By Theo van de Kletersteeg
Canadian Sailings has recently completed another annual study comparing financial and other performance data related to federally-operated Canadian Port Authorities from 2014 to 2015 (Data for 2016 will not be available until July or August). Port of Toronto was not included in the study because its financial statements include the operations of Toronto Island Airport, and are therefore not comparable to those of other ACPA ports.
Total federal Port industry
In calendar year 2015, ACPA Ports produced aggregate revenues of $ 549.6 million, up 4.0 per cent from $528.4 million in 2014. Operating income of $165.2 million represented an increase of 3.5 per cent over 2014 aggregate operating income of $159.6 million.
By way of comparison, Statistics Canada reported that for the calendar year ended December 31, 2014, Canadian-controlled corporations doing business in Canada reported revenues of $2.78 trillion (up 6.2 per cent from $2.62 trillion in 2013) and operating profits of $310.4 billion (up 7.2 per cent from $289.6 in 2013). Foreign-owned corporations doing business in Canada increased their revenues in 2014 to $1.12 trillion (up by 4.2 per cent), and increased their operating profit in 2014 to $78.3 billion (up by 7.7 per cent).
The port industry is a capital-intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $3.4 billion, from which the industry generates annual revenues of some $550 million. The industry declined precipitously in 2009 as the financial crisis reduced global trade, but recovered in 2010.
Since 2010, annual port revenues have grown steadily by an average of 5.5 per cent, compounded annually, from $418.8 million in 2010 to $549.6 million in 2015. Port volumes, on the other hand, have grown by only 1.5 per cent compounded annually, from 286.1 million tonnes in 2010 to 307.5 million tonnes in 2015. In fact, port volumes declined in both 2014 and 2015, before rising slightly in 2016.
Port volumes depend primarily on non-U.S. international trade. Exports consist primarily of commodities destined for overseas markets, while imports primarily consist of consumer goods for domestic consumption. Additional opportunities exist for Canadian ports to service markets traditionally serviced by American ports, both with respect to exports and imports. Canadian west coast ports have been successful attracting higher volumes of U.S.-bound shipments, and it appears that similar developments are now taking place at east coast ports.
What is the profile of a “typical” ACPA Port?
There is no “typical” ACPA Port because each port is significantly different from the next, resulting from geographic location, size and economic opportunity. Moreover, with Vancouver handing some 45 per cent of all Canadian federal Ports, and responsible for almost two thirds of the comprehensive income generated by all ACPA ports, Vancouver’s stats swamp everyone else’s. Recognizing those limitations, an “average” ACPA port handled 18.0 million tonnes of cargo in 2015, down 1.0 per cent from 2014, producing revenues of $32.3 million, up 4.0 per cent from 2014, and an operating profit of $9.7 million, up 3.5 per cent from 2014. At $10.6 million, 2015 “comprehensive” income was well above 2014’s comprehensive income of $9.05 million. At $322,426, CEO pay was up 3.1 per cent from the 2014 average of $312,804. “Comprehensive” return on assets stood at 5.3 per cent in 2015, up from 4.7 per cent in 2014. “Comprehensive” return on equity was a healthy 7.1 per cent in 2015, up from 6.5 per cent in 2014.
If we were to exclude Vancouver’s numbers from the calculations, average tonnage handled by the remaining Ports declined from 10.6 million tonnes in 2014 to 10.5 million tonnes in 2015.
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $387,038 of “comprehensive” net profits on revenues of $2.8 million in 2015. At $8.29, its revenue per tonne of cargo was the highest, and enabled it to afford the highest employee cost per tonne of cargo, $2.57. By contrast, Vancouver, the largest in terms of tonnage, produced “comprehensive” net profits of $105.6 million on revenues of $239.2 million. Its revenue per tonne of $1.73 was 3.9 per cent below the national average and at 27 cents per tonne, its employee cost per tonne of cargo was 34 per cent below the nationwide average of 41.1 cents per tonne.
Highest returns on assets and equity
In this category, top marks for the highest comprehensive return on equity went to Prince Rupert (19.8 per cent), Montreal (13.1 per cent) and Vancouver (8.0 per cent each). Top marks for the highest return on assets went to Prince Rupert (12.6 per cent), Montreal (10.6per cent), and Vancouver (7.0 per cent).
Highest and lowest revenue growth rates
With a revenue growth rate of 14.68 per cent, Saguenay underwent the most robust growth of any Canadian federal Port Authority in 2015, well above the national average of 4.0 per cent. Oshawa (10.7 per cent), Montreal (9.1 per cent) and Hamilton (8.6 per cent) also showed strong growth. Six Port Authorities reported declining revenues.
Employee cost to move one tonne of cargo, and “all-in” costs
In 2015, employee cost to move one of cargo ranged from $0.09 (Windsor and Thunder Bay) to $2.57(Saguenay), with the average being $0.41, unchanged from 2014. The “all-in” cost of moving a tonne of cargo ranged from $0.21 (Windsor) to $7.15 (Saguenay). The average “all-in” cost in 2015 was $1.20, unchanged from 2014.
There were very significant differences between Ports in terms of income performance. Four Ports (Quebec, Nanaimo, Port Alberni and Oshawa) produced negative operating income in 2014, up from three in 2013. Those Ports also produced negative comprehensive net income. Nonetheless, combined comprehensive income produced by all the Ports increased significantly from $153.8 million in 2014 to $180.7 million in 2015. Vancouver produced by far the highest comprehensive income ($105.6 million), followed by Montreal ($39.8 million) and Prince Rupert ($26.1 million), “Comprehensive” losses result mostly as a result of a re-evaluation of the value of the employer’s pension assets in relation to its pension obligations.
Revenue per tonne and operating income per tonne
At $1.80 average revenue per tonne of cargo handled was up from $1.71 in 2014.
Average operating income per tonne of cargo increased between 2014 and 2015 from $0.52 to $0.54/tonne. However, results for individual Port Authorities varied widely.
Whereas some Ports formally carry an “investments” account on their books, not all do. However, most Ports do carry substantial cash balances on their balance sheets which, to the extent that they represent cash not generally regarded as needed to conduct their operations, represent an investment. For each Port, we have made a subjective assessment of such “excess” cash, and classified it as “investment capital”. Generally, this amount was the greater of the amount labelled “investments” by the Port’s auditor, and the amount by which the cash on hand exceeded the cash needed to maintain a working capital ratio of 1.0. On that basis, aggregate investments of $172 million at the end of 2015 were up substantially from $127.4 million at the end of 2014. Combined year-end 2014 investments represented 5.0 per cent of Ports’ total assets.
Comparing 2015 to 2014, aggregate investment income fell from $5.0 million to $4.3 million. With investment income of $1.1 million, Port of Montreal generated by far the highest investment income, followed by Port of Thunder Bay ($630,000).
In 2015, aggregate net capital expenditures by all federal ports declined sharply from $319.5 million to $188.9 million. It should be noted that the reported capital expenditures are only those that, from an accounting point of view, were paid for or were the obligation of individual Port Authorities, and do not include capital expenditures paid for by way of grants or contributions from federal or provincial governments. The largest capital expenditures were undertaken by Vancouver ($69.7 million), Montreal ($34.6 million), Sept Iles ($18.0 million), and Halifax ($12.3 million).
Salaries, wages and benefits
During 2015, salaries, wages and benefits jumped by 7.2 per cent. On a per tonne basis, compensation remained unchanged from 2014.
CEO pay and Board compensation
Average CEO pay rose from $312,804 in 2014 to $322,426 in 2015. Aggregate CEO compensation for all of the federal Ports in the study in 2015 was $5,481,239. Lowest CEO compensation was $150,000, while the highest paid CEO earned $900,000. CEO pay per tonne of cargo ranged from $0.0062 per cent (Vancouver) to $0.44 (Oshawa). The average was $0.018.
Ports, like all other business organizations, are governed by a Board of Directors. At Canadian Port Authorities, the smallest Board consisted of five members, while the largest consisted of twelve. The average was eight, unchanged from 2014. Aggregate Board compensation in 2014 amounted to 57.6 per cent of CEO compensation. Saguenay reported the lowest Board compensation in 2014 ($57,075), while Vancouver’s Board was by far the most generously compensated ($669,493) in 2015. In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2015 included Montreal, Prince Rupert, Quebec, Saint John, and Halifax.