By Keith Norbury
An association representing major grain exporters is calling for changes to how Canada’s marine ports are governed. The Western Grain Elevator Association argues that maritime port governance lacks the checks and balances and accountability of similar systems that govern air or rail transportation. Wade Sobkowich, the Winnipeg-based association’s Executive Director, said the federal government needs to address those shortcomings — which he said include inadequate appeal and dispute resolution mechanisms and lack of “effective input” in nominating Port Authority Directors — in its port modernization review. The association represents such companies as Cargill, G3 Canada, Parrish & Heimbecker, Paterson GlobalFoods, Richardson International, and Viterra. Collectively they handle more than 90 per cent of Western Canada’s bulk grain exports, according to the association.
In an interview, Mr. Sobkowich called Canadian ports “statutory” monopolies that are in conflicts of interest. “They make decisions that are supposed to be for the good of Canada,” Mr. Subkowich said. “But the decisions they are making are not always best for Canada, or what’s best for the grain sector, or what’s best for the western Canadian economy. And there is no recourse.”
The Association of Canadian Port Authorities responded to many of Mr. Sobkowich’s complaints. For example, ACPA said port users do have input in nominating Directors, as set out in the Canada Marine Act that governs Port Authorities. “The final decision regarding appointments falls under the responsibility of the Minister of Transport,” ACPA said.
Mr. Sobkowich said that the Canada Marine Act works well in that it gives Port Authorities the right to regulate operations in the ports. “But when they’re the developer and the regulator, it doesn’t work,” he said. ACPA said that overall, the Canada Marine Act works well, but “there is room for improvement.” In its own submission to the ports modernization review, ACPA makes several recommendations, including ensuring that Board members “reflect the evolving nature of CPAs as trade enablers, data managers and supply chain integrators.”
Most of the grain association’s criticisms, however, are directed at Vancouver Fraser Port Authority. Mr. Sobkowich accused Port management of interfering with the Board of Directors’ nomination process, of charging double-digit rent hikes, and of implementing high infrastructure fees. He said that “the changes we’re proposing to legislation in broad terms would only affect those Ports who are not acting in the best interest of the Canadian economy.”
Balancing competing interests
Duncan Wilson, the Port of Vancouver’s Vice-President, Environment, Community and Government Affairs, countered Mr. Sobkowich’s criticisms, sometimes using similar wording. For example, Mr. Wilson acknowledged that the Port has a mandate under the Canada Marine Act to facilitate Canadian trade “while protecting the environment and considering local communities.” That means balancing the needs of competing interests, “ultimately making decisions that are in the best interests of Canadians, not of any particular business.”
He pointed out that making such decisions can be difficult for a Port that is Canada’s largest and which handles more volume than the next five largest ports in the country combined. The Port also encompasses 16 municipalities and many First Nations communities. “No other Port in the world operates in that complicated stakeholder environment,” Mr. Wilson said. “So expanding and growing an industrial port in that context is very challenging. We’re also doing it with a shortage of trade-enabling industrial land in the region.”
Mr. Wilson said flatly, though, that it isn’t true that Port Authority management interferes with the Director nominating committee. He said the nominating committee consists of port users, including from the grain sector. “The nominating committee runs a competitive process, does advertise for Board member vacancies, and individuals can apply to that process,” Mr. Wilson said. “We would welcome having greater participation on the Board from candidates from the Prairies for sure. That’s not a barrier.”
Grain sector not represented
Seven of the eleven Board members are chosen through that nomination process. The other four are appointed, including one representing the three Prairie provinces. At present, though, none of the user Directors represents the grain sector, although they do include a First Nations Chief and someone from financial services.
“If the federal government wants to bring a First Nations (rep), they can do that on their seat because it’s a user-nominating committee,” Mr. Sobkowich said. “The user seat should be represented by users.”
According to his association, grain represents about 24 per cent of bulk cargo tonnage through the port, and 28 per cent of all outbound container tonnage. (Mr. Wilson, however, countered that grain only accounts for two per cent of the dollar value of cargos through the port.)
As for rent increases, Mr. Wilson said terminal operators can and do challenge fees through such mechanisms as judicial reviews and third-party arbitration. “That’s something that’s pretty typical in terms of a commercial lease,” Mr. Wilson said.
Mr. Sobkowich also took issue with the Port’s rents reflecting the overheated Vancouver real estate market. “But that doesn’t recognize that we’re talking about one component of a long supply chain that starts with a farmer and ends with a customer somewhere overseas. Tying a major export facilities rent to what’s going on locally, while it’s operating globally, is inappropriate,” Sobkowich said.
Vancouver rents soaring
He said the annual rent increased 30 per cent for a North Shore tenant recently. Mr. Wilson did acknowledge occasions of “significant adjustments to rents at one point in time because they were way below where they should be in relation to the other benchmarks.” Over the last 20 years, however, grain terminal rents have only risen an average of three or four per cent annually, he said. And the Port’s rents are “significantly below” the average for industrial land in Vancouver.
“If Canadians want us to subsidize the businesses that locate on Port property, it wouldn’t be a level playing field with other businesses,” Mr. Wilson said. “And frankly, it doesn’t drive the investment in terms of densification of those lands and making the most efficient use of the few lands that we have.”
The real test of whether the rent regime is working is investment, he said, citing several billions of dollars in terminal expansions at the port in recent years. “In the grain sector alone in the last ten years, we’ve doubled capacity,” he said. Much of that has been enabled by infrastructure projects that the Port has helped finance through fees it collects from its users. Those fees, however, are another bone of contention for the grain terminal operators. “We’re seeing gateway infrastructure fees double and triple,” Mr. Sobkowich said. “And we don’t have transparency as to what the funds are being used for.”
Mr. Wilson said the Port pre-funds its one-third share of infrastructure projects on behalf of Port users and collects that money over time. But they (Port tenants) receive a healthy return on that investment of 30 cents on the dollar, he said.
As far as transparency goes, the Port consulted on gateway fees in 2009 and plans a new round of consultations in 2022, Mr. Wilson said. “But right now, they’ve actually been pulling out of things that would be helping them,” he said. “And we’re not sure if they’re doing themselves any favours by doing that.”