By Alex Binkley
The grim news about the state of ocean shipping and the global economy is the proverbial black cloud hanging over the opening of the 2016 navigation season on the St. Lawrence Seaway and Great Lakes on March 23. A virtually open water start, after thick ice delayed the opening of the shipping season the previous two years, may be one of the few bright spots in a gloomy outlook for 2016. Another might be higher than usual water levels, although there is growing concern in Canada and the United States about diversion of water from the Great Lakes by municipalities.
Bruce Hodgson, Director of Market Development for The Seaway Management Corp., said in an interview he’ll be pleased if the 2016 results manage to match the 36.1 million tonnes of freight the Seaway carried last year. That was down from 39.9 million tonnes in 2014. His expectation is for a slight decrease in this year’s traffic over 2015.
“It will be a challenging year,” he said. “While the economy is struggling, the lower value of the dollar could boost exports. We’ll be watching the situation closely. Everyone in the maritime business will be saying that this year because of the poor global economic conditions. Overall it’s a bad news scenario.”
Kirk Jones, the newly installed interim President of the Canadian Shipowners Association, expects the year will produce “a downturn of Biblical proportions. All of our main cargo areas are suffering.” In response to the gloomy outlook, his members are shedding vessels while U.S. carriers plan to leave four of their major iron ore carriers tied to the wharf this year.
Michael Broad, President of the Shipping Federation of Canada, isn’t quite as negative in his outlook because “The health of the Seaway depends on the U.S. economy and it’s fairly healthy. That should bring in steel shipments although not as strong as last year.”
Export grain is the one commodity that has the potential for a consistent performance. However, the global glut of iron ore worldwide in the face of slowing demand is depressing exports. “We don’t expect any significant iron ore exports out of the system because of slow conditions in China,” Hodgson said.
In 2015, U.S. Great Lakes freighters moved 87.2 million tons of cargo, a decrease of 3 per cent compared to 2014. The iron ore trade was down more than 10 per cent because of record levels of foreign steel being dumped into the U.S. market, says the Lake Carriers Association. “Legislation recently signed by President Obama, the Trade Facilitation and Trade Enforcement Act of 2015, promises to rein in tariff evasion and other unfair trade practices. It takes more than two tonnes of iron ore, fluxstone and other Lakes-delivered raw materials to make a tonne of steel, so restoration of fair trade in steel is key to the future of Lakes shipping.”
While comparable Canadian numbers aren’t available, publicly-traded Algoma Central noted in its 2015 Annual Report that “Business conditions softened noticeably in the second half of 2015 and revenues for the fourth quarter were $119 million compared to $141.6 million in the same period last year. … Revenues were negatively impacted by softer market conditions that resulted in lower demand and reduced customer volumes.”
Without significant ice, Hodgson expects ocean-going vessels will enter the Seaway-Great Lakes as early as possible to deliver loads and take on grain cargoes. “That should help us get off to a better start.” There are still significant grain stocks in Western Canada. Another snowy winter in Central Canada should also increase the demand for road salt to replenish stocks.
Unless the North American steel industry manages a recovery, coal is set for another poor year, Jones says. “Coal has pretty well disappeared as a major commodity on the Lakes. There’s no export market for it at current prices.” The surge in imported steel last year hurt North American steel makers and cut the demand for coal and ore. Coal’s use in electricity generation has been steadily reduced to cut air pollution and greenhouse gas emissions and about its only main remaining use is in steel production.
Betty Sutton, Administrator of the U.S. Seaway Development Corp., said the 2015 season saw highs and lows in traditional cargoes while “general cargo to and from international and domestic markets remained high with over a 100 per cent increase. Project cargo and dry bulk materials to support the construction and manufacturing industry also remained in positive standings.”
Terence Bowles, President of The Seaway Management Corp., added, “The Seaway is the bellwether of the economy. In the overall picture, the global economy is not doing well and the demand for our products was off. The Seaway continues to serve as a vital trade artery, enabling cargo to move to more than 50 countries across the globe.”