FREIGHT DEMAND OUTLOOK CONFERENCE
January 19, 2009
Morley Strachan, executive vice-president of TSI Terminal Systems, operator of Vancouver’s two largest container terminals, said it best as he stepped up to the microphone. “Good afternoon ladies and gentlemen,” he said. “Is anybody not depressed yet?”
There was laughter, but few dissenters, among the almost 200 delegates from all sectors of Canada’s transportation industry attending a conference in Vancouver on the outlook of freight demand. Titled Insight Versus Risk, it was jointly sponsored by Transport Canada and WESTAC, the Vancouver-based Western Transportation Advisory Council.
During the Dec. 3 opening session, representatives of Canada’s four major resource sector producers – coal, grain, forest products and sulphur – reported grim statistics and offered gloomy short-term predictions.
There was no good news except the consensus that the global economy is expected to recover – eventually – although it may take years.
“Things have never been worse in the forest industry,” said Daryl Swetlishoff, paper and forest products analyst and senior director at Raymond Jones Ltd. “I have said it for years and I have been right every time.”
For coal, the leading commodity shipped through Port Metro Vancouver, the export numbers are equally bleak.
“What has happened in the last couple of months is a worldwide collapse in the demand for steel,” said Allen Wright, president and CEO of the Coal Association of Canada.
Noting that the price of metallurgical coal – used in steel-making, and the main product of western Canada’s coal mines – had slumped to $75 a tonne from the $140 range a few months ago, Mr. Wright added, “The key for us in Canada is what’s going to happen with our carry-over tonnage and what’s going to happen to some of the contracts. Will they be met or not? Do the buyers want to stick it to us, or do they want good relations because when things turn around they will want that coal?”
All speakers had more questions than answers.
Barry Clarke, principal of PentaSul Inc., got a chuckle from delegates when he noted that the price of sulphur, a byproduct of natural gas production, reached a peak of $820 a tonne last summer. “This is the sulphur price, not the gold price,” he quipped. It was a bonanza for producers that he said was “unprecedented and unsustainable.”
“It collapsed more quickly than anyone would have expected,” he added. “By July 1, there was no demand and product couldn’t be moved at any price, and today we haven’t found the bottom; we are still dredging. By year-end, potash shipments to Asia were one million tonnes lower than expected.”
On the grain side, the news is brighter. Chuck Penner, senior consultant with Informa Economics, told delegates that despite stagnant crop production and a dismal decline in western Canada, the outlook going forward to 2015 is a production increase of 1 to 1.5 per cent a year.
Mr. Penner said this is partly due to crop diversification as farms take acreage out of wheat and durum and replace it with oilseeds, canola and specialty crops. “There are some fairly significant shifts that are happening and will continue,” he said, noting that the U.S. market is growing in significance.
“Overall, we expect crop production to be higher in 2015, about 12.5 million tonnes of increased productivity. More specialty crops results in an increased need for containers and that’s good news for the shippers of empty containers out of Vancouver.”
He said that it will also result in more north-south trade and more trucking of short-haul exports.
Another brighter forecast was made regarding fertilizer exports. Analyst Tom Maville, president of TL Maville & Associates, said the demand for fertilizer is driven by the world demand for food, and the current world population of 5.6 billion is projected to increase to 9 billion by 2050.
In the shorter term, increased standards of living in Asia, Africa and Latin America has caused a shift in demand from starch to grain, which also benefits fertilizer producers.
The co-sponsors of the conference, which was subtitled “Is western Canada’s transportation system up to it?” said registrations exceeded expectations. “Clearly western Canadians are as passionate about transportation as ever,” said Kristine Burr, assistant deputy minister, policy group, Transport Canada. Noting that it was one of four such conferences to be held across Canada, she said there were 193 registered delegates in Vancouver.
“Yes, we are facing economic challenges over the next couple of years that are daunting,” she added, “but we are looking ahead 20 to 30 years, talking about building a system for the future.”