By Brian Dunn
The transportation sector is so concerned with short-term issues such as supply disruptions and security measures, that there is little time spent on long-term planning. But one of the most important factors that the industry must recognize both in short and long-term thinking is the rise of Asia and its impact on global production, consumption and business practices.
“We have already seen in recent years the profound impact of short-term disruptions to supply-chains emanating from Asia, such as the SARS outbreak in 2003, the tsunami that devastated parts of southeast Asia in 2004, swine flu in 2009, the 2011 floods in Thailand and the great Japanese earthquake later that same year,” added Yuen Pau Woo, President and CEO, Asia Pacific Foundation of Canada. He made the remarks in his keynote speech to the Chartered Institute of Logistics and Transportation North America at its 12th annual Transportation Situation & Outlook Conference in Montreal.
Under the heading “Preparing for the Long Haul: The Rise of Asia and its Impact on North American Transportation and Logistics,” Mr. Woo said the industry must invest to prevent such disruptions which requires a commitment from Canadian and U.S. governments to work with Asian partners to address issues such as disease outbreaks, natural disasters and other non-traditional security threats. “There is a perception, probably grounded in reality, that North America is quick to respond to traditional security threats and will go to any length to invest in the prevention of terrorism in the homeland, but is much less concerned about threats on the other side of the Pacific that nevertheless have a direct economic impact on North America,” said Mr. Woo.
He outlined some points that will have a long-term impact on North American transportation and logistics industries. The first is the softening of growth in the Chinese economy which has lowered demand for raw materials from countries like Canada. There are also rising wage costs coupled with social discontent over corruption, pollution and inequality. The Chinese government is responding by shifting to an economy that is driven more by domestic demand and higher-value exports. “More and more, production in Asia will be for final consumption in the region, but the demand for final goods from North America will continue to drive shipments across the Pacific, albeit with changes in the country of origin. As production shifts south and west, including to newcomers such as Myanmar, the economics of international shipping will be affected, making East coast ports, including Halifax, more competitive as entry points into North America,” Mr. Woo suggested.
And if Asian countries do transition to more domestic demand driven growth, there will be a need for higher-end, better quality products and services that North America can provide, said Mr. Woo. “Demand for higher-quality products in Asia will open up fresh opportunities for Canadian companies and create new challenges for the logistics industry because of greater diversity, smaller shipments and a shorter product cycle.
“I believe that in the decade to come, we will see a sharp rise in Canadian exports to Asia, led by services and that the transportation and logistics industry can play a key role in facilitating and driving this increase. But for this to happen, we need a new mindset in this country that looks at Asian markets as integral to the success of our economy, rather than as a fallback option when traditional markets in the US and the EU are weak.”
Closer to home, future trends in the Great Lakes St. Lawrence Seaway System (GLSLSS) were presented by Bruce Hodgson, Director of Market Development, The St. Lawrence Seaway Management Corporation. System traffic is expected to reach 39.85 million tonnes this year, up from 39.07 tonnes last year and 37.54 tonnes in 2011. Industrial customers will continue to drive domestic coal tonnage, but environmental standards for cement and the power industry, coupled with prices of alternative energy such as natural gas, will play a role in future demand, said Mr. Hodgson. Exports are a main growth area for developing economies like China and India, and demand from Europe could increase as the continent moves away from nuclear power. The recent ending of the Wheat Board monopoly could present new opportunities for GLSLSS with tighter global supplies predicted for the next 10 years, although EU demand for grain over the same period is expected to decline. On the plus side, markets such as North and South Africa, Middle East and South America are growth areas.
In terms of iron ore, there is a new balance between exports and domestic demand based on worldwide corporate decisions on production and sourcing, said Mr. Hodgson. “Volumes on the Seaway are tied to demand for North American Steel, increased industry integration, world wide production and the global price of iron ore. Shipments destined for plants within the Great Lakes region will likely continue to be stable as long as production capacity remains stable.”
As for petroleum, the Seaway market is somewhat volatile which fluctuates with world crude prices and product availability and future movements will be linked to the development of new sources and the construction of new or expanded pipelines. “Due to the inflexibility of pipelines, the Seaway will continue to play an important role in the future of petroleum product shipping. The new Bakken shale plays (in North Dakota) and pipeline inefficiencies could perhaps lead to shipments of crude oil.”
The steel market continues to be driven by North American and world demand and is concentrated among a few major players with no clear domestic growth opportunities, Mr. Hodgson noted. In fact, steel has reached its saturation in per capita consumption in North America, he added.
Companies transporting Ontario export products will see a better year this year than last in most sectors, according to Peter Harrison, Vice-President and Associate, CPCS North America, a transportation and logistics consulting firm. The three areas that will see negative growth are in industrial goods, consumer goods and forest products. Most carriers of Quebec exports will also enjoy growth with the exception of transportation products, forest products, industrial goods and consumer goods.
Transportation of crude oil by rail is also expected to see major gains, with CP Rail projected to transport 70,000 carloads of oil this year versus 54,000 last year and 140,000 by 2015. CN Rail expects to carry 60,000 carloads this year, twice its 2012 volume. It has no forecast for 2015.
Post-Panamax ships have increased in size, from 4,000-5,000 TEUs in 1988 to Triple E 18,000 TEUs today, Mr. Harrison noted. Implications for Canadian business are unclear, but it will mean more port competition in the Asia-North America ocean freight market and real ocean freight rates will continue to fall in the long term, he added. As for the transportation fuel of the future, liquefied natural gas (LNG) makes a compelling choice beyond cost advantages over other fuel sources, Mr. Harrison pointed out. It offers energy security due to domestic sourcing. In marine transport, it offers 90-95 per cent reduction in sulphur oxide emissions and 20-25 per cent less carbon dioxide emissions. A number of initiatives are currently underway to encourage more widespread consumption. Shell Oil is planning three 250,000 tonnes per year LNG liquefaction plants in Calgary, Sarnia and Geismar, LA, enough to fuel 5,000 trucks per day, while Robert Transport will be operating 180 LNG-fuelled tractor trailers by 2014, Mr. Harrison concluded.