By Keith Norbury
Arctic shipping, as well as military ship-building contracts, are promising areas for Canada’s breakbulk sector as 2013 unfolds, say industry experts. But prospects in warmer climes are stormier, says a prominent Canadian international freight forwarder.
“We’ve had two $2 billion-plus projects that have been cancelled or put on hold, which stops the flow of all cargoes and incurs myriad legal and financial issues,” said Jan Beringer, president and CEO of Calgary-based Rohde & Liesenfeld Canada Inc.
One of those projects is Baja Mining Corp’s Minera y Metalúrgica del Boleo copper-cobalt-zinc-manganese mine near Santa Rosalia, Mexico. The other is a multibillion dollar project to build a potassium mine and a railroad in Argentina.
The Baja project “went over budget and its credit facilities were frozen,” Mr. Beringer said. That was confirmed in Baja Mining Corp.’s fourth quarter 2012 report released in April that said Minera y Metalurgica del Boleo “remains in an Event of Default resulting from the cost overruns at the Boleo Project.” Baja Mining, a Canadian firm that had once owned 70 per cent of the project, reported a $321.3 million loss for 2012. In February, the company announced a tentative deal with Korea Resources Corporation to take over an increasingly larger share of the mine, in exchange for paying down about $443 million in loans, eventually reducing Baja’s stake to 10 per cent. “We were managing all of the cargo movements (for Baja) worldwide from the construction of that copper mine and everything all of a sudden got put on hold, which is really an unprecedented kind of situation,” Mr. Beringer said. “I haven’t come across that in years past. It seems that there’s new financial and commercial risk in large-scale projects that wasn’t there in the past.”
The situation in Argentina is different, but the effect has been the same for Mr. Beringer’s company. Rohde & Liesenfeld Canada, in partnership with logistics giant Geodis Wilson, had the exclusive logistics contract for Brazil-based Vale’s $11 billion Rio Colorado potash project in the Argentine province of Mendoza. “Well, that project has just been cancelled,” Mr. Beringer said. He blamed the cancellation on “a change in the political landscape in Argentina,” which he said “has become very anti-foreign investment.” The Mendoza government, however, says Vale shut the mine down because the government denied the company’s demand for “unrealistic tax breaks,” Reuters news agency reported in March. A provincial court in Argentina ordered Vale to stop dismantling the mine and barred it from firing 6,500 workers on the project. Regardless of the cause – politics or finances – the shutting down of major projects is unusual.
“Usually when you get awarded a multibillion dollar project, the last thing you have to worry about was whether it would get completed,” Mr. Beringer said. Undermining it all is the instability of the global economy since the financial crash of 2008. “It’s something we haven’t seen in the years past to the extent that we’re seeing it now,” he said.
Uptick noticed in breakbulk sector
Not all is doom and gloom, however. Frank Vannelli, Senior Vice-President of Commercial and Business Development for Montreal-based Logistec Stevedoring, said he’s noticed a “bit of an uptick” on breakbulk cargoes and some project business. For example, the company is starting to receive requests again to handle lumber shipments from Germany and Scandinavia into the U.S. Before the downturn in 2008, it was a buoyant market, but then it crashed to zero “and by zero, I mean zero,” said Mr. Vannelli, whose company operates at 36 terminals in 24 ports in eastern Canada and the U.S. “And that looks like it’s back on the table,” Mr. Vannelli said in an interview from Logistec’s office in Newhaven, Conn.
The breakbulk market is driven by demand for individual commodities, he said. A hot market creates hot demand for breakbulk stevedoring. “But if a particular market dissipates … for example the steel market went soft with all the consolidations here in North America, then of course you see lower imports of steel,” Mr. Vannelli said. “So those shifts in market conditions on the breakbulk sector are felt a lot more quickly than in traditional bulk markets.” That’s because bulk cargoes are more essential to the businesses of the customers who buy them. And that encourages them to buy in long-term contracts at fixed prices and volumes, Mr. Vannelli said.
Canadian Pacific Railway experienced “substantial growth year over year since 2011” in its breakbulk business, company spokesperson Kevin Hrysak said in an email. CP expects growth to continue in 2013. He estimated that project cargo now accounts for five to 10 per cent of CP’s merchandise/bulk business. “The outlook is quite positive,” Mr. Hrysak said. “Now that the U.S. has extended its government subsidized productive tax credit into 2014, we are seeing developers initiate wind turbine projects that had been stalled for economic reasons. There is a growing demand to now move these products into the U.S. and into Canada.” As manufacturers build larger wind turbine components, such as nacelles and hubs, it becomes more attractive to move them by rail, Mr. Hyrsak said. However, he also noted that “dimensional clearance can present a challenge.” CP’s “Dimensional Clearance Group” works with its engineering department to address weight and clearance concerns related to overpasses, bridges, and tunnels, he said. Most of the turbine components CP has been hauling are for wind farms near CP rail lines in Alberta and Ontario.
Peat among possibilities for New Brunswick port
Any uptick in breakbulk demand has missed Port of Dalhousie in New Brunswick. Overall, it’s been a weak market for breakbulk, said Brian Hyslop, the Port’s Director of Business Development. “Unless you’re in Asia or Australia, breakbulk is a tough go,” Mr. Hyslop said. “You’ve got certain carriers in the world now that have put a quarter or half of their fleet up on blocks in drydock while the economy staggers along.” It’s a trend that caught the attention of the New York Times, which reported in March that, by some estimates, about half of the world’s cargo vessels carry more debt than they are worth.
Dalhousie, on Chaleur Bay, can handle paper rolls and lumber, and is looking at moving peat moss through the port, destined for golf courses in Georgia and Florida. “We’re still negotiating with them to see how much tonnage we’re going to be able to move,” Mr. Hyslop said. “They’re moving it in containers right now but it’s not really economical. So we’re trying to break that chain and create a short-sea shipping operation for them.”
Mr. Hyslop is more excited, though, about the prospect of Dalhousie handling project cargo for the federal government’s Arctic resupply program. “We’re starting to make some interesting ties with Arctic shipping because it is going to be huge over the next 10 years,” he said. “We’ve got a couple of customers who will be coming on board here, one of them probably in July.” He declined to reveal details when interviewed in March, but said an announcement would come later in the spring.
The port has two terminals, on the east and west sides, each capable of accommodating breakbulk vessels of up to panamax size. A central terminal, which would also handle breakbulk, has also been proposed. He hinted that an announcement is imminent about that project as well.
Mr. Hyslop said Dalhousie is also “very close” to bringing in steel rebar from Turkey, which has become one of Canada’s largest sources of steel imports. (A search of Industry Canada’s Trade Data Online website revealed that in 2012 Turkey ranked a distant second to the U.S. in imports of raw iron and steel, and 10th in imports of articles of iron or steel.)
Dalhousie connects via a 6.1 mile spur line to a CN mainline that runs along the Gaspé Peninsula, a route that provides a faster link to Montreal, Toronto, and the U.S. midwest than the mainline from Halifax. “Rather than going south and having to interchange at Moncton to get over to Montreal, Toronto and the U.S., we go straight down the Quebec side and it picks up time for us,” Mr. Hyslop said.
Next Fort McMurray found in Labrador
Other promising destinations for project cargo business are resource projects in Newfoundland and Labrador, such as iron ore mining around Labrador City, which has been called the next Fort McMurray. “They’re trying to get communities built before they have to hire all these workers to work on the various projects, and not run into the same problem that they had in Fort McMurray,” Mr. Hyslop said. “The workers were going out (there) and there was no place for them to live.”
Mr. Vannelli said he is also seeing a lot of activity from Canada’s junior mining companies in the north, including northern Quebec. With the Parti Quebecois defeating the Liberals in the last Quebec election, the expression “Plan Nord” is no longer used to describe development initiatives in northern Quebec. But that development is happening just the same. “It’s all of these different junior mining companies that are looking to develop and extract iron ore to ship to places like China,” Mr. Vannelli said. “Even the Chinese have started to invest in some of these iron ore mines in Canada.” And that means more breakbulk and project cargo activity in that region when work on those mines begins in the next three or four years, he said.
Halifax expansion primed for shipbuilding
On the east coast, Port of Halifax is preparing for increased steel imports, as well as more project opportunities in the far north, with a $73 million expansion of the Richmond terminal, the port’s general cargo terminal. Patrick Bohan, the Port’s Manager of Business Development, said the terminal expansion will be completed in 2014. “It’s going to be a premier facility for handling non-containerized cargo,” Mr. Bohan said.
The expansion includes 1,500 feet of new dock as well as upgrades to the terminal’s breakbulk sheds. While it is a multipurpose facility, it is aimed at heavy lift and project cargo, Mr. Bohan said. “It’s a common-user facility. So any one of our Port’s licensed stevedores can organize a breakbulk job there,” Mr. Bohan said.
Among the project cargoes he anticipates being handled at the new facility are materials for the Irving Shipbuilding Inc. yard, which is right next door. That would include ship engines and even the steel for vessels that Irving will be building as part of the $35-billion National Shipbuilding Procurement Strategy. “Generally they have a lot of modules, over-dimensional pieces and so on. This will be a great heavy lift facility for handling that type of cargo,” Mr. Bohan said.
He also expects the facility to handle project cargo for large megaprojects in the Atlantic region, such as the Lower Churchill hydroelectric project in Labrador and the Vale nickel mine at Voisey Bay, Labrador, and related processing facility at Long Harbour, Nfld.
The expanded Richmond Terminals will have a CN rail line right on the dock as well as plenty of lay down area close to where the ships are loaded and unloaded. “What we’ve been able to do is assemble more marshalling area and construct a new dock,” Mr. Bohan said. “We also did some things with the roadway to make it a better terminal for trucks to get in and out of for delivery.”
Halifax is already handling a significant amount of steel, approaching 100,000 tonnes a year, Mr. Bohan estimated. That includes coils, rails, plates and even steel bars. Most of it originates in Europe. “We have a couple of contracts that are sort of geared to some specific importers. I hesitate to say too much about it for obvious reasons,” Mr. Bohan said.
Last year, Halifax Port Authority signed a 10-year lease to manage the Sheet Harbour Marine Terminal, about 115 kilometres northwest of Halifax. Mr. Bohan said that facility also has a significant lay-down area, making it well-suited for breakbulk. It might also marshall cargo for energy projects in the Maritimes, such as offshore oil exploration and wind farms. “They all need things like lay down area close to a significantly sized dock,” Mr. Bohan said. “They need a little bit of choice depending on whether it’s a truck-based project or not.” One drawback is that Sheet Harbour doesn’t have rail access, nor is it ever likely to have it. But Mr. Bohan doesn’t see that as a problem. “In some cases it’s advantageous,” he said. “The roads are sometimes closer to the consignee or the exporter (than a rail line would be).”
Cargo still moving to original Fort McMurray
Meanwhile, back on the west side of the country, Mr. Beringer’s company is busy quoting on work to transport project cargo to the Alberta oil sands near the real Fort McMurray. That includes modules and heavy-walled vessels. “There is going to be a ton of fabricated modular structures coming in from all over, in 2014 and on,” Mr. Beringer said. Canadian National Railway, which has a mainline between Prince Rupert and Alberta, wasn’t able to make anyone available to comment on its project cargo business. However, Mr. Hrysak reported that last May CP hauled its heaviest and widest shipment ever by rail into Alberta. That project involved logistics and transporting of two gas turbines, two gas-turbine generators, one steam-turbine generator, and one steam turbine to CP’s intermodal facility in Calgary from Noyes, Minn., Mr. Hrysak said. Canadian Pacific Logistic Services worked with heavy machinery giant Mitsubishi on that project.
Looking ahead, Mr. Beringer is hoping that proposed pipelines to export oil, bitumen, and natural gas from Alberta to the coast are built. “There’s no question that the energy sector, especially the natural gas sector, is very much dependent on the building of these pipelines,” he said. In B.C., those pipelines are a harder sell, particularly the proposed Enbridge Northern Gateway pipeline, which would bring diluted bitumen to the B.C. coast. Many First Nations object to the pipeline crossing their territories, fearing the potential of a spill. That worry is magnified on B.C.’s coast, where the prevailing fear is of an Exxon Valdez-size dump of heavy bitumen doing irreparable harm. Liquid natural gas is generally considered to be more environmentally benign. But protesters blockaded Chevron gas stations in B.C. in March over the proposed Pacific Trail Pipeline, in part because of objections about the use of hydraulic fracturing, or fracking, to extract the gas.
Mr. Beringer, however, said that not building the pipelines will harm Canada as a whole.
“The tax revenues that run this country have to come from somewhere,” he said. “And I think when it comes to the national interests of the country and continuing to have long-term markets for the natural resources, there has to be a balance.”
Pipe dreams persist on the west coast
Pipe is already coming in through the west coast, some of it through Squamish Terminals, a breakbulk port north of Vancouver on Howe Sound. Ron Anderson, the Port’s CEO, admitted he doesn’t know the final destination for that pipe, but figures it is probably to build or repair local pipelines on B.C.’s lower mainland. Other pipe that comes through the port is used in construction. “They’re very good cargoes for us. We really enjoy handling that type of product,” he said.
The mainstay at Squamish, however, is wood pulp. And those volumes were down in 2012 to about 750,000 tonnes from approximately 900,000 tonnes in 2011, Mr. Anderson estimated. One factor in the decline was the idling of the Tembec pulp mill near Chetwynd in northern B.C. Competition from containers might also have contributed, he said. “I’m not sure if any one specific factor is necessarily to blame,” he said. “For all I know just as much pulp is going out — but it’s just not going through us.”
While it is 32 nautical miles from Vancouver, Squamish nevertheless competes head-to-head with Lynnterm and Fraser Surrey Docks on the lower mainland. “They’re our good friends and our good competitors,” Mr. Anderson said. Squamish also handles project cargo, such as machinery and modular buildings on occasion. The port even exported railcars a few years ago to Australia. Tunnels on the CN line going south pose obstacles to very large projects, such as wind turbines, though. “But many people are subjected to that depending on the size of the cargo and where they’re trying to get it to,” Mr. Anderson said.
New risks compound challenges of complex work
All in all, the breakbulk and project cargo sector is subject to vagaries of the marketplace, now more than ever, as Mr. Beringer has discovered. “It’s not enough that you have to worry about how you’re going to move very complex cargoes and deal with regulatory issues, roads, bridges, and waterways,” he said. “Now you also have to become very adept at risk management and risk-aversion strategies and financial-security issues much more than ever in the past.” To deal with those challenges, he said, might require developing a whole new area of insurance and contract language.