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 2017 to 2018 (Data for 2019 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
Having amalgamated with Hamilton Port Authority in 2019, the operations of Oshawa Port Authority are still included in this review, but will be excluded in the future.
Total federal Port industry
In calendar year 2018, ACPA Ports produced aggregate revenues of $ 657.9 million, up 8.8 per cent from $609.5 million in 2017. Comprehensive income of $236.6 million was up by 4.6 per cent from 2017 aggregate comprehensive income of $226.1 million.
Figure 2: Y/Y Revenue growth 2018 vs. 2017
By way of comparison, Statistics Canada reported that for the calendar year ended December 31, 2018 (table 33-10-0161-01), corporations doing business in Canada reported revenues of $4.327 trillion (up 7.4 per cent from $4.029 trillion in 2017) and operating profits of $434.0 billion (up 13.1 per cent from $383.9 billion in 2017).
The port industry is a capital-intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $4.02 billion, from which the industry generates annual revenues of some $650 million. The net assets recorded on the books of the Ports do not account for federal and provincial grants they have received over the years to subsidize the cost of infrastructure additions or renewals. 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 5.8 per cent, compounded annually, from $418.8 million in 2010 to $657.9 million in 2018. Port volumes (including Toronto), on the other hand, have grown by only 2.0 per cent compounded annually, from 286.1 million tonnes in 2010 to 335.4 million tonnes in 2018.
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 20.1 million tonnes of cargo in 2018, up 2.5 per cent from 2017, producing revenues of $38.7 million, up 7.9 per cent from 2017, and an operating profit of $13.7 million, up 13.2 per cent from 2017. However, at $13.9 million, 2017 “comprehensive” income exceeded 2017’s comprehensive income of $13.5 million by 3.0 per cent. At $367,626, CEO pay was up 3.8 per cent from the 2017 average of $354,016. Comprehensive” return on assets stood at 5.9 per cent in 2017, down from 6.0 per cent in 2017. “Comprehensive” return on equity also declined, to 7.3 per cent, from 7.7 per cent in 2017.
The above suggests that Canadian federal ports performed generally in line with the Canadian economy in terms of transshipping volumes. They raised prices and managed to achieve substantially higher operating incomes. On the other hand, insufficient attention was paid to “unusual items” such as investment income, and disposal of assets, as a result of which comprehensive incomes were only marginally higher than operating incomes. Lastly, while comprehensive returns on equity and assets are acceptable, they were lower than in the previous year, and suggest that the industry is becoming more capital intensive while profits are not keeping up with the growth of capital assets. In terms of returns on equity and returns on assets, Vancouver, Sept Iles, Montreal, Prince Rupert and Halifax put in the best performance.
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $1,164,200 of “comprehensive” net profit, and an operating income of $1,099,347 on revenues of $3.8 million in 2018. At $10.36, 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 ($2.98) as well as pay the highest employee cost per tonne of cargo ($2.21). By contrast, Vancouver, the largest in terms of tonnage, produced impressive “comprehensive” net profits of $129.3 million on revenues of $274.5 million. Its revenue per tonne of $1.87 was 3.1 per cent below the national average of $1.93, and at 30 cents per tonne, its employee cost per tonne of cargo was 30.3 per cent below the nationwide average of 41 cents per tonne.
Highest returns on assets and equity
Top marks for the highest comprehensive return on equity went to Sept Iles (13.8 per cent), Prince Rupert (10.7 per cent), Vancouver (7.7 per cent), Halifax (7.6 per cent), and Montreal (7.5 per cent). Top marks for the highest return on assets went to Prince Rupert (8.8 per cent), Vancouver (6.8 per cent), Halifax (6.6 per cent), and Montreal (6.2 per cent).
It should be noted that these returns do not reflect true returns on the investments that have been made because federal and provincial grants and subsidies which over the years have added up to very substantial numbers, have not been accounted for on the Ports’ balance sheets.
Highest and lowest revenue growth rates
Figure 2A: 5-Year revenue growth, 2013-2018
With a revenue growth rate of 81.3 per cent, Sept Iles underwent the most robust growth of any Canadian federal Port Authority in 2018, well above the national average of 7.95 per cent. Trois Rivieres was second (34.6 per cent), and was followed by Saguenay (20.2 per cent). Four Port Authorities reported declining revenues.
Referring to figure 2A, measured over a five-year period, average annual revenue growth rate was 5.2 per cent. The Port with the highest revenue growth rate from 2013 to 2018 was Saguenay (16 per cent), followed by Trois Rivieres and Prince Rupert.
Employee cost to move one tonne of cargo, and “all-in” costs
Figure 3: Employee costs to move one tonne of cargo, 2018
In 2018, employee cost to move one of cargo ranged from $0.08 (Sept Iles) to $2.21 (Saguenay), with the average being $0.41, unchanged from 2017. The “all-in” cost of moving a tonne of cargo ranged from $0.09 (Sept Iles) to $7.20 (Saguenay) in 2018. The average “all-in” cost in 2018 was $1.23, up from $1.12 in 2017.
Figure 3A: 5-Year increase in employee costs to move one tonne of cargo, 2013-2018
As shown by figure 3A, from 2013 to 2018 the average employee cost to move one tonne of cargo increased by 1.8 per cent per annum. Over this period of time, five ports (Thunder Bay, Nanaimo, Belledune, Montreal and Halifax) actually reduced such expenses. Others still have work to do to reduce these expenses, some more than others.
Figure 4: “All In” costs to move one tonne of cargo, 2018
Similarly, as shown by figure 4A, from 2013 to 2018 the average “all-in” cost to move one tonne of cargo increased by 0.9 per cent per annum. Only four ports, Thunder Bay, Nanaimo, Montreal, Port Alberni and Belledune actually reduced such expenses.
Figure 4A: 5 Year increase in “All In” cost to move one tonne of cargo, 2013-2018
Net income
There were very significant differences between Ports in terms of income performance. Three Ports (Thunder Bay, Nanaimo and Windsor) produced negative operating income in 2018. Nanaimo (but not Thunder Bay and Windsor) also produced negative comprehensive net income. Nonetheless, combined comprehensive income produced by all the Ports increased from $226.2 million in 2017 to $236.6 million in 2018. Vancouver produced by far the highest comprehensive income ($129.3 million, down from $146.0 million in 2017), followed by Montreal ($28.1 million) and Prince Rupert ($24.8 million).
Revenue per tonne and operating income per tonne
Referring to figures 5 and 6, average revenue per tonne of cargo rose from $1.86 in 2017 to $1.93 in 2018. Average operating income per tonne of cargo rose significantly between 2017 and 2018 from $0.63 to $0.68/tonne.
Figure 5 – Revenues per tonne of cargo, 2018
However, results for individual Port Authorities varied widely. Windsor produced the lowest operating income per tonne in 2017 (-$0.01), followed by Thunder Bay ($0.00). The highest operating margins were produced by Saguenay ($2.98), Belledune ($1.06) and Halifax ($1.57). The most significant improvements occurred at Montreal ($0.74, up from $0.20), Prince Rupert ($0.95, up from $0.63), Halifax ($1.57, up from $0.57), Saguenay ($2.98, up from $0.69) and Trois Rivieres ($0.90, up from $0.62).
Figure 6: Operating income per tonne, 2018
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 $183.2 million at the end of 2018, as compared to $165.5 million at the end of 2017. 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. On that basis, in 2018 Ports owned net working capital of $415.5 million, as compared to $324.0 at the end of 2017. Although in the aggregate, working capital held by the Ports appears reasonable, some Ports carry working capital on their books that is clearly well beyond their needs.
2018 aggregate investment income of $982,000 represented a very low return on investment assets of $42.2 million, indicating that investment funds were all invested in very low-risk assets.
Capital expenditures
Figure 8: Average port capital expenditures (Net of grants)
At $219.8 million aggregate net capital expenditures by all federal ports in 2018 took a breather from the record capital expenditures of $316.9 million spent in 2018. 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 are net of 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 ($121.2 million, down from $170.6 million in 2017). Montreal ($32.5 million) was in second place.
Salaries, wages and benefits
During 2018 salaries, wages and benefits paid shot up from 2017, increasing from $138.0 to $183.2 million. Ports whose costs increased by more than 10 per cent included Thunder Bay (13.7 per cent), Hamilton (12.5 per cent), Sept Iles (18.2 per cent), Trois Rivieres (10.8 per cent) and Windsor (22.8 per cent). However, four ports managed to decrease their salaries, wages and benefits costs, namely Port Alberni (-28.9 per cent), Prince Rupert (-12.1 per cent), Nanaimo (-9.7 per cent), and Halifax (-4.4 per cent).
On a per tonne basis, employee costs declined from $0.42 in 2017 to $0.41 in 2018. Five ports saw their cost of employee compensation per tonne of cargo rise in 2018, namely Thunder Bay, Sept Iles, Quebec, St. John’s and Windsor. However, the cost increases were only nominal.
CEO pay and Board compensation
Average CEO pay rose from $355,585 in 2017 to $367,626 in 2018. Aggregate CEO compensation for all of the federal Ports in the study in 2018 was $6,249,635. Lowest CEO compensation was $172,855, while the highest paid CEO earned $815,000. One CEO position saw an increase in excess of 20 per cent, three saw increases of between 10 and 20 per cent, and seven received increases of between 0 and 10 per cent. Five CEO positions had their compensation reduced in 2018.
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 7.3, up from 7.1 in 2017. Aggregate Board compensation in 2018 amounted to 52.0 per cent of CEO compensation, down from 53.1 per cent in 2017. Saguenay reported the lowest Board compensation in 2018 ($34,966), while Vancouver’s Board was, not surprisingly, the most costly ($764,000). In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2018 included (in order of declining compensation) Prince Rupert, Halifax and Montreal. Not surprisingly, Saguenay incurred the highest Board cost of any port per tonne (9.5 cents). Saguenay was followed by St. John’s (7.0 cents), Belledune (4.7 cents), and Halifax (2.9 cents).
Although at $3.25 million 2018 Board compensation was, in the aggregate, only slightly above 2017 levels, the year was characterized by a noticeable trend toward larger Boards.