Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 5 - Evidence - February 8, 2008 (morning meeting)


HALIFAX, Friday, February 8, 2008

The Standing Senate Committee on Transport and Communications met this day at 9 a.m. to examine and report on current and potential future containerized freight traffic handled at, and major inbound and outbound markets served by, Canada's Pacific Gateway container ports, east coast container ports and central container ports and current and appropriate future policies relating thereto.

Senator Lise Bacon (Chair) in the chair.

[English]

The Chair: I call the meeting to order. It is nine o'clock and we have a pretty heavy schedule today, especially this morning.

We are quite pleased to be here in Halifax and to be joined by our two members from your province, Senator Oliver, who is the deputy chair of the committee, and Senator Mercer, and we are looking forward to a visit to your port and knowing more about what you are doing here and the possibilities and challenges that you face. That is why we are here. We have visited the ports of Vancouver, Delta, Prince Rupert and Montreal, and here we are in Halifax.

Our witnesses this morning are representatives from the Halifax Port Authority. Karen Oldfield is President and Chief Executive Officer; Paul MacIsaac is Senior Vice-President; and George Malec is Vice-President of Business Development and Operations.

The floor is yours. I am sure the senators will have questions to ask afterwards.

Karen Oldfield, President and Chief Executive Officer, Halifax Port Authority: Thank you and welcome to Halifax. We are very happy to have you here, and we look forward to what we think will be a very interesting day for you. It is always exciting to go on the terminals; there is always something to see and we have a few new pieces of equipment in Halifax that we are happy to show off as well. I hope that you have a great day. It is important for us to have the opportunity to speak to you about the significant role that the Port of Halifax plays in trade and transportation in Canada. From that perspective, we are happy to be part of your overall discussions on containerized freight handled by Canada's ports.

If you look at the picture up on the screen, you see that Halifax is a port city; that is why we are here in the first place. The Port of Halifax has built a diverse cargo business over many years. Today, 16 shipping lines call on Halifax, and the cargo that moves through our port comes from 13 different regions of the world.

Like in many port cities, and Halifax is no exception, the port is a very important part of our local community, our city, our province and in fact all of Atlantic Canada. Indeed, it is one of Canada's key trade gateways to the world. Our port allows import and export cargo to flow from major Canadian centres and our Atlantic region.

We have a wide range of private and public sector partners in our region that are focused on growing the Port of Halifax. We are focused on growth because growth is good for our community and it is good for Canada as a trading nation.

The Port of Halifax is a key driver in the Nova Scotia economy. The port generates over 15,000 direct, indirect and induced jobs. If you remember no other fact from the presentation this morning, here is one that I would really like you to recall: each container vessel that comes through the port generates three person-years of employment locally. That is why we care about growth. Every container vessel generates three person-years of employment locally. Of course, employment equals wages. Over $600 million in wages are generated in our economy each year because of the Port of Halifax.

As you all know, the Halifax Port Authority, HPA, is an independent federal agency established by the Canada Marine Act on March 1, 1999. We are governed by a board of seven directors who are appointed for three-year terms, chosen as follows: one member nominated by the Minister of Transport and appointed by the Governor in Council; one member chosen and appointed by the Province of Nova Scotia; one member chosen and appointed by the Halifax Regional Municipality; and four members nominated by the Minister of Transport in consultation with port users and appointed by the Governor in Council.

Our mandate is to develop, market and manage our assets in order to foster and promote trade and transportation. In Halifax, we have three primary areas of business: our containerized cargo and other cargo business, our cruise business and also a real estate development which supports the other activities. We own and manage 258 acres of property along the Halifax and Dartmouth waterfronts.

In the package you have in front of you, you will find a listing of our current board members together with our semi- annual stakeholder report.

We are happy to see the diverse group of organizations, beyond the HPA, who will be appearing before your committee during your hearings. These groups are a good sample of the many groups in our port and business community that have a role to play in our region's realizing its full potential as the Atlantic Gateway.

Within the context of the Atlantic Gateway, the port is well positioned in terms of geography and infrastructure to serve as the point of connection between the heartland of Canada and the United States and the rest of the world. We have some of the most valuable assets along the East Coast of North America. For example, we have the deepest berths, and we are the only port on the East Coast of North America that can accommodate a fully laden post- Panamax vessel.

We have two state-of-the-art container terminals in our port, which are operated by world class players: Ceres- NYK, which is a global consortium, and Halterm Container Terminal Limited, which is owned by the formidable Macquarie Infrastructure Partners. Our terminals are well-equipped to provide efficient service, and we have capacity on those two terminals to nearly triple container volumes without significant investment. In other words, from today, we could absolutely triple the volumes that we are putting through our port without significant investment.

We have a class 1 railway system, operated by CN, that connects shippers to markets all across North America. We have 1 million square feet of transload, distribution and warehousing facilities, plus road and short sea shipping connections.

We do have many natural attributes and our infrastructure is world class, but we recognize that we have to continue to pursue world-class infrastructure. In the past five years, in particular in 2007, we have been building in a big way. We attracted over $225 million in private investment in 2007 alone.

The private sector has expressed confidence in our prospects with their sizeable investments in our future. In addition, the Halifax Port Authority itself invested in 2007 a record $18.5 million on cargo infrastructure alone, bringing HPA's total investment to over $60 million over the past five years. Much of this investment has been focused on improvements to our containerized cargo at the two terminals. We are very proud of the improvements that have been made and we are pleased to be able to show them to you today.

However, our work is not done. We continue to evaluate and prioritize the next infrastructure requirements for our port that will keep us ahead of the curve. To do that, we work with our Halifax Gateway Council partners to prioritize what is needed for Halifax to be globally competitive and ready for growth.

Our port's long-term success depends on our ability to work together both locally and internationally. We have to work together to deliver a competitive time-cost equation to attract cargo and ships. That is the approach we have taken here in Halifax. In fact, our local port community has come together in recent years to set a road map for the future and to work together collectively.

We have built up a diverse cargo business over time, but for many years Halifax's geography naturally positioned us for very particular trade routes, for example Europe, the Mediterranean and North America. A number of years ago, the Port of Halifax identified that these traditional markets were softening, that the trade coming through Halifax was starting to shift from the Atlantic to the Pacific.

After retaining the best experts and consulting with our port stakeholders, Halifax set out a long-term growth strategy that includes traditional but also emerging markets. We are working together with our partners to increase our market awareness in the emerging markets, and we are seeing positive early signs that this strategy is right for Halifax.

I would like George Malec, our Vice-President of Business Development and Operations, to further elaborate on our business development plans.

Thank you for your time and this opportunity. We really appreciate your interest in our port, and we hope that you have a chance to enjoy some time in our region.

George Malec, Vice-President, Business Development and Operations, Halifax Port Authority: I will highlight some points quickly so that we can lead into the question period.

As Ms. Oldfield mentioned, emerging markets are part of our growth strategy and philosophy here. We realize that there is tremendous change going on in global trading patterns today, and these are still very much fluid. We set our whole business development plan according to that. We are looking at our traditional markets, such as the European market and the Mediterranean, but we are focusing on the expanding South Asia trade coming in through the Straits of Gibraltar both ways. We can speak more to that in the question period.

There is also a dynamic trade going on in the Caribbean market connecting Halifax, and in the not-too-distant future we will be looking at several other key emerging markets like the Baltic area, which is showing great promise.

In terms of capacity and infrastructure, our current sustainable capacity we could work on every day of the week is 1.4 million TEUs, or 20-foot equivalent units, of container throughput, which is very significant. We could triple our existing volumes right now.

We are looking at maximizing all of our assets. In our strategic plan, we have already mapped out where we can go when the business case warrants even further expansion to use the Port of Halifax as a natural gateway connecting the key inland markets, such as Ontario and Quebec, and even westwards. For example, we have joint information with CN on our combined marketing strategies, because we realize that the Port of Halifax is a gateway, a key port developing Canada's economy. It is not simply a regional player. There are fewer than 1 million people in Nova Scotia. There are 2.4 million people in metropolitan Toronto. That is part of our catchment area and part of our impact on the Canadian economy.

With respect to being a global gateway, we also realize that we are an important conduit for Canada's trade south of the border into the United States. Canadian manufacturers, exporters and distributors will source their materials that they are shipping in the United States abroad as well for the value-added component of their own chains.

We also service the American market into the Midwest through the Sarnia tunnel connecting us into Chicago. We have very vibrant trade patterns going on right now in this emerging global market.

As the Halifax Port Authority, we take our fiduciary responsibilities very seriously. We have developed unique security architecture in this port. With our partners, the key regulatory agencies that actually have the mandate for marine security, like the Canada Border Services Agency, the RCMP, Halifax Regional Police and Transport Canada, we have a very efficient, cooperative security regime in the port.

We also take great care towards our environmental stewardship. We are the only port in Canada that has actually gone out and subjected itself to the test of an audit, become ISO 14001:2004 certified for our environmental management system. We are not just telling people that we care: we are doing this. We are prepared to be audited, and we have done that for three consecutive years.

That gives you a good overview of our main business approach and strategy. I would like to leave some time now for my colleague, Paul MacIsaac, to talk about our financial stability.

Paul MacIsaac, Senior Vice-President, Halifax Port Authority: The Halifax Port Authority is a financially self- sufficient federal business enterprise, as required by our mandate. I will give you a few financial highlights: 2006 revenues were $29.3 million, up approximately 55 per cent over the five-year period ending in 2006. Earnings from operation were just north of $14 million, with total assets of $145 million. Of note, we increased our equity by about $32 million over the same five-year period. Net earnings for the year were $7.8 million.

Our financial stability and profitability over the last number of years allowed us, as Ms. Oldfield mentioned, to invest significantly in capital and infrastructure improvements over that time. As noted earlier, in 2007 we had a record investment cargo infrastructure of $18.5 million.

In 2007, HPA was the first port in Canada to receive a credit rating. We obtained a credit rating of A, outlook stable, from Standard & Poor's. Of particular note, when Standard & Poor's compared our credit metrics with those of other North American ports, ours were at or near the top in every category. Our A rating is also supported by a relatively diversified revenue mix, and our financial mix profile is quite low due to the stable business risks as a result of diversified operations, as Ms. Oldfield referred to in her opening comments.

Part of our responsibility is to continue to invest in infrastructure and, as time goes on, we will need to borrow funds for future cargo crews or real estate projects.

The Chair: In previous hearings, a witness told the committee that the only way to capture most of the traffic if the Port of Halifax wanted to be an in-and-out port for the Indian market is to build a greenfield container terminal in the future. Other witnesses say that it is possible for Halifax to grow without any new investments, as you told us this morning. Do you agree with the statements, and could you elaborate on that?

Ms. Oldfield: Each of our two existing terminals is roughly 70 acres. With those existing footprints, and with the equipment that we have today in our port, we can take our volumes from approximately 500,000 TEUs to 1.4 million TEUs. That is a lot of growth.

The Chair: Yes.

Ms. Oldfield: Now, as Mr. Malec can elaborate, we have also undertaken studies within the confines of our port so that we know that with some technology, with some equipment and with some adding onto our existing footprints, it is possible to take those 1.4 million TEUs to approximately 2.4 million TEUs. I hope that clarifies the question. We have lots of capacity today, and we have room to grow.

The Chair: What sort of security investments do you think would achieve the highest practical levels of security while not causing an undue impact on the movement of goods and the course of shippers to your port?

Mr. Malec: The current regime in Canada has the Canada Border Services Agency, CBSA, doing certain things and Transport Canada doing certain things. The primary actions right now for cargo checking and certification are being done by the CBSA, and that is the detection of any inbound radioactive material that could be used as a component of a dirty bomb. Those portals are now installed and up and running in the Port of Halifax. What could be a very useful adjunct to that is to look at how the response mechanism is actually done in all major Canadian ports. Specifically, you could look at roles and responsibilities and whether the people who have the primary response to that type of detection are properly trained and funded. We would encourage the committee to look at that.

In terms of other security architecture, we have collaborated with Transport Canada on the forward thinking part, the basic things like the cameras, the fences and the gates. There is a component though on the water side, which would be a consideration of the actual cost of policing Canada's major ports on the water. Currently Halifax, to our best recollection, is the only port in Canada that actually pays the local municipality for enhanced policing to look at the water side as well as police the docks. There are a number of reasons for that, but in the Port of Halifax we chose to do that because we think it is an important thing to add to Canada's security architecture. It may be argued that there is a role somewhere else for the police to be funded on a more national basis in the ports. It may be time to look particularly at the water side policing of our major ports and waterways.

Senator Oliver: First of all, it is a matter of public record that Canadian Tire appeared before this committee in Ottawa a couple of weeks ago, and I wanted you to know, Ms. Oldfield, that they had a number of positive things to say about the work you are doing here.

I have three short questions. First, we just came from Prince Rupert, and I would like to know how long it takes a container, once landed here in Halifax, to get through on CN to Memphis. Is it shorter than 100 hours? Second, how many containers can you stack on top of one another, and what is your capacity? My third question relates to the Canada Marine Act Review, because the Port of Montreal, Prince Rupert and a number of the other ports have complained that because of legislation they are limited in the financing options that are available to them. What do you have to say about that? Those are my questions.

Mr. Malec: The key point in the CN network, which you will see on your handout charts, is that it is 71 hours from Halifax to Chicago, and Chicago is the pivot point in the CN network leading on down on their train to Memphis. It is another 24-hour haul from Chicago down into Memphis, so it is roughly 95 hours altogether, under 100 hours, assuming that all connections work. Certainly it is physically possible to do.

In fact, that is part of our emerging-market strategy into the Midwest, working with CN on the idea that we have a two-coast, two-railway option in Canada, Pacific and Atlantic, to funnel in through the CN network. As CN's business development strategy continues to evolve from market dominance in the Midwest and to grow their Memphis and Louisiana south port gateways, Halifax is actually positioned very well to be one of the legs in that three-legged stool that sits over North America.

Regarding your second question, senator, stack heights have two elements to them. One is the physical capacity of the terminal structure to hold fully laden boxes, and in that capacity our terminals can hold six high. The real determining factor here is the stevedoring equipment: how high it can go in a stack and whether it has the reach to go over and down when boxes are block stowed. Currently, we have a mixture of material that our stevedores use to handle that. We can work four high on our terminals right now and move boxes over the top. You will find in the Asian and European markets, where land values are so high, that they actually go much higher than that, and the type of equipment they operate on the terminals with extended reach stackers will go up to seven and eight high on empty containers. In all practical capacity, with fully loaded boxes, it is four high.

Ms. Oldfield: I will take the third question regarding the Canada Marine Act. As we all know, the act is currently undergoing some amendments. We view those to be very positive amendments. Of course, we are members of the Association of Canadian Port Authorities, which has taken a position on those amendments, and we support that 100 per cent; we think it will be a very positive move forward for us and for all ports.

From our perspective, we are in a position where we need to increase our borrowing limits, and we are currently going through that process. That is one reason why we chose to obtain a credit rating this year. Mr. MacIsaac is the mastermind of the credit rating, and he did a great job with it.

Senator Oliver: Will that hurt your credit rating?

Mr. MacIsaac: It should not hurt our credit rating. Basically, the credit rating is more of a long-term view, and the diversification of our revenue mix is the most positive part of that. As well, we have very little debt currently. As of the end of 2007, we have approximately $4 million in debt on $145 million in assets. We are in relatively strong shape that way, and we do not think that will impact our rate.

Senator Oliver: I was really quite surprised that not one of the three of you mentioned the Atlantic Gateway in your presentations. Out West and in Ottawa that is all we hear, yet we come here to the leading port authority and you do not mention it.

Ms. Oldfield: I guess I did not speak clearly enough, because I hoped to make reference to it in my original comments. Obviously, it is very important to us. We are a fundamental part of the Atlantic Gateway. Some would argue that we are the Atlantic Gateway. I certainly want to make sure that that is on the record.

Senator Oliver: Thank you.

Senator Zimmer: Welcome and thank you for your presentation. I want to talk about your size and what you are able to handle at your port. Currently, the size of the Suez Canal is being increased, but in Asia they are making ships that are even larger than what can be handled with the increase in size. You mentioned that there is a certain size of ship that you can handle at this time. However, the prevailing thought seems to be ``bigger is better.'' Is your strategy to move towards bigger, or are you happy handling the size of ship you can right now? Is there enough market for that? What initiatives do Halifax Port Authority and other stakeholders plan to undertake to increase your capacity and the size of vessel that you can handle, or is that not your strategy? What is the maximum size of vessel you can handle at this time?

Mr. Malec: That is a very good question. There are two thoughts in the global world market right now regarding fleet management. One is the economies of scale that are achieved by using increasingly large vessels. Until about two years ago, the conventional wisdom dictated that 10,000 TEUs was the upper limit for new vessel container construction because of the engine and ocean systems and things of that nature. Subsequent to that, the Emma Maersk was built, and it has been proven that you can go a little bit past that and still maintain with a single engine. I will not go into the technical jargon, except to say that the upper area of the economy right now is 10,000 to 12,000 TEUs. In fact, ships like that are being introduced into the Europe-Asia trade, which is the hot trade right now globally.

There are other vessels, and the Port of Montreal is a prime example, where they use much smaller vessels that are capable of going through the Panama Canal but not capable of going through the Suez Canal. That is the key distinction you will find in container ships today: Panamax size versus post-Panamax size. Post-Panamax means that the vessel is broader than 30.26 metres, and it cannot squeeze through the canal right now.

Montreal's success with the Canmar fleet, which was bought by CP Ships, which was subsequently bought by Hapag-Lloyd, has been with smaller vessels that operate on a point-to-point service from Northern Europe and the Mediterranean. They are relatively small vessels, but if you have enough of them in your sailing string and you are on a dedicated service route, that business model also makes sense. That is the Montreal model, which is very distinct from our model. We are building towards the ever-increasing ships. We do handle the post-Panamax ships today.

We have five super post-Panamax cranes and seven Panamax-size conventional cranes, which you will see on the port tour this morning. Super post-Panamax cranes are capable of going out 22 bays wide over a containership, which is really quite a massive vessel. We are handling 5,700 TEUs capacity vessels today. We have dredged our facilities. You will see some of the work we have done to add infrastructure. We have the deepest container berths on the East Coast of North America. We have super post-Panamax cranes, and we have on-dock rail capacity of approximately 20,000 feet in total. We can handle considerable volume surges at the same time, if these vessels choose to dump a lot of cargo or a little bit of cargo.

You have to remember that many of the vessels are not on a point-to-point service; they are on a conveyor belt. They come around to three or four key points on each of their major geographical destinations. For example, that post-Panamax ship would go down the coast, coming through the Suez, it would go to Halifax, New York, Norfolk, Virginia and perhaps Savannah or Charleston. It has a specific volume component for each of those ports, and it has specific back-haul cargoes in each of those ports. The whole trick is for that vessel to sail full all the time, to use every slot for containers to maximize its capacity; therefore, our business strategy is to work with that. It is distinct from the business model you saw in Montreal.

Senator Zimmer: There is always the lure to go to larger compared to the markets you have; it is easier. Nowadays, everything is bigger and better and faster. It is easy to get caught up in that strategy and then start to invest in the larger infrastructure and go through that cost. However, do you compare your market and exactly the target markets you want against the size of the ship that you want, so that you are targeting the specific markets and it does not matter if the vessels make it up to 20,000 TEUs, because you will still stick within that market, since that is your strategy?

Mr. Malec: Actually, that is exactly correct. About two years ago, we saw softening in the European market in terms of our ability to work with it. That is a mature market. It is not growing very robustly anymore. We will continue to pay attention to that market.

We realize that the emerging markets in Asia, with the growing export trade volumes we are seeing, are commanding the business decision for these larger economies of scale and larger vessels. The sailing distances from the South Asia market to the East Coast of North America actually fit very well with this big-ship strategy. The cheapest way of moving goods in that whole supply chain is by water. Having a large, fuel-efficient vessel does make sense for the liner operators, and they have caused the port infrastructure to catch up and follow suit.

To give you a tangible example, I refer to the super post-Panamax vessels we are servicing in this port right now. They were too high to go under the bridge in New York that connects 80 per cent of New York's inland container terminal handling at New York Container Terminal, for example. When the super post-Panamax vessel was introduced to this string, it had to switch its terminal calls and come out and go into the global terminal because it could not get under the Bayonne Bridge. Those are the kind of infrastructure challenges that ports and cities have to confront as the liner operators determine what the economic situation is and what type of vessels will be introduced.

Ms. Oldfield: For many years, starting in the mid-1990s, there was talk of the Port of Halifax taking post-Panamax vessels. Although we could physically take a post-Panamax vessel, we did not see the first regularly-scheduled post- Panamax vessel coming to the East Coast of North America until 2006. Those vessels can come to Halifax, but they cannot go to every port on the East Coast. It is always a juggling act: Do you build it and they will come, or do you go to the market? You have summarized it quite well, senator.

Senator Zimmer: I have a question that ties into that regarding competition with other ports, including Montreal, but also especially the American ports — Boston, Philadelphia, Baltimore, New York and New Jersey. How will you compete with them? Are they your major competitors, or do you have enough market that they really are not your major competitors? Do you have sufficient infrastructure and size that you can handle it that competition?

Mr. Malec: That is a key question for us in our business development strategy. What market are we trying to attract in service, where are our growth prospects and who are our competitors? Traditionally, when we were talking about the Northern European trade and the Mediterranean trade, we would have seen ourselves in nose-to-nose competition with Montreal, for example, but the world has changed for us. We see our market as being more along the pattern of the global supply chain — ships run in a huge conveyor belt system coming out through the South Asia market. That is an emerging market that is very important for Canada, and it is very important for the United States, both ways. We are in that market, and in that respect our catchment areas are Toronto, farther west even and down across the border into the Chicago rail distribution network. We would be focused on looking at market share that is now perhaps going over the Port of New York and then on rail systems through New York, either across the border into Canada or farther west into Chicago.

Now, that is not to say that we do not have a healthy rivalry with Montreal for container traffic that is specific to each. Our position is always, ``Let us compete fairly, let us compete openly and let us give our customers the best value.'' At the end of the day, we are here to service trade, and we want to be able to give our economic stimulus the best possible chance it has, and that is providing the best service and best cost for people who want to grow business in Canada.

Our main competitors right now, down coast, are looking at market share with New York. The other point is whether, as the ship continues down the coast, we can compete with the ports like Norfolk in Virginia that have invested hundreds of millions of dollars in port infrastructure and upgrading their rail to penetrate inland.

We are not taking cargo from New York. That is a physical impossibility. There are approximately 50 million to 60 million people within a 24-hour truck driving radius of New York. That is a truck market: 80 per cent of New York's volume goes by truck into that area. By contrast, 70 per cent of our volume is rail to our markets. It is really quite a different situation. We are focused on where we compete, how we complete, what is our value and our economic activity.

Senator Zimmer: You have stayed within your strengths.

Ms. Oldfield: Yes.

Mr. Malec: That is right. We think it would be a tactical error for us not to do that. We have to focus on what we can do best.

Senator Zimmer: Right. Thank you.

Senator Mercer: To the committee, welcome to Halifax, and to our friends from the port, thank you for being here.

Senator Oliver was asking about how fast you can get a box from here to Memphis. I want to concentrate on the box getting here first and on the marketing of the port. How aggressive has the Port of Halifax been in marketing itself in India, China, Taiwan and other major Asian and South Asian marketplaces? Do we have offices there? Do we have staff on the ground promoting the port? Also, how are we involving the retailers on this side of the water who are importing things? How involved are we in talking to the Wal-Marts, Canadian Tires, Home Hardwares and Target stores, et cetera, to make sure that they look at Halifax as a positive destination? Of course, Senator Oliver's questions regarding the second phase of getting things from here to the market are very important.

My other question is with respect to CN. We are handicapped a bit here because we have only the one rail company to deal with, whereas in other ports they have CN and CP, which is an advantage. Do you see this as a disadvantage? Is our relationship with CN positive enough to allow that tripling of capacity if we were lucky enough to go that route?

I am trying to get all my questions on the table at once. We will hear from Melford International Terminal Inc., which raises the issue of competing amongst ourselves in Nova Scotia. I know that what they will show us is a fairly aggressive and positive picture of what they want to do in the Strait of Canso. It seems to me that in a community of fewer than 1 million people, should we not be looking possibly at having one port authority, perhaps the Nova Scotia port authority, as opposed to restricting authorities to the Port of Halifax? Should we be looking at the Strait of Canso and Sydney as all coming under one umbrella?

Senator Oliver: That is a very good question.

Ms. Oldfield: I am guessing my two colleagues want me to take that one.

Senator Mercer: I thought they might.

Ms. Oldfield: Let me break down the four parts of your question, senator. First is the marketing we are doing on the ground. Interestingly, as I have said publicly many times before, it took 250 years for somebody to market the Port of Halifax outside the Port of Halifax, and that was the first office that we opened outside the port. That was in India at the tail end of 2006. It was a huge step forward for us, and we are really targeting Southeast Asia. We started with India. We need to make sure that our partners there are supported and that they are starting on the right track and doing the right things. As soon as we feel comfortable that we have made a good start there, then we really have to branch out and look at the other parts of Southeast Asia. For example, we are doing some research on the markets in Vietnam and some of the other countries in Southeast Asia. It is highly likely that Mr. Malec and a number of others will be doing a fact finding mission there later this year.

India will still be a way off. They have a lot of development yet to be done. It is an important country for the long haul. I will share an anecdote with you. Norm Stark, the president of TSI Terminal Systems Inc. in Vancouver, was in our port for many years before he moved to the West Coast; we are still in regular touch. He has told us on numerous occasions that it took many, many trips to Asia before it really caught on, before he started to penetrate and before they actually started to be able to partner. Therefore, we know that our emerging-market strategy is not an overnight success. It is long game requiring a persistent, sustained, continuous effort, and not just by the Halifax Port Authority but also by our terminal operators and CN and other partners who are necessary to the chain. We have certainly made a start, and we are happy about that.

Also, at the tail end of 2007, we retained Paul DuVoisin to represent our interest in the New York-New Jersey market. I think this will be an important stepping stone for us. One of the primary reasons we did it — and this may come as a thunderbolt — is that Halifax is not where the decision makers are when it comes to global container shipping. New York-New Jersey has many decision makers, and it is important for us to have boots on the ground, an ear on the ground and be able to work with somebody in that local market.

One of our terminal operators, Ceres/NYK, has their head office is in New Jersey, and Macquarie Infrastructure Partners, the new owners of Halterm, also are based in New York-New Jersey. It is great that we now have the ability to conduct meetings with our fellow in New York-New Jersey as required with shipping lines or customers. The whole notion of getting outside of Halifax to sell the port is very important, and we need to do as much of it as we possibly can.

The second part of your question had to do with retailers. About four years ago we really started to catch on to the fact that the shippers or the cargo owners can really help us to encourage shipping lines to call on Halifax. This committee heard from Canadian Tire. I am happy that Canadian Tire had good things to say. We are pursuing a strategy of working with the cargo owners and asking, advising and encouraging shipping lines to call on Halifax.

With respect to Wal-Mart, Home Depot, Loblaws and the whole list of Canadian retailers, it is very important for us to be in that milieu. That means that we have to spend time in Toronto, where many of the Canadian head offices are located.

I will ask Mr. Malec to speak to the next part of your question, dealing with CN, and then I will come back for the last part.

Mr. Malec: Senator Mercer, I would like to address two aspects, and maybe this will spur a follow-up question from you. The first aspect is the actual capacity and infrastructure CN invests in to service our business, and the second is their whole focus on business development. On the first aspect, given the capacity of the track bed, even with the VIA Rail trains on it and allowing for the proper separation of distances between passenger trains and freight locomotives and the safety factors, CN can triple their volume right now coming out of Halifax. They are looking at Halifax far more aggressively now, because, in the West Coast scenario, CN had to do market share and compete with CP for the traffic on rates out of Vancouver. CN invested more than $40 million into Prince Rupert primarily because they would be the only game in town. That was unique to their system, and CN enjoys that kind of position. Now, they have that position in Halifax. They have 100 per cent of the hook and haul coming out of here.

CN's position now on the East Coast of Canada is focused on, ``How do we grow our volumes out of Halifax?'' That is what you see in brochures, for example the joint CN-Port of Halifax business development materials. We are doing common trade calls with CN. We realize that their infrastructure capacity, like our terminal footprint capacity, both have enormous capability to handle more volume. They are interested in top-line growth; we are interested in top-line growth. I stress that point, because five or six years ago CN was still trying to identify, in its strategic business plan, through all its lines of business bulk, break bulk and containerized, what were the appropriate rates of return, how much they would invest of their time in infrastructure and any particular line of that, and where was their highest profit. They are a company that is responsible to shareholders, so they have to be driven by that over-arching question. We, as a port authority, understand that, and when we are speaking to them we align ourselves to make sense of our value proposition to CN.

Under Paul Tellier's stewardship, CN used to look at Halifax as a premium service port, which meant, ``We will not grow the volume, but we will get the best possible returns on using Halifax for a certain segment of our cargo.'' The big volume growth was on the Asia connection through Vancouver. Now they are re-thinking that under their current president, Hunter Harrison. They are far more focused on the top-line world. That is why you see the type of materials we have included in your package. Our interests and theirs and the interests of our stakeholders and shipping lines are coming more into alignment. We are constantly facilitating that dialogue with CN and with the liner operators, because at the end of the day, CN is the crucial component in growing our volume because of that whole inland-market reach and connection.

Senator Mercer: Are you confident that they have the rolling stock to handle that? Do they have the engines and the cars to be able to handle a volume increase of that size?

Mr. Malec: Yes, senator, we are. There are two aspects to your question; one is that during the winter months, of course, you can run trains only about 6,000 feet to 7,000 feet long because of the temperature and hydraulic braking systems. In the summer, you can run about 10,000-foot-long trains. They have enough railcars in their inventory or that they can lease fairly quickly to run the maximum train lengths possible, and then re-allocating locomotive power and engine power is a tactical decision they make looking at their whole grid and saying, ``Okay, where is our market growing, and where do we need to put assets?'' They are actually very centrally controlled and quick to make decisions of that nature. In terms of car supply, they have it. In terms of locomotive power, they have such a vast network that they will reassign it where it is most appropriate.

Ms. Oldfield: It is interesting that the chair asked the question on capacity, and here we are sitting on a million TEUs of unused capacity with ability to grow. The three of us here and the other folks who work at the Halifax Port Authority — we are a staff of 67 people — and our board and our community are all focused on selling that capacity. That is what we do.

There are a number of ports in Nova Scotia and around Atlantic Canada. We believe that the Atlantic Gateway is a very important initiative. We are absolutely thrilled that the federal government is starting to shine the light on the gateway and we are very excited about upcoming efforts by the federal government. I think it is important to be as unified, coordinated, and aligned as we possible can be; we see it as an important part of our role at the Port of Halifax to not hog the show but to put our shoulder to the wheel and to do our part to make sure that we are acting as an economic engine of Atlantic Canada, because that is what we are. Having said that, we are pretty focused on our business, so we do look forward.

Senator Tkachuk: With the other ports there, is there reasonable competition even though you have so much access? Will all the ports be operated as independent ports, or will there be a Maritime port authority, or how will that all work?

Ms. Oldfield: I will leave it to much smarter people than I to determine whether there should be one or more port authorities, but perhaps I could just say this. About five years ago there was talk, before Halifax became a Canada Port Authority, that maybe we should be pursuing a model like they use in some parts of the United States, where the airport and the ports are under the same authority. In Halifax, we have formalized our relationship with the airport so that we are working together as part of the gateway. We do not have a memorandum of understanding, and we do not have joint board meetings, but we do work together on a regular basis. Similarly, on the port side, we had a session in the summer where our senior management team and the senior management team of the Saint John Port Authority in New Brunswick sat down and shared strategies to look at areas where we can work together.

We have certainly taken the opportunity to visit the super port at the Strait of Canso to see what they have. Where we have opportunities to support and work with others, we definitely are prepared to support and work with them. In terms of an actual structure, a formal Maritime port authority, as I say, I leave that to brighter minds than mine to determine whether that is the right way to go, but we do think that it is important to have troops on the ground working together.

Senator Tkachuk: Are your customers are happy with CN? It seems they are.

Mr. Malec: Yes. I think the best method to determine that is always to ask them, and even when they have not been asked, they will tell you. About five years ago, when CN changed their basic operating plan to the IMX precision railroading system, just about every second day you would read that the sky is falling and the world is a terrible place, because that was a tough time for our customers.

Again, I would encourage you to look at the coasts very differently. The West Coast has some unique challenges. Last winter, they went through the most difficult period that they had. They do have some congestion and bunching issues by the sheer volume they take. Our customers on this coast are not writing letters to the editor; they are not complaining loudly in public forums. We would not presume to speak on their behalf, but we will share with you the fact that we stay very close to our customers and very close to CN. We have joint meetings with our customers and CN in the same room to iron out issues. We do not wait to have things rise to a head, and we track all the key performance indicators in our port. Our rail dwell times, for example, are the best of any major port in Canada. The way CN gets a box and moves it inland, we can prove that. Our customers will prove that. They keep their own statistics. The service levels are acceptable, the volumes are moving, the traffic is moving, and we keep containers around for very limited dwell times in Halifax before they are inland to their markets. A the key problem on the West Coast is that the dwell time gets bunched periodically and containers get buried in, and then it is 14 days to get it off the dock. You get these horror stories, but you are not seeing that in Halifax.

Senator Tkachuk: I want to talk to you a little bit about the global supply chain that you mentioned earlier. How much of your volume is bulk versus container?

Mr. Malec: By weight, our two primary bulk volume markets are the oil coming in from places like the North Sea to the private refinery on the Dartmouth side, the Esso Refinery, and the gypsum that is mined here in Nova Scotia that goes from the National Gypsum site in the Bedford Basin down the coast primarily for the building of drywall products for the American housing industry. You can appreciate that one of those is not doing as well as the other right now, but in terms of tonnage, they account for about 4 million tonnes of petroleum and about 1 million plus tonnes of gypsum.

The container traffic hovers around the 4 million tonnes to 5 million tonnes mark. Traditionally, though, we tend to measure our container volume in terms of containers, because that is the way ports internationally measure themselves, as opposed to by tonnage. When we measure ourselves in the Canadian context against other ports, we find that a port like Sept-Îsles handles more overall tonnage than Halifax, but it is bulk iron ore, for example. It is not a great comparison to economic impact, because obviously handling break bulk and bulk cargo-like containers tends to generate far more economic activity and spin-off revenue than shear bulk operations do.

Senator Tkachuk: How about the return containers and the exports? What would your percentage of business be on exports? I am not quite sure where I am leading, but I will figure it out as I go.

Mr. Malec: We actually have a unique position of balanced imports and exports, and that is what our liner customers demand of us. The whole idea, as we mentioned before, is that the slot for that container on the ship should not be empty. When they discharge import, they want export back on the ship. We groom our whole market outreach to that.

One of our challenges now is that we are export rich. We have more export containers and we have generated more appetite and more volume for exports than the shipping lines are prepared to handle for us, and we are working with some of our customers very aggressively to try to get shipping lines to give them more export space.

Senator Oliver: Where is that export coming from? What is it?

Mr. Malec: The Bowater mill in Liverpool, for example, requires more space. The have markets that they have generated and created internationally. They are looking for carriers to take their product, and the carriers are saying, ``Okay, you are offering me 50 containers this month; I will give you space for 10 because I am full. I am getting better revenues somewhere else.'' There is frustration right now among exporters who have the cargo to offer, and as the port authority, we are working very hard to convince the shipping lines to give us more space.

Senator Tkachuk: And containers?

Mr. Malec: That is correct; it is containerized volume.

Senator Tkachuk: That is good news for your global supply chain.

Mr. Malec: Yes.

Senator Tkachuk: In other words, you can fill up the container, hopefully.

Mr. Malec: That is correct, senator. The challenge for us is that over the last year or year and a half, the shippers have been able to get more revenue down coast in the U.S. market. The can charge a higher premium on their boxes going in through a port like Virginia into the American market than they can coming over Halifax, going inland to Toronto or on to Chicago. It is a numbers game for them. The greatest revenue at that time is where their slot will be allocated.

Senator Tkachuk: In the West, we heard quite a bit of testimony about inland ports that could fill those containers with pulse grains or commodities that would ship out West. Are your export containers routed the same way, in other words through inland ports? How do the containers get loaded, and who loads them? Are they loaded here or inland, and is there enough of a supply of containers, or is there anything that can be done to increase the supply?

Mr. Malec: As an example, at the Bowater mill in Liverpool, Nova Scotia, they will load their containers directly for pulp paper, export paper markets, and so on. They will load their containers directly at their mill and truck them to the Port of Halifax. CN will bring export containers in from Ontario, Quebec, the Midwest. They will come straight into the container terminals and go. It is a combination. Most of it is outsourced, coming from that point, the factory or the depot, in to us; and, as I mentioned before, in Atlantic Canada we are actually blessed with that.

In Prince Rupert, their challenge is to create the back-haul opportunities so that the railcars are not coming back empty. That is not our problem. Our problem is to continue to pound away on the import side so that we can create the opportunities for Canadian exporters to get a spot on that ship. That is our challenge right now.

Ms. Oldfield: I want to mention as well our transload sector, which you may hear about from other presenters in greater detail. That sector is important as a way to create empty containers. This is a variation probably on the information that you would have heard from Canadian Tire, but we will have a vessel coming in with international containers. Those international containers will be trucked to a transload facility, perhaps in Burnside Park in Dartmouth. The container will be taken apart. The materials coming out of the international container will then be repacked in domestic containers that will be trucked or railed to other destinations in Atlantic Canada. The key is that all of a sudden an international container has been created for our export out of Atlantic Canada. Therefore, this is an important sector for us and one that we, together with the Halifax Gateway Council and the Greater Halifax Partnership, are working hard to grow, because that gives us empties and that is all about the export.

Senator Dawson: We were in Prince Rupert last week. They have growth potential that gives them the opportunity to think that someday they might get out of the cycle of having to ask government for funding or loans and instead be totally private. Do you have an opinion on privatization?

Ms. Oldfield: Not really. We have not been hampered by the Canada Marine Act, and the amendments to the Canada Marine Act will help us. We do not have a problem in that regard.

Senator Dawson: My second question is on the life cycle of a container. We have been told that in Canada, in order to get maximum tax freedom a container has to be used only once and then sent back, whereas in the United States it can be used for a whole year and can be used multiple times. Do you have any comment on that?

Mr. Malec: It is an interesting point. As long as the container does not dwell in the Canadian market extensively, the tax implication should not come into play. Let us take an example. Hapag-Lloyd is bringing in furniture from Vietnam. The box comes ashore, goes to Toronto, the cargo is distributed to Canadian Tire's outlet stores, then the box is repacked and sent back out. Typically, in our market the containers do not stay in Canada, so it has not become an issue for the traffic coming over Halifax. If the container were in the domestic trade for a period of time and value added were put on, then it would be an issue. At present, for our volume and our customer patterns, it does not appear to be a problem.

Senator Dawson: Do you have containers getting off a big international ship and put on a dredge or on a small ship to go up the Atlantic? Or is that not part of your market?

Mr. Malec: Actually, we are one of the key short sea shipping ports in Canada, with regular container services to St. Pierre and Miquelon and to Newfoundland. We are working on resumption of trade into the New England market via marine service, and there is potential for one to go down later this year, called the Great Lakes Feeder Service.

Senator Dawson: Percentage-wise, how would you divide ship-to-rail, ship-to-truck and ship-to-ship?

Mr. Malec: As a rule of thumb, based on last year, about 70 per cent is rail traffic, about 15 per cent to 18 per cent is truck and about 12 per cent is tranship.

Senator Dawson: Now I will turn my voice to Senator Oliver. This week we met with the new president of the Montreal Port Authority; last week we were in Prince Rupert. In B.C., they start by the gateway and then they come to the port. In Montreal, you start with Montreal and you practically finish with Montreal, and here, to a certain degree, you start with Halifax and you finish in Halifax. The Western mentality now seems to be towards gateway cooperation, not seeing Montreal as a competitor but seeing New York as the real competition and not seeing Prince Rupert as competition for Vancouver, but Seattle. I think that is a bit of a preoccupation that we have in the tradition of competition between St. John's, Halifax and Montreal. Being from Quebec City, even though it is not in the container business so to speak, we believe that we will have to convince people that they have to work in cooperation, and we are somewhat concerned that the gateway issue is not in front in your presentation.

Ms. Oldfield: I would not want to give the impression that it is not important. It is important, and there have been a number of questions regarding regional cooperation. The Halifax Gateway Council was formed in 2004. There are now a number of others. I know that there is one in Saint John as well. We think it is important for our regional transportation assets to come together and to work together.

The Greater Vancouver Gateway Council came into existence many years ago. We in contrast are still a baby. We are just learning to walk. We do need a little bit of time to grow up and go to school, I guess. We would encourage your help in that regard, and we certainly look forward to your feedback. In Halifax we believe that cooperation is absolutely imperative, because as a port authority you can do a simple exercise and list on paper all of the things in your control, which are not very many, and all of the things out of your control, which makes for a long list. We have to facilitate, coordinate, influence and work with our partners. We cannot do very much alone. All of that spells cooperation.

Senator Dawson: There is a difference between Vancouver and Prince Rupert; in Vancouver, we had municipal authorities coming to complain about the growth of the ports and how that will hinder their environment. In Prince Rupert, they will do anything they can to make the port happy. How is your community support or community involvement as far as maintaining and also potentially growing the Port of Halifax?

Ms. Oldfield: Every container vessel equals three person-years of work. That is very important to our community. We work closely together, and I would be astounded if you did not see a good sense of alignment in the presenters that you will have here before you. We work closely with our regional municipality; from that perspective, we count ourselves lucky because we have only one regional municipality to deal with as opposed to many. That can be a challenge in other port cities. We work well together; we have a strong port community and we have a strong business community that is supportive of growth in the port. I think we do quite well there, but it takes a lot of work to be on the same page. We look outward rather than inward, and I would close by saying that we have 934,000 people in the province of Nova Scotia. We have to go and find that business. That business will not come knocking on our door with 934,000 people. We have to go knock on their door and make the case.

Senator Adams: It is February now, and I know that the North is icebound. Is there anything during the 12 months of the year that slows down or stops container traffic from coming to Halifax in the summer or in the winter?

Mr. Malec: No, senator, we are completely ice-free year round. There are no real impediments. The only thing that ever slows down the commerce coming over our port is a major snowstorm inland in a central Canadian area that blocks or effects the CN switching yards or train tracks. For example, about a month ago Montreal experienced a very serious snowstorm that shut them down for days. That slowed down the shunting of railcars through the Taschereau Yard, which is the main rail yard of CN. That effects us a little bit. However, in terms of vessel activity and traffic, we are open all the time, year round.

You may have noticed when you were in Prince Rupert that the West Coast periodically gets extremely high coastal winds. There are really high storm surge conditions when they get a tropical depression coming up the West Coast. We get whacked with a hurricane every 50 years; we are okay, it is not too bad. We tend to be able to come in and out with minimal weather-related delays.

Senator Adams: With the big owners and suppliers, like Wal-Mart, Canadian Tire, Costco and Home Depot, what happens if shipments have been delayed because of whiteout conditions or mechanical problems, for example? I know truckers sometime say that they have to be there and if they are delayed, they have penalties. Does that effect anything at the Halifax Port Authority?

Mr. Malec: Yes, that is correct, senator. As the port authority, we are not directly in the commercial chain of contract between the shipping line and the carrier to guarantee that the product will be there at a certain time or there will be a consequence. However, when there are delays or problems, we will see if there is a role for the port authority to play in terms of unlocking that or helping that along in some respect. For example, we tend not to charge demurrage here. It may be advantageous for a shipping line or a particular shipper to bring in certain volume well ahead of a sale that they are doing nationally and use a port like Halifax to stockpile those boxes. On the West Coast, on the other hand, they might not look favourably on that because of the congestion problems they have. Those are tangible ways we actually help unblock the supply chain, so that if there is a bit of a kink in it, it is not catastrophic because they have already built in some time in order to position a stack of containers in a foreign capacity here.

Senator Adams: What happens, as you mentioned earlier, to smaller ships that have to go down St. Lawrence to Montreal? There might be times of the year that you have to use a Coast Guard ice breaker. Does it make any difference in the cost?

Mr. Malec: There was a time a number of years ago when the cost of ice breaking and the federal government's role in providing ice breaking was considered to be a controversial topic. I can tell you honestly, senator, from our perspective today that is not what we are focused on. Most of the vessels going the St. Lawrence Seaway into a port like Montreal, for example, are reinforced or ice strengthened. The way that Transport Canada and the Coast Guard do their cost recovery to keep Canadian arteries open has always been subject to some concern by various shipping communities, but we are far more focused on growing our business and our trade lengths right now. It is really not an issue for the Port of Halifax to focus on.

Senator Adams: We heard that CN has more a monopoly and that they do not care whether anything is delayed, and sometimes there are truckers' unions and so on that do not get along together. We heard that CN really does not care too much so long as they get their own stuff, and the truckers are supposed to be shipping to other places and long driving. How does the system work here?

Ms. Oldfield: I would like to think that our shipping community and those parties involved in the supply chain really understand the importance of the port for both import and export. I think that our shipping community and the other modes that are required to make the supply chain work come together very well. That is not to say that everybody is happy every day, but it is to say that there is a definite acknowledgement and recognition that we must work together. By working together, we have a much greater chance at success. We spend a lot of time working with the different parties in the supply chain to bring them together. We have certainly had some ups and downs, but on average it is working very well.

Senator Adams: Those of us who live in the Arctic have a very short season, especially this year. We did not expect an earlier freeze in the Hudson Bay this fall. Some of the barges that were supposed to go to other communities got delayed and ended up in an inlet, and the sea was freezing over. That is mostly what my question is about.

I would like to ask those suppliers up there who is at fault. There was equipment, mining equipment, and everything was delayed and now it has to go through the winter roads, hauling again about 200 miles from the mainland. At different times it is people, their shippers. I deal sometimes with CN, and they do not really care too much as long as they get the equipment. From there, they do not care when they will be there, as long as they get your money. I live in the Arctic in the Hudson Bay area. Most supplies from my colleagues come through Winnipeg. Now we have a different company running the railway between Churchill and Winnipeg. Anything that comes from the East, they have more, and none of the supply from CN until they get to Winnipeg. That is a little more my question, especially living in the short season, living in the Arctic. Especially now, everything costs so much; the cost of living in the North, especially in the High Arctic, is so high because of the shipping. People up there were charging for marine and the Coast Guard charges marine fees. That is different than in the East.

Senator Zimmer: I would like to comment on what Senator Adams just said, and that is one critical point of Churchill. The port routes right over into Russia, which is another market that could be created on the basis of global warming, ice breakers and all of that. We continue to look at that and see what the development could be there.

My question, though, is about your workers. Throughout your presentation you have mentioned employment, employment years, and what you have created; you have talked about infrastructure, markets, movement systems and working together. The glue in all of it is the workers. What is your relationship with your workers? Do you have union problems or any problems with recruiting?

Mr. Malec: There are two elements to that. As the Halifax Port Authority, we have a pool of approximately 70 employees that are directly accountable to Ms. Oldfield in one relationship or another through the structure that people like myself and Paul MacIsaac form part of.

I believe your broader question is directed towards the people who move the product around. That would be the International Longshoremen's Association, ILA, which has three branches to it, including the truckers, the railway employees, and all of those people. It is our understanding that the ILA will appear before you tomorrow, so they can speak to that issue clearly. We do tend to maintain very good working relationships with them. We see ourselves as the honest broker in this whole mix. We have to be able to bring people to the table and work with them in a cohesive manner. For example, one of our bigger recent challenges was working with both Transport Canada and the ILA on the federal government's credentialing issue, getting all these people processed, certified and carded. The facts speak for themselves. Where you had a legal challenge and all sorts of issues on the West Coast, in Halifax we were the first major port to get up and running. The longshoremen cooperated with it, and we processed them through under the Transport Canada guidelines.

We tend to bring them in. We believe in having everyone come in the tent in this port. We are a small, discretionary port. We cannot leave people out. We need everybody working on the same agenda. We do not have the luxury of 50 million to 60 million people around us where we can pick and choose our cargo. The ILA is part of that team, their part of the tent, and they come inside with us. I would invite you to ask them that question straight up.

The Chair: Thank you very much for your presence here this morning. It is helpful to all members of the committee to start out the discussions on the Port of Halifax. I think the visit that we will have with the Halifax Port Authority will be important and will further our discussions with our witnesses while we are here in Halifax.

The committee adjourned.