PORTS IN CANADA:
Prepared by John Christopher
Science and Technology Division
NEW ECONOMIC CONDITIONS
RECENT INDUSTRY TRENDS
EFFECTS OF TAXATION
OUTSIDE AND INSIDE CANADA
PORTS IN CANADA:
The Canadian ports system
is composed of three types of ports and harbour facilities, all with different
administrative and jurisdictional structures. The first, and major, category,
which comprises nearly half of the overall Canadian port traffic, is administered
by the Canada Ports Corporation (CPC), a Crown corporation established
pursuant to the Canada Ports Corporation Act, proclaimed in 1983.
Seven of the ports included are autonomous Local Port Corporations (LPCs)
located at St. John's, Halifax, Saint John, Quebec, Montreal, Vancouver
and Prince Rupert. The CPC also has managerial and operational jurisdiction
over "divisional" ports, located at Belledune, Chicoutimi, Baie
des Ha! Ha!, Sept-Îles, Trois-Rivières, Prescott, Port Colburne and Churchill.
The mission statement of the CPC is: to maintain and promote the role
of the Ports Canada system of ports, nationally and internationally, by
ensuring the integrity and efficiency of the national ports system with
regard to local, regional, and national economies and the environment,
and in the pursuit of optimum benefits for Canadian trade and transportation;
to provide professional advice and assistance to the ports; and to administer
the divisional ports under its jurisdiction.
The second element in the
port system comes under the jurisdiction of the Harbours and Ports Directorate
of Transport Canada. It consists of Harbour Commissions, which operate
under the authority of the Harbour Commission Act, 1964 and through
which approximately 25% of Canada's waterborne traffic passes. There are
nine Harbour Commissions, five in Ontario (Thunder Bay, Windsor, Hamilton,
Toronto and Oshawa) and four in British Columbia (Port Alberni, Nanaimo,
Fraser River and North Fraser). Harbour Commissions operate independently.
Each is under a Board of three to five Commissioners, some of whom are
appointed federally and some municipally, who elect a Board Chairman from
The third element of our
ports system consists of Public Harbours and Ports, which also come under
the jurisdiction of the Harbours and Ports Directorate of Transport Canada;
they operate under the authority of the Public Harbours and Port Facilities
Act. There are wharves, breakwaters and other structures or a declared
public harbour at 526 locations across Canada. The geographical dispersal
of public ports throughout the regions is as follows: Western, 136; Central,
52; Laurentian, 76; Maritimes, 203; and Newfoundland, 59. Public ports
serve 85 communities on the east and west coasts and in the Arctic, which
have neither rail nor road access. Public harbours and public ports handle
approximately 25% of Canada's marine tonnage.
Clearly, Canada's ports
are an integral part of our national transportation system and essential
to our export performance and our ability to compete in world markets.
Increasingly, our ports are subject to a number of pressures that could
affect this ability. Rapidly changing trading patterns, the globalization
of the marketplace, and, most particularly, competition from American
ports all pose competitive challenges to which our ports must be able
to respond in a positive and timely fashion.
NEW ECONOMIC CONDITIONS
The International Cargo
Handling Co-ordination Association's (ICHCA) international conference
in June of 1992 was on the theme of "Transportation in an Era of
International Competitiveness." The restructuring of the world economy,
including an overview of emerging transportation patterns, was one issue
considered. After the Second World War, there were three "worlds";
the first world (western industrialized nations), the second world (the
Soviet Union and its allies) and the third world (the underdeveloped and
poor countries). This has changed with remarkable speed; with a few exceptions,
all countries are now more or less in the "first world" and
are attempting to achieve stable and productive market economies based
upon sustainable development and sound environmental practices. It was
noted that another aspect of this new world order is the increasing "intrusiveness"
of trade on our policies and economies. Trade in services is rising rapidly
and it affects societies much more than trade in goods and commodities.
Another phenomenon of this
new world order is the formation of huge trading blocs. The North American
and European Community blocks are already established, while in Asia a
massive trading bloc led by Japan is beginning to take shape. Though global
economic government is still in its infancy, trading blocs are a step
in this direction and can have a significant impact on port activity,
especially if they are used restrictively.
It was pointed out that
container traffic will continue to be vital to the future prosperity of
ports and the shipping industry. After spectacular growth in containers
and shipping lines over the past 20 years, the industry is beginning to
show signs of maturity. East-west container trade will continue to be
dominant but will be more important on the Pacific than the Atlantic coast.
There will be an abundance of competition, significant consolidation of
companies and services, and concentration on cost control, with some improvement
in utilization and rates. There will also be an increase in the scope
and nature of intramodal and intermodal partnerships. The trend will be
towards the "survival of the fittest" --- only the strong and
efficient fleets will survive; those that are subsidized and inefficient
As far as the dry bulk trade
is concerned, the outlook for growth is considered to be very modest.
The commodity mix of grain, iron ore, coal, potash, sulphur, etc. will
not change to an appreciable degree. Competition will be strong, with
some carrier consolidation, improved fleet utilization, and continuing
efforts to get costs under control.
It is expected that the
world grain trade will grow at a very modest annual rate (1%) over this
decade. Even this conservative forecast is subject to several unknowns.
For example, it is impossible to predict what will happen in Russia and
in Eastern Europe, and it is very difficult to foresee the future situation
in China, although the assumption is that the Chinese will not be able
to provide for their growing population. Furthermore, there is the question
of how the current round of GATT negotiations will affect the world grain
trade. Analysis suggests that west coast ports will be able to capitalize
on the modest growth of the grain trade in this decade, while the St.
Lawrence Seaway and east coast ports are likely to face contraction.
RECENT INDUSTRY TRENDS
Beginning in the late 1960s,
the market for containers and container ships grew at a rapid pace. By
the late 1970s, fierce competition and oversupply had resulted in declining
freight rates, which throughout the 1980s have been in a free fall. On
the North Atlantic alone, in 1992 Liner Conferences sustained losses of
between $200 and $300 million. As a result, in this decade new trends
will emerge in an attempt to return the industry to profitability and
The first of these trends
is the restructuring of individual companies and consolidation. For example,
Atlantic Container Lines has been reduced from six owners to a single
owner, which allows for more efficient decision-making and improves the
ability to respond to competition and to the constantly changing marketplace.
The second trend is for container lines to share space and equipment.
Thirdly, efforts will be made to streamline the structure of "shipping
conferences" (groups of shipping companies that band together in
shipping cartels) to allow for more flexibility and efficiency. Finally,
there will be even more concentration on shipping containers and the marketing
of container services.
In conjunction with restructuring
in the shipping industry, integrated intermodal inland transportation
systems will be created. Already we see groups of companies comprising
liner services, rail and trucking services, logistics, and bulk intermodal
distribution centres. The intention is to provide a "seamless"
service that is highly integrated and efficient. Rail services have to
be viewed in the context of globalization. There are now four kinds of
customers: domestic, international, multinational and global. The challenge
is to provide more and better services in a cost effective manner.
Finally, another trend within
this competitive transportation environment is for the shippers to have
increased expectations, which must be met. These expectations are for:
timeliness (on time all the time), integration (an integrated approach
using a single source carrier but dependent upon an intermodal system),
security (guarantee of quantity and quality), flexibility (adaptability
to market changes and competition), fast response, value (the best service
for the cost), and reliability (a consistently good performance).
Developments in communications
and information technology are playing an ever-increasing role in global
competition. In the future, low-cost integrated electronic data interchange
systems (EDI) using video images and voice commands will be common. Information
will become the "ultimate weapon" on which global competition
will depend. Only businesses that develop information systems and adjust
to change will succeed. This is especially true in the marine industry.
Steamship lines are increasingly considering EDI capability as a deciding
factor in the choice of a port-of-call or door-to-door routing. Only ports
that can respond to these developments will remain competitive into the
Intermodalism is the use
of more than one transport mode to take goods from the producer to receiver;
its success relies on efficient and effective management of the inland
sectors. Failure to be competitive in this area has immediate negative
consequences for all land parties (e.g., railroads, truckers, freight
forwarders, ports) but not for shipping, which, being mobile, has other
port options: ports cannot move but shipping lines can. Below, we will
examine some of the elements of our intermodal system.
Our three major container
ports (Halifax, Montreal and Vancouver) derive most of their container
traffic from market areas more than 600 miles away. At these distances,
the use of truck transportation is too expensive and rail represents the
only effective surface transportation. Therefore, for all practical purposes,
the Canadian ports are dependent on fast, efficient, competitively priced
rail service to maintain their presence in container markets. This dependence
is growing as containerized cargo constitutes an increasing percentage
of a port's revenues.
One concern is that if our
rail routes are allowed to deteriorate, the competitive position of our
ports will also deteriorate. This concern stems from the fact that our
rail carriers, which traditionally used east-west routes, have been developing
north-south routes into the United States. If this intensifies, it is
feared that our railroads will bypass Canadian ports and divert goods
through U.S. ports. In an effort to forestall this possibility, Canada
Ports Corporation is working with our two national railroads to develop
what is called a "Maple Leaf Route" for goods moving through
The main issues for the
marine community with regard to Canadian ports are difficulties with the
inland connectors. Increasingly, a foreign shipping line bases its port
of call decision on a port's position within an intermodal route chain.
If this is not satisfactory, the shipping line will use another routing
and consequently another port, usually an American port. In view of the
financial advantages for foreign lines in the U.S., in terms of control
and balance of traffic, the Canadian route must promote its advantages
while removing all impediments and obstructions to transit. These advantages
include the availability of export cargoes (enabling an ocean liner to
return with a full load rather than empty), attractive inland freight
rates, and expeditious port handling. All of these factors will have to
be maintained and enhanced if our ports are to remain competitive.
Studies by Canada Ports
Corporation and other bodies show that, for the most part, our ports deliver
an acceptable level of service; however, some changes are required to
enhance their competitiveness. It is important that the present transfer
process be made smoother, impediments (particularly with respect to terminal
gate access and truck turnaround times) reduced, and throughput productivity
Canada's ports, especially
the container ports of Halifax, Montreal and Vancouver, will need to work
even more with their internal partners (Customs, terminal operators, stevedores
and other labour organizations) to remain attractive to foreign shipping
lines in terms of costs, services and ease of transferring cargo to local
area shippers and consignees. In addition, the ports and surface carriers
must work together to consolidate and build additional volumes through
increased marketing, joint ventures, business development with the local
community and the province, and reliable representation at the national
EFFECTS OF TAXATION
The taxation levels currently
applied to Canadian rail carriers have contributed to much higher costs
and therefore higher tonne-per-mile rates than are charged by their direct
competitors in the U.S. The disparity is the result of Canada's considerably
higher levels of federal income and property taxes, provincial fuel taxes
and different depreciation treatment (longer write-off periods) than are
provided in the U.S.
The railways assert that
these tax differences are mostly responsible for the operating cost disadvantage
for Canada. A container train moving from Vancouver to Toronto pays 71%
more tax per container-mile than a comparable container train moving between
Seattle and Chicago. The result has been that cross-border carriers attempt
to limit the extent of their Canadian operations, a decision that directly
reduces Canadian port volumes.
We cannot claim, however,
that with the same taxes Canadian carriers would enjoy parity with or
advantage over their U.S. counterparts. Other factors in Canadian transportation
also raise operating costs and prejudice rate levels. Examples are our
geography, heavier low-revenue traffic, lighter volume densities and the
lack of direct investment by shipping lines. Nevertheless, cost inequities
would be considerably reduced by more reasonable taxation.
In its review of the National
Transportation Act, 1987, the National Transportation Act Review Commission
found that all Canadian transportation modes were more highly taxed than
their counterparts in the United States. On that basis, the Commission
recommended that all levels of government adopt taxation policies and
rates that do not compromise the ability of Canadian carriers to compete
in domestic and international markets. In Canada, the rail industry and
other modes of transportation require this form of fiscal relief to preserve
routings and ensure that goods are moved through Canadian ports and not
diverted through U.S. gateways.
AND INSIDE CANADA
Competition among North
American ports is inevitable as trade patterns shift with changes in transportation
and logistical methods of moving cargo. A port's hinterland seldom remains
stable and consistent. Ports working in concert with their landside partners,
such as truck and railway companies, have been increasing their competitive
position in markets at considerable distances away.
As noted earlier, our ports
face the constant threat of having traffic diverted through U.S. ports.
This is especially true with container traffic, which, since it consists
of easily handled, standardized boxes of higher value cargoes, can be
quickly and easily shifted from one port to another. Both Canadian and
American cargoes have been routed through the other country's ports since
the early days of containers. Because, however, there is 10 times as much
liner activity at U.S. ports than at Canadian ports, the impact of diversion
is far more significant in this country.
Another potential source
of competition from U.S. ports is for cargoes such as lumber, potash,
coal and grain, even though the volumes of Canadian bulk export cargoes
diverted through U.S. ports are not yet considered great. Canadian ports
are working with inland transportation carriers and terminal operators
to try and keep costs down and provide efficient service to prevent loss
of such cargoes to U.S. ports.
There is also competition
among ports within Canada, which varies depending on the port administration
involved. Ports Canada views some rivalry between ports and terminals
within the Ports Canada system to be healthy, because competition ensures
that users have the best possible service at the lowest possible cost.
Another form of Canadian
port competition is between Ports Canada ports and those under Transport
Canada (Public Ports and Harbours plus Harbour Commissions). Each case
of such competition is unique, depending on the cargo involved. The most
glaring competitive difference is the lack of full cost recovery associated
with Transport Canada's facilities. Ports Canada is undertaking a study
of the more serious cases of this competition to identify the major competitive
differences in each case.
The above describes the
present situation of Canada's port system. As noted, our ports, though
for the most part offering good, efficient service to the customer, still
face stiff competition from their American counterparts. Canadian ports
are part of a North American context and as such must compete within the
continental economy as a whole. The challenge will be to enhance our competitiveness
by improving efficiency through a more integrated and coordinated landside
system offering shippers a viable Canadian intermodal option. This will
require implementation of those measures discussed above, such as taxation
relief for our inland carriers, cessation of inefficient competition among
ports, provision of attractive inland freight rates and enhanced EDI capabilities.
In the previous Parliament, the House of Commons Standing Committee on
Transport proposed undertaking a comprehensive review of the administration,
structure and competitiveness of the Canadian ports system. Such a study
might help identify solutions that will enable our ports to compete effectively
in the North American marketplace.