By Theo van de Kletersteeg
Does the current federal port system serve the national interest as a first priority? In eastern Canada, we have Port Authorities in Ontario, Quebec, New Brunswick and Nova Scotia, and it’s difficult to see these ports cooperating to serve the national interest as a first priority. Eastern Port Authorities are vying with each other to implement pet projects that do not necessarily result in overall volume growth of the eastern port system. With 13 Port Authorities in eastern Canada (considering Thunder Bay to be a Central Canadian port), there is considerable duplication of physical and human resource assets, resulting in the system being far less competitive than it could be. Consider this: the 13 Eastern Port Authorities employ 13 CEO’s, 13 Boards of Directors and 13 staff complements to handle combined 2014 volumes of 135.6 million tonnes, which is less than the volume handled by one Western Port Authority, namely Port Metro Vancouver (139.6 million tonnes).
In reviewing the performance of Western ports to that of Eastern ports over a five-year period (from 2009 to 2014), and compare aggregate volumes handled by the major Western ports (Vancouver, Prince Rupert, Nanaimo and Port Alberni), with those of major Eastern ports (Montreal, Quebec, Saint John, Halifax and Trois Rivières), the first thing we note is the substantial disparity in volumes. Specifically, while West coast volumes aggregated to 166.1 million tonnes in 2014, Eastern volumes were well behind at 89.9 million tonnes. More importantly, though, while Eastern ports have been stagnating, Western ports having been growing rapidly. During the time period (from 2009 to 2014), while Eastern ports collectively struggled to show annual volume growth rates of 1 per cent, Western ports enjoyed average annual volume growth of 8.5 per cent. Further evidence of collective loss of market share by Eastern ports lies in the relative recovery rates of volumes lost during the Recession: Eastern ports recovered strongly initially, rallying from 85.7 million tonnes handled in 2009 to 101.7 million tonnes in 2011 – however, they were unable to hang on to the gains, and slid to 89.9 million tonnes in 2014. On the other hand, Western ports grew consistently, without interruption, during those years.
From 2011 to 2013, the five above ports on average spent $74 million in capital expenditures each through various financing mechanisms, including federal grants. One needs to wonder why these expenditures have failed to allow these ports to increase their business volumes.
If federal ownership of the Port Authorities is supposed to be a recognition of their national strategic importance, one would expect that the strategic objectives of all Port Authorities would be considered and measured against those national strategic objectives by a national organization with its own Board of Directors and clearly enunciated objectives, much like the Board of General Motors meets to establish which of its North American assembly plants are provided with specific product mandates. Clearly, this is not happening with Port Authorities.
Next, what role do eastern Port Authorities play in terms of provincial economic objectives? Clearly, Port Authorities play a role in the economies of Quebec, New Brunswick and Nova Scotia, and it is easy to see why provincial governments in each of those provinces want to maintain and expand the ports. However, the question that must be asked is to what extent provincial priorities have hijacked national maritime shipping policy. Just like auto makers must ask the question whether they are better off assembling automobiles in this versus that jurisdiction, and in this versus that assembly plant, should the federal government not ask whether it makes more sense to expand container capacity in this port or that one, and let the outcome be determined by the common business determinants such as efficiency, time to market, cost, etc., rather than political considerations and provincial preferences?
Given that the growth in international shipping has slowed down, and that the industry continues to be subject to disruptions as a result of periodic global upheavals, should it not be one of Canada’s national strategies to capture market share in international shipping along the congested eastern Seaboard? If Canada’s Port Authorities were organized as subsidiaries of a “National Port Authority”, such as alluded to above, a major effort could be undertaken to make Port Authorities much leaner and meaner, to allocate greater resources to appropriate Port Authorities, to construct or expand facilities in places where this would be the most appropriate, and would produce the “biggest bang for the buck”, and to undertake a major marketing effort aimed at capturing as much volume as possible. Implementation of such a strategy would obviously require a major re-organization of existing Port Authorities, and would require the active collaboration of numerous other stakeholders, specifically the railways.
Is it not time for Canada’s federal Ports to be re-organized with the objective of making the ports system better able to capture volumes to and from the United States? In addition, Ports should learn how to export their expertise, as other international Ports do, and make investments in port-related ventures overseas, as other international ports do. While it is theoretically possible for federal ports to be re-organized under a National Port Authority to achieve strategic objectives that are not currently being achieved, running a successful business under government ownership and oversight is only possible in very rare cases, and then only if that business is given quasi monopoly power, avoiding true competition with profit-motivated private enterprise. Is it not time for the federal government to set the ports free, much as it did with Canadian National? Unlike Canadian National, however, federal ports do not currently have the benefit of a unified management that could lead the new organization, or a common strategy, and because of those shortcomings a “National Port Authority” would be incapable of attracting private capital. To overcome that objection, a staged solution might be the answer, with the creation of “Canport East”, holding all of the eastern federal ports, and “Canport West”, holding all of the western federal ports as first steps. When it becomes apparent that these new organizations are capable of being run like a global multi-plant business organization, with a well-defined business strategy and clearly defined objectives, these two organizations could go public, raising financing in international capital markets. Some of the organizations’ smaller holdings might not fit strategically, and should be sold to local or provincial governments, or entrepreneurs. In fact, this would be highly desirable to ensure that the new Port organizations would not be able to exert monopoly power in their respective markets. The benefit to Canada would be the creation of two competitive businesses with an unlimited mandate to compete as effectively as they can, to capture as much U.S. business as they can, and to gradually expand their footprint in the U.S. and elsewhere in the world, funded by private investors, rather than government. Productivity improvements that somehow appeared to be impossible to implement during government ownership would suddenly become the norm. “Federal Ports” would be subject to far more rigour in capital allocations: instead of viewing each port as having a mandate to service the needs of all exporters and importers in its area of operations, they should all be considered as spokes in a national system that optimizes the utilization of capital and personnel, much like a multi-plant manufacturer would allocate resources. Such an approach would allow operations at lower cost, and would allocate capital with priority to Ports that can generate a decent return on the incremental capital. Capital expenditures might well rise in excess of current levels, but would all be subject to rigorous scrutiny, resulting in only the most financially attractive receiving funding, in accordance with well-established business principles. Furthermore, taxpayers would no longer be “on the hook” for grants or any other expenditures incurred by the new organizations. Exporters and importers and Canada’s economy would benefit from widespread service improvements, notably faster turn-around times and a lower cost structure.
In addition, Ports would no longer be shackled by existing legislation that gives their managements zero incentive for increasing productivity, or to expand their operations outside of Canada’s borders. As for the latter subject, unlike many other international ports with long-standing expertise, Canadian ports have not ventured outside of their home country to own and operate, or own minority stakes in foreign ports, and do not have international consulting arms. As far as I can tell, the Canada Marine Act does not prohibit federal ports from engaging in such activities, so there must be other reasons why our Port Authorities have not seen fit to venture outside of their home country. Whatever the reasons, motivated privately-owned Port Corporations would undoubtedly deploy their expertise and financing capabilities to expand their domestic activities internationally. It would be good for Canada to have a greater number of private-sector corporations that seize opportunities when they present themselves, as evidenced by the bold proposal by Brookfield Infrastructure to acquire Australia’s Asciano Ltd. from its parent in a deal valued at close to $9 billion. Asciano operates a portfolio of rail and port assets in Australia which will be integrated into Brookfield’s existing Australian assets, such as a coal terminal and a freight rail network, and which, combined with Brookfield’s existing assets in North America and Europe will create “the foundation for a global container platform”, according to Brookfield Infrastructure’s CEO Sam Pollock.
If the government of Canada is serious about improving the Canadian economy, one of the things it should do is take a hard look at all the business enterprises it operates, and make plans to privatize them as soon as practical. Canada must move to turn operators of Canada assets into entrepreneurs – turning federal ports into a highly competitive private enterprise, as suggested above, would be a good start. Another good example would be Canada Post Corporation. Now that it has been reorganized to be profitable, can there be any rational argument for not privatizing it? Of course not! Like CN, Canada Post can be turned into a privately-financed go-getting enterprise with a global mandate, building on its revitalized Canada Post brand, as well as its SCI and Purolator businesses. Business Development Bank is a highly successful federally-owned business financing enterprise. Why should it remain under federal ownership? Our ports can also be turned into go-getting enterprises and so can a host of other federal business enterprises that are underperforming under government ownership.
Throughout the decades, government ownership of private industry, or the dependence of private industry on continuous financial support from government has led to the creation and maintenance of mismanaged enterprises and industries, all under the guise of maintaining employment or supporting businesses that were seen as unattractive to private owners, or that were seen as public utilities for the furtherance of the common good. It is probable that at one time the government felt that every coastal village needed to have a dock built and maintained by federal taxpayers. Later, perhaps during War days, ports came to be seen as strategic national assets that needed to be owned and operated by the federal government. At this time, the federal government owns and operates 18 Port Authorities and, in addition to those facilities, owns some 30 additional ports which it is attempting to sell. The latter ports still have plenty of financial obligations attached to them, so it is unlikely that the dispositions will be a source of cash for the government. However, over time, these dispositions should enable federal port operating and administrative expenses to be reduced considerably.
Over the decades, the federal government’s role in owning, operating and/or subsidizing private enterprise has diminished significantly, and has led to the creation of many strong Canadian corporations, among which CN stands out. Much more can be done to further reduce the government’s stake in private industry, which would accelerate the country’s economic development, a high national priority.