Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 28 - Evidence
OTTAWA, Tuesday, April 8, 1997
The Standing Senate Committee on Foreign Affairs met this day at 4:00 p.m. to examine and report on the growing importance of the Asia Pacific region for Canada, with emphasis on the upcoming Asia Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's year of the Asia Pacific.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable Senators, we are running in competition this afternoon, not only with the Senate itself, but with several other committees dealing with urgent legislative matters.
This afternoon, we resume our work on the relations between Canada and the Asia-Pacific region, and we are assisted this afternoon by witnesses from the Conference of Ocean Carriers. It is my understanding that we have with us the manager for the organization, Brenda Johnston.
Ms Brenda Johnston, Manager, Canada Westbound Rate Agreement; Vice-President, Associated Conferences Secretariat; Conference of Ocean Carriers: With me today are Mr. Barry Olsen, President of Maersk Line Canada; Mr. Albert Pierce, Chairman of CWRA; Mr. Henry Munz, Sales Manager, K-Line; and Mr. Klaus Schenede, Pricing Manager, K-Line.
Honourable senators, I appear today on behalf of the Canada Westbound Rate Agreement. CWRA is a group of eight ocean and intermodal shipping lines authorized under the 1987 Shipping Conferences Exemption Act to meet, exchange market information and make joint pricing decisions in the trade lane from Canada to Asia, a broad area that includes destinations from Japan and the Russian Far East, Korea, China and southeast Asia.
My remarks today will be presented in three sections. The first section will explain the rationale behind SCEA, the system of liner shipping conferences it supports. The second will offer an overview of the ocean transportation market between Canada and Asia, including an examination of freight rate trends. Finally, I will attempt to clarify specific issues raised by the Canadian Shippers' Council in November 1996 hearings before the Senate foreign affairs committee.
Liner conferences such as CWRA exist in most of the world's trade lanes today. They date back to the British system established in the 1870s to bring order to what was at that time a highly cyclical and volatile transportation system on which the British relied to carry their trade. Sailing ships of that day were completely mobile assets and their owners unaccountable to any authority except the marketplace. Ships called most ports on an "inducement" basis; in other words, they would determine through their agents whether sufficient cargo was booked and waiting at a port to warrant a call and adjust their schedules accordingly.
When conditions in a particular trade lane were favourable, ships flocked to the ports in question and abandoned en masse those routes where cargo volume did not justify the cost of service. Importers and exporters could find themselves with many sailings at deeply discounted rates one month, and irregular sailings, indefinite schedules and high rates in the next month. Conferences were seen as a low-cost means of levelling out these cycles, assuring a more consistent level of transportation service, providing ship owners with a more predictable revenue stream, and enabling shippers in turn to more effectively plan costs and price their products.
The result was that, although rates at the time might be higher than in a purely market-based system, service was more reliable and a wider choice of carriers remained in a trade through cycles marked by over-capacity, unfavourable exchange rates, restrictive trade policies and other difficult conditions. The same situation is true today in Canada.
Let me first make a distinction that members of this body may not automatically make themselves. When we speak of liner shipping, we are referring to scheduled ocean shipping services involving primarily container ships carrying semi-finished and manufactured goods as well as some raw materials suitable for containerization. This excludes ships that are chartered by the customer or a third party for a single voyage or multiple voyages, and typically carry bulk raw commodities such as coal, grain or petroleum.
So we are talking about ships that call Canadian ports on a fixed schedule, irrespective of whether cargo is waiting or not and whether the cargo waiting commands a high or low rate. These services are common carrier services that accept anyone's freight on a "first come, first served" basis. That is a significant commitment and a significant exposure in terms of crew, fuel, terminals, inland transportation connections and branch office support. On average, about 85 per cent of total voyage cost is fixed, amounting to millions of dollars per vessel per sailing.
Canada relies entirely on foreign-flag shipping lines to provide what is essentially a privately financed infrastructure to move its trade. Wisely, Canada has not favoured subsidies and registry schemes to promote a national flag shipping fleet. It has not needed to do so. A wide range of shipping options are available to Canadian exporters and importers at what most would agree are highly favourable prices given current service levels. They are available in part because shipping lines are able to rationalize their assets, exchange information, and collectively negotiate rates with customers under SCEA.
It is not only the shipping lines which face enormous exposure due to their fixed costs. Canada's ports, in order to remain competitive in their long-term planning, are looking ahead at sizable investment in new infrastructure, from large high-speed cranes, to expanded storage area and terminal gates, to container yard cargo, equipment tracking systems, to specialized warehousing. That level of investment requires some assurance of stable tenants and users over a long amortization period.
The ultimate beneficiary here is the transportation customer who needs to know that a choice of carriers and schedules is waiting when cargo needs to move, that the right equipment and specialized handling is available, and that the on-time delivery commitment is reliable. This is especially true as more Canadian companies move in the direction of global sourcing, overseas sales and distribution, and just-in-time inventory management strategies.
Conferences in their current form contribute to overall service stability without insulating carrier pricing from external market forces. The image of cartels dictating price and stifling competition simply does not apply in today's environment.
As you may be aware, CWRA includes many, but not all, of the major carriers in the Canada trades. It represents only a fraction of the total liner and liner-competitive services available in the marketplace. CWRA carriers do not have the market power to restrict entry to a trade or to force competitors out of a trade. Within the conference, a member line is free to take action on rates independent of group pricing position, in order to meet outside price competition, to attract a particular customer's business or to serve a particular market niche. Conference members frequently compete as aggressively with one another as they do with independent lines.
In 1996, for example, CWRA members filed 700 independent actions lowering rates, adjusting service terms, adding origin or destination points, and matching another carrier's independent action.
An examination of the current market to Asia will best illustrate how this system influences actual rates and service. Throughout this decade, we have seen unprecedented trade expansion with the Asia-Pacific nations, particularly on the export side. Several factors can be credited: favourable exchange rates; rising living standards as Asia's increased role as a manufacturing centre has lifted incomes, attracted direct investment and increased share prices; market opening measures; and growing interest among Canadian firms in expanding their markets outside North America.
Ocean carriers have matched that growth with larger, more cost-efficient ships, expanded equipment fleets including: costly specialized containers to handle temperature-controlled perishables, garments on hangars, knocked-down automobile kits on flat racks, bulk liquid chemicals and oils in tanks; multiple, fixed-day schedules linked to dedicated rail arrivals and departures; and participation in terminal designs that allow for faster loading and discharge of ships, smoother transfer of containers to train or truck, and faster document processing and gate clearance.
In the past 10 years since passage of SCEA, the availability and choice of services, picking up or delivering cargo at the shipper's factory, warehouse or retail outlet in Canada, have increased dramatically. Transit times to and from Asia, and the choice of carriers offering direct, express routing to various Asian country markets have improved as well. "Just in time" services for computers, auto parts and other products have helped reduce inventories, cut manufacturing cycle times and saved money.
Basic transportation service that was the industry standard in 1987 has evolved into a full logistics capability for customers. What does that mean? By managing the flow of goods and information among suppliers, factories, warehouses and points of sale in many countries, carriers are now able to work with customers to improve productivity and add value.
Dr. Charles Barrett of the Conference Board of Canada testified last November before the Foreign Affairs Committee on Asia's emergence as a global manufacturing centre, that Canadian companies are seeking new opportunities for direct investment in that market, to serve a growing regional customer base there, but also to manufacture product in Asia for shipment back to North America. Often the raw material inputs for both the product sold in Asia and the product sold back home are Canadian exports, so you have shipment in both directions.
Market-opening measures, in particular the GATT Uruguay Round, have reduced tariffs, quotas, certification requirements and other trade barriers in Asia, and simplified foreign investment rules. That has made the seamless movement of goods possible from an operational and cost standpoint.
The importance of carrier investment in this picture must not be overlooked, either. Shipping lines have worked closely with port authorities and local governments to develop port terminals, warehousing, rail connections and cargo management systems that have overcome gridlock and truly opened new markets in China, Thailand, Indonesia, the Indian subcontinent, Vietnam and elsewhere in Asia.
Global sourcing and manufacturing, crossing multiple borders on tight schedules, requires a sustained high level of transportation service. Price will always be an important factor, of course, but in today's market fast, reliable service produces efficiencies that allow some pricing flexibility.
It would be logical to assume that higher service levels command higher freight rates. In the liner shipping market of the last five to ten years, however, they have not. Competition, encouraged in part by SCEA, has spurred unprecedented long-term investment in the North America-Asia trade. Much of that investment has been in expanded vessel capacity in anticipation of continued trade growth.
Each new cycle of ship orders has produced its own cycle of overcapacity, exerting downward pressure on rates. We are in such a cycle today, as ships ordered during a two-year period of double-digit trade growth in late 1992 to early 1995 are now being delivered in a relatively stagnant near-term market.
Carriers in turn have responded by focusing on cost control. They have trimmed their internal operations where possible, entered into vessel, terminal, equipment and space-sharing alliances to maximize the utilization of their operating assets and have offset a portion of rising external costs where feasible through ancillary charges.
This would seem an appropriate point for me to address some of the allegations you have heard from the Canadian Shippers' Council leading up to this proceeding, many of those allegations directed specifically at CWRA.
I would suggest, first off, that if this is a difficult time to be in liner shipping, recent studies suggest a world wide average rate of return for our industry of less than 3 per cent annually. It is also a difficult time for shippers' councils.
It is hard to know where to add value for members that are getting good service at low rates through direct negotiation with carriers. It is hard to attack a conference for being non-responsive when it is offering contract terms and rates customized to individual customer needs, when rate spreads between conference and independent carriers are practically non-existent, and when conference member lines are as aggressive in their group and independent actions as their non-conference competitors on behalf of individual shippers.
Let me try to identify what I believe are the three key points in the council's argument for eliminating SCEA.
First, the conferences do not adequately consult with the council prior to announcing scheduled increases in rates.
Second, while rates have not necessarily gone up, ancillary charges and surcharges have increased, in some cases beyond the level of actual base rates to a significant percentage of the total sale price of the imported or exported product. These charges and surcharges should be folded into the overall rates and made negotiable.
Finally, conferences add a "premium" to the cost of transportation into and out of Canada that actually or potentially inhibits trade.
These three points are easily addressed. Prior consultation is, in our view, a false issue. The process is simple. Carriers meet as permitted under the current system, develop a target price adjustment for a particular commodity and publicly announce that target, typically 90 days prior to its effective date, to give shippers time to plan and respond.
The CSC and individual accounts approach CWRA seeking mitigation either in the rates themselves, the effective date or in the service terms such as origin/destination points, trucking and detention charges or the like. We negotiate and arrive at moving rates the market will bear. Members are free to take independent action on rates on behalf of a particular customer or commodity sector they want to attract or retain.
The only net difference between what takes place now and what the CSC would like is that we now announce the target price to the entire trade, not just to the CSC. What the council really wants is to receive exclusive advance notice of target prices and adjustments so that it can act as the sole bargaining agent for all shippers.
We believe such an approach would exceed the scope intended for the council in representing broad shipper interests under SCEA. We further believe that it is not necessarily in the best interest of shippers who may want to do their own negotiation because of their specific understanding of market conditions in their industry sector, their working relationship with one or more carriers, or the cargo volume they control.
Similarly, third parties such as freight forwarders and customs brokers make part of their commission on their stated ability to negotiate favourable freight rates. Handing over that responsibility to the council potentially undermines the value of the service they offer their customers.
In reality, many shippers discuss and negotiate directly with the CWRA by choice. The unwillingness of many shippers to have the CSC act as their bargaining agent simply reflects how the market works. It does not reflect any legislative deficiency at all and should not be used as an excuse to modify or eliminate SCEA.
On the second point, I urge the chair and distinguished senators to listen closely to the council's arguments concerning ancillary charges. Mr. Hackett testified on behalf of the Council last November that charges have recently tended to rise faster than rates, that in some cases total charges exceeded base rates, and that total freight charges can account for as much as 50 per cent of the total cost of delivering to market a commodity such as nickel, which his company sells overseas.
What he did not tell you is that the total freight charges to which he refers, including ancillary charges, are probably lower today than at the beginning of the decade because of a precipitous decline in rates across all sectors.
A typical example is frozen and chilled poultry moving from Montreal to Japan. In 1991, a 40-foot container of poultry had a total "all in" rate, including currency, fuel and origin terminal handling charges of $7,684. Today, that same container is shipped at a total rate, including higher currency and fuel surcharges and a destination terminal handling charge which did not exist six years ago, of $6,375.
The lower price does not take into account carrier investments in expanded fleets of refrigerated containers at a cost of $35,000 to $50,000 each, to carry this kind of cargo; of the equivalent investment in maintenance over the life of each of these containers; and of the cost to hire and train personnel to service and operate the equipment. Rather, the forces driving these reductions are over-capacity and a gradual erosion of the conference/non-conference rate spreads as service levels have come into closer parity. However, matching the independent carriers at a lowest common denominator level does not reflect the true value of the service being provided. Nor does it address the larger issues of preserving choice and high levels of service in the trade.
As I mentioned earlier, liner shipping is a capital-intensive industry with high fixed voyage costs. Thus, it is especially important for carriers to recover external fixed and variable costs that are outside their ability to control. Among these are fuel, exchange rates, documentation processing burdens in many different country markets, and rising cargo handling costs assessed by ports and terminal operators.
Such costs have risen steadily in most markets we serve, including here in Canada and in the U.S. through which some Canadian cross-border traffic moves. In the current rate environment, failure to specifically break out and recover at least a portion of these costs as rates decline or remain flat amounts to a double rate reduction in terms of carrier operating overhead.
We initially broke out charges and surcharges at the request of shippers who wanted transparency in order to better understand what they were paying for. Now they want ancillaries folded back into rates, where they see more opportunity for negotiating the total price down. The carriers want to maintain a distinction between the portion of total charges that reflects rising costs and the portion that reflects the value of the service provided.
Much has been made of the marine services fee in the context of discussing charges. Simply put, the Canadian government announced it would shift the cost burden for maintaining harbours and waterways from government to users with a disproportionate share borne by container liners.
We felt the cost should be shared by all beneficiaries of ocean transportation, including customers. We announced a partial pass-through. Shippers, individually and through the council, objected strongly. We had discussions, saw the market would not support the fee, and withdrew it. I would say the consultation process worked out with well for shippers in that case.
As to the issue of transportation accounting for up to half of the total cost of making and selling a commodity overseas, that has been the case for a number of low-margin raw materials for years. Carriers will never be able to practically reduce rates on metals, mineral clays, recyclables and other base commodities to a point where they would move profitably at a comparable percentage of total landed cost to, say, computer products.
Transportation has historically accounted for a large share of the total cost for these cargoes. They always will. Buyers understand this and export prices are set accordingly. CSC knows better. If they do not, they should.
Finally, I address Mr. Hackett's additional 18-per-cent "premium" that he must pay for shipping with conference lines. Again, we must listen closely to the CSC testimony. He alluded to a recent U.S. study which has shown that the effect of cartels on shipping costs is to increase the costs by around 18 per cent. He then translated the impact of that added cost to his own company, an exporter of nickel, as $7 million to $10 million per year.
The study he cites was released in 1993 by the U.S. Department of Agriculture. It pertained only to agricultural products. It was never fully funded or completed. It was based on a non-scientific survey of 31 shippers only. It purposefully focused on a two-year period when rates were relatively high and used only published conference group rates for comparison with independent carriers, not the considerably lower independent action rates at which conference lines were actually moving those commodities.
The study was discredited in the industry and the press. A phase two report has never been released, presumably because the findings undermine the conclusions of phase one. CSC, meanwhile, has offered no supporting factual information that it is forced to pay significantly higher rates using conference carriers. What we are offered as evidence is an incomplete U.S. study limited to farm product shipments, extrapolated to suggest a $7 million to $10 million annual loss to a Canadian nickel exporter, with no further information specific to that or any other Canadian company provided.
There is no conference "premium." It is a fiction today. Rate differentials between conference and independent lines began declining at the beginning of the 1990s as service differences narrowed. Nearly all are within 5 per cent of one another. Most are within 2 per cent. Many are the same and a few conference rates are even lower.
Notwithstanding the wide range of service options available in the Canada trades and any rate differentials which may exist, Canadian shippers continue to choose to ship with conference carriers, clearly suggesting that price is only one of several considerations which play a part in purchasing liner transportation services.
Let me conclude by saying that the current system under SCEA, while perhaps not perfect, works quite well. No one in these proceedings thus far has disputed the fact that ocean liner transportation service levels have improved throughout the 1990s, while rates have risen slightly for some cargoes, stayed flat for others and declined for many in that period.
Furthermore, SCEA is in harmony with similar legislation adopted by Canada's major trading partners. Significant unilateral amendment or outright abolition of SCEA has the potential to disrupt the delicate regulatory balances in place today to the detriment of Canadian shippers and ports.
The real issue that has brought us here today is that shippers are doing just fine in the current market by any measure you care to use, without any help from the council. Put simply, there is no problem in the market for the council to have a relevant role in fixing.
Certainly a small handful of large shippers might be able to negotiate better deals with carriers prevented from teaming to form liner conferences, but rates are already low, and those discounts would more than likely be made up in higher rates to small- and mid-sized shippers over whom an individual carrier might have more leverage.
The idea behind SCEA is to preserve service choice and common carriage, not to create a food chain in which each fish preys on smaller fish as it is being eaten by larger ones. I urge you to carefully consider before taking action on a regulatory system that successfully harnesses market forces to serve the broad public interest of businesses and consumers across Canada.
On behalf of the CWRA, I want to thank honourable senators for this opportunity.
The Chairman: For clarity in our records, you refer to liner shipping and you refer to ocean liner. What is the significance of the term "liner" in this context? What does it mean?
Ms Johnston: Liner shipping, as opposed to charter shipping, and as we indicated in our speech, is a fixed regular service offered by the carriers, whereas charter would be full shiploads, one time move, not on a regular basis.
The Chairman: The main reason for our interest in this topic is the pattern of trade across the Pacific between Canada and certain Asian countries. What proportion of Canadian exports to that part of Asia is transported under ocean liner contracts negotiated with shipping conferences, as against the proportion which is carried by non-liner or otherwise independent carriers?
Ms Johnston: We would only be able to give you the liner perspective for the CWRA. On total containers, we are looking at approximately 300,000 40-foot containers. Statistics are not that readily available to us. These are just estimates.
Senator Andreychuk: Is your share increasing or decreasing in the last five years vis-a-vis the others? Surely you must monitor the entire industry.
Mr. Albert Pierce, Managing Director, Canadian Westbound Rate Agreement: It is a very valid question. I wish we could give you a scientific answer. Unfortunately, there are no commercial ways to purchase that data in Canada as there are in the United States. Statistics Canada runs about three years late, so it is very hard for us to tell you.
We have 8 carriers out of approximately 15 carriers who serve the Canadian trades in the conference. I would say, at best, we run between 45 and 55 per cent of the cargo at any given time. That is a guess because I cannot quantify it any better than that. I do not think we are doing worse than we were five years ago, but I do not think we are doing appreciably better either, as a conference.
Senator Andreychuk: Trade has increased with Asia-Pacific. At least we were told that by several sources. Yet you say your portion is static compared to what you believe is the condition of the entire industry. That leads me to ask where the added trade is going and how is it going? Is it going air carrier or is it going by the independents? Is it being floated through the U.S?
Mr. Pierce: I was talking about the cartel's portion of the total market of Canadian exports and imports. They have grown dramatically. The market has grown, but we have remained static in our percentage. During that portion of time, the independents have added a lot of ship capacity to serve the Canadian market. However, in relative terms, even though the market may have grown in 1994-95 by 11 per cent over 1993, we have maintained this balance as far as percentage carryings of cargo.
Senator Andreychuk: How do you come to that conclusion? What do you base it on? You say you do not have the statistics, yet you give us that. Is it out of the air or is it based on something more specific than that?
Mr. Pierce: We meet twice weekly on issues dealing with Canada. The meetings are held here and in San Francisco, but the primary meetings are held in Toronto. That is one of the reasons we meet is for market intelligence. It is the best guesstimate of the brightest and best people in the shipping industry based on input from their customer service representatives and their sales representatives who know that a certain market has grown, that there are "X" number of evergreen boxes there, et cetera. It is a guesstimate.
It is also based on customer input. Customers say that they will need additional capacity next year because our poultry farms will increase production for product moving to China or to Hong Kong and will you be able to serve us? We go into this long analysis then to make sure that we have the refrigerated equipment in place when they need to ship product.
Luckily for the carriers, Canada has very few seasonal products. It is a year-round basis because of the types of products that we export to the Asia Pacific Rim. We are able to do that analysis when we meet together.
The Chairman: What percentage of the ocean-borne shipping, going out of Canada to the Pacific area, is carried out of British Columbia ports?
Mr. Pierce: Ninety per cent of the cargo moves out of Canadian ports, but I will refer to Mr. Olsen for a split between the West and East Coasts.
Mr. Barry Olsen, President of Maersk, Conference of Ocean Carriers: I cannot give you specific statistics on this, but our line serves both coasts of Canada. We have one weekly service out of the port of Vancouver. We also have two ships per week out of the port of Halifax. In our own case, what we move out of the West Coast is pretty well equal to what we move out of the east coast of Canada, but, again I am talking two ships a week out of the port of Halifax versus one ship out of the West Coast.
Certainly in terms of overall Canadian volume, a much greater percentage moves over the West Coast because you have the prairie provinces with their agricultural products and their oil-industry-related products. Out of B.C. there are pulp and paper and forestry products which we Canadians know so well.
For the most part, the manufactured goods moving out of central Canada, namely Quebec and Ontario, are the higher priced commodities which require a very fast transit time. The importers in the Far East need this stuff in a hurry because it is higher valued merchandise. For that reason, most of that will move over the west coast of Canada because with the rail connections from Toronto and Montreal to Vancouver plus the very fast trans-Pacific transit time, you get an overall transit time which is far superior than what you would get moving it over the port of Halifax.
The Chairman: Now concentrating on the goods and commodities moving through British Columbia ports, is there a difference between the kinds of goods and commodities that go to the service your organization provides as distinct from the goods or commodities that go to so-called independent carriers?
Mr. Olsen: No, it is the same market for all of us. When we are talking about container lines, whether they be conference or non-conference, they are all going after the same market.
The Chairman: Are we talking strictly about containers here?
Mr. Olsen: That is all we are talking about because our conference is only involved with the liner services. Another definition of a liner service is a container service.
The Chairman: That is helpful.
Senator De Bané: So the people who are shipping bulk commodities like wheat do not deal with your conference?
Mr. Olsen: No, they do not.
Senator De Bané: They deal with bulk shippers who are under a competitive system?
Mr. Pierce: Most of the business on bulk is done on a long-term charter basis or upon inducement. The Canadian market is a very valued Pacific Rim partner because of the agricultural products, particularly from the prairies. These charter fixtures are done on bases of 30, 60, 90, 120 or 180 days. They can be tracked through the Journal of Commerce in New York. There are several Canadian publications, too, with which I am not familiar. These charters are contracted in huge volumes and they do not move in containers except under rare circumstances.
Senator De Bané: Those goods which are shipped under bulk, like grain, coal, bulk chemicals, those are shipped under a system of competitive market conditions?
Mr. Pierce: They are bid, if that is what you meant. There are no tariffs in place; that is correct.
Senator De Bané: How then does one explain why part of the system is competitive and another is not? I understand it all depends on where someone sits. From your point of view, to organize a cartel for all the members of your association and to decide the price, that is great, but I am sure you understand, too, the point of view of your customers. They would prefer a competitive market system.
Mr. Pierce: They may or they may not. First, the infrastructure cost of operating a bulk operation is significantly less than operating a container or a liner service. They are not beholden to a fixed schedule. The terminal operations are built primarily by terminal operators to funnel grains and coal and so forth into ships' holds. It is the same at the other end.
I will use Lagos, Nigeria, as an example. You could wait 30 to 120 days to unload your ship at some of the bulk terminals.
By the same token, the competitive factor there is for massive amounts of very easily transported cargo with no handling at either end, other than getting it into the ship and pumping it out of the ship. The ships carry no responsibility or the bills of lading carry no responsibility beyond the ship's tackle on those types of cargo.
Some of our customers are in the Canadian Shippers' Council; many are not. Some are represented by the Canadian Shippers' Council; many are not. They would prefer a marketplace where they get fair and equitable rates. That has been proved. The CWRA would not be able to maintain any stability whatsoever if we were not competitive in the marketplace. That is why our rates have dropped along with our independents'. We perhaps provide better services and that is why we get a small premium on some of the cargo that we move.
Senator De Bané: Regarding that argument that you have very heavy capital expenditures, let us look to another mode of transport like air transport. Today a jet might cost over $100 million. We are both old enough to have known the former regime where the rates were regulated. Since they have been unregulated, there has been a dramatic decrease in rates and an even more significant increase in customer base.
Today, on this planet, there are over 1 billion people with the economic capacity to buy an airline ticket. That was not possible 15 years ago. That has increased the market.
Therefore, the argument that you incur heavier capital expenditures, is that such a powerful argument because it exists in other modes of transport? Look to the telecommunications sector which was also regulated, now unregulated; it has created more demand and more players.
Mr. Pierce: It is an interesting argument. If you look at the airline industry, the cheap rates are only for those casual flyers, at least in the United States. I cannot speak to Canadian flights. Because I cannot make a plan 14 days in advance and buy an advance ticket, I subsidize those flyers by paying full fare.
Our ships cost $100 million nowadays also. Since deregulation there has been less stability in the airline industry than there was before. This is being recorded so I probably should not say this, but it has been in the papers: A major American carrier, an icon, TWA, will probably not make it for a variety of reasons.
I fear for the liner industry. I have been in this industry for a quarter of a century. I worked for one of the major carriers for a number of years before I started into conference work about ten years ago. If there is not sufficient return on capital invested, there will be fewer and fewer carriers; there will be fewer choices; Canada, which is actually beholden to foreign carriers to move your commerce, to keep your businesses of export and import going, will find fewer and fewer participants in that service.
Our interest is to maintain everyone who is in business today to stay there and to keep stable rates. Our conference is an effective mechanism to protect the exporters and importers in Canada in that regard.
Senator De Bané: Do you not think that any supplier of goods or services would love to make the same argument?
Mr. Pierce: Yes, sir.
Senator De Bané: Every group would like that.
Mr. Pierce: I will not argue that point.
The Chairman: We will seek some figures on independent liners. To what extent is there liner service available to a shipper out of Vancouver or Prince Rupert? Do you have, in effect, a monopoly?
Mr. Pierce: Far from it, sir.
The Chairman: What is the explanation for some people using these independent liners and others seeking the services of those companies who are in your group?
Mr. Pierce: We have two of our member carriers here, so I will defer to them. There are some very valid reasons.
The Chairman: As I understand the situation out of British Columbia ports, you do not have a monopoly.
Mr. Pierce: No, sir.
The Chairman: Consequently, to some extent at least, ordinary market forces are effective. I want to discover what there is about your service and your rates that makes your service attractive to some shippers as against other shippers?
Mr. Pierce: Let me start with the macro. The eight members of the CWRA offer a full service. They will issue bills of lading from Montreal. They will issue bills of lading from inland points in the prairies or from the West or East Coasts. They will offer service via the east coast through the Suez Canal or the Panama Canal. They will offer service via the West Coast.
Often our carriers are the fastest in service. At nine or ten days from Vancouver, it is the shortest connection to Asia, to Tokyo or to Yokohoma. It is a natural exit from North America.
Our carriers provide the finest computer information networks known in the shipping industry. To be quite honest, there are only three things that interest a customer these days. First, where is their cargo? Second, how much will it cost me to get it there? Third, one more time, where is their cargo? Information is the most critical thing today and we have the finest in the industry in that regard.
Customers will pay a small premium for that. They will pay a small premium for better transit time. Critically, they will definitely spend more money to get it in and out of the terminals in the most expeditious manner possible. All of our carriers operate in many Asian ports with private terminals so that they are not congested with common cargo moving in or out. They can handle their own destiny, so to speak.
Additionally, the carriers represented by the CWRA offer service in the full gamut from the subcontinent, most if not every port, right up through Japan to Eastern Siberia. It is a phenomenal operation. They own or lease port-berthing facilities in every major port and in most minor ports. It is because of this that certain customers will always choose us. It is because of this that certain customers will leverage us against the independents. They will take a slower transit and less information and maybe not as good total service for a 3- or 4- or 5-per-cent differential in price against our higher price so that they have a consistent movement of cargo, particularly for these "just in time" inventory plants that are operating around the world.
It used to be that raw products got there and were dumped and picked up as needed. Now raw products are an essential part of the industrial mainstream. They are taken to the point where they can be used, but no one inventories large mounts anymore. No one can afford to inventory or store. That is why the cycle is constant. That is why I would use a conference carrier.
The Chairman: You make a persuasive case for the conference carriers, but I gather there are other shippers whose goods or commodities are such that the additional quality of service you afford is not all that important to them?
Mr. Pierce: You are correct.
The Chairman: I am wondering about the people to whom you made reference earlier. I am looking at the testimony today.
Mr. Pierce: It was primarily in reference to INCO and QUAMA, the asbestos people.
The Chairman: Are these bulk shippers?
Mr. Pierce: No. It is interesting. They are container shippers.
Mr. Olsen: To begin with, because of the nature of the commodity, asbestos, which has become a worldwide concern, bulk asbestos does not move from Canada anymore. Longshoremen would not handle it. It all moves in containers. With the other company, Inco, their nickel is moving in 20-foot containers to the world.
Both of these companies, as many other shippers in Canada, will use both non-conference and conference lines in a given trade and particularly the Pacific trade that we are talking about, depending on their needs, their requirements, the availability of equipment.
Maybe, for some shipments, a slightly slower transit time is acceptable. The receiver accepts a slightly slower transit time in order to save some money. However, they are using both conference and non-conference and they have those choices in virtually every trade to and from Canada.
The Chairman: The implication is that the shippers want their bread buttered on both sides. They want the quality of the service that you give at the rates that they might be able to get from an independent carrier. Is that a reasonable analysis?
Mr. Pierce: It is a terrific analysis on our short little discussion here. We believe that we price very fairly. We are all in business to make money. Seven of the eight CWRA members are publicly traded corporations or subsidiaries of major corporations. One carrier is privately held, but even that carrier does announce its results because you cannot live in this industry without reinvesting, and the only way to do that is to raise capital.
The independents offer very fine "vanilla pudding" services. Some of them offer good "ice cream sundae" services with all the nuts, whip cream and everything. We respect them immensely. I could name a few but it is inappropriate since I am here representing the CWRA. We are well aware of our competition. We cannot be all things to all people, but we try harder than anyone as a group to be that.
Senator Andreychuk: The more we talk the more confused I am becoming. Surely you have discounted their complaints and their arguments. You say you have a quality of service compared to the other independents and that you move about 45 per cent, you guess, of the total.
That leads me to believe that 55 per cent of all goods are moved by those others. They must have some quality of service, also. They cannot be just "vanilla pudding." They must have a "chocolate sundae" amongst them too.
Mr. Pierce: They do.
Senator Andreychuk: It troubles me that you say they came in and told us that your combining into a cartel -- not of your independent companies and the investment -- costs 18 per cent now. We are told that that is an inappropriate study. However, the fact that you have provided this service through a cartel, is that more costly to the shipper or less costly to the shipper? If the cartels were gone because the act were repealed, what are the consequences? Are you saying that you would not do business in Canada? You would be disadvantaged in some way?
In other words, you have made the counter-arguments against what they said, but you have not built for me a reason for a cartel. You have built a reason for me to ship with you. I am persuaded on quality service. However, you have not told me why your service through the cartel is better for me. You say your charges are based on cost -- which, by and large, you are passing on as you say you must -- and you are giving me a value of service as the other component of the charge. I am not sure what the value of service is except the quality. Would you give me those two without a cartel? Where is the benefit and what is the real cost of doing business this way?
Mr. Pierce: In regards to whether we would serve Canada if there was no SCEA, if there were no changes to legislation south of the border here and you dropped SCEA -- I cannot speak for the individual carriers -- my surmise is that you would have much less service here in about 18 months. There would probably be cargo transitting the United States on import and export bases moving at much higher rates.
I would find it unfathomable for people to operate out of Canada for any less revenue than they are getting today and, without SCEA, that would happen.
Senator Andreychuk: Why?
Mr. Pierce: That is because of the market pressure for products like this. I know the esteemed Mr. Hackett and Mr. Leblanc very well. They will negotiate the rate to the point where only certain carriers which are either subsidized by a foreign government or by a conglomerate which can afford to haemorrhage for awhile can operate. They will take the rates to a point where the majority of carriers would find it uneconomical to continue to serve Canada.
The same is true if that happened in Japan, in Hong Kong or here. You only serve markets where you can make some money in the long term. You have to make some short term money also.
Services in Canada, if SCEA was scrapped without similar legislation elsewhere, would see a precipitous decline in the services offered to Canadian exporters.
In regard to the first part of your question, you admitted you would use a space in our arguments. I do not know what else to tell you. The testimony even says that there is a premium on some commodities; there is no premium on other commodities. We are lower than independents on some commodities. It depends on where you want to price and fix yourself for the best niche market where you can make some bucks. That is one reason we do not have a consistent majority position as a cartel.
This is the strangest cartel in the world. We are allowed by law in Canada to set rates collectively. How many other groups or organizations in Canada are allowed to do that? In the States, it is just baseball and football and shipping and that is it. Nobody else. They would love to get together as chemical manufacturers, for example, and set prices.
Toothpaste costs $1.99 there whether it is made by manufacturer A, B, C or D. The price of gasoline is within a penny to a gallon or a litre sold by A, B, C or D. They have no anti-trust immunity to set those prices, but they are awfully close. We have anti-trust immunity and we file 700 IAs to differentiate from the group rate.
K-Line may not like the group rate that Maersk finds adequate; because a shipper likes their service, they feel no reason to reduce that rate. Vice versa, it might be the same thing. K-Line might feel that wastepaper to Japan is worthwhile. Maersk may not feel that way. They may take the rate higher just because they want to make a little more money. We are a very strange cartel.
Senator Andreychuk: CWRA's three advantages are in cargo location, cost and cargo location. You have made the compelling case that you have a quality service and that your tracing department may be smaller or more efficient. At some point, surely, you must justify that it is also cost efficient. If a group of people come in here and tell us that they believe the cost is too high, you should be rebutting it by telling me it is not, and I am not hearing that.
I heard 18 per cent again. At some point that shipper will say: I cannot ship anymore because the costs are too high
If 55 per cent of the shipping of your category is going elsewhere, that is a lot of people who have sacrificed some of your advantages. Our concern is how to maintain the competitiveness for the industry.
You talked about grain. I can keep you here for three hours talking about the cost of grain and how it is shipped and the hidden and actual costs by the changes we have made at port, through the rail, and the innovative options that people are taking to get their goods to market. What I was hearing from that group was not necessarily about the cartel and 18 per cent, but they are saying the same thing as you -- that it is increasingly difficult for them to be competitive and to pay your rates.
Are you saying there is no validity to that? Surely they are fine businesses, too. I have no reason to trust them anymore than you. I still want that answered.
Ms Johnston: Every Tuesday, with the exception of today because we are here, we sit down as a rate committee and we will discuss maybe 60 to 100 rate items for various exporters across Canada. Those rate items that we discuss are not increases on commodities. They are establishing new commodities that are being shipped to Asia. They are reducing existing rates. Weekly, we do this. There are a lot of customers using the eight CWRA lines.
Senator Andreychuk: I could have asked Inco, but I did not think of it then. I do not understand. I have seen their containers. Asbestos is unique, but with nickel and other like commodities, technologies are changing and therefore the shipment of them is changing. Why can those costs not come down? You singled out nickel as not being able to come down in price, that it was not subject to competitiveness. Maybe I misunderstood you in your presentation.
Mr. Pierce: I think so. In fact, Mr. Hackett has successfully negotiated some of the lowest rates out of Canada with our members, rates which are very competitive against the independents.
Senator Andreychuk: I must review your brief.
Mr. Pierce: It may be where we have "all in" rates in comparison to base rate plus ancillary charges. Was that the area?
Senator Andreychuk: That may be.
Mr. Pierce: You may have misread that section.
Senator Andreychuk: I will not pursue this point.
Senator Corbin: I apologize for missing the first part of the presentation, but I have a copy of the brief which I will read with interest. It is an education.
Of what registry are the ships that belong to your organization?
Mr. Pierce: Actually the ships are registered all over the world, but I can give you a rundown of the eight carriers and their nationality: American President Lines based in Oakland, California is a U.S. flag carrier, but not all their ships are U.S. flag anymore.
The next one would be Kawasaki or K-Line, as they are commonly called. That is a Japanese carrier and their ships are registered in several places, Liberia, Japan, Panama and elsewhere.
Maersk is a Danish company with headquarters in Copenhagen with individual operating units throughout the world. They probably offer more services to more ports than any of our individual carriers as a carrier unit.
Mr. Olsen: For the most part our ships are flagged in Denmark. We do take ships on charter that might be flagged in other nations, but for the most part our ships are Danish flagged.
Mr. Pierce: The next one is Mitsui OSK Lines, a Japanese-based carrier again similar to K-Line. They have their ships registered at various places around the world.
Neptune Orient Line is a Singaporean carrier headquartered in Singapore and they have their ships registered throughout the world. I do not think any of these ships are Canadian-registered by the way.
Next one is Nippon Yusen Kaisha, or NYK. They are also Japanese, based in Tokyo, and their ships most assuredly are registered around the world.
OOCL, Orient Overseas Container Line, is Hong Kong based, what we refer to as the three China company. You are probably well aware that Fung Chi Wah, the former chairman of the board of OOCL, is to be the new administrator in Hong Kong starting July 1. They have financial interests from the mainland and from Taiwan in addition to being Hong Kong based. Their ships are registered throughout the world.
Sealand Service Inc. is based in Charlotte, North Carolina. They are a U.S. flag carrier, but their ships are not all U.S. flag registered.
Those are the eight carriers with the CWRA, unfortunately not a single one being Canadian.
Senator Corbin: What is the difference between a U.S. flag carrier and a U.S. registry?
Mr. Pierce: To have a ship U.S. registered is a considerable additional cost to the operation of the ship because of unions. Certain unions have priority on U.S. flag ships or U.S. registered ships. That is why there has been some concern with the shrinking U.S. flag merchant marine as more and more are registered overseas.
Senator Corbin: So the operating rules out of U.S. ports are much different than what they are in Canada.
Mr. Pierce: Are they appreciably different? No. They can call any place. We have open ports, whether U.S. flag or non-U.S. flag. The U.S. registered vessels are allowed to carry cargo between ports in America under of the Jones Act, whereas ships that are flagged other than the U.S. flag are not allowed to carry domestic cargo in the U.S. trades. I do not think there are any major differences between Canada and the United States in this regard.
The Chairman: You have mentioned now the U.S. law relative to coastal shipping. What are the differences between the legislation covering shipping in Canada and the United States? What are the main differences?
I am trying to discover what would happen if both the United States and Canada, under the appropriate law in each country, were to prohibit the cartels?
Mr. Pierce: As you are well aware, in the U.S. Senate, there is legislation pending. It failed in the last Congress in the United States to come to fruition. There is legislation pending not so much to prohibit but to take away some of the regulatory aspects of the Federal Maritime Commission dealing with tariff filing and then the movement towards confidential service contracts. In effect, if the U.S. legislation goes through, it will parallel Canadian current legislation more than anything else.
If this legislation goes through in the United States, they would maintain antitrust immunity for groups of carriers to meet and discuss markets, general rate issues, trends and things like this. They would no longer publish or file a common tariff, which is one of the unique things that cartels do. They file a public tariff that is usable by all.
There is one difference in Canadian law today from the United States. Individual carriers in the United States must also file a tariff with the Federal Maritime Commission and they are regulated by it, but in Canada only cartels have to file a tariff with the NTA. Individual carriers do not have to do so. That is the major difference of which I am aware.
If the United States moves towards legislation, it is actually moving more towards the Canadian model than it is for anything else.
The Chairman: What is the prospect that the U.S. Congress will reform the U.S. legislation?
Mr. Pierce: I will not respond because I am on the record. It could only be a personal comment and I will be glad to talk to you later, but there seems to be more impetus in this Congress than there was in the last to get legislation through. That is all I can tell you. Whether or not they are successful I do not know.
The Chairman: Is your organization making its views known, and if so to what end at Washington?
Mr. Pierce: We are not allowed to lobby. TWRA is a sister conference. We are not by our basic agreement allowed to lobby the U.S. Congress because our 11 members in the TWRA conference are fractious at best when it comes to U.S. legislation. There is no common point.
The Chairman: It is a conference decision not to lobby because of your internal disagreements.
Mr. Pierce: It is a very practical decision because we would have an endless meeting trying to get a common viewpoint.
The Chairman: You mentioned the publication of the tariff. Suppose I had goods that I wanted to ship. Can I present myself at one of the offices of your companies and say, "I have this good, I want it shipped to Hong Kong and I insist that you carry it," just as I could not be turned away at a railway station?
Mr. Pierce: Absolutely. The issue of common carriage in the United States and Canada is exactly the same. We offer service to all.
The Chairman: If I arrived at the door of one of these independent liners, would they also be obliged to perform the service for me?
Mr. Pierce: Yes, sir. They would be obliged, and you would be obliged to pay their tariff rate as you would be obliged to pay our tariff rate. There is some considerations there. If there are no containers in port or the ship has just left the port, those would be practical considerations.
The Chairman: You tell us that there are independent liners and that they, too, are in the market. They have the same pressure to provide good service at market prices. What is the point of the conference? Why do you seem to want to retain it in this free enterprise world?
Mr. Pierce: That is a fair question, and it is one which is asked all the time.
Senator De Bané: As he told me, all suppliers in goods and services would love to have a cartel like theirs.
The Chairman: I am really asking him why.
Mr. Pierce: Stability is one reason. If you have time before your next election, you might want to inquire of the independents the same question. We meet and we are a non-monopoly cartel because we are interested in the stability of rates, in maintaining as much stability as possible to continue to provide service to Canadian shippers consignees.
The independents will tell you the same thing with a little different twist: We hope the conference continues to exist because without them there is no umbrella. We have no place to peg from, and we are not sure that we could avoid going so low that we would have to stop service also.
We do not put shippers or consignees in jeopardy through this agreement whatsoever because we play the market fair and square. We do put somewhat of a floor to ensure that services are continued in this trade link. From all of our economic studies dealing with both the United States and Canada, there is no market that will grow like the Pacific Rim. It is much larger than the North America-European trade by far and will continue to outpace it. It will continue to show, on a ten-year basis, between 5- and 10-per-cent growth over all. There is no place that you want to invest your money more so than in the Pacific Rim regardless whether you are in Halifax or Washington, D.C., or on the west coast or in any place in North America. It is where all vision is.
We believe that if there is not a sufficient number of carriers willing to serve Canada because they can make a profit, then I fear that we will not participate in that global growth.
Senator Corbin: I purposefully asked about the flag and the registry because we do not have a merchant marine in Canada. We are totally dependent on a conference like yours to move the goods of our great exporting nation. In terms of national pride, I find this a most unusual situation. I am not saying we cannot work together and, indeed, that Canadian shippers cannot work very well with you. Nevertheless when you look at the balance sheet, it is a strange situation, but one that is profitable for you and one which answers our exporting requirements. It seems to be working well from what you say.
I have not had time to read all of your presentation. What is the proportion between your group and the independents?
Mr. Pierce: It is between 45 and 55 per cent. It all depends upon the cycle and so forth, but we cannot be judged as a monopoly under any stretch of the imagination.
The Chairman: Could you tell us what ports that covers or is it North America generally?
Mr. Pierce: I am talking about Canadian exports and liner container cargo.
Senator Corbin: In providing this service to the movement of Canadian goods abroad, it is not an exclusive service; you are not dead-heading back from Singapore or Hong Kong. You pick up business wherever it lies on the world's ocean. An empty ship is a sad ship.
Mr. Pierce: That is correct.
Senator Corbin: We have been focusing on exporting. What percentage of foreign trade from the Asia-Pacific area would your conference bring back into Canada?
Mr. Pierce: That is a different conference. We are one-way only. We are here to serve Canadian exporters.
Senator Corbin: Surely you work together.
Mr. Pierce: The in-bound conference is headquartered in the same office in San Francisco.
Ms Johnston: Again we have a statistics problem.
Mr. Olsen: That is true. The lines we are discussing in the outbound trade and the export trade from Canada are all members of the in-bound conference into Canada with a couple of additions.
You are asking about the volumes and the percentages.
Senator De Bané: Of those ports that you serve in Asia, we want to know what percentage of the goods that they export to Canada go through you. We have a deficit with them.
Mr. Olsen: At the present time, the eastbound market from Asia to Canada is sick, at best, as compared to the export market. Essentially it is the value of our Canadian dollar that has created this. Imports are at a very low level right now. I do not know what the percentages would be.
For my own company, our imports into Canada out of Asia are at about 75 per cent of what our exports are. I venture to say that is probably true for the other lines that are in this trade. The ports where we call on the export leg are the ports where we load coming back to Canada on the import leg. That is the way it works.
Mr. Pierce: I must make an important clarification. Up until very recently, there was a conference called ANAERA Canada. That was the Asia North America Eastbound Rate Agreement Canada. That went out of existence not too long ago exactly because of the sickly situation of the rates and the volume of cargo coming into Canada.
There is a broader group called the Canadian TransPacific Stabilization Agreement, CTSA, that has 8 to 10 members at any given time and parallels our membership plus some of the independents. All they do is talk about the trade and trying to find methods for stability. Ninety per cent of that import cargo comes through Canadian ports. It is not transhipped over the United States. That is a testament to the infrastructure growth and maturity in Canada. That was not always the case but that is the case today.
The value of the Canadian dollar is partially to blame. Mr. Olsen has hit the nail on the head. The trade right now is not just sick; it is on its death bed unless something drastic happens. That could affect Canadian export services if people cannot afford to serve Canada inbound because ships do go round-trip. They do not collapse into a FedEx package and get shipped back here. I have seen ports eliminated around the world when there was just no two-way cargo because you cannot afford to go there one way or the shipper has to pay a disproportionate amount because he has to pay for the round-trip voyage on a one-way basis.
The eastbound situation I trust will stabilize because it could be of serious concern in Canada if it does not.
Senator Corbin: Toyota has taken a decision to build more cars in North America and that certainly impacts on the movement possibilities. Others have done the same.
Mr. Pierce: Absolutely.
Senator Andreychuk: In your cartel, are there goods flowing from the United States? Do you ship goods that start out by some method, perhaps by rail, and end up in a Vancouver port, or do you differentiate?
Mr. Pierce: You mean cargo coming from or going to Asia?
Senator Andreychuk: I mean cargo going to Asia. Are American shippers availing themselves of the Canadian port at all?
Mr. Pierce: I do not believe so. If so, it is very little.
Senator Andreychuk: What about the reverse?
Ms Johnston: No.
Senator Andreychuk: There are no shippers utilizing land-based shipping and then into Oregon and on?
Mr. Olsen: No, on the West Coast we all call the port of Vancouver, but we also call in the Pacific Northwest of the United States, either to Tacoma or the port of Seattle. Therefore, on the West Coast, there would be no reason for that to happen. Most of us in the U.S. trades have our own terminal facilities. Some of us are running our own trains within the United States. The sheer volume of the market enables us to do these things.
Quite frankly, the rail costs in the United States per mile are cheaper than they are in Canada. We all know it is due to fuel, taxation, et cetera. We have been through that a number of times. There is no real incentive today for us to even think about moving U.S. cargo in this trade through Canadian ports.
It is quite different from what goes on in Montreal. We all know that 65 per cent of the containers coming into the port of Montreal are going to or from the United States. That is a benefit of the geography of the port of Montreal, but that does not exist for our Asian trades because, on the east coast, we call Halifax. After that, we call New York, Baltimore, Charleston, the major U.S. East Coast ports and, again, the situation in the West Coast.
Senator Andreychuk: On another committee, we were told that certain Canadian smaller businesses found it more expeditious to use a combination of land and port through the United States, rather than using land and port in Canada. Therefore, they were starting to ship their goods, container-wise, through the Tacoma, Washington ports.
Mr. Olsen: That is correct. That is the reverse of what you were talking about.
Senator Andreychuk: I asked about both ways.
Mr. Olsen: There is no doubt. There is Canadian export traffic in this trade moving through U.S. ports. We as one line do it ourselves. For certain commodities coming out of central Canada where transit time is of the absolute essence, we can move containers faster but at more cost over Long Beach, California, to the Far East, and we do that.
There is no price differential for doing this. It is the same price whether we move it through the U.S. or through Canadian ports. We try to keep as much through Canadian ports, particularly when we are bringing our ships to these ports.
Senator Andreychuk: So if certain businesses say to this committee that they can negotiate a better rate at a U.S. port, they are not correct?
Mr. Pierce: I am wondering if it is the combination. First, it is highly unlikely. I am intimately involved with the U.S. conference on the out-bound, and I am closely associated with the conferences on in-bound cargo. I have fairly good knowledge. They are all domiciled in my office in San Francisco.
I wonder if the business people who talked to your committee might have said that it was cheaper to negotiate the transportation to the port.
Senator Andreychuk: They said that but also that there was a port advantage.
Mr. Pierce: I do not know of a single U.S. rate -- and we have 17,000 data-pages of rates to the United States outbound -- that are cheaper than they are from Canada for the same product from the same location. There may be one or two exceptions. If you could possibly find out more, I would be glad to delve into it.
Senator De Bané: What would be the reaction of your members if Canada finally decided to repeal this SCEA?
Mr. Pierce: If you did it independent of any other country, particularly the behemoth south of you, I would worry because I truly believe the rates would be negotiated. Malcolm Hackett is a great negotiator, as is Ted Leblanc, but I believe they would eliminate certain carriers that operate out of Canada today, particularly if no action was taken south of the border. It just would not make economic sense to allocate a portion of your vessel for Canadian cargo when you could not get a fair return. That is my worry if it happened independently.
There is somewhat of a dichotomy here. If the U.S. legislation moves more towards the current Canadian legislation, I would tell you to leave it alone because we would be using you as a model for the future legislative and regulatory aspects in the U.S. Regarding the NTA, I never hear from them. We file our tariffs faithfully. They do not interfere in our business. The Canadian government has not caused us any additional expense in operating because of regulatory matters. I wish I could say that in dealing with the United States. That is not the case.
Senator De Bané: Canada is one of the largest exporters in the world. Suppose that XYZ, an ocean carrier with ships and equipment, can enter this open, competitive Canadian market. Do you not think that XYZ would not attempt to get that market, too?
Mr. Pierce: I thoroughly believe there would be some carriers who did not have a strong financial interest in infrastructure in Canada who would leave tomorrow if the rates dropped. Also, I believe you would be left with so few choices that the rates over an 18-month period would start climbing so precipitously that Canadian products could find themselves priced out of competition from other countries. The cost of doing business has to be reflected in the revenue received, in my estimation.
Senator De Bané: That kind of argument is made by the one made by the regulated industry. Bell Canada used to say they needed a specific return on their investment. Today, it is unregulated and they do not say that anymore. Now they insist they must have their share of the market because they are competing against MCI, AT&T, Sprint and all these American companies. They do not talk about return now; they talk about having their product at the right price in order to sustain market share.
Mr. Pierce: I agree. It must be at the right price but it must produce some net income.
Senator De Bané: You are coming from the most competitive market in the world. Surely you understand. If you were the head of an unregulated, capital-intensive industry, you would know that this is usually the way of doing things in the competitive, open-market system.
The Chairman: Earlier you referred with some approval to the situation which prevails in Canada. Are there any changes which you would like to see made to the Shipping Conference Exemption Act?
Ms Johnston: No, not really. The current legislation has worked for us. It has worked for exporters. The Canadian Transportation Agency today has no complaints. There are confidential contracts; they work as well. The tariff structure, the filing, the open rates which are available to customers, that system is working.
The Chairman: Thank you for opening before us a highly complicated subject and feeding our increasing interest in the Asia Pacific market.
The committee adjourned.