By Karin Rego
Canada’s largest supply chain expo, Cargo Logistics Canada, returned to the Vancouver Convention Centre this February 8 and 9, for its fourth annual conference and trade show. Discussions concerning industry and market trends within today’s uncertain economic environment led to cautiously optimistic predictions for 2017 and beyond.
The Outlook on Ocean Shipping
Paul Bingham, Vice-President, Trade & Global Logistics, Economic Development Research Group, presented a pragmatic overview of the current economic climate and its effect on today’s trade industry. “If we look at the world economy as a whole, the forecast is for a continuation of the same pattern we’ve been experiencing since the great recession in 2008, which is relatively weak growth.” Bingham reminded audience members that weak growth is still growth, and that however moderate the upticks, the worldwide economy is in a better position today than it was at this same time last year. The consensus among several major indices is that 2017 will see an approximate 3.4 per cent growth rate, worldwide, in GDP.
“Faster growth in emerging markets is still the story around the world,” said Bingham. While predictions for growth within the North American composite – Canada, US, and Mexico – barely surpasses 2 per cent, the Association of Southeast Asian Nations, (ASEAN), is expected to outpace every other region in the world, presenting tremendous potential for trade along the Trans-Pacific.
The outlook for China is more complicated. Growth this year is still impeded by sectors of the economy experiencing serious problems on the credit side, along with pockets of weakness in manufacturing, problems in currency flight, and potential US action on recent punitive threats. On the other hand, explicit policies handed down by Chinese leaders designed to promote greater domestic consumption will lead to an increase in demand, which in turn can be satisfied by exporting countries.
The Outlook on the North American Economy
Dan North, Chief Economist, Euler Hermes North America, echoed much of what Paul Bingham said about the state of global trade by predicting steady yet moderate growth. He described Canada as resilient adding, “Canada is doing OK. Services have been steady, ex-energy has been stable, and exports are expected to accelerate thanks to a weaker dollar and an accommodating monetary policy.”
Contrary to ubiquitous headlines featuring certain doom and gloom, however, North delivered a relatively upbeat and positive picture of President Trump’s effect on the US economy. Coining the term “Trumponomics,” North attributed strong potential for US growth to a pervasive sense of increased confidence within business communities. “Trump’s policies are perceived as pro-growth,” he said, “which, in turn, is expected to bump GDP up throughout 2018.”
In stark contrast to Mr. North’s comments and predictions, Jack O’Connell, International Trade Advisor with Beacon Economics, said, “a whole fabric of what’s going on in the US, as well as a very large chunk of container ports in Vancouver and Prince Rupert, are directly tied to trade that has flourished over time. And now that is under threat by the new US Administration.”
Regarding Trump, O’Connell did not hold back. “We are now faced with ad hoc policy-making in Washington by an individual who has a fairly cartoonish idea of the way the economy works, the way manufacturing works, and the way supply chains work. He has a very simplistic approach to some very complex problems. In order to provide the jobs for displaced factory workers, he’s going to remove the benefits of free trade for everybody else. And he’s doing it in a very casual way.” When it comes to predictions concerning international trade under a Trump Administration, O’Connell said “we should default to a worst-case scenario.”
Logistics and Container Trade – Industry Updates
Wolfgang Schoch, Vice President, Hapag-Lloyd Canada, predicted worldwide trade will continue to grow between 2 – 4 per cent over the next few years. “The days of 9 per cent growth are behind us” he said, “and they won’t be returning any time soon.”
As trade flattened out, so too did a once robust shipbuilding sector. According to Schoch, 6.8 million TEUs of capacity were on the books in 2007 compared to 300,000 TEUs in 2016. Schoch did not expect any new orders to materialize this year.
On the scrapping side of the equation, Schoch reported that levels are at their highest. 665,000 TEUs were scrapped in 2016 with a combined 1,200,000 TEUs forecast to be scrapped between 2017 and 2018.
By 2019 Schoch expects supply and demand curves will level out around the 3.4 per cent mark, paving the way to a brighter future. “For me, it’s like a long hike,” he said. “There will be one more big hill in 2018, and then things will get better.”
The Effects of Digitization in the Shipping and Container Industry
Digitization in the shipping industry will impact three key areas in the future: container sensor technology, which is slated to measure conditions inside individual containers while also providing GPS information to both shippers and customers; the option for contract negotiations, quotations, and dynamic pricing to take place on proprietary websites; and, consumer buying behaviours as more and more brick and mortar outlets lose ground to the convenience of online shopping.
Goods Movement Strategies and Intermodal Rail Projects
Mark Szakony, Executive Editor at JOC.com, opened talks on intermodal rail strategies by saying that, despite the challenges faced in both international and domestic intermodal transport last year, this year should be the turning point. Truck capacity is expected to tighten, while at the same time the industry is beginning to see some interesting dynamics in the intermodal segment, especially with Class 1 railroads becoming far more integrated with the ports, and seeing themselves as part of the full supply chain and not just a link.
In support of this outlook, improvement and development projects designed to increase Canadian and US market share are now underway.
Keith Reardon, Vice President, Intermodal Services, CN, says CN has been working hard to innovate, collaborate, and evolve to become more competitive. With the purchase of the EJ&E line, CN now offers a competitive advantage to customers looking for efficient and cost-effective transportation routes from Canadian ports to the southeast of the United States. “Although Canada is where we do a lot of business, the growth has been toward the US Midwest. CN now touches three coasts: The West, the East, and the US Southeast.”
Fellow panel member Matthew Hoag, Americas Region Operations and Commercial Director with DP World, talked about DP World’s efforts to assist in enabling global trade. With a presence in Prince Rupert, Vancouver, Saint John, and the Dominican Republic, along with connections with North American railroad systems, DP has set its sights on penetrating the mid-west, and creating more alternatives for the efficient movement of goods.
The Port of Saint John has embarked on a $205 million modernization project designed to meet the demands of a changing market. “As a tidal port we have an 8.5-meter tide twice per day,” said Jim Quinn, President & CEO of Port of Saint John. “To service larger container ships, cruise ships, and petroleum vessels we needed to increase tidal windows for existing customers while maintaining tidal windows for larger ships as they begin to call into our port. New developments along the port will bring the low water depth to 10 meters – an increase of 1.6 meters – which is a significant increase.”
Quinn also noted that Saint John offers outstanding accessibility by road. New Brunswick has a four-lane, congestion-free highway system which means trucks can leave the port and proceed directly onto the highway.
The Melford Atlantic Gateway is currently being developed in the industrially significant Strait of Canso, a body of water that separates Cape Breton and Nova Scotia. Home to several industrial activities centred around water access, and many natural products such as gypsum, pulp and paper, petroleum, and coal, this port hopes to add to intermodal efficiencies by moving cargo inland and into the US markets using an operating plan similar to Prince Rupert.
Is Privatization of Our National Ports and Airports in Canadians’ Best Interests?
Martin Crilly, Director of the Chartered Institute of Logistics and Transport, opened discussions on this very hot topic with a quick refresher on the nature of non-profits, pointing out that investors cannot buy shares in seaports or airports because they are both non-share, non-profit entities.
Crilly then reminded audience members that in 2014, Dr. David Emerson and a panel of five advisors conducted a review of Canada’s Transportation Act and related legislation and policy. The resulting document is now referred to as The Emerson Report, which has led to significant debate within the seaport and airport sectors. “On seaports,” said Crilly, “Dr. Emerson had two different recommendations. He said the government should examine the feasibility of adopting a share-capital structure for ports, including receiving proposals from institutional investors or private equity investors, and went on to suggest there should be a new regulation of the charges that ports make to their users.”
Regarding airports, instead of saying the government should examine certain feasibilities, the Emerson Report recommended the government begin laying the groundwork to allow airports to tap into equity financing from large institutional investors.
“If there was privatization, where would the proceeds go?” Crilly asked.
Tasked with debating the privatization conundrum were panel members Mike Tretheway, Chief Economist and Chief Strategy Officer, InterVISTAS Consulting Group, and Brad Eshleman, Chair, BC Marine Terminal Operators Association.
Mr. Tretheway, who focused on the airport side of the issue, said that well before the Emerson review took place, Canada’s senate looked at some of these same issues and came out with a report in 2012 called The Future of Canadian Air Travel, Toll Booth or Spark Plug?
Comparing the privatization option with the toll booth approach, Tretheway warned that a one-time sale of land and assets, although it would be estimated to yield between $25 and $35 billion, would not bode well for investors, and would lead to a long-term decrease in business for Canadian airlines, caterers and freight forwarders. Tretheway called for a spark plug approach to airport economics instead, organizing airports as engines of growth to ignite local commercial activity and provide favourable catalytic effects.
Mr. Eshleman, who focused on the seaport side of the issue, explained that the ports are an agency of the government, meaning the government is within its right to sell the ports should it decide to act in accordance with the Emerson report.
Appearing to agree with Tretheway’s concerns, Eshleman compared Canada’s Asia Pacific Gateway and ports to the housing market in Vancouver. “Would you have wanted to sell your house 10 years ago?” he asked, suggesting that the sale of Canada’s seaports would be a significantly shortsighted move that could leave billions on the table.
With both panel members questioning the benefits of privatization, a member of the audience played devil’s advocate.
David T. Fung, Chairman and CEO of the ACDEG Group, and featured speaker at this conference, said, “I’m really surprised to hear two experts who are from the private sector speaking against privatization. We in the private sector, we pride ourselves on making decisions that maximize profits. I’m hearing you say we should leave this in the government’s hands, and expect the government to make the best decisions, when, in fact, the government is highly politicized, and favours Montreal over Vancouver. ou argue that if you put things in the hands of the private sector then all the good things the government is doing would stop. I would argue against that. If, under a privatized model, the government wanted the Pacific Gateway to do more, and the private sector said they weren’t interested, the government could say ‘here’s a hundred million dollars, do it for me.’ The government always has the ability to provide the necessary incentives for the private sector to do something according to policies that are in the best interests of Canadians.”