By Brian Dunn
The global economy is improving because U.S. economic activity is picking up, driven by an increase in consumer demand as the job market improves and debt levels decline, while strong growth in emerging markets will boost demand for commodities. Both scenarios should benefit the Canadian economy this year, according to Pierre Cléroux, Vice-President Research and Chief Economist, Business Development Bank of Canada. “The impacts on the economy should be positive, which should benefit the transportation sector. There is a strong correlation between growth of the transportation and GDP, which should improve in 2014,” he said at the 13th Annual Transportation Outlook Conference of the Chartered Institute of Logistics and Transport in North America (CILTNA) in Montreal.
Canada’s economy should also get a boost from growing Asian demand for Canadian forestry products, in addition to potash, fertilizer products and minerals, added Michael Bourque, President, Railway Association of Canada. In addition, longer term there is new hope for development of the Ring of Fire as the government has agreed to invest in infrastructure, said Mr. Bourque. The Ring of Fire is the name for a massive planned chromite mining and smelter project in the mineral-rich James Bay Lowlands of Northern Ontario. He said it would be less expensive to build a highway than a railway, but a highway is more expensive to maintain. “There is a lack of transportation facilities to take the resources to market, but there would be a payback over a 30-year period (if the infrastructure were put in place). It’s an ideal opportunity for the government to get involved.”
When asked what caused the backup of grain that recently pushed Ottawa to demand that shippers move it to port, Mr. Bourque cited three reasons. Firstly, the last growing season produced a bumper crop and secondly, it was the most challenging winter in years when trains had to be shortened. The third reason was the elimination of the Canadian Wheat Board, resulting in a badly missed growth forecast last August. “Farmers held back their crops waiting for prices to go up which resulted in a backlog. The elimination of the Wheat Board means the whole system is no longer commercialized. The grain crisis taught us that government is good at introducing legislation, but we need to find solutions amongst ourselves.”
The Coast Guard also took a lot of heat for not doing its icebreaking job properly this winter, but Mr. Bourque said they did the best they could with the assets they have. “The problem was at the operational level as there were a number of ships in refit at the wrong time. Most of the vessels are over 25 years old and they are being pushed to the limit. Some commercial ships arrive in the Arctic before the icebreakers. This winter shows we need a better fleet and we also have an issue with Arctic sovereignty and the need for more search and rescue vessels.”
Operating in the Arctic is still challenging as there’s no infrastructure to speak of, according to Christopher King, Director of Operations, Petro-Nav, the largest independent transporter of refined petroleum products in the Great Lakes, St. Lawrence Seaway and Maritimes. Oil has to be discharged through floating hoses on the water.
But there should be more opportunities for business growth in the region as the shipping season becomes longer. However, it will never by a year-round route with regular shipping between Europe and China as wind speeds increase around mid-September which impacts cargo operations. “There is also a draft restriction of about 10 metres, there are no navigational aids and only between 5 and 10 per cent of the Canadian Arctic is chartered and there are still communications challenges to deal with.”
Petro-Nav, a division of Groupe Desgagnés of Montreal, operates a fleet of 18 vessels in the 10,000-12,000 tonne range but is acquiring two 75,000-tonne Panamax ships to transport oil from Montreal to the Valero refinery (formerly Ultramar) in Lévis as the result of the Enbridge pipeline project to ship crude from Sarnia to Montreal. The economic outlook for Petro-Nav is “fairly good” because the company is also becoming more involved with the mining industry in the north, Mr. King added.
Luncheon speaker John Parisella, Executive Director of the fundraising campaign at Université de Montréal, HEC Montréal and Polytechnique Montréal, said that despite all the free trade initiatives by Ottawa, the U.S. will continue to be Canada’s major trading partner for the foreseeable future. “We exported $7 billion worth of goods to New York alone in 2011, compared to $3 billion to China.” But he added Canada needs to meet the challenge of greater productivity, and we need to spend more on infrastructure and diversify our economy. And while the U.S. embraces NAFTA, “we must be wary of ‘Buy American’ reflexes coming from Congress. “It’s regrettable the Three Amigos (Canada, U.S. and Mexico) only meet once a year for a photo op when there are real issues that need to be dealt with. We must engage with Mexico more often.”
In western Canada there are $170 billion worth of projects taking place and not just in oil and gas, according to Stephen Brown, President, Chamber of Shipping of British Columbia. He cited the doubling of capacity of Alcan’s aluminum smelter in Kitimat, the Deltaport Terminal container expansion project, the development of Enbridge Northern Gateway for crude oil exports through the Port of Kitimat and the expansion of Kinder Morgan’s oil export capacity from 300,000 barrels per day to 890,000 barrels at a cost of $5.4 billion as examples. Projected investments in liquefied natural gas (LNG) projects alone are expected to reach $48 billion by 2022, according to Mr. Brown.
But, Mr. Brown cautioned, any energy project anywhere in Canada is now subject to opposition from multiple sources. “We have 14 LNG export projects in the works, but I’m not sure how many will come to life. Asia is crying out for what we have to offer, but regulatory approval is slow. B.C. has a $60 billion debt and the government is looking to LNG exports to relieve that debt.”
Long-standing land claims by First Nations represent another challenge which must be settled before foreign investment can be attracted. Project development costs are “spiralling” in Australia which could also happen in B.C., said Mr. Brown. “We have three coal exporting terminals and we need a fourth which is causing opposition, but we are determined to win the battle.”
In terms of crude shipments, it’s possible to have a dialogue with shippers about a regulatory framework for both pipelines and railways, said Eric Harvey, Regulatory Counsel, CN. The rail industry is taking its own initiatives beyond government regulations on issues such as track inspection, brake systems and emergency response planning, he added. “CN saw a 25 per cent improvement in safety between 2008-2013 which speaks to the commitment the carrier has made in terms of time and money.”
In addition, the rail industry is retiring all 80,000 DOT-111 tanker cars in use in Canada, the ones similar to those that exploded in Lac Mégantic. But replacing them could take up to five years as demand is exceeding replacement capacity.
Many people don’t realize the importance transportation plays in their lives, a message that needs to get out, said David Collenette, CILTNA’s Chairman, who closed the conference. CILTNA has 33,000 members in over 100 countries and it’s “crucial we in North America take our seat (in terms of influence) at the international level. Canada has two of the most profitable railways in the world, despite our inclement weather. We also have first class maritime operations and we need to get this point across at the international level.”