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 2019 to 2020 (Data for 2021 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 2020, ACPA Ports produced aggregate revenues of $658.4 million, representing a drop of 7.7 per cent from 2019 total revenues of $713.1 million. Comprehensive income of $193.9 million represented a drop of 46 per cent from comprehensive income of $358.7 million recorded in 2019.
By way of comparison, Statistics Canada reported that for the calendar year ended December 31, 2019 (table 33-10-0161-01), corporations doing business in Canada reported revenues of $4.59 trillion, and operating profits of $464.0 billion. Accordingly, this suggests that in the aggregate, Canada’s federal ports (exclusive of the revenues produced by terminal operators) produce revenues in the order of 0.015 per cent of aggregate Canadian corporate revenues.
The port industry is a capital- intensive industry. In Canada, federal Port Authorities own assets with a total depreciated cost of $4.9 billion, from which the industry generates annual revenues of some $658 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 344.5 million tonnes (including Toronto) as reported by the 17 Canadian Port Authorities declined by only 1.2 per cent from the near- record tonnage of 348.6 million tonnes set in 2019.
Since 2011, annual port revenues (excluding Toronto) have grown steadily by an average of just under per cent, compounded annually, from $438.3 million in 2011 to $658.3 million in 2020. Port volumes (including Toronto) have grown by just under 1.5 per cent compounded annually, from 302.7 million tonnes in 2011 to 344.5 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 60 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 21.4 million tonnes of cargo in 2020, down just under 1.0 per cent from 2019, producing revenues of $41.1 million, down 7.8 per cent from 2019, and an operating profit of $13.3 million, down from $15.9 million in 2019. At $12.1 million, 2020 “comprehensive” income fell dramatically from 2019’s comprehensive income of $22.4 million. At $421,356, CEO pay rose by 11.9 per cent in 2020 from 2019’s $376,381. At 3.9 per cent, comprehensive” return on assets for 2020 was below the 7.9 per cent achieved in 2019. Lastly, at 5.1 per cent, “comprehensive” return on equity in 2020 was well below the returns achieved in 2019 (7.3 per cent).
The above suggests that Canadian federal ports performed generally in line with the Canadian economy. 2020 was not a good year: tonnage volumes fell, revenues fell, expenses rose, and incomes fell. Although aggregate balance sheet assets rose 8.4 per cent, aggregate working capital took a sharp nosedive from $292 million at the end of 2019 to $33.7 million at the end of 2020.
In terms of returns on equity, the top performers were Sept Iles (12.8%), Vancouver (12.7%), and Prince Rupert (10.5%). Top performers in terms of returns on assets were Prince Rupert (7.7%), Saguenay (6.4%), and Vancouver (5%).
Smallest and largest
Saguenay, the smallest in terms of tonnage, produced $2.0 million of “comprehensive” net profit, and an operating income of $1,9 million on revenues of $4.7 million in 2020. That performance represented a positive improvement over 2019. At $8.48, 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 ($2.58) but also incur the second highest employee cost per tonne of cargo ($1.97). By contrast, Vancouver, the largest in terms of tonnage, produced “comprehensive” net profits of $116.1 million on revenues of $274.1 million. Its revenue per tonne of $1.90 was a major determinant of the national average of $1.92, and at 35 cents per tonne, its employee cost per tonne of cargo was more than 20 per cent below the nationwide average of 44 cents per tonne.
Highest returns on assets and equity
Top marks for the highest comprehensive return on equity went to Sept Iles (12.8 per cent), Vancouver (12.7 per cent), Prince Rupert (10.5 per cent), and Montreal (8.6 per cent). Average comprehensive return on equity was 5.1 per cent. Top marks for the highest return on assets went to Prince Rupert (7.7 per cent), Saguenay (6.4 per cent) and Vancouver (5.0 per cent). Average return on assets was 3.9 per cent. Three Ports suffered from negative comprehensive returns on assets.
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 been accounted for on the Ports’ balance sheets as deductions from the cost of capital expenditures. 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 are not recorded as “equity contributions”, as they would be in private industry, when existing investors contribute new investment capital.
Highest and lowest revenue rates
With a revenue growth rate of 18.4 per cent, Sept Iles underwent the most robust growth of any Canadian federal Port Authority in 2020, well above runner-up Port of Thunder Bay, whose revenues grew by 4.0 per cent. Actually, 2020 was a poor year for the Ports. Eleven out of sixteen Port Authorities reported declining revenues, with the average Port reporting a decline in revenues of 7.7 per cent.
Referring to figure 2A, measured over a five-year period, the “average” Port increased its revenues by 20.2 per cent (4 per cent annually), which is down substantially from revenue growth over the period from 2014 to 2019, which weighed in at 7 per cent annually. The Port with the highest revenue growth rate from 2015 to 2020 was Sept Iles (231.6 per cent), followed by Saguenay (65.1 per cent).
Employee cost to move one tonne of cargo, and “all-in” costs
In 2020, employee cost to move one of cargo ranged from $0.07 (both Sept Iles and Thunder Bay) to $3.47 (Port Alberni), with the average being $0.44, up substantially from an average of $0.41 in 2019. The “all- in” cost of moving a tonne of cargo ranged from $0.25 (Thunder Bay) to $7.04 (Alberni) in 2020. The average “all-in” cost was $1.36, up significantly from $1.02 in 2019. The only other ports with “all-in” costs of less than a dollar per tonne included Windsor ($0.28 per tonne), Sept Iles ($0.36 per tonne), and Saint John ($0.56 per tonne).
As shown by figure 3A, from 2015 to 2020 the average employee cost to move one tonne of cargo increased by 7.4 per cent during the five year period, or 1.5 per cent per annum. Over this period of time, five ports (Saguenay, Thunder Bay, Sept Iles, Quebec and St. John’s) actually reduced such expenses, while Montreal’s were equal to five years ago. Others still have work to do to reduce these expenses, some more than others.
Similarly, as shown by figure 4A, from 2015 to 2020 the average “all- in” cost to move one tonne of cargo increased by 12.7 per cent during the five-year period, or 2.5 per cent per year. Best performers were Saguenay, Sept Iles, and Prince Rupert.
As was to be expected, there were very significant differences between Ports in terms of income performance. Two Ports produced negative operating income, and negative comprehensive income. Overall, profit performance was poor. Combined comprehensive income produced by all the Ports decreased from $358.8 million in 2019 to $193.4 million in 2020. Vancouver produced by far the highest comprehensive income ($116.1 million, down from $245.5 million in 2019), followed by Prince Rupert ($29.7 million) and Montreal ($14.4 million.)
Revenue per tonne and operating income per tonne
Referring to figures 5 and 6, average revenue per tonne of cargo dropped from $2.05 in 2019 to $1.92 in 2020. Average operating income per tonne of cargo declined significantly between 2019 and 2020 from $0.74 to $0.62/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 ($0.03), Saint John ($0.05) and Quebec ($0.09). The highest operating margins were produced by Saguenay ($3.44), and Halifax ($1.43).
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 $183.0 million at the end of 2020, as compared to $245.7 million at the end of 2019. 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 also aggregated net working capital, which dropped precipitously from one year to the next. At the end of 2020, Ports owned aggregate net working capital of $33.7 million, as compared to $292.0 at the end of 2019. Seven Ports had a working capital deficiency. Some Ports had plenty of liquidity (Hamilton, Port Alberni, Montreal, Prince Rupert, Saguenay and St. John’s) while others were struggling. 2020 aggregate investment income of $6.9 million represented a low return on investment assets, indicating that investment funds were all invested in very low-risk assets.
At $592 million aggregate net capital expenditures by all federal ports in 2020 represented a solid new record, well above the 2019 level of $340.5 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 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 ($251.8 million). Montreal ($102.1 million) was in second place, while Prince Rupert ($72.3 million) ranked third.
Salaries, wages and benefits
During 2020 salaries, wages and benefits paid increased from $143.6 paid in 2019 to $151.3 million. Only three Ports could boast of declining salaries, wages and benefits, namely Thunder Bay (-6.8 per cent), Halifax (-4.4 per cent) and St. John’s (-5.6 per cent). Ports whose payroll costs increased the most included Saguenay (21.5 per cent), and Vancouver (11.8 per cent).
CEO pay and Board compensation
In 2020 average CEO pay increased significantly from $376,382 in 2019 to $421,356. Lowest CEO compensation was $212,000, while the highest paid CEO earned $1.22 million. One CEO suffered from a reduction in compensation in 2020. The average increase in CEO pay in 2020 was 11.95 per cent.
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 6.8, down from 9.0 in 2019. Aggregate Board compensation in 2020 amounted to 46.0 per cent of CEO compensation, representing a significant decline from 54.4 per cent in 2019. Boards have become smaller and Board member compensation has grown slowly, if at all. Saguenay reported the lowest Board compensation in 2020 ($76,900), while Vancouver’s Board was, not surprisingly, the most costly ($572,250). However, Vancouver also achieved the largest decrease in Board compensation costs, compared with 2019 (a reduction of $156,000). In addition to Vancouver, Ports whose Board compensation exceeded $200,000 in 2020 included (in order of declining compensation) Prince Rupert ($356,000), Montreal ($323,000), and Halifax ($225,000). Port Alberni incurred the highest Board cost of any port per tonne (14.0 cents). Vancouver’s expense was the lowest per tonne (0.4 cents), followed closely by Sept Iles (0.6 cents), Quebec and Saint John (0.7 cents each)
At $3.1 million, 2020 Board compensation was, in the aggregate, 9.1 per cent below the cost of 2019 Board compensation.