By Alex Binkley
Shippers and transporters can’t let their worries about slow global economic growth prevent them from refining their supply chain to be ready for a future upturn, speakers told the annual Transportation Situation and Outlook Conference.
Canada picked a solid option a decade ago when it supported gateway and trade corridor development, and it needs to keep working on those kinds of investments, they also said at the conference, organized by the Chartered Institute of Logistics and Transport in North America.
“End-to-end performance is what matters,” said Vee Kachroo, CN’s new Vice-President for Supply Chain Solutions.
CN is focused on service excellence rather than the precision railroad model it advocated a few years ago, he continued. “We tried to run a tight ship and at times it was too tight. Our focus is on growing with our customers. At the same time, we have to make sure we have the equipment and capacity to haul new business.”
One area that is receiving a lot of attention is improving the pickup and delivery of freight from a shipper’s facility, he said. Referred to as first-mile and last-mile service, it is regarded as the area where major productivity gains can be achieved. It also involves getting carloads in and out of ports without protracted delays.
CN has introduced service agreements with ports and major customers and a score card system for shippers, he said.
He noted that CN has opened a distribution centre for energy projects in Bienfait, Saskatchewan, which provides customers south of the border with frac sand, pipe and drilling equipment. CN chose the Canadian location because transportation networks in the U.S. “had become so congested.”
“There’s no room for complacency,” observed Kristine Burr, Assistant Deputy Minister for Policy at Transport Canada. The expanded Panama Canal will be a game changer when it opens in a couple of years and the department is studying what impact it will have on the country’s supply chains.
“As a trading nation, Canada depends on the capacity of global supply chains,” she said. “It also has to seize trading opportunities with China, Brazil, Russia and India.”
Governments and industry will face continuing pressure to improve the gateways, she said. Infrastructure Canada is currently consulting with interested groups about future projects. “A smart corridor strategy maximizes the use of existing infrastructure to minimize the need for new investments.”
Ottawa is working on a gateway supply chain security review using the rail movement of containers from Prince Rupert to the United States as a test case. It is also examining truck security for Port of Montreal and Ontario, she commented. The department has also been measuring the performance of the existing supply chains and found that rail transit times from Vancouver to Eastern destinations have been consistent during the last two years, while the arrival of international cargo vessels has been variable.
Tim Lane, Deputy Governor of Bank of Canada, said international trade “has been a central force shaping transport and logistics and indeed, Canada’s economy as a whole. Advances in transport and supply chain management have played, and will continue to play, a central role in enabling that expansion.”
Transportation brought Canada together and it “must continue to play that role now and in the future, creating and supporting an integral, efficient Canadian economy,” he said. “Our domestic transport systems must evolve to make it easier to move goods within Canada. We need to pick up our game domestically to remain competitive in a challenging global environment.”
Patricia Mohr, Vice-President of Economics and Commodity Trends with Scotia Bank Group, said Canada’s commodity exports, especially energy, metals and minerals, and forest products, should remain buoyant because the Chinese economy managed a soft landing in the last recession. “China is shifting from an industrial economy to a consumer-driven one.” Its economic performance is ahead of the G7 countries.
While environmental and aboriginal issues have to be resolved, Canada has to build pipelines to the West Coast to export oil and natural gas “or we will really hurt our economy,” Mohr continued. As Japan moves away from nuclear power, its demand for liquefied natural gas will be strong.
Jean-Paul Rodrigue, Professor of Global Studies and Geography at Hofstra University in New York, said global trade has been growing at a faster pace than the world population. While Port Metro Vancouver and Port of Prince Rupert have worked hard to capitalize on the rising trade with Asian countries, it is the Caribbean and Latin America that will see the most benefits from the expanded Panama Canal.
Shipping lines will use ports in that region for transshipping containers between Asia and North America so they can employ larger vessels in the canal, he said. “East Coast ports lack the volume of business to justify sending the largest vessels there.”
Rodrigue predicted the changing trade patterns will reward inland terminals with more business, as shippers and carriers organize supply chains to meet the changes brought on by the Panama Canal’s expanding capacity.
David Oxner, Executive Director of Nova Scotia Gateway Secretariat, said the sputtering world economy has been a challenge for Port of Halifax. Its business grew by 26.3 per cent in 2010 and then dropped by 6 per cent in 2011. The Port has not matched its peak performance of 2007. The Port is also suffering from the unpredictability of ship arrivals caused by slow steaming on the part of shipping lines trying to reduce their fuel bills.
However, the port has the draft to take the largest container ships and the rail connection to deliver containers into central Canada and the U.S. Midwest, he added. A free-trade deal with Europe could see a 15 to 25 per cent boost in traffic through the port.
Michael Broad, President of the Shipping Federation of Canada, said shipping lines are trying to cope with an oversupply of vessels, high fuel costs and falling freight rates. They are also being pinched by tight bank lending. “Fuel accounts for 70 per cent of the cost of operating a ship. Fuel costs are exceeding revenues on many of the trades.”
Still, there are 100 new 10,000-TEU-plus ships coming into service this year, he added. Shipowners are also watching new sulphur content fuel rules due to come into effect later this year, along with the implementation of new U.S. ballast rules, he said. They’re hoping the proposed free-trade deal with Europe removes tariffs to increase transatlantic trade.
Rob Bryson, Vice-President of Parrish & Heimbecker, said that while Canada “is doing okay as an exporter, its costs are higher compared to suppliers from other countries.” And there remains the danger of another bout of bad economic times globally.
The Canadian grain industry has to meet “super strong standards for the environment, health and safety and we’re waiting to get rewarded for it,” he said. “We would like to find markets that will pay for sustainable development.”
In general, Canadian exporters are in the middle of the pack internationally, he added. They have to become better at “controlling external operating costs,” he added. Those factors range from the property tax assessments on port grain elevators to better accountability by Port Authorities. The performance of Ports across the country “is not at the same level. We can’t rest on our laurels, we have to become more competitive and drive costs from our system,” he added.
With the Canadian Wheat Board monopoly ending in just over two months, “it’s still business as usual for the grain companies,” he pointed out.
Christopher Gillespie, President and CEO of freight forwarder Gillespie-Munro Inc., said that while the federal government “wants to promote expanded trade, its ambition is stymied by bureaucracy. Government regulation has become increasingly complex.”
Importers and exporters have to contend with inconsistent and unclear interpretations of rules that cost them thousands of dollars while they wait for a decision, he pointed out. “It’s an extremely frustrating process that benefits no one,” he said. “Shippers understand government’s wishes to keep illegal drugs and other unwanted products out of the country, but they seem to do it on the backs of small- and medium-size shippers.”
He related a number of puzzling encounters with Canada Border Services Agency (CBSA) that his customers have had to endure. Too often, CBSA cannot – or will not – explain what it has done even though its actions or inactions can damage the reputation of Canadian businesses.
Industry suffers because it isn’t consulted before government agencies decide to proceed with new border or inspection programs.