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 2018 to 2019 (Data for 2020 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 2019, ACPA Ports produced aggregate revenues of $ 711.4 million, up 8.1 per cent from $657.9 million in 2018. Comprehensive income of $358.5 million was up by 51.5 per cent from 2018 aggregate comprehensive income of $236.6 million.
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, and operating profits of $434.0 billion. This suggests that in the aggregate, Canada’s federal ports (exclusive of the revenues produced by terminal operators) produce revenues in the order of 0.02 per cent of aggregate corporate revenues produced in Canada.
The port industry is a capital-intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $4.5 billion, from which the industry generates annual revenues of some $711 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.
Surprisingly, given the impact of the Covid-19 pandemic, total 2020 port volumes of 346 million tonnes as reported by the 17 Canadian Port Authorities declined by only 1.6 per cent from the record tonnage of 348.6 million tonnes set in 2019.
Since 2010, annual port revenues have grown steadily by an average of just over 6 per cent, compounded annually, from $418.8 million in 2010 to $711 million in 2019. Port volumes (including Toronto), on the other hand, have grown by just less than 2.0 per cent compounded annually, from 286.1 million tonnes in 2010 to 346 million tonnes in 2020.
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 42 per cent of all Canadian federal Ports, and responsible for almost 70 per cent of the total comprehensive income generated by all ACPA ports, Vancouver’s stats swamp everyone else’s. Recognizing those limitations, an “average” ACPA port handled 21.6 million tonnes of cargo in 2019, up 1.6 per cent from 2018, producing revenues of $44.6 million, up 8.0 per cent from 2018, and an operating profit of $16.1 million, up 9.7 per cent from 2018. At $22.4 million, 2019 “comprehensive” income exceeded 2018’s comprehensive income of $14.7 million by more than 50 per cent. At $376,382, CEO pay actually declined from 2018’s $389,889. At 7.9 per cent, comprehensive” return on assets for 2019 was well above the 5.9 per cent achieved in 2018. At 7.3 per cent, “comprehensive” return on equity in 2019 remained unchanged from the prior year.
The above suggests that Canadian federal ports performed generally in line with the Canadian economy. In 2019 they raised prices and managed to achieve substantially higher operating and comprehensive incomes. In terms of returns on equity and returns on assets, the top performers were Vancouver, Sept Iles, Montreal, Prince Rupert and Halifax.
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $1,524,603 of “comprehensive” net profit, and an operating income of $1,762,548 on revenues of $4.6 million in 2019. That performance represented significant improvements over 2018. At $7.11, its revenue per tonne of cargo topped that of all other ports by a wide margin, which enabled it to produce the greatest operating income per tonne of cargo ($2.73) as well as incur the second highest employee cost per tonne of cargo ($1.38). By contrast, Vancouver, the largest in terms of tonnage, produced “comprehensive” net profits of $245.5 million on revenues of $301.3 million. Its revenue per tonne of $2.09 was a hair above the national average of $2.05, and at 32 cents per tonne, its employee cost per tonne of cargo was 22 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 (8.5 per cent), Vancouver (11.2 per cent), and Montreal (6.2 per cent).
It should be noted that these returns have been artificially inflated 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. Had these grants instead been accounted for as “equity contributions”, the value of the assets would have been greater and, therefore, the return on these assets would have been lower. It is not clear why federal contributions to them are not recorded as “equity contributions”, as they would be in private industry, when existing investors contribute new investment capital.
Highest and lowest revenue growth rates
With a revenue growth rate of 29.5 per cent, Sept Iles underwent the most robust growth of any Canadian federal Port Authority in 2019, well above the national average of 8.0 per cent (see figure 2). Saguenay was second (20.0 per cent), and was followed by Quebec (16.8 per cent), and Prince Rupert (11.2 per cent). Four Port Authorities reported declining revenues.
Referring to figure 2A, measured over a five-year period, the “average” Port increased its revenues by 35 per cent (7 per cent annually). The Port with the highest revenue growth rate from 2014 to 2019 was Saguenay (86.6 per cent), followed by Sept Iles (59.4 per cent) and Saint John (50.3 per cent).
Employee cost to move one tonne of cargo, and “all-in” costs
In 2019, employee cost to move one of cargo ranged from $0.07 (Sept Iles) to $2.01 (Port Alberni), with the average being $0.41, unchanged from 2018. At $0.08 per tonne, Thunder Bay came in a close second. The “all-in” cost of moving a tonne of cargo ranged from $0.21 (Sept Iles) to $4.74 (Saguenay) in 2019. The average “all-in” cost in 2019 was $1.02, down from $1.24 in 2018. At $0.28 per tonne, Thunder Bay and Windsor came in as close seconds.
As shown by figure 3A, from 2014 to 2019 the average employee cost to move one tonne of cargo increased by 9.3 per cent during the five year period, or 1.8 per cent per annum. Over this period of time, six ports (Saguenay, Nanaimo, Montreal, Quebec, Belledune and Sept Iles) 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 2014 to 2019 the average “all-in” cost to move one tonne of cargo decreased by 15.7 per cent during the five-year period, or 3.1 per cent per year. Best performers were Vancouver, Saguenay, Sept Iles, Belledune, Montreal, Quebec, Nanaimo and Prince Rupert.
There were very significant differences between Ports in terms of income performance. Although no Ports produced negative operating income, one (Nanaimo) did produce negative comprehensive income. Nonetheless, combined comprehensive income produced by all the Ports increased from $236.9 million in 2018 to $358.5 million in 2019. Vancouver produced by far the highest comprehensive income ($245.5 million, down from $129.2 million in 2018), followed by Montreal ($35.3 million) and Prince Rupert ($27.1 million.)
Revenue per tonne and operating income per tonne
Referring to figures 5 and 6, average revenue per tonne of cargo rose from $1.93 in 2018 to $2.05 in 2019. Average operating income per tonne of cargo rose significantly between 2018 and 2019 from $0.69 to $0.74/tonne.
However, results for individual Port Authorities varied widely. Windsor produced the lowest operating income per tonne in 2019 ($0.00), followed by Thunder Bay ($0.11). The highest operating margins were produced by Saguenay ($2.73), Halifax ($1.17) and Vancouver ($1.07).
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 $243.7 million at the end of 2019, as compared to $181.6 million at the end of 2018. 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 2019 Ports owned net working capital of $292.0 million, as compared to $408.6 at the end of 2018. In the aggregate, working capital levels held by the Ports appear entirely reasonable. However, some Ports carry working capital on their books that is clearly well beyond their needs.
2019 aggregate investment income of $6.7 million represented a very low return on investment assets, indicating that investment funds were all invested in very low-risk assets.
At $339.8 million aggregate net capital expenditures by all federal ports in 2019 represented a new record. 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 ($197.4 million). Montreal ($47.5 million) was in second place.
Salaries, wages and benefits
During 2019 salaries, wages and benefits paid increased from $138.9 paid in 2018 to $143.3 million. Ports whose costs decreased by more than 10 per cent included Thunder Bay and Windsor (both 12.4 per cent). Ports whose payroll costs increased the most included Belledune (38.2 per cent) and Saint John (11.0 per cent).
On a per tonne basis, employee costs remained unchanged from 2018 to 2019, at $0.41/tonne. Port Alberni’s employee costs per tonne of cargo increased the most of any Port.
CEO pay and Board compensation
In 2019 average CEO pay declined from $389,889 in 2018 to $376,382. Lowest CEO compensation was $199,000, while the highest paid CEO earned $1.17 million. Three CEO positions had their compensation reduced in 2019.
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 fifteen. The average was 7.9, up from 7.3 in 2018. Aggregate Board compensation in 2019 amounted to 54.4 per cent of CEO compensation, up from 52.0 per cent in 2018. Saguenay reported the lowest Board compensation in 2019 ($49,200), while Vancouver’s Board was, not surprisingly, the most costly ($728,325). In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2019 included (in order of declining compensation) Prince Rupert, Halifax and Montreal. Port Alberni incurred the highest Board cost of any port per tonne (8.1 cents), closely followed by Quebec and Saint John (8.0 cents each). Vancouver’s expense was the lowest per tonne (0.5 cents).
At $3.3 million 2019 Board compensation was, in the aggregate, 7.4 per cent above the cost of 2018 Board compensation. In addition, 2019 was characterized by a noticeable trend toward larger Boards.