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 2016 to 2017 (Data for 2018 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).
Total federal Port industry
In calendar year 2017, ACPA Ports produced aggregate revenues of $ 602.5 million, up 3.4 per cent from $582.5 million in 2016. Operating income of $205.3 million was down 2.6 per cent from 2016 aggregate operating income of $210.7 million.
By way of comparison, Statistics Canada reported that for the calendar year ended December 31, 2017 (table 33-10-0161-01), corporations doing business in Canada reported revenues of $4.029 trillion (up 5.5 per cent from $3.818 trillion in 2016) and operating profits of $383.9 billion (up 14.6 per cent from $335 billion in 2016).
The port industry is a capital-intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $3.82 billion, from which the industry generates annual revenues of some $600 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 5.3 per cent, compounded annually, from $418.8 million in 2010 to $602.5 million in 2017. Port volumes (including Toronto), on the other hand, have grown by only 2.3 per cent compounded annually, from 286.1 million tonnes in 2010 to 335.4 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 well over 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 19.6 million tonnes of cargo in 2017, up 7.7 per cent from 2016, producing revenues of $35.4 million, up 3.4 per cent from 2016, and an operating profit of $12.1 million, down 2.6 per cent from 2016. However, at $13.5 million, 2017 “comprehensive” income exceeded 2016’s comprehensive income of $12.2 million by 11.1 per cent. At $354,016, CEO pay was up 6.0 per cent from the 2016 average of $333,869. Comprehensive” return on assets stood at 6.0 per cent in 2017, up from 5.8 per cent in 2016. “Comprehensive” return on equity was a healthy 7.7 per cent in 2017, up from 7.5 per cent in 2016.
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $845,726 of “comprehensive” net profit, and an operating income of $786,089 on revenues of $3.2 million in 2017. At $9.75, its revenue per tonne of cargo was by far the highest of any port, which enabled it to produce the greatest operating income per tonne of cargo ($2.41) as well as pay the highest employee cost per tonne of cargo ($2.47). By contrast, Vancouver, the largest in terms of tonnage, produced “comprehensive” net profits of $146.1 million on revenues of $246.5 million. Its revenue per tonne of $1.73 was 4.5 per cent below the national average of $1.81, and at 29 cents per tonne, its employee cost per tonne of cargo was 28.6 per cent below the nationwide average of 40.6 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 (11.7 per cent), Vancouver (9.4 per cent), Sept-Îles (8.5 per cent), and Montreal (6.8 per cent). Top marks for the highest return on assets went to Prince Rupert (9.3 per cent), Vancouver (8.2 per cent), and Montreal (5.5 per cent).
Highest and lowest revenue growth rates
With a revenue growth rate of 21.7 per cent, Saguenay underwent the most robust growth of any Canadian federal Port Authority in 2017, well above the national average of 3.4 per cent. Saint John was a very close second (21.3 per cent), and was followed by Quebec (11.8 per cent) and Sept-Îles (7.9 per cent). Five Port Authorities reported declining revenues.
Referring to figure 2A, measured over a five-year period, average annual revenue growth rate was 4.3 per cent. The Port with the highest revenue growth rate from 2012 to 2017 was Saguenay (10.7 per cent), followed by Prince Rupert (10.0 per cent) and Saint John (6.0 per cent).
Employee cost to move one tonne of cargo, and “all-in” costs
In 2017, employee cost to move one of cargo ranged from $0.07 (Sept-Îles) to $2.47 (Saguenay), with the average being $0.41, unchanged from 2016. The “all-in” cost of moving a tonne of cargo ranged from $0.06 (Sept-Îles) to $7.16 (Saguenay) in 2017. The average “all-in” cost in 2016 was $1.12, down from $1.21 in 2016.
As shown by figure 3A, from 2012 to 2017 the average employee cost to move one tonne of cargo increased by 2.4 per cent per annum. Some Ports, notably Nanaimo, Montreal, Thunder Bay and St. John’s actually reduced such expenses. Others still have work to do to reduce these expenses, some more than others.
Similarly, as shown by figure 4A, from 2012 to 2017 the average “all-in” cost to move one tonne of cargo decreased by 0.3 per cent per annum. Some Ports, notably Nanaimo, Montreal, Vancouver and Belledune actually reduced such expenses.
There were very significant differences between Ports in terms of income performance. Two Ports (Nanaimo and Oshawa) produced negative operating income in 2017, unchanged from 2016. Those Ports also produced negative comprehensive net income. Nonetheless, combined comprehensive income produced by all the Ports increased significantly from $207.2 million in 2016 to $229.8 million in 2017. Vancouver produced by far the highest comprehensive income ($146.0 million), followed by Prince Rupert ($24.2 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. In 2017 it suffered another comprehensive loss because of continuing expenses related to the 2016 award.
Revenue per tonne and operating income per tonne
Surprisingly, in a year when cargo tonnage was up by 7.7 per cent, operating profits were down by 2.8 per cent. Referring to figures 5 and 6, average revenue per tonne of cargo handled of $1.81 in 2017 was down from $1.88 in 2016. Average operating income per tonne of cargo fell dramatically between 2016 and 2017 from $0.68 to $0.61/tonne.
However, results for individual Port Authorities varied widely. Windsor produced the lowest operating income per tonne in 2017 ($0.00), followed by Thunder Bay ($0.04). The highest operating margins were produced by Saguenay ($2.41), Belledune ($1.43) and St. John’s ($1.38).
Investments and investment income
While some Ports formally carry “investments” on their books, not all do. Assets classified as investments represented an aggregate value of $165.5 million at the end of 2017, as compared to $143.9 million at the end of 2016. However, most Ports do carry substantial cash balances on their balance sheets which, to the extent that they represent cash in excess of levels 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 2017 Ports owned $442.6 million of financial assets that were “excess” to their needs, about the same as the $451.7 at the end of 2016. At the end of 2016, such financial assets consisted of 11.5 per cent of the Ports’ total assets.
In 2017 aggregate investment income reported by the Ports rose from $3.2 million to $3.5 million. As in 2016, Port of Montreal generated by far the highest investment income in 2017, followed by Prince Rupert, Thunder Bay and Saint John.
In 2017, aggregate net capital expenditures by all federal ports jumped from $224.4 million to $316.9 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. By far the largest capital expenditures were undertaken by Vancouver ($170.6 million). Montreal ($62.0 million) was in second place, followed by Prince Rupert ($32.0 million) and Trois-Rivières ($15.7 million).
Salaries, wages and benefits
During 2017, salaries, wages and benefits increased by 5.6 per cent to $135.3 million. On a per tonne basis, compensation declined 1.9 per cent to $0.406 from 2016.
CEO pay and Board compensation
Average CEO pay rose from $333,869 in 2016 to $354,016 in 2017. Aggregate CEO compensation for all of the federal Ports in the study in 2017 was $6,018,271. Lowest CEO compensation was $158,727, while the highest paid CEO earned $936,000. One CEO position saw a 77.5 per cent increase in compensation, two saw increases of between 10 and 20 per cent, and three received increases of between 5 and 10 per cent. Four CEO positions had their compensation reduced in 2017. While average CEO pay rose by 6.0 per cent in 2017, average Port operating income fell by 2.8 per cent during 2017.
Ports, like all other business organizations, are governed by a Board of Directors. At Canadian Port Authorities, the smallest Board consisted of three members, while the largest consisted of eleven. The average was 7.1, down from 7.7 in 2016. Aggregate Board compensation in 2017 amounted to 50.3 per cent of CEO compensation, down from 54.7 per cent in 2016 levels. Saguenay reported the lowest Board compensation in 2017 ($36,124), while Vancouver’s Board was, not surprisingly, the most costly ($636,000) in 2017. In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2017 included (in order of declining compensation) Prince Rupert, Saint John, and Halifax.
Despite Board compensation that, in the aggregate, was only slightly below 2016 levels, there was a distinct trend for Boards to be reduced in size and expense levels. Of the seventeen Boards that reported, ten operated at lower cost in 2017.