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 2015 to 2016 (Data for 2017 will not be available until July or August).
Toronto Port Authority
Because its financial statements include the operations of Toronto Island Airport, they are not comparable to those of other ACPA ports. Accordingly, Port of Toronto was not included in the study (except as noted).
Oshawa Port Authority
In connection with the cancellation of a proposed industrial plant on Port property, an arbitration panel in 2016 directed Oshawa Port Authority to pay a settlement of almost $4.2 million to the developer, resulting in a loss for the year of $6.1 million. As at the end of 2016, the Port Authority’s current liabilities exceeded its current liabilities by more than $6 million, which caused the Port Authority’s auditor to “cast significant doubt on the Port Authority’s ability to continue as a going concern”. For the purposes of our review, we have not included Oshawa’s numbers in some graphs as they would significantly distort the overall picture.
Sept-Îles Port Authority
This year, the accounts of Sept-Îles Port Authority contained large-scale transactions of a non-operational nature which significantly impacted the Port Authority’s comprehensive income. For the purposes of our review, we have not included Sept-Îles’ numbers in some graphs as they would significantly distort the overall picture.
Total federal Port industry
In calendar year 2016, ACPA Ports produced aggregate revenues of $ 582.5 million, up 6.0 per cent from $549.6 million in 2015. Operating income of $211.0 million was up a strong 18.4 per cent over 2015 aggregate operating income of $178.3 million.
By way of comparison, Statistics Canada reported that for the calendar year ended December 31, 2016 (CANSIM table 187-0002), corporations doing business in Canada reported revenues of $3.818 trillion (up 1.4 per cent from $3.765 trillion in 2015) and operating profits of $335.0 billion (up 3.7 per cent from $322.9 billion in 2015).
The port industry is a capital-intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $3.6 billion, from which the industry generates annual revenues of some $580 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 $582.5 million in 2016. Port volumes (including Toronto), on the other hand, have grown by only 1.6 per cent compounded annually, from 286.1 million tonnes in 2010 to 311.2 million tonnes during that same period. 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 43 per cent of all Canadian federal Ports, and responsible for almost half of the comprehensive income generated by all ACPA ports, Vancouver’s stats swamp everyone else’s. Recognizing those limitations, an “average” ACPA port handled 18.2 million tonnes of cargo in 2016, up 1.4 per cent from 2015, producing revenues of $34.3 million, up 6.2 per cent from 2015, and an operating profit of $10.5 million, up 18.4 per cent from 2015. At $12.2 million, 2016 “comprehensive” income exceeded 2015’s comprehensive income of $10.6 million by14.4 per cent. At $333,869, CEO pay was up 3.8 per cent from the 2015 average of $321,397. “Comprehensive” return on assets stood at 5.8 per cent in 2016, up from 5.3 per cent in 2015. “Comprehensive” return on equity was a healthy 7.5 per cent in 2016, up from 7.1 per cent in 2015.
If we were to exclude Vancouver’s numbers from the calculations, average tonnage handled by the remaining Ports rose from 10.5 million tonnes in 2015 to 11.4 million tonnes in 2016.
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $308,000 of “comprehensive” net profits on revenues of $2.6 million in 2016. At $8.83, its revenue per tonne of cargo was the highest, and enabled it to afford the highest employee cost per tonne of cargo, $2.59. By contrast, Vancouver, the largest in terms of tonnage, produced “comprehensive” net profits of $100.0 million on revenues of $235.2 million. Its revenue per tonne of $1.74 was 7.5 per cent below the national average and at 29 cents per tonne, its employee cost per tonne of cargo was 29 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 (27.7 per cent), Sept-Îles (10.3 per cent), Vancouver (7.1 per cent), and Hamilton (6.6 per cent). Top marks for the highest return on assets went to Prince Rupert (21.2 per cent), Vancouver (6.1 per cent), and Hamilton (6.0 per cent).
Highest and lowest revenue growth rates
With a revenue growth rate of 27.6 per cent, Hamilton underwent the most robust growth of any Canadian federal Port Authority in 2016, well above the national average of 6.2 per cent. Prince Rupert (26.7 per cent), Quebec (21.4 per cent) and Halifax (15.2 per cent) also showed strong growth. Four Port Authorities reported declining revenues.
Employee cost to move one tonne of cargo, and “all-in” costs
In 2016, employee cost to move one of cargo ranged from $0.07 (Sept-Îles) to $2.59 (Saguenay), with the average being $0.41, unchanged from 2015. Excluding Oshawa because of its extraordinary circumstances, the “all-in” cost of moving a tonne of cargo ranged from $0.27 (Windsor) to $7.79 (Saguenay) in 2016. The average “all-in” cost in 2016 was $1.21, up by $0.01 from 2015.
There were very significant differences between Ports in terms of income performance. Two Ports (Nanaimo and Oshawa) produced negative operating income in 2016, down from four in 2015. Those Ports also produced negative comprehensive net income. Nonetheless, combined comprehensive income produced by all the Ports increased significantly from $178.3 million in 2015 to $207.1 million in 2016. Vancouver produced by far the highest comprehensive income ($100.0 million), followed by Prince Rupert ($50.4 million) and Montreal ($23.7 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. In 2016 Oshawa suffered the negative impact of an unfavourable arbitration award against it.
Revenue per tonne and operating income per tonne
At $1.88 average revenue per tonne of cargo handled was up from $1.80 in 2015.
Average operating income per tonne of cargo increased between 2015 and 2016 from $0.54 to $0.68/tonne. However, results for individual Port Authorities varied widely.
Investments and investment income
Whereas some Ports formally carry an “investments” account on their books, not all do. Assets classified as investments represented an aggregate value of $143.9 million at the end of 2016, as compared to $178.2 million at the end of 2015. 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. To better measure the value of financial assets owned by Ports, we aggregated net working capital, investments and long-term receivables. On that basis, in 2016 Ports owned $447.3 million of financial assets that were “excess” to their needs, up from $398.6 at the end of 2015. At the end of 2016, such financial assets consisted of 12.4 per cent of the Ports’ total assets.
In 2016 aggregate investment income reported by the Ports fell from $4.0 million to $3.2 million. As in 2015, Port of Montreal generated by far the highest investment income in 2016, followed by Prince Rupert and Thunder Bay.
In 2016, aggregate net capital expenditures by all federal ports increased from $189.6 million to $224.5 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 Montreal ($86.9 million), Vancouver ($54.6 million), Trois Rivières ($20.6 million), and Hamilton ($19.9 million).
Salaries, wages and benefits
During 2016, salaries, wages and benefits increased by 2.0 per cent. On a per tonne basis, compensation remained unchanged from 2015.
CEO pay and Board compensation
Average CEO pay rose from $321,397 in 2015 to $333,869 in 2016. Aggregate CEO compensation for all of the federal Ports in the study in 2016 was $5,675,773. Lowest CEO compensation was $149,500, while the highest paid CEO earned $876,000. One CEO saw a 25.4 per cent in compensation, four saw increases of between 10 and 20 per cent, and two received increases of between 5 and 10 per cent. Four CEOs had their compensation reduced in 2016..
Ports, like all other business organizations, are governed by a Board of Directors. At Canadian Port Authorities, the smallest Board consisted of six members, while the largest consisted of thirteen. The average was 7.1, down from 7.7 in 2015. Aggregate Board compensation in 2016 amounted to 55.3 per cent of CEO compensation, down slightly from 2015 levels. Saguenay reported the lowest Board compensation in 2016 ($55,400), while Vancouver’s Board was by far the most generously compensated ($655,000) in 2016. In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2016 included (in order of declining compensation) Prince Rupert, Hamilton, Saint John, Montreal, Quebec, and Halifax.