By Keith Norbury
A massive terminal capable of handling 3.5 million containers a year is being proposed for the West Coast of Vancouver Island. The project, earmarked for Sarita Bay near the mouth of Barkley Sound about 75 kilometres southwest of Port Alberni, would become a transshipment hub for Vancouver and Seattle. The proposal calls for the terminal to load and unload the world’s largest container ships — vessels with capacities of up to 22,000 TEUs — and barge the inbound and outbound cargo between terminals on the mainland. Estimated cost of the project is $1.7 billion to $2.2 billion.
Called the Port Alberni Transshipment Hub, or PATH, it would be the focal point of a hub-and-spoke system that would revolutionize container shipping in the Pacific Northwest, proponents argue. By cutting transit time across the Pacific Ocean by up to three days, it would save on shipping costs, reduce carbon emissions, create hundreds of thousands of jobs, and negate the need for new container terminal space in areas of expensive real estate such as Greater Vancouver. “It reduces one port call, right off the bat,” said Zoran Knezevic, President and CEO of Port Alberni Port Authority, in a recent interview.
Each container ship that now enters the Salish Sea — the water body between Vancouver Island and the mainland that encompasses Juan de Fuca Strait, Georgia Strait and Puget Sound — offloads cargo at Seattle-Tacoma, then Vancouver, and “a week or so later passes by in front of Port Alberni yet again on its way out back to Asia,” Mr. Knezevic said.
If the Port Authority can obtain the necessary seed money, construction can start immediately, Mr. Knezevic said. The aim would be to have the terminal commence operation as early as 2022. Fine details and analysis of the proposal are contained in a 420-page report of pre-feasibility studies undertaken by well-known engineering and consulting firms — including CPCS (Canadian Pacific Consulting Services), Hatch Mott MacDonald, SNC Lavalin, and Dillon Consulting. Port Alberni Port Authority and Transport Canada shared the $450,000 cost of the report, which was released in August 2014 and can be found on the Port Authority’s website.
“The barges will deliver pre-sorted cargo at the right time and at the closest point to the end destination,” says the report’s project brief. “In addition, PATH conceptually envisions servicing Vancouver Island’s ‘captive’ market and ever growing business and population base. PATH also provides an opportunity to service coastal trade; providing an opportunity to combine Pacific Northwest and Pacific Southwest service in one.”
Seed money sought
The project has received the backing of the International Longshore Workers Union Canada, whose members would take on most of the 400 to 500 jobs at the terminal, from Port Alberni’s Chamber of Commerce, and from the Huu-ay-aht First Nations, which occupies the traditional territory of the proposed terminal. On the other hand, a Victoria transportation consultant who has looked closely at the proposal says the project is a risky proposition in today’s shipping environment.
Using the barges, PATH will distribute cargo to ocean terminals, railways, truck terminals, or even customers like Walmart when they need it, Mr. Knezevic said. PATH would provide efficiencies for those existing operations on the vast coastline of the Salish Sea mainland, which has a population of about 8 million, he added. Shipping to Portland and other ports along the Columbia River is another possibility, Mr. Knezevic said.
To get the project off the ground, the Port Authority is seeking federal government money. Mr. Knezevic is looking to obtain 30 per cent of the project’s funding from the $14 billion New Building Canada Fund that was created by the previous Conservative government. That fund supports “projects of national, regional and local significance that promote economic growth, job creation and productivity,” according to a posting on the Infrastructure Canada website. Within that fund is a $4 billion National Infrastructure Component for projects of “national significance.” “And there would be enough, in my opinion, for the seed money to get this project off the ground,” Mr. Knezevic said.
The company is also looking for a major investor, such as a shipping line or shipping alliance, to come to the table. The Port Authority has talked with a few small companies in Asia and has signed a memorandum of understanding with a small-scale investor, he said.
Project faces challenges, says analyst
Darryl Anderson, a Victoria, B.C. transportation analyst, said shipping lines aren’t the partners the Port should be seeking out. (Mr. Anderson happens to be a former CEO of Port Alberni Port Authority. However, he wished to make it abundantly clear that he was not speaking as the Port’s ex-CEO. He was speaking solely in his capacity as managing partner of Wave Point Consulting.)
“The point is that the shipping line follows the cargo,” Mr. Anderson said. “So who determines were the cargo goes? It’s the beneficial cargo owner.” And these days that means mega retailers like Amazon and Walmart. “Certainly if the PATH project can answer the value-added that those large shippers would need, then you’re actually in a stronger business case to talk to shipping lines,” Mr. Anderson said. “But I haven’t seen it.”
Mr. Knezevic said the Port Authority has already spoken to Canadian Tire and other smaller retailers although it hasn’t yet talked to Walmart. Finding such partners is just one of the numerous challenges in today’s shipping market when the cost of moving containers is weak, Mr. Anderson said. “The risk for a large project like this is if the uptake was lower than anticipated in trying to get some of that traffic, or if the traffic didn’t materialize,” Mr. Anderson said. He noted, for example, a slowdown in growth of import and export volumes on certain trade routes, such as with China.
Aside from those high-level economic challenges, the project faces other obstacles, Mr. Anderson said. For example, building barge and ramp facilities on the Fraser River would involve acquiring dredging permits and environmental clearances to ensure the protection of riparian zones around the river, he noted while pointing out that early in his career he worked for the federal Fishery Department. “And we witnessed going through the regulatory process that any large development project takes longer than the original project proponents envisioned,” Mr. Anderson said.
Report also raises questions
Sections in the pre-feasibility study appear to shed doubt on the argument that PATH would appeal to shipping lines. For example, the analysis by CPCS notes a current oversupply of ship capacity. “… In such a context, ship time is not perceived as valuable, and the perspective of reducing days at sea is not a convincing argument in favour of a trans-shipment port,” the report says.
Some 20 pages later, after outlining ways that new barge terminals in the Vancouver area could lower handling costs “significantly,” the CPCS report points out that the PATH system would encounter challenges with loading cargo onto rail for inland markets like central Canada and the U.S. midwest.
“In particular, while direct barge-to-rail movements can be done, it is even done currently in rail-intensive terminals (in the port of Montreal, for example), it requires strong coordination between barge and rail services,” the report says. “Railcars must be available to be loaded, but not too early because the terminal usually doesn’t have the space to store them.”
While the report says it would be feasible to handle containers directly from barge to rail at an existing berth on the Fraser River, it “would require capital investment to increase the number and length of rail tracks.” The report also notes that there aren’t any other existing facilities “which could handle high levels of container barge traffic to rail without very significant investments, and it is unclear whether such facilities could be built and operated cost competitively.”
Terminal site also potential LNG site
While the pre-feasibility study identifies five potential locations for the terminal along the Alberni Canal and Barkley Sound, the favoured ones are on Sarita Bay, about 75 kilometres from Port Alberni. At present the sites are all served by gravel forestry roads, “which would no doubt have to be substantially upgraded and paved in order to accommodate significant truck traffic and other vehicular traffic associated with the terminal,” according to the pre-feasibility study report.
Sarita Bay is also the location of Steelhead LNG’s proposed $30 billion liquified natural gas facility. Mr. Knezevic said the area has plenty of room for both ventures and that they would even share some synergies, such as tugboats and supporting infrastructure.
Among the options is to build all or part of the PATH terminal on land owned by the Huu-ay-aht First Nations, which has signed a protocol agreement with the Port Authority to develop a world-class port. “The Alberni Inlet is a very big inlet,” said Robert Dennis Sr., the elected Chief of the Huu-ay-aht First Nations. “And one of the advantages of Alberni Inlet is that it’s very deep water.” Still, Chief Dennis said his people have expressed some “loud and clear” environmental concerns about both projects.
“The marine portion of the site is going to be quite large so it is effectively going to remove some key fishing areas of the Huu-ay-aht people,” Chief Dennis said. “And it would probably impact the recreational fishery. They would no longer have access to areas that they would normally fish.”
Despite those downsides, Chief Dennis is heartened that the project proponents have consulted with the Huu-ay-aht before going ahead. “You know what the old case was before — they used to develop projects without (First Nations) consultation,” he said.
Terminal would cover 250 acres or more
The project brief of the pre-feasibility study envisions a modern fully automated container terminal that would cover 250 acres, have two main berths of 1,500 metres, three barge berths, 14 dual-hoist trolley ship cranes, six dual hoist barge cranes, 43 yard cranes, eight gate cranes, and 135 battery-operated yard truck/robots. (Elsewhere, the report refers to a 400-acre terminal with annual capacity of 3.5 million TEUs.) About half the cost of the PATH project would be for the equipment, Mr. Knezevic said. But he hinted that the costs of the cranes for the project might be less than anticipated. ZPMC, the Chinese port crane manufacturer, recently agreed to build cranes for Port of Long Beach, Calif., for 20 per cent less than PATH’s price estimate, he said.
The terminal itself would employ 400 to 500 people full-time based on one vessel calling there each week, Mr. Knevevic said. The International Longshore Workers Union Canada has written a letter of support for the PATH project and its job creation potential. “We’re excited about it,” said Rob Ashton, ILWU Canada’s Vice-President. “Any new investment into our port systems in B.C. is great.”
The only drawback from the union’s perspective is that it would be a fully automated facility. “The use of labour is hindered by that. We prefer fully manned terminals,” Mr. Ashton said.
Terminal would complement existing ports
The PATH pre-feasibility study report notes that markets for the Port Alberni hub would likely focus on those currently served by existing Pacific Northwest ports. However, Mr. Knezevic said Port Alberni wouldn’t necessarily compete with those ports but would handle the increased volumes that are expected to come to the region over the next 15 years. “We are adding to the gateway rather than restricting. We are enabling the gateway to handle more,” Mr. Knezevic said.
If PATH does “steal” any cargo from PMV, for example, it would be cargo destined for Vancouver Island, which would no longer have to go through Vancouver. Nanaimo’s container terminal might also lose some traffic, at least initially, but it should gain also as the overall volumes grow, Mr. Knezevic said.
Using PMV’s growth projections as a guide, Mr. Knezevic posits that annual volumes for the region, including Seattle-Tacoma, would be about 10 million containers a year in 2024. Should PATH be operating by then, it would handle about a 10th of that volume. “So it’s a small amount.”
The recent slump in the world economy, particularly in China, and the consequent drop in oil prices would only have a small impact on getting the PATH project off the ground, Mr. Knezevic said. “I still believe even with the economy going down (that) people will be looking for savings and more efficient ways of doing things,” Mr. Knezevic said. “And this project essentially offers improvements … to the existing logistics in the lower mainland.”
Mr. Knezevic said he has an intimate understanding of container transportation networks on B.C.’s lower mainland from having worked in those industries for 15 years, including a dozen years at Deltaport, Greater Vancouver and Canada’s busiest container terminal. “And I have seen a lot of troubles and issues that lower mainland is facing, predominantly that you have container terminals on the outskirts of the industrial areas,” Mr. Knezevic said.
He does not expect those congestion problems to diminish, noting that Port Metro Vancouver anticipates a doubling of container volumes by 2030. Plans to address that growth include adding a 2.4 million TEU facility called the Roberts Bank Terminal 2 project. “There is no doubt that without mitigation, increased container traffic at Roberts Bank will create increased congestion on major corridors in Vancouver,” says the CPCS report.
Savings of $540,000 per vessel call predicted
An attraction for big ships, according to the PATH report, is that PATH shaves three days off the sailing time, which works out to $20 per TEU, and $540,000 per vessel call to the Pacific Northwest. Another analysis in the report calculates that deploying a single string of 13,000 TEU ships in place of 6,000 or 8,000 TEU strings “would generate a vessel network cost savings of $143 per round trip TEU.”
Mr. Knezevic said the estimate was based on the operating costs in 2013-2014 and were heavily dependent on fuel prices, which have since plummeted. However, the report’s estimate didn’t take into account recent surcharges related to rules requiring the use of low-sulfur fuel within 200 nautical miles of the North American shoreline. Mr. Knezevic said those eco charges probably balance out the lower fuel prices. “But I haven’t recalculated the cost.”
The executive summary of the pre-feasibility study notes that competing ports, including Vancouver, are also expected to invest in equipment to become capable of handling the ultra-large ships. However the report adds that “the PATH facility could potentially be an early mover in accommodating ULCSs.” Mr. Knezevic doesn’t take that to mean that there’s a narrow window of opportunity for PATH. “It’s not necessarily that strict with timing,” Mr. Knezevic said. “Even if PATH gets built, it will not be able to handle all of the volume that passes in front of our doors.”
At present about six million TEUs sail past Port Alberni each year, Mr. Knezevic said. PATH could handle a maximum of five million TEUs per year. If container volumes for the region double by 2030, as Port Metro Vancouver predicts, about 12 million containers in total would traverse the Salish Sea annually by that year, by Mr. Knezevic’s calculation. Even if the infrastructure in Vancouver and Seattle is upgraded to handle 18,000 TEU ships, those ports “cannot change the hinterland infrastructure where the distribution centres and warehouses are located,” Mr. Knezevic said. “They still have congestions on land and still have issues of how to move that cargo the last mile from the waterfront to the warehouse.”
Soaring land costs poses risk
Mr. Anderson, however, pointed out that the shortage of industrial land around Vancouver and its soaring prices also presents a big obstacle to the PATH prospect. “So it may flow in terms of a logistics model — in other words you can physically transship cargo,” Mr. Anderson said. But acquiring the land “is a real challenge.” That’s because other users — such as construction companies — of those “small-bay” industrial sites are willing to pay more for those sites, he said.
A Jan. 19 article in the Vancouver Sun supports that conclusion. “There’s just no available vacant industrial land in Vancouver. Full stop. Period. Nothing,” the article quoted Vancouver developer Brent Sawchyn. Mr. Knezevic, however, made it clear that PATH plans to use existing facilities, at least in the early stages.
“Fraser Surrey Docks right now, without touching anything, has all the equipment and infrastructure to handle more than a million TEUs of cargo as of today,” Mr. Knezevic said. “So the beauty of this (PATH) system is it could be distributed to the existing facilities with zero added investment on the land side or requirements for additional land at this point.” He envisions distributing the cargo to multiple nodes along the river, as well as to Deltaport, the CN rail yard at the Port Mann Bridge, and the CP rail yards at Port Coquitlam.
“Basically Port Alberni’s argument is that congestion alone will drive traffic to PATH,” Mr. Anderson said. “Maybe. But maybe not.” He questioned why the operator of a transload facility in Vancouver would even want to transload the cargo one more time in Port Alberni. “They’re not going to do it,” Mr. Anderson said.
Is hub-and-spoke model passé?
Another major issue Mr. Anderson has with the PATH project is that the hub-and-spoke-model is becoming outdated in a world of omni-channel distribution. That’s a reference to the multiple ways that consumers now buy their products, such with their cellphones and computers. An upshot of that trend is that dominant retailers, like Amazon, are building huge distribution centres of up to a million square feet. The logical strategy then for a transshipment hub would to be to plug directly into those omni-channel distribution centres. “So how does the PATH project meet the needs of the primary shippers of the world like Amazon?” Mr. Anderson said.
Mr. Anderson also observed that companies are increasingly moving goods to these massive regional distribution centres to perform final assembly of products or other value-added activities and “not just transload it from a marine container into a domestic intermodal and then ship it on.” That’s also a reality that Vancouver — including the T2 project proposed for Roberts Bank — will have to confront. But at least Vancouver already has customers, Mr. Anderson said. “So they’re not going to disappear overnight,” Mr. Anderson said. “But if you build a new facility and new infrastructure, (as Port Alberni proposes) you want to be at the leading edge of the current trends and needs, which is much bigger buildings, and much bigger density. They’ll come with bigger, higher prices, unfortunately.”
Mr. Anderson also questioned whether PATH’s focus on megaships is properly timed, pointing out that vessels of 5,000 to 8,000 TEUs still dominate the high seas. “The really large megaships are not carrying the dominant amount of freight. It’s going to get there. But capital stock takes time to renew,” Mr. Anderson said. He expects that process to take decades, not years.
Either way, shippers need incentives
Mr. Knevevic said the PATH plan doesn’t just hinge on the larger ships. And even if Vancouver and Seattle can handle larger vessels, they still have problems moving cargo from the terminals to the hinterlands, he said. Doubling Deltaport’s capacity would add thousands of trucks to lower mainland roads each day, adding to pollution and congestion. “Secondly, nobody in the shipping world is going to deploy an 18,000 TEU ship to sit in the port for a week or so to be offloaded,” he said. (According to the pre-feasibility report, an 18,000 TEU ship would take three days to unload at PATH, and another three days to reload, for a total dwell time of six days.)
Hub-and-spoke systems such as PATH are used all over the world, Mr. Knezevic pointed out, adding that western Europe moves about 40 per cent of its cargo by barges. “The only way in my opinion that we can continue to grow in the container business industry is by using the short-sea shipping route for freight,” Mr. Knezevic said.
But Mr. Anderson said that most transshipment hubs take advantage of intersecting trade routes. Transshipment facilities around the Panama Canal, for example, intersect north-south and east-west trade routes. For Port Alberni, the traffic would be almost exclusively east-west.
On the subject of the Panama Canal, Mr. Knezevic regards PATH as a strategy for countering the “imminent threat” the canal’s expansion poses to West Coast ports, in that the canal will soon be able to accommodate 14,000 TEU vessels, which will reduce the cost of shipping containers directly to the Gulf and East coast from Asia. “We have to maintain a gateway fluid enough to provide incentive for the shipping lines to bring the products here,” Mr. Knezevic said, adding that the PATH project will reduce trans-Pacific shipping costs by eight to ten per cent.
One thing in PATH’s favour is that the container terminal in Portland, Ore., recently shut down because of a labour dispute, Mr. Anderson said. So Port Alberni could serve it with barges, which Mr. Knezevic said is part of a plan that would also serve other terminals along the Columbia River. Then again, Mr. Anderson observed, “If we really were at capacity constraints for container terminals on the West Coast, would a shipping line really have walked away from Portland?”
The open question is whether proponents of PATH have made a convincing enough argument to potential financial backers. ILWU’s Mr. Ashton is optimistic. “People used to say the container terminal in Prince Rupert would never fly,” he said. “And look at it now. It’s massive and growing.” Mr. Anderson, though, cited the success of Prince Rupert as just another strike against PATH not least because of Rupert’s much lower cost of industrial land. New terminals at Seattle-Tacoma are also becoming more competitive, he said. The factors all suggest to Mr. Anderson that for the medium term at least, “unless there’s a fundamental economic realignment, the PATH project will probably remain at the concept stage.”
Singapore-based shipping line NOL posted a net loss of $181 Algoma Central reports 2015 results and announces changes to business strategy
Algoma Central Corporation announced results for its 2015 fourth quarter and fiscal year. During the fourth quarter, the Company announced its intention to divest of its real estate portfolio to focus on its existing shipping businesses and opportunities in niche international markets. The results for the periods reported on have been restated to reflect the real estate segment as a discontinued operation.
For the year, the Company’s consolidated revenues were $413.5 million compared to $473.4 million in 2014. Fuel costs declined significantly during the year and approximately $38 million of the decrease in revenue is a direct result of the pass-through effect of decreased fuel costs. The balance of the decrease in revenues results from a drop in rates earned due to stiff competition in the company’s domestic dry-bulk business and to a drop in volumes carried in its product tanker and ocean dry-bulk business units.
Net earnings from continuing operations for the year were $21.0 million, compared to $49.0 million for the prior year period. The decrease in earnings year-over-year was driven primarily by the drop in revenues and partially offset by a gain resulting from the cancellation of shipbuilding contracts earlier in 2015. Cash flow from continuing operations for the year was $57.8 million, down from $97.7 million in 2014.
Business conditions softened noticeably in the second half of 2015 and revenues for the fourth quarter were $119.2 million, compared to $141.6 million in the same period last year. Net earnings from continuing operations for the fourth quarter were $9.0 million, compared to $34.2 million in 2014. Revenues and earnings from all business segments were negatively impacted by softer market conditions that resulted in lower demand and reduced customer volumes.
The company’s two most important dry-bulk industries domestically are the iron and steel industry and the grain industry and both faced their share of challenges this year. Grain customers faced much stronger competition from Russian and Eastern European suppliers, as strong harvests enabled suppliers in those regions to re-enter export markets they had largely been absent from in recent years. Grain shipments headed east were down as inventories grew in the St. Lawrence elevator network.
The iron and steel market has also suffered from growing competition, in this case from cheaper foreign imports. Although Algoma’s principal customer in this market, ArcelorMittal, is well positioned in the higher quality steel markets, two of the three large, integrated steel companies in Canada are operating under creditor protection. Industry volumes were down substantially this year.
One bright spot is the continued improvement in construction materials. Algoma’s customers in this industry are reporting stronger sales, driven by the improving strength of construction in the key U.S. markets and the lower value of the Canadian dollar. Volumes in construction materials rose, although rates were impacted by the stiff competition amongst marine carriers. Salt volumes were also strong in 2015, coming on the heels of two abnormally cold and long winters.
At year end the company decided to retire five domestic dry-bulk vessels and a product tanker that had reached the end of its economic life. The decision to retire the dry-bulk vessels reflects management’s view that current domestic market capacity exceeds customer demand and certain older vessels are no longer economic to operate in these market conditions. As a result of removing these vessels from service, the management has accelerated depreciation on them and recorded an additional depreciation charge in the domestic dry-bulk segment in the fourth quarter of $3.3 million.
During 2015, Algoma introduced its new strategic vision for the Company to pursue growth opportunities beyond the traditional domestic markets in which it operates. In November, the company announced the first growth investment with the acquisition of two vessels then belonging to one of its partners in the International Pool, and the purchase of a 50 per cent interest in a third vessel. This transaction closed in January 2016 and these vessels will contribute to Algoma earnings for all of 2016. As a result of these purchases, Algoma’s interest in the Pool has doubled.
In January 2016, Algoma announced the creation of a new joint venture, NovaAlgoma Cement Carriers, through which it will partner with an established player in the pneumatic cement carrier business to form a specialized global fleet of pneumatic cement carriers to support infrastructure projects world-wide. Algoma already has some insight into the business already as two of the vessels for which it provides technical management services on the Great Lakes belong to cement manufacturers serving the Canadian and U.S. markets. With newer pneumatic vessels providing service capabilities that cannot be matched by older vessels, Algoma believes this market is primed for consolidation and fleet renewal. Algoma is looking forward to announcing further investments in this venture and others as we roll out our new strategy.
On February 16, 2016, Algoma announced that the London Arbitration Panel hearing the Mingde shipbuilding contract cancellation dispute issued an award in Algoma’s favour on three of the four outstanding claims. Algoma has begun collection proceedings on these refund claims, which are valued at US$53.2 million as at February 16th.