By Brian Dunn
The shortest distance between the largest European ports and some of the major Great Lakes cities such as Toronto or Cleveland is via the St. Lawrence Seaway. And yet, the route is vastly underutilized, according to Bradley Hull, Associate Professor, Department of Management, Marketing & Logistics, John Carroll University, University Heights, Ohio. In fact, the only scheduled service on this route today was started last year by Dutch operator Spliethoff Group which began a monthly service between Cleveland and Antwerp, moving breakbulk, project cargo, and containers. This season, the service will be biweekly, Mr. Hull noted during the 50th Annual Canadian Transportation Research Forum Conference in Montreal, May 24-27.
“The above mentioned lack of Great Lakes commerce is puzzling since many scheduled services operated on the Great Lakes between the 1930s and 1980s, all of which died out.” Before the Second World War, two lines, Fjell of Norway and Dutch carrier Oranje Lijn, operated a regular service between Europe and the Great Lakes, even with a restricted 14-foot draft at the time. Other earlier carriers included Manchester Liners, Swedish Chicago Line, Swedish American Line, Hamburg Chicago Lines, Fabre Lines, Metron and Ahlmann Transcaribbean Lines. In the 1960s, containers began to move on the Great Lakes led by Fednav, Zim Great Lakes Lines, Hapag Lloyd, Cast and CP Ships among others, Mr. Hull pointed out.
The 1970s saw intense competition on the Great Lakes with container volumes peaking in 1973. The major carriers were Black Sea Shipping, Europe Canada Lake Lines, Falline Container Service, Manchester Liners, Polish Ocean Lines, NYK Lines, Shinwa, Hapag Lloyd and Norwegian America. By the 1980s, Manchester Lines and many other container services on the Great Lakes ended, with Manchester being acquired by CY Tung Group (OOCL). “Since the 1990s, there have been few container services on the Great Lakes of any kind. Steel is still delivered using Fednav, Polsteam, and Wagenborg. However these ships, though frequently visiting, are not a liner service with a specific time schedule and none of them accept containers. More recently, the Great Lakes Feeder Lines and Sea-3 have attempted unsuccessfully to develop a liner service.” The one exception is the Spliethoff service to Cleveland with a stop in Valleyfield, QC and the addition of sporadic service to Thunder Bay, Milwaukee and Duluth, said Mr. Hull. “The second ship out of Cleveland will call on any port that has cargo to be picked up, but Spliethoff has no regular service to Thunder Bay,” said Tim Heney, CEO of Thunder Bay Port Authority. “Duluth and other ports are trying to encourage them to make a stop, but you need the cargo to justify the service.”
Duluth had three Spliethoff ships make deliveries last year with plans of establishing a more regular pattern of visits this year and next, according to Adele Yorde, Public Relations Manager, Duluth Seaway Port Authority. “That certainly would not be ‘weekly’ service but, depending on bookings, we’d hope to see at least one Spliethoff visit per month to handle inbound/outbound cargoes.”
So what happened to this once thriving shipping route? There are several reasons for the decline, Mr. Hull noted, including the physical limitations of the Seaway locks and maximum draft of 26.5 feet. Seasonality also limits the use of the Seaway to nine months with cargo bound for the Midwest during the winter railed from Montreal, Halifax or U.S. East Coast ports which is seen as disruptive by shippers, said Mr. Hull.
“A number of competitive economic issues also contributed to the demise. First, the U.S. and Canadian East Coast ports developed load centres which could turn ships around quickly and at a relatively low price per container. Complementing this dynamic, the size of oceangoing container ships has risen quickly with ships holding up to 22,000 TEUs currently under construction. These ships transport containers at very low unit cost. By comparison, physical limitations do not allow the Seaway to compete.”
In addition, Great Lakes ports were slow to modernize their facilities and failed to keep up with East Coast competition, resulting in higher labour costs for unloading and slower turnaround times, Mr. Hull added. Another reason for the decline was competition from both the rail and trucking industries. “Just as the Seaway was being developed, the Eisenhower administration added a competitor by constructing the Interstate Highway System, which assured greater truck competition to U.S. East Coast ports. Further, U.S. railroads had no desire to short haul their cargos between the East Coast ports and midwest cities, and charged more to go to the Great Lakes ports relative to East Coast ports.”
In Canada, Canadian Pacific was vertically integrated through CP Rail, CP Ships (now part of Hapag Lloyd) along with a Montreal terminal to capture waterborne business along with Cast/CN offering a water/rail partnership. “A final contributory economic reason for decline is that rail service to Midwest cities can be quicker from Montreal than from Montreal by feeder ship. This, added to the fact that railroads are naturally reluctant to move cargo seasonally when they could move it year round, likely lead to unattractive wintertime rates.”
Regulatory and institutional factors also played a part in the demise of Seaway traffic as vessels were typically foreign flagged and had no voice in Congress or Ottawa, compared to East Coast ports, railroads and the trucking industry.
Congressional funding for moving Food for Peace under PL480 (to promote the food security of developing countries) was rescinded in the 1980s, since Jones Act (to promote and maintain American merchant marine) tonnage was no longer available in the Great Lakes. Thus, the Great Lakes lost an important source of U.S. Flag business and companies such as the Lykes Line and Farrell withdrew from the Great Lakes. There are also pilotage requirements which can cost up to $150,000 per voyage, Mr. Hull noted.
One of the reasons why the Spliethoff service appears to be working is because it is using a multipurpose vessel and the fact it is being subsidized by the Port of Cleveland ($5 million last year and $2.5 million this year), according to Mr. Hull. Congestion at U.S. East Coast ports, particularly New York, has also made the service attractive. In addition, direct trips between Cleveland and Antwerp can be a week shorter than shipping via U.S. East Coast ports, he added.
In fact, bypassing congestion and by using multipurpose vessels, there is the potential to increase traffic on the Great Lakes, according to Mr. Hull who said there are other interests (Wagenborg Shipping and Great Lakes Feeder Lines) that could “provide a lot of thrust to such an initiative.” He noted that 75 per cent of international oversize/overweight and super load oil sands project cargo that moves to Western Canada is via the Port of Houston. Mr. Hull questioned why is shouldn’t move through the Great Lakes.
Another topic of discussion at the conference was whether short sea shipping could become more than just a niche service. To help reduce truck congestion, the minimal distance required to make short sea an attractive alternative is around 500 kilometres, according to Mary Brooks, Professor Emeritus, Rowe School of Business, Dalhousie University.
“In Europe, short sea shipping is well established with feeder, ro-ro, regional services, industrial shipping, passenger and cruise ferry operations in existence. Even some short sea hubs for freight have emerged (e.g., Hamburg with 22 companies offering feeder services to 12 countries in the region as of the end of January 2015).” Geography is critical to its success and the fact the Baltic Sea is open year round and is more sheltered than the Great Lakes. The success of short sea in Europe is also helped by the Marco Polo program which aims to free Europe’s roads of an annual volume of 20 billion tonne-kilometres of freight, the equivalent of more than 700,000 trucks a year travelling between Paris and Berlin.
But the success of short sea shipping in Europe has not fared well in other jurisdictions. For example, in Australia, where Ms. Brooks conducted four studies on three “corridors of promise,” the potential of short sea was limited by trade realities, since the cost of shipping by road and rail would have to increase significantly before companies would consider switching to short sea, particularly for time sensitive cargo. The situation in North America is no different where exporters preferred a single carriage document to multiple contracts. In another study, Ms. Brooks found that 25 per cent of shippers were unlikely to switch to short sea unless trucking service deteriorated drastically such as greater congestion around New York.
“Service every two weeks (by sea) was unacceptable and more frequent departures were critical to service adoption. There was a high premium buyers were willing to pay for frequent departures. This means short sea services need significant volumes to support the vessel investment required to provide increased vessel departure frequency.”
The potential to develop short sea in North America is also hindered by regulatory barriers such as a harbour maintenance tax, security rules, ship building requirements and duty on imported vessels among other considerations. And unlike Europe, there are no incentive programs to support coastal shipping. Even in South America with its road congestion and heavily populated coastal areas, short sea doesn’t stand a chance of catching on due to regulations that Ms. Brooks describes as a “dog’s breakfast”, and markets that are well protected.
The only way short sea might work in North America is through social license, which is the ability of citizens and taxpayers to demand change through grassroots support, according to Ms. Brooks. And in shipping, social license happens at the port. She cited the example of Baltimore losing its short sea service to Puerto Rico after a Baltimore developer of a new intermodal container facility failed to get citizen support, resulting in the withdrawal of state funds. On the other hand, Jacksonville’s port authority decided to become a short sea port-of-call for Caribbean feeder traffic and has developed standards for LNG refuelling barges, all with the support of the local community.
“Europe may be the only success and that market is now struggling with the additional impact of Emissions Control Areas, driving away business as recently happened with (Spliethoff Group-owned) Transfennica.”
Canada’s rail sector was also on the program where it was revealed that over the last 40 years, CN and CP have gone from being the worst performers in North America to the best today. This was accomplished through proactive management, mergers, operational improvements, large capital investments, new labour rules and major changes in day-to-day operations, according to Nick Mulder, Senior Associate, Global Public Affairs, Ottawa. And apart from Lac Mégantic, the overall safety record of the rail industry in Canada has steadily improved, he added.
“To be clear, the rewards of this success in the last two decades have not only accrued to the railways. There have also been benefits delivered to shippers through better, faster service (particularly given increasing traffic and congestion) and the availability of service and equipment at relatively lower prices. Plus it has enabled the companies to invest large sums in all key operations.” On the down side, there has been a reduction of service east of Montreal, for rural and small shippers and weakened support for short-line operators.
“With the drive to more efficiency and improved bottom lines, the railways may be doing better, but they have attracted critics certainly in the West. The railways have not paid sufficient attention to many shippers (including captive shippers), service obligations, communications and even politicians, especially in Western Canada and with the forestry products and mining sector.”
Turning to Bill C-52 (to amend the Canada Transportation Act and the Railway Safety Act), Mr. Mulder said Canada does not need more railway regulation but rather “commercial collaboration and dispute resolution among all parties. We as a nation now have to move on, to act on other freight transportation issues such as gateways, bottlenecks and congestion in our major cities and export-import points.”
Is shipping oil by rail a solution or a disaster, was another topic put forward by Kalinga Jagoda, Management Professor, Mount Royal University, Calgary. He noted there have been 16 major crude oil and ethanol rail accidents since 2006 in the U.S. alone with over 4.8 million gallons released. Eighty per cent of the mishaps were blamed on human error.
Older DOT-111 rail cars (such as those in the Lac Mégantic accident) have to be replaced or retrofitted by 2017. “Who is going to build these cars? There are only 20 North American shops than can build safe cars at the rate of 650 cars a year, while 35,000 cars need to be replaced. A car design takes 12-24 months, manufacturing 12-18 months for a total of up to four years. And the laws are changing every day.” So on the equipment side, it is not very promising and the equipment manufacturers don’t know what new laws are coming down the pipe and there is no unanimity between Transport Canada and the U.S. DOT regulations, Mr. Jagoda noted. “It’s not a solution now, but could be 10 years from now. Crude by rail only represents about five per cent of total oil shipments, but we need a new standard for the Canadian and U.S. markets.”
Canada’s transportation system is a place of ongoing change and a key enabler of economic growth, noted Federal Transport Minister Lisa Raitt in her keynote luncheon presentation on May 25. She mentioned the Smart Ocean initiative to improve marine safety by monitoring and providing alerts on sea conditions, marine mammals and ship traffic and the Seaway’s hands-free mooring system using vacuum pads instead of traditional wiring as examples of new technologies to improve Canada’s transportation system. Minister Raitt discussed Transport Canada’s close collaboration with industry and its work with the United States on major files like the next generation of stronger, safer rail tank cars and the Gordie Howe International Bridge between Windsor and Detroit. “The government can’t turn on a dime, but we’re dealing with the major concerns of the country. The Department of Transport is not coming to the table with solutions, but is asking questions about how to move forward better and how to align needs with dollars.”
Trying to predict the future of international shipping is almost impossible, because it is such a volatile and capital intensive business, Shipping Federation of Canada President Michael Broad said at the luncheon on May 26. “Geopolitics, currency fluctuations, trade negotiations, tragedies, technological breakthroughs – all of these events make it difficult to predict the future accurately, although we know that such events will indeed happen and change how transportation works. We depend on so many other people to make the process work – exporters and importers, forwarders, ship brokers, ship builders, stevedores and terminal operators, pilots, tugs, trucking companies, railways, fuel suppliers, ports and other government agencies – all of these stakeholders, along with the shipping industry feeding off trade.” With governments continuing to sign more free trade agreements, global trade should increase, thereby reducing some of the surplus shipping capacity, he added. “Cost cutting will continue as revenues are more difficult to control and I believe there will be further consolidation within the industry. Environmental concerns will guide development of shipping in the Arctic – and this is a good thing.”