on the rail car and average weight on the train, a double-stacked container train can have two 20-foot containers on the bottom or a 40-foot container on the bottom but it can have only a 40-foot container on top. If they have high-cap 20s full of agricultural products on the bottom of every car and they do not have any market for 40s to cap them off with, then either they must stop the train from Toronto or Montreal, take all the boxes off and reload them, or they must send them with only the high-cap 20s on the bottom. The railroad has a problem because it slows their velocity dramatically and increases their costs.

The second problem is that CN started to see significant increases in the rail infrastructure maintenance costs in both the rails and the cars themselves. They realized they had a problem putting on all these high-cap 20s. They were wearing out the railroad. For that reason, they put a weight capacity limitation on 20-foot containers from the Prairies. They now have the problem that they cannot fill the container on the Prairies. They can partially fill it, and then bring it to Vancouver to top it off. As soon as that limitation went into place, the business of loading high-cap 20s on the Prairies died and I do not see an easy way around that problem. That is why grain comes to the coast in hopper cars and then it is transshipped into containers.

Mr. Strachan: One last thing on the local truck export, I did not want to say the local truck exports in Vancouver have been excluded. They have the other option. Those exporters can book with an ocean carrier that happens to call at Vanterm. There is nothing to preclude that container from going onto ships that call at Centerm, Deltaport or even Seattle. This option means only that someone would pay more than they would normally if they went to their first terminal of choice.

Senator Zimmer: Thank you for your presentation, gentlemen. My question is the area of storage, Mr. Stewart. We are warehousing now, so we always talk about capacity. I imagine a company such as Wal-Mart in Winnipeg would be pleased to use your capacity as storage. The reason is that they are delighted to get the product into the coast and into the country but if their warehousing in Winnipeg is full, do they use your storage or your capacity as warehousing so that they do not have to bring it in right away because they do not have the space, or is the issue of capacity a non- starter? My question is, do they use your storage or warehousing as a place to keep their product until they need it, and then within a day or two they can get the product quickly?

Mr. Stewart: No, in fact, Wal-Mart is an interesting example. Wal-Mart has a key performance indicator, KPI, of getting the containers off the dock within 24 hours. They will pay to work on weekends so they can take the product off the ship and off the dock and put it onto the rail cars as quickly as possible.

Senator Zimmer: The second part of that question is, do you use your capacity or your warehousing as a revenue generator for storage or is it too much of a waste that way and you would never use your capacity to charge storage? As storage goes on through a month, do your rates go higher in direct proportion?

Mr. Stewart: Yes, we would prefer not to earn anything from demurrage and the demurrage rates rise. We still have five free days. I think Morley Strachan has three free days. After five days it goes to $25 per TEU per day. After another five days it goes to $50 per TEU per day and five days after that it goes to $100 per TEU per day.

Senator Zimmer: It is in direct proportion?

Mr. Stewart: It is in direct proportion. Virtually nothing is there 30 days. If something is there for 30 days, it is because somebody has abandoned a cargo, which is infrequent. Before the railways started to melt down, our average dwell on import rail was under two days. That meant that a ship came in, dumped a thousand containers and those containers were all gone in less than four days. The average was under two days.

Senator Zimmer: Your turnaround is within two days?

Mr. Stewart: Yes.

Senator Zimmer: In the report that we were provided, you stated also that you are the only transport logistic company in the world to win certification in the international standard for security management systems and operation from Lloyd's Register Quality Assurance. Why are you the only one, is it because the standards are so high? Secondly, other than the obvious, what advantages does that give you?

Mr. Stewart: I think we are the only ones so far because the standard is new. It is something that Dubai Ports World has made a priority. I think, unfairly, when Dubai Ports World purchased P & O last year, the American political system jumped on an opportunity to savage itself and chose to use Dubai Ports World as the implement of that savaging. Dubai Ports World has said that because the perception is that they are a security risk, they will do everything possible to dispel that perception. One of those things is to be the first and best on anything to do with security.

Senator Zimmer: Your company has reported they want to invest in new warehousing and distribution operations to support the terminal, but also reported they are scouting opportunities to invest in hotels, marinas, condos, and ``villas'' — I am not sure what that means. In your long-term plan, what is the interrelationship between shipping and the hotel, marine and condo business?

Mr. Stewart: Dubai Ports World is one of about 200 companies whose parent company is called Dubai World. You probably know them through their real estate division, Nakheel, that built the Palm Islands in Dubai.

Senator Zimmer: Is that the one with the helipad where Tiger Woods shot golf balls off of?

Mr. Stewart: That is right there, yes. Our parent company would be called a Crown corporation in Canada. It also has the customs and the port authority operations in Dubai but its operations internationally are strictly as a commercial operator. I was at the meeting where the chairman said those things. He is the chairman of the whole show.

Senator Zimmer: I must tell, if I do get there, he offered to allow me to shoot golf balls from that helipad.

Senator Mercer: You mentioned that the dwell time was two days?

Mr. Stewart: That was before the railroad meltdown.

Senator Mercer: That is when the ships at dockside unloaded. What is the average stay for the ship in the stream at anchor?

Mr. Stewart: Our ships do not go to anchor.

Senator Mercer: None?

Mr. Stewart: None: I think there has been maybe one in the last year because of another ship that was off schedule. I am talking about my terminal. Remember, Morley's terminal is in crisis mode. It is in post-disaster recovery.

Senator Mercer: I can appreciate that.

Mr. Stewart: That disaster was not of his making.

Senator Mercer: We are trying to find out whose making it is but I think we know to a certain extent. Neither one of you has said it specifically but you have hinted at it. Mr. Strachan, how long do ships sit at anchor? When I flew in Sunday night, I counted ten ships sitting in the stream. I do not know if they were all container ships. I could not tell from the air.

Mr. Strachan: I doubt they were all container ships. There are a lot of grain, log and lumber ships out there but are you asking currently or typically?

Senator Mercer: Let us do the comparison so we will know how bad the problem is now.

Mr. Strachan: When a ship is on its berth, the berth window may be that they want to come in on Tuesday, work all night and all day and leave on Thursday morning. Some carriers may come in on Tuesday and leave Tuesday night, so we have different sizes of carriers out there for 24 hours, 72 hours or whatever. We are proud of the fact that we say, and we even publish documents, here is their berth window, and they can go to the bank with that. Typically those ships arrive on that day, that hour and they leave any time in that window. That is the berth window. We have very few incidents where they have to sit anywhere. They return them quickly. Now, currently at Deltaport, we have some ships sitting there five to seven days. Some went to other ports because they could not wait for us any more. Some went to Cliff Stewart's place and some went to Fraser Surrey Docks. At Vanterm, the ships are waiting one or two days before they are started. Two things are happening. One, they have to go to anchor until the other ships leave. We are starting some ships today that came in last week but have not been able to go to the dock because other ships are already there and they have been delayed. There is the wide gamut to your answer.

Senator Mercer: Let us get to the point of the problem and the railroads are the problem. The ability of the railroads to move freight from Vancouver east, and then south or east and south is the problem. They say they have enough rail cars but you tell us they are not in the right place. I come from a province that makes rail cars. We want them to buy more but that is another issue and I am going to sell rail cars before we finish this study. You mentioned there is no contingency for weather delays. CN may be an international company but they were founded in this country. It snows here every year, and there are avalanches and rock slides every year in the Rockies. Are they brain-dead that they cannot figure out this will happen?

Mr. Strachan: This is the third year I have been through this issue and this is the worst it has ever been. Last year, the railroads said do not worry, TSI, there will not be winter this year, we have planned for it and we have contingencies. One contingency we are talking about is parking cars or rail trains in the Kamloops area so they can be within 24 hours of Vancouver. Curiously enough, neither railroad did that and with the first hit, there was no ability for the system to pick up the slack or no desire on the part of the railroad to supply empty cars because that is an expense to them. Both railroads are copying each other's models right now of having a finely tuned, balanced, A to B, B to A kind of system with no non-revenue moves. That means if they are not getting revenue for something, they will not move it unless somebody pays for it. Yes, they have lots of cars for the traffic, but not in the right place because that is a contingency issue, so we are in a backlog. When we are current, which we were until October, we were handling record volumes at both facilities, with the current car supply just meeting the imports and exports.

Senator Mercer: At this rate, no contingencies have been put in place. They have not lengthened the cars and they have not increased the frequency of trains so we will never catch up.

Mr. Strachan: I am bringing that up with the port today and I brought it up on the conference calls to the customers. We have been giving the customers updates on both terminals since November for Deltaport and since February 19 for Vanterm because I have two terminals. The Vanterm's customer base typically, for whatever reason, has chosen to be a CP: most of the cargo is CP, as is Cliff's. Most customers at Deltaport happen to be CN but both railroads are now in the same predicament. They have lots of cars but are they prepared? Yes, they have brought on some empty cars. They gave us one shot of empty cars here and there, 10,000 feet here and 20,000 feet there, but when we have 200,000 feet on the dock at Deltaport, it will take us several weeks to go through them. We need a significant, sustained empty car supply, not empty containers on a rail car, because that means we have to take it off and put in on a space somewhere. We are able to load twice as much per day if we have an empty car. That is not even rocket science. Unfortunately, it is a cost item for somebody and in that case it is the railroad who chooses to put that in. They have built in no contingency plans for anything that goes wrong on the railroad. I think Cliff might support me on that. If we have a weather storm, which happens every year, they hope to get back to normal within a couple of days, but when we have two or three weather storms, they do not have enough stock or they are not willing to bring it to us.

Senator Mercer: One area that you do have control over are labour relations in the port of Vancouver. We heard yesterday from some people talking about the reputation of the Port of Vancouver, the good and the bad. One of the bad raps that Vancouver takes is poor labour relations: frequent work stoppages due to labour unrest or lock-outs, whichever side caused it. I am not interested in who is at fault. I am more interested in what we do to alleviate future labour strife and to help improve the reputation because it is not only Vancouver's reputation, it is all our reputations. I am from the East Coast. If you have a bad reputation it hurts the Port of Halifax as well.

Mr. Stewart: At the risk of sounding facetious I do not think the Canada Labour Code has been changed to give the port operators control over tugboat operators, truckers, railroads or customs officials. Those people have been on strike in the last four or five years. The last longshore labour disruption was about eight years ago. You are right. The reputation of the Port of Vancouver is that it has labour problems. I agree that there are some problems but I do not think it is fair to say that we have control over the labour relations that cause them.

Senator Mercer: I do not suggest you do. It is the collective. We, as Canadians, have control over how we operate labour relations, whether it is at the railroad, at the port or whether it is truckers. However, it is a tremendous impediment to our continued growth if we have the reputation of labour unrest. One more thing on labour: One of you said that you were working 13 hours per day but I am not sure if that was trucking.

Mr. Stewart: That is trucking. The terminals operate 24 hours a days but the trucking business does not.

Senator Mercer: Why?

Mr. Stewart: One, they do not need to because there is sufficient capacity. Operating 13 hours a day is a 50 per cent increase from where we were operating two years ago.

Senator Mercer: Help me with this. We talked about a logjam of all these containers sitting on the dock.

Mr. Stewart: These containers are rail containers that need to leave here by rail to go to Toronto and Montreal.

Senator Mercer: Does that mean that any moving by truck are moved efficiently?

Mr. Stewart: Yes, there is no problem with that.

Senator Dawson: Earlier, you talked briefly about security and being recognized by Lloyd's. First, how much support did you receive from the government to reach that level of security recognition? If none, could regulations be changed to help you be in international competitive mode be better supported to attain those levels of security?

Mr. Stewart: One thing that the government has done well, in addition to the gateway initiative, is the Marine Transportation Security Clearance Program, which has provided a significant amount of infrastructure funding to assist terminal operators and port authorities to address security issues. Yes, the government has been supportive. I encourage the government to continue that program because we have discovered that security is never-ending and is always about being a slightly harder target than somebody else. To do that, we must improve continually. For example, something as simple as the fences that we installed four years ago, which were state of the art at that time, now do not meet what is considered to be the standard for fence height. I think the government can and should continue to participate in that area.

Senator Dawson: You said you reached the highest level possible. If there is a weak link because your neighbours or your competitors in the regional ports did not reach the same level, your security will be weakened by the fact that your neighbours are weakened, would it not? Should the government force your neighbours to be as secure as you are?

Mr. Stewart: I was not speaking so much of our neighbours here. I was speaking of neighbours elsewhere in the world but I agree with your position, I think that if there is ever an attack on a marine container terminal anywhere in the world, it will affect all of us and we encourage everybody, everywhere to make security an absolute priority.

Mr. Strachan: Can I comment on the security? Cliff's comments are absolutely correct. We complied quickly, even before a lot of American terminals and ports, with all the security regulations that were necessary because we knew that we had to stay in the game. Other initiatives embarked on by the government have created some concern operationally for us. They seem to be at cross-purposes with the objective of moving freight. I will not say it is not required and due diligence but I am talking specifically about security programs that seem to be at cross-purposes with trade. The most recent one is radiation portals. A decision was made somewhere in the government that we will inspect 100 per cent of everything off the ship as soon as possible, et cetera. That decision has created a lot of concern on all the terminals across Canada as to the potential congestion that it will create and the disruption on the terminal of trying to comply with all the requirements of the CBSA. The statement was made by someone that it is nice that Canada is following these programs and being a good security person but do we have to be the Boy Scout for the world? I still say that is a good comment. The other program is the background checks that are being explored by Transport Canada. I believe that they wanted to have complete background checks on cousins and uncles of everybody that is even in near proximity to the port. That program has since been reduced but sometimes we are over-exuberant in our desire to be Boy Scouts of the world.

Senator Zimmer: Thank you, Senator Dawson. On security, what was your rationale for attaining this level? Is it a policy for DP World or, without telling any secrets, were there breaches that spurred you to do this?

Mr. Stewart: It was a policy. There have not been any security breaches anywhere that I am aware of. It is important to remember there are literally tens of millions of containers moving everywhere in the world every day and it has been, and continues to be, one of the safest modes of transportation of goods.

Senator Dawson: You mentioned earlier truck-to-train and train-to-truck transfers. What percentage of your operations would those transfers be, or is it significant?

Mr. Stewart: It is relatively significant. These are the statistics for my terminal last year and Morley's numbers are different because of the nature of his customers and their trades. Everything is measured as 100 per cent of vessel moves. We had 11 per cent, measured as 11 per cent of vessel moves, coming off rail as empties. Those moves went out the truck gate and, in fact, we imported some empty containers because of the nature of our business so 12 per cent of the moves out the truck gate were empties, most of which originated from rail. As I mentioned earlier, although the exports probably originate in the hinterland, they arrive in Vancouver by rail but in box cars, flat cars or hopper cars. Then, they are loaded into the empty containers and become what we call local exports.

Senator Dawson: They are offsite inland terminals.

Mr. Stewart: They are done offsite, yes. Again, when we say inland, in the Greater Vancouver context if we draw a circle centred on Burrard Inlet with a 40-kilometre radius, that line would be out somewhere around Langley. I would venture to guess that 99 per cent of truck transactions occur inside that circle. Although we call it inland, the loading is near dock.

Mr. Strachan: On our terminal, approximately 65 to 70 per cent is rail-related, and whether it is import or export does not really matter. The rest is truck.

Senator Eyton: I have a few questions that I noted as you went through the presentation. One was the reference to ever-larger vessels. You indicated that you had the capacity to handle most vessels, but the trend clearly is to larger and larger vessels. I guess the trend is partly because the Panama Canal will be widened to accommodate larger ships, and then you talked about the super-post-Panamax vessels and the Emma Maersk that was even larger. The question is whether our facilities here on the West Coast are sufficiently large, deep or whatever: do they have the capacity to handle these ever-larger ships now and in the future?

Mr. Strachan: I will start, and then Cliff can finish for his terminals. The critical thing for a terminal is the size of the crane: Can it access the height and width of that new ship and is the dock face long enough to accommodate that ship. At both Deltaport and Vanterm, we have cranes that accommodate ships up to 10,000 TEUs. There are none out there right now but we can handle ships of 8,000 TEUs: we have handled some 8,000s. We have the capacity and some of them can be expandable to accommodate even larger ones by lengthening the boom. It costs money and needs engineering but it is not impossible. Fortunately, in Vancouver for all our terminals, including Cliff's, the water is sufficient. That is not an issue. I think the big issue again is relying on the infrastructure to move the cargo that comes in on those big ships.

Senator Eyton: The largest number you mentioned was 10,000 TEUs but the most recent ship was 12,000 TEUs. You could not handle that size, is that correct?

Mr. Strachan: With this size of ships, we get into what Cliff was talking about, Container Terminals 101. Are they able to do it in a wider ship, a longer ship or a combination of both? What restricts us is height and width on the cranes. If they were 22 containers wide, we can handle it. If they are 23 containers wide, no, we would need something more on the crane.

Mr. Stewart: The issue of the larger ships is an interesting debate within the industry right now. The West Coast, the trans-Pacific if you want to call it that, is about an eight-day transit, give or take, and most services tend to have five vessels. In other words, the same vessel returns every five weeks. In that five-week period they have 16 days of crossing, eight in each direction, and they have port time on each side. A service goes into Long Beach right now, in fact, into a terminal that was a sister terminal of Morley's. It takes just shy of seven days to discharge and load the vessel. The terminal actually does not have room for the cargo. They start discharging when the vessel arrives. At a certain point in the process, they bring the export cargo in and start reloading the vessel. If it takes a week to load and discharge a vessel, and if transit time is a critical issue, then some smart operator will come in with a small vessel that can come in fast, be discharged and go back out again. It is like the argument that Boeing and Airbus are having about the future of the airline industry. Airbus has said the future is large, the Airbus A380. They will have people come from where they are to a central location, they will stuff them into this aircraft and fly them somewhere else, which is not where they want to go. Then, they will get on another airplane and go where they want to end up. Boeing says, let us build an airplane that will fly from anywhere in the world to anywhere else in the world, so we will go where you are, pick you up with a small aircraft and take you where you want to go. I do not think the Emma Maersk-type vessels on the trans- Pacific make a lot of sense. They make sense in the European service because, in that case, they are at sea 20-plus days in each direction. If it takes a week or a week-and-a-half to load and a week or a week-and-a-half to discharge it does not change their overall transit very much. However, I do not think you will see them in Vancouver in the foreseeable future because we would slow that vessel down. When I say, slow it down, it is another port call and we might only be topping it up or topping it off.

Senator Eyton: I take it both of you feel we are okay to handle the size vessels likely to come here.

The next question is not necessarily related, but there was a reference to capacity, and capacity is always critical. There are two ways to deal with more capacity. One is to work ``more efficiently:'' longer, harder and better. You have done that and one of you spoke about doubling your capacity in one of your facilities by working more efficiently. The other way is to build new and additional facilities but you mentioned in that connection that the environment and environmental concerns made that way difficult. There is a range of environmental concerns. One, I think, is the activity itself, the trucks and the activity. The second is the possibility of hazardous goods or goods that contaminate in some way, and the third is aesthetics. Looking at your beautiful shoreline, I say maybe it is aesthetics, but can you identify those concerns and tell me in what way the industry is trying to respond? We all know there is a limited amount of land with the right harbour, and it seems to me, at some stage, if growth carries on, as you say, we will need more facilities and more land to accommodate it. Can you address the question of the environmental concerns as you understand them, and the ways in which you think you can overcome them?

Mr. Stewart: I think the fundamental problem is that at the federal level in Canada there is no certain process for the environmental approval of projects. The British Columbia process is one that I would encourage the federal government to look at. It has term-certain requirements for all the players. Any player can choose to stop the process anywhere along the line for a good and valid reason but if there is not a good and valid reason there are time frames that people must meet. I am not talking about cutting corners here. I am talking about doing a full and thorough evaluation and a full and thorough mitigation of the risks. Morley's third berth project is a glaring example. It took three years to obtain approval to build that project. In three years in China, they built a terminal that is larger, or will be larger ultimately, than all the capacity currently existing in Canada. I do not suggest that we get rid of our public process. I am saying the process needs to have some certainty, and people need to know coming in. When they talk about investing — I think Terminal 2 here in Vancouver will probably be over a billion dollars — a billion dollars they need to know when they will start building. They need to have some certainty about what it will take to go through the process because at the front end of a 50- or 75-year project, a few years of delay can have a huge impact on the actual economics of that project. That is what I am talking about. The problem is not the ultimate issue or any of those things that you mentioned, but the actual process itself.

Senator Eyton: When you talk about certainty, obviously you are talking about timelines but are you also talking about content as well, that is, some sort of process where the concerns are enumerated and answers are provided? I am sure you are recommending timelines.

Mr. Strachan: Maybe I can jump in because we share similar concerns. In the third berth, just one berth that we were looking for, and some land, we went through a due diligence process with the provincial government, and we started all over again with the federal government. The two processes were disjointed. We felt we were answering the same questions twice. It is the same fish, same air, same water, same noise and same questions. Near the end, there was more harmony. The governments were working together so it was not a brand-new question again, but our concern was there were no new questions and yet we had to go through another process. It could have been shortened by having the two governments work together on the same process. That is the certainty about knowing timeframes and the redundancy type of thing. One other thing I can point to is we have a concern that no land is reserved for port functions and port use. There is an encroachment of gentrification where people want Coal Harbour and False Creek to get rid of industry and bring in condos. We have a concern that if those lands that we have now are not somehow reserved, then this industry will be forced out.

Mr. Stewart: I want to go back to your question about certainty. Let me say that I would stack up the biology professionals on the West Coast against any in the world. In fact, they end up working on these projects all around the world. If we sat down with a panel of three or four them, among them they could probably tell us within 95 per cent what we will end up with when we have gone through the process. I do not think the problem is knowing what we must do. I think that is well understood. The problem is that certain federal departments have relatively junior bureaucrats in terms of level of the hierarchy but in some cases, significantly senior in terms of years of tenure, who have a political agenda. The system allows them to exploit that political agenda to hold projects up for years, and it is absolutely unacceptable.

Senator Eyton: I will go on now to the guts of your evidence here today and that is a reference to a weak link. I think we all have a good understanding of that weak link. You are wise and experienced and you know the situation. The private sector will always seek opportunities and profit. That is a given. The question is, what can governments do, and we might as well make it provincial and federal, to attack the problem that you have described in your words, different words or different phrases, but a crisis or a meltdown? What can be the recommended role of the government in attacking this crisis problem that apparently reoccurs from year to year?

Mr. Stewart: Besides legislating against winter I am not sure. The fundamental problem is finding a balance between the commercial licence and the social licence. The Wall Street analysts love the Canadian railroads. These railroads have the best operating ratios in the world. The customers or the stakeholders who work with those railroads hate them and we are looking at the opposite ends of the same animal because the very thing that gives them those great operating ratios is the fact that they do not move empty cars around when there is a crisis. They do not respond to those things that the system requires, and I struggle because I do not disagree with what they say. They say if we want them to do something, pay them to do it. Part of the challenge that we face, speaking of this supply chain as a chain, is that the disparate pieces have different economics. For example, currently under construction for delivery this year and in the next two years are container ships equal to 40 per cent of the total existing fleet capacity. Over the next three years, we will have a 40 per cent increase in capacity in the world. Cargo is projected to grow at about 10 to 12 per cent a year. Currently, we have an oversupply that will become worse so the shipping lines are chasing rates down to the bottom. The terminal operators and the railroads say that is dumb, and ask, why are they doing that? In almost every case, shipping economics is blurred at some point with either family or national pride because most shipping lines, even if they are publicly traded are ultimately family- or government-controlled. On the day-to-day basis, decisions are definitely based on economics but when they build the ships, sometimes those decisions are not purely economic. However, once the ships are at sea they want them filled. Someone once told me that once they build it they want to fill it. They want the biggest market share they can obtain and so there is a race to the bottom. The concept is interesting. They call it network cost, much like a telecommunications network. Customers that use the shipping lines are used to manipulating that race to the bottom. The railways, reasonably, say shipping lines can reduce rates as much as they want but railways will not do that.

Senator Eyton: I welcome your understanding but we are looking for a solution here. We have a problem and I was asking either or both of you to recommend something that governments could do to intervene in some intelligent way to relieve the problem.

Mr. Strachan: It is a dilemma. The one that feels good emotionally is, let us re-regulate but I do not think that is in anybody's best interest. Amendments to the Canadian Marine Act on our side would give a strong signal to the private sector. I will answer two questions relative to what government can do. Cliff mentioned what it costs terminal operators to buy equipment and he told you about the changes in cranes. That is a lot of money to come up with through our principals, et cetera. The amendments to CMA allow the port community to change its borrowing power, et cetera, and it gives us the ability to build and plan, which then gives the important foreign customers a lot more confidence that we do what we say we can. It builds the right environment.

Senator Eyton: We still have the weak link. I have not heard how to deal with that.

Mr. Strachan: I think there are issues with the Commercial Transport Act (Canada), CTA. Some of the amendments might suggest to the railroads that there will be competitive alternatives that do not exactly make them feel comfortable but it may promote competitiveness between the two railroads. Allowing a third rail carrier in such as Burlington Northern Santa Fe Railway is another threat but it may not be realistic for us. It is a tough question. It is a good question. I do not have the exact answer other than recommendations to the CTA that would promote increased competitiveness. I do not know if you feel the same way, Cliff. The joint efforts between the federal government and provincial government on the Pacific Gateway corridor initiative is a huge impetus to give that infrastructure some breath and some ability to breathe. It still does not make the railroads want to invest in new rail cars if they are not paid to move them.

Mr. Stewart: In the current situation, and I call it a crisis, it might be reasonable for the government to ask, or direct, the railroads to do those things that are required to move it from underneath the crisis. At the same time, it would be reasonable to ask the people who are party to that crisis, which are the customers, to pay the cost of those things because one thing to remember is that it costs the same or less today to move a container from Asia to North America as it cost 30 years ago. There has been a significant efficiency in the system and I think it is not unreasonable to ask the people who benefit from that efficiency to be part of the solution.

Senator Eyton: My last question is, how competitive are we? First, always watch the competition and see what they do, and I see the competition for the West Coast terminals to be Tacoma, Seattle and perhaps the West Coast USA, for example, San Diego. I guess the question is, what are they doing to make themselves more competitive? Are we competitive today and will we be competitive two or three years down the road, given present developments?

Mr. Strachan: There are two sectors to that answer. Yes, we are competitive as a port but our markets are different. Most of our markets are inland whereas a lot of the ones on the West Coast are local, California State, because they have the population base to consume it there locally. They do not need to worry about taking it inland. Seattle-Tacoma is closer to our style of competition of going inland because, like Vancouver, the Seattle marketplace is not big. I mentioned the ocean carriers are changing their viewpoint and their corridors, and looking at where are the best terminals and where do they want to go. They are now looking at going through the Suez Canal, bypassing the West Coast of North America entirely, to land in Halifax or New York. I think our competitive outlook is not only Seattle- Tacoma anymore.

Senator Eyton: Are you competitive, and will you be?

Mr. Stewart: We are competitive cost-wise. Two things that the ocean carrier cares about are reliability and cost, in that order. Cost-wise, we are competitive. Reliability-wise right now, we are not competitive. Again, that is because of the inability to move those containers inland where they need to go.

Senator Eyton: You have indicated that your business has doubled in recent years. How does that doubling reflect on market share? Are you maintaining your share of the market for containerization?

Mr. Stewart: In terms of the Port of Vancouver, 95 per cent to 97 per cent of the Port of Vancouver container cargo is destined or originated in Canada. We are not a significant player in the American market and, conversely, they have little Canadian cargo going through American ports. We looked at that issue with respect to Seattle- Tacoma. It is probably somewhere in the neighbourhood of 70,000 TEUs in the year, so an insignificant drop in the bucket. We handle 2.2 million TEUs here. The question is, are we competitive for Canadians and the answer is yes, we are competitive for Canadians.

Senator Eyton: You are holding your share?

Mr. Stewart: We are holding our share and we look to grow that share. Ultimately, we would like about 12 per cent of Vancouver cargo to be American cargo.

Mr. Strachan: I would also reflect and echo Cliff's views. For Canadian cargo we are definitely competitive. We are even competitive for U.S.-destined cargo going beyond Chicago because we are the only port on the West Coast that can access the East Coast on single lines, either by CP or CN, and ship into the United States central interior and beyond. No American carrier can do that. Any ocean carrier that is interested in going beyond Chicago to the South of the States, the East Coast or even into Toronto or Montreal, they come to us, Vancouver, and we have that ability to be competitive. Currently we are unreliable, as Cliff said.

Mr. Stewart: If I could go back to that question, I think the competition is not the people who are doing what we are doing. The competition is, to use Morley's analogy, the tap from Asia. The issue for Vancouver for the foreseeable future is not to keep other people from taking our business. It is trying to keep up with the business that comes at us.

Senator Tkachuk: I want to come back to this bottleneck so we have something down on paper as to how the railroads get away with what they are doing. When they sign a contract, they must sign a contract with Costco, Wal- Mart, The Bay or one of their customers to move their product from the West Coast to Toronto, or does the person selling the product sign the contract to receive it, and are there not penalties for delay?

Mr. Stewart: There are as many models to that question as there are customers, but large retailers tend to transship here in Vancouver. For The Bays, the Wal-Marts and the Costcos, that cargo tends to go off dock by truck and then is re-handled either into domestics or reloaded into marines and then loaded at the intermodal facilities here in Vancouver. The biggest portion of the current model is that the steamship line is the customer of the railroad and they deliver point to point. Their customers have contracts with the steamship line to deliver it from Shanghai to Toronto. We are not party to those contracts so we do not know exactly what they are but my guess is that they do not want to pay for it take-or-pay. The railways have made it clear that they want to be paid to move the containers in each direction. Hunter Harrison of CN is a smart businessman. If somebody wanted to pay him to move those cars, whether there was cargo on them or not, I am sure he would happily move them.

Senator Tkachuk: How does this work? If I am a retailer, I want some guarantee of delivery. I would have penalties in the contract to say that if it did not arrive here by a certain day they would be paid less, but how does that work? Does the railroad say, whenever? Is it like Air Canada with luggage: whenever. Is that what they say? Is there not some penalty? Do they not have some incentive for moving those empty box cars into Vancouver to move the product out?

Mr. Stewart: Looking from the outside I would say no. Again, we are not party to those contracts but I am sure that if there were penalties they would be moving.

Mr. Strachan: Unfortunately, I have some history as an ex-railroader many years ago, but I do not think the philosophy has changed. The railroads like to have reliability assurances for these contracts. What they look for is service guarantees and, in many contracts between the railroad and their lumber mills and coal mines, they have service guarantees, delivery guarantees, because there are penalties if any party fails. In the ocean carrier trade, when the railroads try to apply that philosophy to the ocean carriers, the ocean carriers, being vulnerable to storms and other things that happen out of ports, refuse to be tied to a service guarantee because the guarantee must be a two-way street. If the rail carrier needs to know that the ocean carrier will have that cargo there every week so they can apply that container to the rail car, then the ocean carriers are reluctant to guarantee they will be there on every day. There is a disconnect right away. Both parties will not guarantee to each other because they do not want the penalties. There are too many vagaries in the world in which they operate but that is where the railroads build into their own slush fund. They use the terminal to make sure there is enough cargo on the terminals that whenever the trains arrive they do not need to worry about the vessels either bunching or being delayed. Bunching means that they are going across the Pacific or they are going to a terminal and something happens. Typically, we do not have the nicely staggered weekly arrival. We have three ships in three days and we dump a huge amount of cargo and then there is nothing for another ten days and it happens again. The railroads do not like that so they smooth out that curve by supplying the average amount, not the amount for the peaks. They do not care that there is a bunching issue, so they smooth out their own peaks. There are no service guarantees and Cliff is correct, most of the ocean carriers have contracts with us. We do not care what is in the box, if it is Hudson's Bay or Wal-Mart. We are learning about that and we do service things with Hudson's Bay and Wal-Mart but that is outside our contract with the ocean carrier. The ocean carrier has a contract with the railroad but the terminals and the railroad do not have any contracts at all: they rely on service partnerships. The Hudson's Bays of the world contract with several ocean carriers. Those ocean carriers, when they bid for that business with Hudson's Bay and Wal-Mart, build in a competitive time schedule and a competitive price with all the other ocean carriers, and they build in some sort of transit delivery time. Let us say they know they can cross the Pacific in eight days. They figure three days on our terminal, five days across the country and they add four more days. I think there are no guarantees. I do not know what the ocean carriers promise their consignees. There are zillions of importers and exporters in Canada, specifically, that are not big enough to dictate their own transportation logistics, so they rely on freight forwarders. There is a polite word for freight forwarders, I cannot remember what it is, but they take their business to the lowest bidder: the highest service at the lowest price. They take that bundle of cargo from their various consignees and they flog it to both their ocean carriers and the rail carriers but as I mentioned, most ocean carriers select one predominant rail carrier because their volume is their driving force.

Senator Tkachuk: Is a customer not yelling for product somewhere in North America if it is sitting here in Vancouver, piled up? How do you set a priority? Do you say you have thousands of containers? Do you say, Wal-Mart is a big customer so they go first, and The Bay goes second and that poor guy in Saskatoon or Kitchener will have to wait a while? How do you decide what goes out?

Mr. Strachan: To do it that way is too dangerous because everybody will have a good and valid reason. The one small importer or exporter that goes broke is as important as Wal-Mart not getting that product on the shelf for sale. We cannot become involved in that. We do first in, first out, and if the railroad or the ocean carrier says it is okay to move — I will pick a name — no, I will not say any names.

Senator Tkachuk: Go ahead.

Mr. Strachan: No, because somebody back there will put it in the newspaper and it will come out wrong. The ocean carrier would say they want this container moved first, and we do not know what is in it. The ocean carrier does, and the railroad says yes. The ocean carrier tells the railroad they want that container moved. In those cases, we will make some priorities but only within that own carrier's piece of boxes so we are not messing other people up. Customers cannot say we moved his before their's. I am moving this ocean carrier's group of boxes and the carrier has told me which one to move first.

Senator Tkachuk: That contingency of boxes all belong to the same customer.

Mr. Strachan: That is right, and another carrier may say they do not want to do that and they will live with first in, first out. Each carrier will have the same problem I talked about: how does the carrier explain to the other customer groups that one customer's boxes are moving before others.

Senator Tkachuk: We are trying to follow these boxes. We are trying to figure out where they end up. Where does most of your product end up? Where does it go to be unloaded? Is it unloaded in Chicago and then distributed throughout North America? Is it unloaded in Toronto? Where are these containers unloaded? Where do they stop?

Mr. Strachan: For my customer base, many of the customers that choose Vanterm come here for Vancouver local cargo. Deltaport is a little bit different because Vanterm has rotations. A lot of the cargo coming off those ships at Vanterm is delivered locally by truck and some rail inland. Deltaport is much more rail-oriented so those ocean carriers have chosen to go to Deltaport for inland rail, but in any case, the predominant destinations are Toronto, Montreal and other destinations in Canada for probably 70 per cent, and then 25 per cent for Winnipeg, Calgary and Edmonton for rail. Of the whole volume that TSI handles, the Chicago market is probably only 5 per cent but we have an ocean carrier where 75 per cent of the vessel discharge goes to Chicago and beyond. That ocean carrier has chosen Deltaport as its first port of call but as a general mix of our commodity group, 5 per cent to 8 per cent is U.S.-destined.

Mr. Stewart: Going back to your question of who is loaded first, our customers can designate, I think, 25 per cent of that cargo as priority. I mentioned a two-day dwell. That means that cargo goes out on day one and cargo goes out on day four so we give them some choice amongst their boxes as to which goes first. We do not know, nor do we care, who they choose.

We have also instituted what we call a premium rail service because some customers regularly and reliably require the ability to load that cargo on the next train when the vessel arrives. These customers tend to be in the auto manufacturing business and they have huge penalty costs if their plants go down. They pay the ocean carrier a premium for premium service and we have said fine, we will provide that premium service for a slight cost. The main reason we have that cost is because, if we did not, then everybody would want that service. It is an attempt to differentiate, like first-class on the airlines but, by and large, the rule is first in, first out.

Mr. Strachan: I should probably clarify that the ocean carriers have what we call a mini land bridge, Toronto and Montreal priority traffic, and nine times out of ten that is their priority but our priority is still first in, first out. Out of that group of Saskatoon, Winnipeg, and whatever, carriers usually want their Montreal and Toronto cargo moving before any of the other stuff.

Mr. Stewart: The railways, particularly CN, have what are called multi-pack cars — we call them the chicklet trains — going to multiple destinations, generally in the Prairies. To the layman, it looks like 25 rail cars; in fact, it is 25 platforms but only five rail cars because those platforms share a common set of wheels between each platform so they are linked together. They have a coupling on one end and a coupling on the other and five platforms in between, but that is one car. That one car can hold 20 TEUs. This again is an issue, particularly for CN. When deliver strings of cars, if we have three containers for Saskatoon we will not put those containers on a car that holds 20 containers. Oftentimes, cargo sits waiting for appropriate rail cars for the destination. We encourage those customers to truck that cargo to Vancouver Intermodal Terminal, VIT, or Vancouver Intermodal Facility, VIF, and have it loaded there because there is a larger concentration. The big focus at the marine terminal is the large volume destinations, Edmonton, where cargo is split up to serve the Prairies, Montreal and Toronto.

Mr. Strachan: On your Wal-Mart question, we are finding an increasing trend among those larger importers to locate distribution centres closer to the port because they cannot or will not rely on the long-distance cross-country transportation to go Toronto and be disseminated. Hudson's Bay, Canadian Tire and Wal-Mart have built or are locating distribution centres close to the port so they have a choice, depending on what the terminal and the rail carriers are doing, whether to go intact, which means straight on the rail cars inland for subsequent distribution, or take that container to the distribution centre, deconsolidate it and put it onto either trucks or domestic rail and ship it that way. They are changing their own logistics model.

Senator Tkachuk: Is that because of the inability of the railroads?

Mr. Strachan: I do not know if I would blame the railroads in this one case. I know that when we went through this a couple of years ago, Wal-Mart and others were so upset because they lost a lot of sales for their customers that they turned the tap off for Vancouver and put in another tap to Halifax.

Mr. Stewart: After the meltdown in L.A. Long Beach about three or four years ago, a lot of the big retailers, North America-wide, went from what they called the just-in-time model to the just-in-case model. They are building their own buffers because they realized that losing the sale is far worse than paying a little extra cost to have the cargo available.

Senator Adams: Your forecast up to 2020 shows that you will increase the operation at Nunavut up to 300 per cent. In the Arctic at Nunavut, the ice is starting to melt and in the future, maybe by 2020, the ice may be gone. What happens to your business shipping in the East to Montreal, Halifax, Boston or New York? Do you have a guarantee and a contract for the people shipping from the East to Vancouver?

Mr. Stewart: Most shipping-line container-terminal contracts have a 90-day cancellation clause for either party, so no, God forbid, if global warming extends to the point where the Northwest Passage is a viable year-round shipping lane, that will be a significant change for how we do business here. We are not planning for that.

Senator Adams: We have about eight months in the Arctic for commercial fishing and for travel. We cannot travel for four months up to the Lancaster Sound and down to the East. That is why we are fighting for our Arctic sovereignty and to belong to the Canada. Other countries want the water up there in the high Arctic too.

To give you an idea of what is happening, I live up there and went up last week. There is hardly any snow. You have more snow here. If it is that warm now, in one to two weeks the snow will be gone in Nunavut and Rankin Inlet. Mostly, the government and the public are concerned only about polar bears not having enough ice then in the fall, somebody eating the seals.

I have been in Rankin for over 40 years. Usually, it freezes up in October and there is sea ice in Hudson Bay. Now, sometimes it does not freeze up until about the end of November. That is why we have had much change and why we talked to scientists and stuff. We were in Montreal about three or four months ago and they showed us that in the middle Greenland now the rivers are opening down to the sea ice and they have more melting every year. I am putting out information for the forecasts to 2020. We do not know whether it is climate change or not. Maybe it will cool off again in another few years.

Senator Zimmer: I want to continue with Senator Tkachuk's question about loading, and the inventory method, first in, first out. My understanding the last couple of days is that there is a calendar of ship arrivals. If that is the case, the huge ships, may encounter storms, hurricanes and all of that. How do they time their arrivals exactly in those windows? Do they, within a day or two, either speed up or slow down, and if they are late, are they charged penalties?

Mr. Stewart: They speed up. Some lines believe that being on time is what they sell. Some lines come in when they come in. I have been told that it can cost as much as $150,000 a day in extra fuel to make up a day lost. Some lines will spend that money because their schedule integrity is critical. I do not think anybody has a penalty for being late but they have a berth guarantee. If they show up when they have committed to show up, they have a guarantee they will have a berth, they will have cranes and hopefully, they will have labour. If they show up late then they may or may not have a berth right away. Sometimes, ships will be at anchor because they were not there when they were supposed to be and somebody else has the berth but there is no financial penalty per se.

Senator Zimmer: The penalty is that they get on when they get on: they do not have a choice. If they are late, they take what is available.

Mr. Stewart: That is correct.

Senator Mercer: I will try to be quick. Tomorrow morning, we are going to Prince Rupert. What effect do you think the opening of the port at Prince Rupert will have on Vancouver? I want to extend the question to the problems we have been discussing with the railroads. Will opening the port compound the problems because we now have, hopefully, a busy port at Prince Rupert feeding into the same two railroads, or the same railroad actually.

Mr. Strachan: We commend the Port of Prince Rupert, the railroads and the government for getting the port up and running. We do not think that terminal, the first phase anyways, will be a real threat for taking business away from Vancouver because they have been targeting strictly U.S. cargo, so they say. That would be interesting, but I can tell you from our company's perspective, once our third berth is up and running we would like to compete for that U.S. cargo as well, as we do now. However, we do not have the capacity to entertain that sort of volume that is out there for U.S. destinations so we are not that concerned. Since it is that one railroad, we do pose an interesting question about how they will supply the rail cars for that area when they have a main line to Vancouver that they are competing with, and they do not seem to be matching that. I do not know what promises versus the reality will be of what they deliver. I would be concerned if they end up promoting that port to the extent that the rail carrier provides that port with better service than the Lower Mainland.

Mr. Stewart: I echo the comments about not seeing that port as a threat. I think it is part of the greater gateway strategy. I think it will be an interesting time if a year from now, the Port of Vancouver does not have rail cars again because of winter and the Port of Prince Rupert has rail cars because of winter. I ask you to cast your mind back to the Port of Halifax, which also is on the end of a single railroad and it happens to be the same single railroad. I tell people to be careful what they wish for because CN will eventually do what CN always does, which is what is in its best interests and if there is no competition it will be a problem there.

Senator Mercer: I am from Halifax so I appreciate the problem, but we also build rail cars in Trenton, Nova Scotia, and we would be happy to fill up the tracks with them. That is one question. In following up Senator Eyton's question, which I thought was a good one, asking about what government could do, you said to direct the railroads to more or less fix the system, and perhaps the government can become involved. Do you suggest that government, that is, taxpayers' dollars, help fix the infrastructure or the problem?

Mr. Stewart: I think there are places that government dollars for infrastructure are appropriate and I will give you some examples. I think that is a great place for government money is for grade-separated crossings in urban areas where historic rail lines are starting to impact on the local movement of traffic. These crossings are something where the railway can rightly say, we are running a railroad here, we have been doing it for years and the urban areas have grown up around us: that is not our problem.

Local governments probably are not in a position to deal with that issue and it is something that is for the good of the greater Canadian community. In terms of the immediate crisis we are talking about, I do not think it is appropriate for government money to be invested. The shipping lines that call at Morley's terminals have instituted a congestion surcharge. I think it is not unreasonable to use that money or money like that to compensate the railway for delivering the empty cars that need to be delivered.

Senator Mercer: The final question is with my other hat on, as member of the Standing Senate Committee on Agriculture and Forestry. You talked about first in, first out, for imports. That practice does not seem to apply to exports. If I speak to farmers from Saskatchewan who grow pulse crops, lentils, peas, chickpeas, et cetera, and we grow them very well in the Prairies, particularly in Saskatchewan, the complaint of the farmers is that they are ready to ship but they do not seem to have any priority either for getting here or once they are here, leaving.

Mr. Strachan: If it is on a container from origin we, as terminals, do not want those exports arriving weeks in advance of the vessel they are targeted for. Typically, we work with the railroads who have been good about timing those exports to arrive on our dock to meet that week's ship, not two weeks out, because that is not productive. If the cargo comes on a grain car then it is transloaded locally here. Similarly, I can only comment once it is loaded into a container here locally. That local transloader will send it to our docks in time for that ship, that week's vessels.

Senator Mercer: Grain is not the big issue. The problem with grain is, we do not receive a good enough price for it. The problem is other products like pulse in which the quality deteriorates as it sits in the container. Indeed, if it does not arrive on time in the Far East, the product is not as useful.

Mr. Strachan: I can only reemphasize that we accept the exports for the ships arriving that week, not in advance of arrival.

Mr. Stewart: Unless they are speaking of the existing crisis, but in general, what tends to happen in Vancouver is that a shipper will tentatively book with three or four shipping lines. Then, as they get closer to the actual date of shipment, they collapse that down to one and they will pick the one that happens to have empty containers available. They may be talking about the empty container supply issue but once it is here and is available to be loaded in a container, I cannot understand why they would tell them they cannot go to the terminals. That does not make any sense at all.

The Chairman: I have one last question. The federal government announced that the Pacific Gateway initiative is intended to increase the share for B.C. ports of West Coast container traffic from 9 per cent to 14 per cent by 2020. You seem confident that your terminals can be as productive as Asian ports. Do you think the Pacific Gateway port can attract more than 14 per cent of West Coast and North American container traffic?

Mr. Stewart: If you see what is happening with the environmental lobby in the L.A.-Long Beach area where they have gone beyond logic, I think there is a good chance cargo will come our way. I will give you an example. Burlington Northern Santa Fe Railway is attempting to build a near-dock intermodal facility. Currently, they have a million truck trips a year from the L.A.-Long Beach port to Hobart, 17 miles away. They want to build the facility four miles from the dock. By my crude calculation, that would take 13.8 million truck miles off the road and to me, that is a good environmental initiative. It is being blocked because the railway cannot come up with a zero-emission method of transporting those containers the extra four miles. Rather than accepting a 75-per-cent reduction, they will continue with the environmental problem they have for years to come. That kind of illogic is becoming more and more predominant there, and I think that sort of thing will help us grab a bigger share.

The Chairman: Do you have any —

Mr. Strachan: Was your question, in what period of time would be able to accommodate that growth?

The Chairman: In 2020.

Mr. Stewart: I think a big part of that question goes back to taking expansion projects from drawing board to fruition. The Pacific Gateway initiative is a huge part of it, but again if we build the sink and we have the tap on, that drain must be flowing and the rest is history, our current history, but I think we can be competitive.

The Chairman: You are confident that you will be?

Mr. Strachan: Yes.

The Chairman: Thank you, gentlemen, for the interesting contribution you have made to our study. We are pleased that you accepted our invitation to come here this morning.

We are pleased to have with us from Western Transportation Advisory Council Ruth Sol, who is President, and Lisa Baratta is the Manager, Corporate Services. We have also David Colledge, of Colledge Transportation Consulting, Inc. We will hear from Ms. Sol first and our witnesses have been here for a while so they know how things operate here. Welcome to our committee.

Ruth Sol, President, Western Transportation Advisory Council: We thank you for the opportunity to appear before you to comment on issues surrounding containerized traffic using Canadian ports.

As the chair mentioned, my colleague, Lisa Baratta, and I represent the Western Transportation Advisory Council, WESTAC. We are a unique group. We are a trade association made up of competing parties in Western Canadian transportation. Our members are CEOs, presidents, labour leaders and ministers. We represent the carriers across modes, so in the railways we have Canadian National, Canadian Pacific, Burlington Northern and Southern Railway of British Columbia.

We have the ports and terminals: ports of Vancouver, Fraser River, Nanaimo, Prince Rupert and on the Great Lakes, Thunder Bay. Some of the container and bulk terminals are DP World, who was just at the table, Neptune Bulk Terminals and Western Stevedoring.

What makes us unique is that we also have the labour unions. We have the Teamsters, the longshoremen, the grain handlers and the deck officers. We have some of the shippers — Canadian Tire, Shell Canada and the Canadian Wheat Board — and three levels of government: the federal, three provincial and the two territorial transport ministers; the Greater Vancouver Regional District that covers the 22 municipalities in this area; and the Greater Vancouver Transportation Authority, or TransLink. We have members in all four western provinces, the two northern territories and we have four members in the Great Lakes area. We are often asked if there is an EASTAC and the answer to that is no.

Our mission is to be a credible, balanced Western Canadian voice that promotes collective action to achieve supply chain excellence. Our concern is effective transportation in Western Canada because we are here to serve the business of the whole country and increasingly, North America. As you might imagine, with the diversity of the group that sits around our table, consensus is sometimes elusive, but when we do come together and we agree on something, it is a powerful forum.

Now, first and most sincerely, I want to compliment both the previous government and the new government on taking the strategic approach to Asia Pacific Gateway and corridors. It is a powerful concept. It extends beyond physical infrastructure, although that is important, but if we implement the concept well it will raise our image in global markets and it will produce an outcome that we can replicate in other parts of the country. At the same time, gateways and corridors should be developed as part of a larger piece, a national vision, an integrated system with good policies and a means of funding, a grand plan of interdependent supply chains, but we are not there yet.

I would like to talk about two areas, the first is policy and the second is money. First and most important is policy. In the best-case scenario, the private sector determines that there is a business case and it goes out there and makes an investment to build a gateway. The government's goal, I suggest, is to ensure that, to the extent possible, it removes obstacles to private sector investment through supportive policy. What are the policies? First is the Canada Transportation Act and I am talking specifically about the shipper rail protection provision. That act was reviewed in 2001 by an expert panel under Brian Flemming's leadership. Excellent work was done there but the changes have not been made. We urge the government to make its decision, and get on with making whatever changes are necessary. Years have gone by and the uncertainty over the outcome still hangs over everyone's head. I liken it to two teams out on the field playing a game and we tell them the rules will come later. That kind of uncertainty paralyzes the willingness to invest in and to plan for the future. My membership would not want me to say what ought to change. You can tell that by the diversity, but I suggest that as long as there is some middle ground reached and then enacted as legislation, the shippers and carriers will be able to plan for the uncertainties of the marketplace, rather than the policy-maker.

The second policy is the Canada Marine Act, the act that governs port authorities in this country. It was reviewed again by an expert panel, the act's shortcomings were laid out and they were widely agreed upon by port stakeholders right across the piece. Nothing has happened. Concerns about the ability of ports to fund their growth plans are widely known.

On the positive side, the government is to be commended for its initiative in setting in motion the activities to create a single port entity in the Greater Vancouver area. We never imagined it could happen so quickly. It looks now like it will be months rather than years and that is an excellent policy development.

The third area, and I bet you have heard this over and over, is environmental approvals of the port-related projects. Delays in obtaining the approvals add costs, create uncertainty and can potentially destroy the business case of some projects. Government leadership is needed to provide sufficient government staff resources to guarantee timely, stringent, environmental reviews that meet both the public's and the investors' needs.

The fourth area is both about policy and money. It relates to border flows. The federal government has demonstrated good efforts to expedite cross-border trade and travel. The work has been positive and that effort needs to be sustained. The government has championed a variety of initiatives, and we want that work to continue. Any successful system of container traffic gateways and corridors must be linked to the other routes and systems, and that includes the airport gateways.

Canada's programs that are comparable to the free-trade zone programs in other nations are an area of concern. Canada has two programs: one relates to GST and the other relates to duty. The programs are scarcely used. Some 30 companies in total used them in the most recent year that the data is available because the programs are restrictive, cumbersome and poorly promoted.

In the U.S. in 2004 through their free-trade zone areas and rules, some 2300 companies used those rules. They were able to handle US$225 billion in merchandise and employ 330,000 people. Such programs increase cargo export volumes, they generate employment and income and they could support what we are trying to do here in the gateway. An Intervista Consulting study that was done two years ago for the Canadian Airports Council analyzes the problems in detail and I will leave a copy of that report. It is complex but the area is important.

The fifth policy area relates to human resources and will be discussed by Ms. Baratta shortly.

Despite good policy there will be areas where obstacles remain and which the private sector is not willing to step forth and solve. The government must lead in these areas, financing solutions to the biggest bottlenecks and obstacles. The priority is for government investment to be where it can have the biggest hit. Government investment is my tax dollars at work, and the government needs to leverage the participation of others in the supply chain as much as possible. I have a couple of examples. The government funded the forecasting work that was done by my organization last year, and it helped us to validate the growth and reduce the risk for the private-sector investors. The federal money in the container terminal in Prince Rupert is a catalyst for the development there. Another potential area of investment is in the projects to reduce the number of level-grade crossings in this country particularly in the communities that are negatively impacted by growth in the container business. I am sure you have heard of these projects. Community opposition can be severe, particularly here in Vancouver. I am not as familiar with other areas but alleviating the underlying cause of the problem is highly desirable. Finally, large-scale anchor projects such as the South Fraser Perimeter Road are probably candidates for federal financial support as well.

I want to make a final comment about containers. Ideally, all containers are filled whether they are coming in or going out. The same applies to all trucks, ships, rail cars and cargo planes. The composition of the traffic and its originating point may mean that there are empty moves. As well, we should remember that what we export, not what we import, earns our GDP and these products often move in bulk form.

In summary, the government is urged to make policy changes a top priority. It is also urged to continue the assistance with validating the growth forecasts, reducing the risk for all who would like to invest in the gateways and corridors and to fund those projects that leverage the participation of other parties and target the biggest obstacles to growth in the container freight traffic.

We wish you much success in finding answers to how to increase capacity and improve competitiveness. Ms. Baratta will now discuss human resources as they apply to your container study.

Lisa Baratta, Manager, Corporate Services, Western Transportation Advisory Council: Thank you, Madam Chairman, and senators. Ruth Sol has spoken to you about two pillars supporting competitiveness, policies and investments. I want to turn now to the third pillar, human resources. Fantastic infrastructure, operating policies and even rail cars will mean nothing without people to run the system. The transportation industry is not immune to the labour shortage problem faced by other sectors: construction, health care and oil sands development. The industry will need to recruit and train tens of thousands of workers across Canada in the next ten years not only to replace the retiring workers but also to expand the workforce to handle the increase in traffic volumes for container imports and break bulk exports.

Transportation is not like other industries, though. If a mine has a labour shortage the mine stops operating. If General Motors has a shortage it shuts down its factory. If transportation has a problem trade stops. We all witnessed the problems a few weeks back during the recent CN conductors strike. I am sure Paul Landry of the B.C. Trucking Association spoke to you yesterday about the severe driver shortage. Other sectors of transportation face similar shortages. By 2010 there is a need for 1,800 longshoremen in B.C. alone to replace the nearly 1,000 workers set to retire, plus another 800 to ensure we have enough people to handle the projected growth and demand for the gateway. On the rail side, 50 per cent of the workforce will be eligible to retire in the next five years. That is not long. On the water side, for example, people that run the tugboats will be needed desperately. The average age of officers on this coast is 54 years old. These people are not easily replaced. It takes, literally, years of training to obtain enough sea time, enough experience and the necessary skills and certificates to operate these vessels in the challenging West Coast waters.

Not all the shortages will be in the trades areas. Management positions must also be filled. There will also be shortages in government as well. Transport Canada has spoken at some of our events about the human resources shortages it will also face. These jobs that need to be filled are good family-supporting jobs, the type of job that will enable people to buy a home even here in the high-priced Lower Mainland. Many jobs start at around $40,000 per year and some exceed $100,000.

The transportation industry is not a top-of-mind employer for most Canadians, especially among youth. Individual operating companies understandably have done a poor job of marketing the opportunities. They are much more focused on their individual operations and are concerned that any efforts in this area would also help their competitors.

A package before you is about a project that WESTAC has been involved in. Through support from Transport Canada, we have developed a website to inform youth about the variety of well-paying jobs in transportation across all modes and levels. It is called transpocity.ca. This website is unlike other career sites that talk about the national occupational classification of skills. It is youth-friendly. It is bright green, it plays annoying music and it has videos of workers talking about the good and the bad parts of their jobs. I am also proud to say we have a completely parallel site in French, transpoville.ca. We travelled to Quebec and interviewed workers in French for the videos: the videos are not dubbed. Again, we want to thank Transport Canada for their financial support.

In the last year the website obtained more than one million hits, indicating growing interest in transportation careers. WESTAC continues to receive positive feedback from youth, teachers and industry about the site and has been asked numerous times to make presentations and attend career events by educators. While we recognize that establishing a website that increases awareness of transportation careers is one step in the process to ensure the transportation industry has its necessary skilled employees to move through the gateway, having a website is not enough.

A sustained marketing effort is required. This area calls for greater federal government leadership and, yes, by leadership I mean more money. If the transportation sector is unable to staff its operations to handle burgeoning trade, Canada's economy will suffer. We will not be able to move the auto parts and finished automobiles; we will not be able to export our farmers' crop; and, as consumers, we will not have access to all the goods arriving from Asia.

WESTAC recommends that the federal government be more involved in promoting transportation careers to youth. An investment in marketing efforts will pay large dividends and will help ensure that Canada has the necessary human resources to develop and remain competitive.

David Colledge, Colledge Transportation Consulting, Inc., as an individual: Madam Chairman and senators, thank you for inviting me today and welcome to Vancouver. It is particularly gratifying to see the important work your committee is doing with respect to container issues. I thought it might be useful to outline what I see as the federal government's role in advancing the B.C. Ports Strategy, mainly from a policy perspective. This strategy is relevant to your work, given that one of the key objectives of this strategy is to maximize Asia-Pacific container traffic growth opportunities. Success will require all partners to work together, all levels of government and the private sector, to establish a large-scale co-ordinated approach to capacity expansion. This expansion will ensure we keep pace with the container volume increases and at the same time accommodate our resource exporters that share the same transport system and, by the way, which account for the majority of the economic benefits to this country.

The leadership shown by port officials in the B.C. government led to my company's work over the past five years in preparing several closely related reports, including the B.C. Ports Strategy, the B.C. Ports Competitive Profile and also related work on the Pacific Gateway Strategy Action Plan, which has evolved into the federal government's Asia- Pacific Gateway and Corridor Initiative.

Progress has been made on the port's file. However, there is still a lot more to do. I do not think our international trade partners and shippers see Canada as acting quickly enough, or taking bold enough steps to expand capacity across the entire supply chain, from origin to destination. Efficient, integrated and timely transportation underpin today's tight global production networks. Production has shifted to economies with comparative cost advantages and has put huge pressure on our domestic manufacturers and on transportation. Logistics are now far more complex and supply chains are longer, often crossing several international borders before distributing goods to final market. Competition is intense to capture market and add value within global supply chains. Therefore, gateways and corridors that are able to provide reliable transportation performance and accommodate the growing throughput volumes will have an advantage over other competing routes.

Service reliability, consistency and even perceptions of reliability will be a major factor affecting Canada's success, not only as a relatively small trade-dependent nation but as a conduit between the big hitters, namely the Asia-Pacific economies and the U.S.

Changes are occurring rapidly. A recent survey was conducted by the Economist Intelligence Unit of more than 1,600 executives from a hundred different countries around the world on their views of the business environment for the next 15 years. The survey found a majority of respondents see quality of customer service and personalization of products and services to be the most important source of competitive advantage, ahead of pricing and cost control.

Second, collaborative relationships with outside parties will become more important as a source of competitive advantage by 2020. This collaboration includes cross-functional and cross-border teams working in partnerships, all with implications for transportation.

The third key finding in this study, supply chain management, was rated by one in five executives as offering the greatest potential for productivity gains by 2020.

In the same survey the vast majority of respondents, by a factor of 2 to 1, viewed the Asia-Pacific region as offering the greatest growth opportunities for business in the next three years. Respondents also believe this region carries with it the greatest risks.

It is incumbent upon us, therefore, to improve the Pacific Gateway and the benefits will be spread across Canada. For example, the direct economic impacts of the Port of Vancouver, according to a study done by the Vancouver Port Authority, are that there are some 30,000 direct jobs related to port activity: about 24,000 in B.C., but also 6,000 direct jobs spread across the Prairies. In terms of the direct economic output, about $3.1 billion is generated in B.C. and another billion dollars is generated across the Prairie Provinces. There are also impacts in Eastern Canada as well.

I think the federal government's focus in support of the B.C. Port Strategy should encompass three main areas: one, creating a national policy framework; two, providing visible long-term funding and, three, supporting research and development. In the first area, national transportation policy, I have heard calls in the industry for an integrated national logistics strategy to make Canada the trade hub of North America. The federal government has constitutional authority for international trade, as you know. Transportation policy must therefore support trade. The primary federal role should be to create a policy environment that ensures sustained private-sector investment in transportation infrastructure and technology to expand system capacity in a timely manner and improve productivity. In some cases, this role should include foreign direct investment, since Canada is losing ground to foreign competitors on commercial opportunities in Asia. Also, our ports should have greater freedom to borrow and invest as I am sure you have heard from the ports, including the ability to invest in, and preserve, industrial land, for example.

Another part of creating the right investment climate is streamlining environmental approvals so there is more certainty. I can talk more about that if you wish. I think we need a pre-approved, sustainable, long-range port terminal expansion strategy that can be rolled out within a short time frame as market conditions dictate, not bogged down in years of review.

There is also a role for public investment in transportation infrastructure but more on that in a minute. The overall policy objective is an economically efficient transportation system that makes the best use of all modes at lowest cost. This objective was first enshrined in the National Transportation Act of 1967 through the principle of competitive market choices as first identified by the McPherson commission. The National Transportation Act of 1987 extended this objective in principle to include competition within the modes. Competition and market forces are the prime agents in the CTA of 1996 as well as continuing deregulation and commercialization.

Today, competition exists among global supply chains that are often controlled by parties well outside our political jurisdiction. As well, there is a tendency by private sector interests to optimize their own piece of the overall supply chain at the expense of others. The system is only as good as its weakest link.

Consequently, attempts by any government to regulate and plan may be avoided by private industry in its efforts to avoid unfavourable conditions.

Second, visible long-term funding: Transportation should not be viewed by government as only another industry source of tax revenues. In the U.S., for example, transportation is seen as essential to trade competitiveness and therefore it is in the national interest to improve it. We need to reinvest in transportation and this reinvestment should include major trade routes as well as regional systems that are vital to many smaller communities and that feed into the national system. In a climate of spending restraint and constraint, it is critical that public resources be allocated carefully for transportation infrastructure based on clear investment criteria. During workshops that we held for the B.C. Ports Strategy, the industry clearly told us that any ports plan must be part of an integrated western transportation strategy. The western transportation ministers took a leadership role here by developing the Western Canada Transportation Infrastructure Strategy that my company prepared and submitted to the federal minister of transportation. This watershed report is consistent with, and supports the same goals as, the federal government's current gateway initiative; namely, to improve the efficiency and reliability of the Asia-Pacific Gateway to boost Canada's commerce with the Asia-Pacific region.

The western ministers' report identifies a strategic network of ports, road and rail corridors and airports across the four western provinces. It also establishes investment criteria to focus spending on the network that supports international trade.

These investment criteria also support other federal objectives, including safety, security and the environment. The key is to ensure that government spending on infrastructure has maximum impact, one of the main challenges cited in the federal Advantage Canada report. Finally, in the area of research and development support, there is a role for the federal government to support R & D that will assist supply chain participants to synchronize growth planning efforts. More detailed reliable demand and capacity forecasts are needed by region to validate the magnitude, timing and urgency of container capacity issues. This will allow system participants to estimate the impacts of capacity shortfalls, and develop co-ordinated and proactive response mechanisms, including changes to existing operating practices, and better planned infrastructure expansion. Service providers must be held accountable to have adequate capacity in place in a timely manner.

The Chairman: Thank you. According to Transport Canada there is no evidence that Canadian ports are disadvantaged in terms of competitiveness. Our ports are able to attract new markets and have some geographic advantages but Canadian ports are also looking to improve by learning from best practices at other ports and by using new technologies. From which ports and which country could we learn more in Canada to increase productivity at our ports? Whoever wants to answer the question can.

Mr. Colledge: I do not know if there is one particular port. Some of the major ports in the world in Europe and in Asia are doing a tremendous job of handling their growth in exporting containers and goods to other parts of the world. I think there are also different conditions in these other ports in Asia. When we looked at productivity in the course of the work for the port strategy, we were cautioned that some ports in Asia have very high volumes. Things are lined up right away and they have transshipment and a lot of different conditions that can allow them to be more productive. I think a key in the future will be to use technology where we can. I think we have been good in this country about adopting technology, and the port terminals have worked well with labour to bring on new technologies. I do not know if I answered your question. I do not see one port particularly but there are a number of examples.

The Chairman: Can we still improve or increase our productivity at our ports?

Ms. Sol: I would say yes, absolutely. The previous speaker on the panel from DP World mentioned they doubled their capacity to handle containers with absolutely not an inch more of land. Whether some other port in the world has best practices, it is difficult to draw meaningful comparisons because environmental rules and a variety of regulations and rules surrounding them are so different that there is not really what you would call a parallel port to ours. We can learn something about the environmental issues when we look at L.A.-Long Beach. Hopefully, we do not reach that stage and can learn in advance but I do not know of a port that we should try to emulate in total.

Senator Tkachuk: I have a number of questions of concern. First let me ask some specific questions. In your recommendations, Ms. Sol, you mentioned timely environmental process, and we have heard the sane thing from many groups that came before us, and they gave the example of Deltaport and the long process. What do you see as a timely process? What does the association see as a timely process? If the two groups, environmental groups and the two levels of government, had been together from the start what would have happened?

Ms. Sol: What do I see as a timely process? Certainly four years was not. Lisa Baratta gave me a little note. In B.C. they have a 180-day process. We were told one issue that was holding up the approvals was the lack of staff and while I may not be able to tell you how long it should take I know that —

Senator Tkachuk: Is this for both levels of government?

Ms. Sol: No, it is federally. We were told they did not have the staff to handle the approvals to take the necessary steps. At no point would the industry want to go around those necessary steps. There is a procedure to go through and the industry is supportive of meeting every requirement, but when the issue is that we cannot even look at it because we do not have the staff I think we have real problems. It would be ideal if the federal and the provincial processes could be worked out so they can take place simultaneously.

Senator Tkachuk: In the Deltaport process who took the most time, the province, or the feds?

Ms. Sol: The federal government.

Senator Tkachuk: Out of that three or four years, how long did they take?

Ms. Sol: Actually, I do not have those details.

Senator Tkachuk: Mr. Colledge, do you know?

Mr. Colledge: I can corroborate that the federal process took the longest and I do not have the specifics of how long it took but I made some inquiries and was told that it would be nice if we could harmonize the process. As Ms. Sol says, we are both working together and I was told that it had the feel of having almost two different processes. The provincial and the federal processes were not always in sync. They maybe had different disputes about different ways of formatting or how to prepare the reports and I think we need a co-ordinated process.

Senator Tkachuk: Two issues troubled me that we have heard over the last two days. One was brought forward by the West Coast Container Freight Handlers Association, the difficulty and slowness of moving exports to the ports and the fact that the operators were more concerned with imports than exports. I think that troubled all of us but it definitely troubled me. All three companies involved had the same story and they all had the same railway and operator issue. When we asked the operators this morning about it they did not really get to the point so I never did find out what the problem was. Nonetheless, they had their say so that was one issue I thought was serious.

The second one was brought up by the operators today that because of the railroads, not only do they not move the exports expeditiously, now they cannot move the imports expeditiously. If they are not doing both things well then there is a problem. We also had some suggestions I want you to comment on. Some of the groups suggested there be a land transportation board or something like that, that there be a government forum where people could meet in a formal way and discuss these difficult issues. Your organization seems to have everybody at one table. Do you think that is a good idea and would serve some purpose? It seems to me it would but I do not know that.

Ms. Sol: It is not something we have discussed but it is an interesting idea. I think the problem originates from the fact that we have two independent, competing parallel systems. We have the container system and we have a competing bulk system and they are running on the same ribbon of steel. The profit margins on the imports are greater now than they used to be and perhaps that is causing some shift in the balance between the two parties, the importers and exporters. It is a natural thing when imports arrive in these steel boxes and oftentimes there is a big rush to take them back to Asia, the cost of cleaning them, repositioning them and returning them to Asia is greater than the rate they can command. When the export system is trying to use those same congested rail lines, it is a real challenge. Whether our group could be used to provide some kind of a forum, there are a lot of competing interests around the table. It is possible as long as the incentive structure is balanced.

Senator Tkachuk: There are two things in business: they need to make money but supply also must be assured. If they make widgets they need to have the things that they make the widgets with and they need to be there on time. This morning we heard from the operator saying that the railroads want to get rid of all this stuff because they have not been paid extra for it or whatever the reason is because they had two or three problems in the mountains and therefore they are behind. Maybe it is in their short-term interest to increase their margins and not bring in the empty rail cars but it certainly is not in their long-term interests because, in the long-term, these impediments both to exports and imports will mean people will go somewhere else. Then they will not have anything to ship and they will not have anything to bring in. You are an association that is trying to represent all the groups in one seamless web and it must be a seamless web. This is a real concern to me. We went the first day to Deltaport and everything was going great and there was no mention of this issue. The operator, the guy in charge, never said anything about this problem. Treat us like psychiatrists and tell us your problems. Let the world know what is going on because if we do not know, these things seem to be hidden. The newspapers certainly are not talking about it in Saskatchewan. I do not understand that. This is a big deal.

Ms. Sol: If I could answer some of that, perhaps I can clarify some. The ideal for a transportation service provider is to have a little bit more business than they can handle. They want all the business they can handle and slightly over that. Therefore, they build no redundancy into that system and in the short-term that is how they make the most money. Every spot on their container terminal is filled, every slot on their rail line is filled and every worker is employed. As these Asian supply chains have become longer and longer — it is a big like a rubber band and they are pulling it — it becomes tighter and risk is added to the supply chain. If we combine risk with the need for just-in-time delivery and we have not built any redundancy into the system, then the moment the slightest problem cascades into a — it could be a big problem and I often hear from my members that they cannot build a church for Easter.

Senator Tkachuk: We have heard that before.

Ms. Sol: That works fine if —

Senator Tkachuk: The point is they can.

Ms. Sol: With electricity generation, they do build a church for Easter. They provide power for the peak times and if Easter comes once a year that is fine but if it starts to come twice a year, five times a year or ten times a year then maybe they need build differently and provide service differently. Without redundancy in the system, when we have a problem, we have the kind of issues that we have when there is a slide, a labour dispute, a storm on the Pacific or something. Problems cascade if we have these long supply chains and no redundancy.

Senator Tkachuk: In your association you mentioned the railroads, the operators and ministers. Do you have representatives from companies in the Prairies?

Ms. Sol: Yes, my chairman is the Minister of Highways and Transportation from Saskatchewan, so we have the various transport ministries and departments.

Senator Tkachuk: Are any businesses from the Prairies represented in your association?

Ms. Sol: We have Reimer Express based in Winnipeg, trucking companies and the Canadian Wheat Board. A number of our organizations are based in the Prairies. Canadian Pacific Railway is based in Calgary. We have organizations such as the Grain Services Union, which loads grain in the Prairies, and a variety of different parties.

Senator Tkachuk: They are transportation people but not necessarily users as well?

Ms. Sol: We have Shell Canada, the Canadian Wheat Board, Canadian Tire and Sultran, the organization that consolidates sulphur for shipment to world markets.

Senator Tkachuk: Mr. Colledge, you wanted to make a point?

Mr. Colledge: Yes, senator, I wanted to add to the point about capacity how I think of it as well. We have the port terminal capacity, then we have the railway capacity and other elements of the system. The point I was trying to make in my remarks is with respect to port terminal capacity. I am sure the ports have told you that they are concerned about the industrial land base. We need to have land areas available, particularly in areas such as the Lower Mainland where there are other competing uses for the land. It would be nice if we could have — I hesitate to use the word ``master plan'' — some kind of plan where we knew that we need certain areas and certain corridors for transportation: if we could somehow reserve those areas and maybe not develop a new terminal or an inland terminal in a certain area but to have this approval process. I understand now that after the environmental approvals the construction must begin within two years. It would be nice if we could have this bigger envelope pre-approved as it were. We still have must be responsible and develop it in a sustainable way but we could have a pre-approved area. Then as the market conditions dictate in the business cases, we could expand into that area.

Senator Tkachuk: We had a group from Saskatchewan who said that perhaps they could load the stuff on the train, send it to the Prairies and then deal with it there. Why are we dealing with it here where everybody wants to live in fancy condos over the water?

Mr. Colledge: I think there are a lot of logistical reasons. It has to make sense from a logistics point of view. Where the facilities are here that is what is happening today. There has been a lot of talk about inland terminals and one has to think as well that the component of the land cost. The availability of the land is one element of a lot of different costs in there. I am not sure of the proportion of the total costs.

Senator Tkachuk: Who decides that? Are the regional governments the ones who zone the land and say this is where it belongs — we will reserve this land for industrial rather than residential use?

Mr. Colledge: It is the local government.

Senator Tkachuk: Do the municipal governments ever have a meeting and say, we have this serious problem with a vital part of our industry on the West Coast, that is, the ports, and perhaps we need a seamless web of transportation and land for further development? Is there a process for that?

Ms. Sol: The municipalities in this area all come together under the Greater Vancouver Regional District. They have what they call a Livable Region Strategic Plan. That plan is slated for major revision. It has nothing about the movement of freight and that is an important gap in the plan for this region. This issue will be addressed.

Senator Tkachuk: It is amazing it is not there.

Mr. Colledge: I have not seen a forum for discussing the freight side. They are focused on a lot of other issues such as taxation and their own viability. I do not see a lot of discussion about the freight issue other than the public hearings I have been to where communities are opposed to the development. Some communities see more trains and more trucks going through their communities as a bad thing. They have environmental concerns.

Ms. Sol: The zoning is done by the individual municipalities so there is not that overall planning, not exactly what you are talking about.

Senator Tkachuk: There are no Wal-Mart and no ports.

Ms. Sol: Exactly.

Senator Tkachuk: It is a great city.

Senator Dawson: I do not want to exaggerate, but even if we build a big church if we do not have any priests we will not be able to do what we want to do. We were told yesterday that for one job-seeker there were 2.1 jobs. I was looking at your plan and wondering, are we too late as far as preparing people by training, recruiting, and immigration? We have been inundated this week with statistics about the growth of different cities in Canada but are we too late as far as labour requirements, or is there something the government can do to help other than the proverbial ``give money.''

Ms. Baratta: I hope we are not too late. I think the trucking sector, in particular, faces the most immediate severe shortage but in other sectors, the shortages are not here right now but they will be in the next five, ten or 15 years. We have time to adapt and recruit the people and let youth know about the opportunities. If we do not have any enough Canadians to fill the jobs, we even have time to bring in immigrants but on the trucking side I do not know what we will do.

Senator Dawson: We were told yesterday that truckers are not skilled labourers so we cannot give immigration certificates for truckers because they do not answer to the criteria. If that is what we need, we should know. I am asking for examples of where the government can help. I think one of our recommendations could be to recognize truckers as skilled labour because there is a strong need for truckers on the West Coast but we have to know what you want from the government.

Senator Tkachuk: We could call them strippers.

Senator Dawson: My colleagues from the East are going to talk because I am impressed with the collective approach of WESTAC. I think there is a need for an EASTAC. We are talking about an eastern gateway but you are a good example of integration of port authorities and co-operation with the terminal operators. Your existence impresses me. Was it caused by the threat of Asia or by the opportunities of Asia?

Ms. Sol: My organization?

Senator Dawson: Yes.

Ms. Sol: My organization was formed in 1973. If you want it in a little pill, four western provincial ministers, The Honourable Fred Peacock from Alberta, The Honourable Roy Romanow from Saskatchewan, the Honourable Leonard Evans, who is still a serving MLA from Manitoba, and an MLA from B.C. named Alex MacDonald came together because the rail system was falling apart in this country and it was because — they were getting a lot of objections from coal shippers and potash shippers — every time the railways picked up another tonne of grain they lost a little more money and they were not investing in the system. My organization spent the first ten years of its existence killing the Crow, if you want to have it directly. When the Crow Rate ended, someone phoned the then president and said now they can sit back and do nothing because their purpose was solved. However, we discovered we had not solved everything but the problem was due to the lack of investment in railways.

Senator Dawson: That example is a good one but I want to go back to training. What can we tell the government that you need and do not have now that is of federal jurisdiction? I do not want to talk too much about education. We may get into a constitutional debate. However, what are your needs that we can address in our report so we have a good response.

Ms. Sol: There are two areas. One of them is Aboriginal people, First Nations people, who are underrepresented in our industry. I think they are underrepresented in many industries and that is a key area where we are looking for people in all sorts of communities, not only in Greater Vancouver but throughout Western Canada and throughout the North as well. That would be one area for assistance in helping us integrate. There are good examples of companies that have done that integration but the issue is huge.

Lisa Baratta mentioned the issue of individual companies not being able to come to the table because, like the two parties that were here in the previous session, they steal people from each other and that issue is big and requires government involvement.

Ms. Baratta: I can give one specific example. For example, the deckhands program is like an apprenticeship program. The students spend time at a campus learning theory then they spend practical time, I think a few months at a time, working on a ship. However, because deckhand certification is regulated by the federal government, for some reason while they are back in school they do not qualify for Employment Insurance the same way they would if they were training to be a plumber or an electrician. If we could have that one small area fixed that would help.

Senator Dawson: One last question, the committee is not a good example because we have only one woman senator, but you are the first witnesses that are women. We are in a man's world when we talk about shipping. Is there a gender gap and is there something the government could do proactively to promote more women in transportation?

Ms. Baratta: Definitely, there is a gender gap. Most of the time, when Ms. Sol and I go to transportation meetings, we are the only women. I know some companies, for example, Canadian Pacific Railway, have a special scholarship for women that want to train to be conductors. Perhaps the government could look at similar programs.

Senator Mercer: Ms. Sol, you talked about the two expert panels reviewing the Canada Transportation Act and reviewing the Canada Marine Act. I think it is worthwhile for us to follow up on that suggestion, and perhaps examine it a little more closely. However, what recommendations from either expert panel or both expert panels together will help solve the immediate problems that we have here on the West Coast in the Pacific Gateway?

Ms. Sol: I would say that the recommendations of both panels are relevant today. It has been such a long time since I looked at some of them that they have faded from my mind but the recommendations, as provided there, can be a blueprint for today. I will give you an example. Regarding the Canada Marine Act, there was a recommendation regarding improving the situation so that the ports could pledge their lands. When they go to the bank, they could borrow money based on not only their cash flows but also on their lands, as an example. The report itself contains good points that can be used today: They have not faded away.

Senator Mercer: I will echo Senator Dawson's comments about the need for an EASTAC. Those of us in the east will probably pursue that suggestion. We should pursue the members of the pulse producers association. I am on the agriculture committee as well and both here and in the agriculture committee they have complained about their transportation problems. Perhaps being a member of WESTAC might help them either solve the problem or at least understand their problem and have others understand the issues as well. Transportation is a major issue in Senator Tkachuk's province of Saskatchewan, and the producers in that province are the major producers of pulse products in Canada.

Ms. Sol: We come together very much in this format and talk about issues and problems. We try to have that discussion in a positive and proactive way and we end up resolving some of the problems. Some of that resolving does not necessarily take place around the table but the relationship is built.

Senator Mercer: Councils like yours are about networking, and the problems that are solved over coffee are often more important.

I want to talk about human resources. I think this issue is huge. I am glad to hear you mention First Nations and the need to address the issue. There are 1,800 longshoremen needed; 50 per cent of the workforce on the railroad is eligible to retire within the next five years; and there is this great shortage of truck drivers. This situation will become the crisis. We can fix a lot of other things, but if we cannot solve the human resource problem — as Senator Dawson said, we can build that church but if we do not have any priest to conduct the service or in this case to drive the truck or load and unload the ships — then we will look a little silly here. Have you met with, and discussed this issue with, people from Citizenship and Immigration Canada?

Ms. Sol: No, we have not discussed it at all with any government organization other than with Transport Canada. However, if there is a critical shortage of truck drivers or anything else for that matter, the solution is really, really, really easy: we need to pay them more and then people will take a good look at the opportunity. Yes, we must provide the job environment but money talks and if we underpay an entire industry and we continue to have these shortages, there is an obvious solution.

Senator Mercer: I concur. However, they need to pay a truck driver a lot more to maintain the quality of life that people enjoy in the Lower Mainland than they might need to pay a truck driver in Saskatoon or Halifax because the cost of living here is so much higher because of the cost of housing is dramatically higher. Then, of course, that cost is passed on down the line. We heard yesterday that the transportation cost of a can of beer is only one cent, but once the cost is 1.5 cents because we are paying the truck driver a bonus, it is not as economical.

Ms. Sol: Exactly.

Senator Mercer: I think we need to combine the discussion of paying people more and our immigration policy at the same time because this issue is not only exclusive to the Lower Mainland. In my province of Nova Scotia, we have a huge shortage of long-haul truck drivers. Products from our farmlands cannot make it to market on time because we do not have truck drivers.

Ms. Sol: British Columbia had a recent visit from the Minister of Industry and Resources from Saskatchewan and he attended a series of cocktail parties and various things. He is trying to entice anybody from Saskatchewan to come back and he is trying to entice new people to come to Saskatchewan. I see recently the B.C. government started its own program because B.C. felt threatened by that visit. They now are going to other provinces to talk British Columbians into going back so we are fighting over a limited supply of people. Immigration obviously will be part of the answer. I do not know whether you can do anything in this forum to increase the birth rate but countries with higher birth rates definitely have more workers. Maybe removing any of the —

Senator Mercer: I have done my part, thank you.

Ms. Sol: Removing the restrictions on when people retire and when pensions kick in and keeping us employed another five years instead of heading out the door will help. Of course, pulling in underrepresented groups is part of the answer.

Senator Mercer: The recruitment by other provinces is ongoing. If you go to Calgary today you will see billboards from Nova Scotia inviting Nova Scotians to come home to fill the jobs in Nova Scotia. It is good news that we have lots of jobs.

Senator Zimmer: The two previous senators virtually asked all my questions except I will go a step further. First, as Senator Mercer said too, I commend you for your organization and what you are trying to do. It is important for consistency, for strength of numbers and for service that you provide to the community, to do that in policy development funding and human resources. I want to ask you about that area of human resources. In my day of going to university — and Senator Tkachuk was at university at the same time, only he is twenty years younger and much better looking — the disciplines were specific: law, agriculture and commerce. Nowadays, the disciplines are even more specific and you mentioned Aboriginal. I was at a meeting in Kingston two weeks ago and I talked for over for an hour with an Aboriginal woman and her discipline is Aboriginal governance. Universities are becoming more specific and that leads into the trades. Trades are honourable professions. I have three nephews, one graduated from university, did extremely well and is in Chicago in an investment company. The other two did not want to go. They wanted to go into the trades and they found good vocations in life. One is with a company that is concrete building of bridges and he tests the water-soluble content in them. The other one went into the sous-chef business and found a fruitful, rewarding trade. The trades are honourable professions: drivers, tugboat operators and things like that. I think it is extremely important to market those jobs because there is a feeling out there that those professions are not honourable, good professions where they can earn a good living. My second question is, do you have any empirical evidence since the creation of your organization — and especially in the last five years because in the last five years there has been a shift away from going to university to go into the trades — as far as how many you have hired and how successful your program has been in human resources?

Ms. Baratta: To clarify, our program on human resources launched only in May 2005 so it is not old. It is still at the young stages for any empirical evidence to be gathered but we do plan to go the technical institutions and asking them if enrolment or applications are increasing. Then, we can follow up in a couple of years and ask the employers if people are mentioning why they came into the industry, but it is a bit early in the game.

Senator Zimmer: The second part of that was raised also with the federal government. I strongly urge you to continue to work with them so that they can also publicize and advertise your programs and that you can work together because there is the syndrome that when people look at the salary of a truck driver, maybe $40,000, they may be on welfare, unemployment insurance or other programs that are federally assisted and they may feel it is not worth their while to take that job. I urge you to continue to work with all levels of government to try to get them off those programs and into the jobs that you have. Again, I commend your organizations for what you do.

Senator Adams: Thanks, Madam Chair. You mentioned the environment department. Are you talking about federal government, the municipality or the provincial government when you say you do not get any action from the government regarding the environment when it comes to developing or trucking concerns. Can you explain that a little bit? Are you talking about dangerous goods or handling other stuff when you talk about environmental concerns? In 1999, an environmental law was passed when David Anderson was the Minister of Environment. We do a lot of environmental organization in our Nunavut area and we have a lot of exploration with the mining companies. That environmental law says that an organization must do an environmental study. The department has 70 days to answer the organization on whether they can go ahead with the project. I am wondering whether you are concerned about that law passed in 1999 where organizations must go through five departments including Environment Canada: the Department of Fisheries and Oceans, Health Canada, the Canadian Coast Guard and Transport Canada. We tried to build some ports, small harbours and stuff like that. Sometimes, it takes a year to get answer from the department. Are you concerned about how the system works in Ottawa?

Ms. Sol: I think the increase and clarity around climate change affects so much of the industry. Obviously, it affects the winter roads and a whole host of things. Almost as a nation we have become so much more catalyzed by the environment and everything around it. To be fair, when we were told that the issue was really about the number of people that could expedite the process of looking at the environment, it is because of public is concerned that I think the government has held back in giving approvals and in looking at things because the public is so concerned. If the government can handle the approval in three months they did not do it properly or fairly or maybe there were holes or gaps in it. After all, we all know that climate change affects everything so maybe there is an unconscious desire to hold back and not give approvals until enough time has passed, as opposed to going through whatever process is deemed necessary. Perhaps there is a reason why we have seen delays in obtaining approvals, because climate change is something that everybody is concerned about. I do not live in some of the more remote areas but when I look at the letters to the editor in some of the local papers, there is so much concern about the environment that everyone wants to hold back on everything. Generally, they think of development as a bad thing. While it may not be the view of the silent majority, there are certainly enough vocal people out there to have an impact.

Senator Adams: I understand. For two mines built in the Northwest Territories outside Nunavut, the estimate was 5,000 trucks that used the winter road in one year. Environmental people saw that and I would say they are concerned that they do not build the winter roads anymore. I do not know what the policy is but the Government of Canada especially Indian and Northern Affairs Canada in Nunavut, we have a lot of exploration there and most of it comes from B.C. A lot of companies have land up there and right now Cumberland Resources is building a gold mine near Baker Lake. Another mining company reopened in Baker Lake that shut down 15 years ago. I met with the community about a week ago and everyone wants that mine open around Baker Lake. Of course that was 20 years ago, and things change.

Ms. Sol: At WESTAC, we are about to hold our second conference on northern transportation in two years. With the prices of commodities, and particularly the minerals and mine products, there is a lot more interest in getting that product out, whether it is through the Asia Pacific Gateway or whatever. How do we connect those northern resource locations in today's challenging global environment?

Senator Adams: We approved a road to be built from Gillam to Nunavut, a 1,200-kilometre road. Now we are waiting for Ottawa do the environmental study.

The Chairman: Thank you very much for your contribution to our study. Thank you for your presentation here today. Feel free to send us any more information.

The committee adjourned.


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