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Trump’s protectionism puts Canadian ports at risk

America First policies threaten to derail progress of Canadian Pacific gateways

PROTECTIONIST rhetoric from the new US presidential administration has advocates of international trade concerned, but perhaps none more so than those from Pacific ports north of the border.

Canada’s Pacific Northwest ports are dependent on transit cargo moving through the US, playing a vital role in the country’s economy at a regional and national level. Quite simply, the country is too big and population too small for them to succeed in the global market place without the lucrative US market.

The Canadian ports of Vancouver and Prince Rupert are embroiled in the fiercely competitive US Mid-West market, fighting it out with Seattle, Tacoma and ports as far south as Long Beach and Los Angeles. To date, it is a battle they are winning.

For US shippers, Canadian ports are an attractive option. Not only are they more reliable than their US rivals, but also they boast faster transit times and more often than not are a cheaper alternative, as they are not subject to the Harbour Maintenance Tax enforced at US facilities.

The fallout from the west coast waterfront dispute also did little to help the plight of US ports, exposing the fragility of its labour system. And for some US shippers, who believed they could no longer rely on domestic terminals to handle their business, this was the final straw.

Canadian ports have since seen their share of Mid-West traffic rocket at the expense of their US rivals, but if they are to hold on to this competitive advantage then cargo must be able to traverse its southern border without hindrance.

Ominous signs

One of President Trump's first moves as leader of the free world was to scrap the proposed Trans-Pacific Partnership, suggesting that he is looking to fulfil his protectionist agenda.

Ruth Snowden, executive director of the Canadian International Freight Forwarders Association, says that although everything is still highly speculative, there is a general unease among its members and what America First policies could mean for the future of the North American Free Trade Agreement in particular.

President Trump is a staunch critic of the agreement, one that he publicly denounced as the “worst trade deal ever” and that he plans to tweak to better suit US interests.

“I think that everyone agrees Nafta could be improved and simplified, but to start messing with something so complex that impacts goods in the billions of dollars across that border could be hugely damaging,” Ms Snowden said.

“We have to be able to have cargo running into the US and we have to have those trains to keep the ports open and attract foreign investments. We have to have the vessels, which are not going to call with 100 containers; they need their 200 for the US as well.”

The tweaking of Nafta could prove hugely significant to the free flow of this cargo.

A 2015 report published by the Federal Maritime Commission into the movement of US containerised cargo inland through Canada sought to find whether there were any illegalities.

Former FMC commissioner Richard Lidinsky, who wrote the report, told Lloyd’s List that it needed to find whether the interference of another country within the bill of lading, for cargo leaving Shanghai destined for Ohio or Maryland for example, conflicted with competition laws.

Despite its best efforts to help the US ports, it determined that the bill of lading was legal and so was the evasion of the Harbour Maintenance Tax, which was deemed permissible as a Canadian move under Nafta.

Mr Lidinsky said the FMC report also found that shippers were making average savings of about $110 per container by using the Canadian gateway.

“A lot of the shippers claim they have no knowledge of this movement through Canada, all they care about is that the box is there from Shanghai in 21 days, arriving safely, paying a fair rate without headaches at borders and delivery issues,” he said.

While this may apply to a very small group of shippers, he begs to differ whether this is the case for the larger shippers.

“The Walmarts and the Targets of this world know damn well what they are saving.

“We were told that in the service contracts between the lines and the shippers, they would negotiate a rate that would be the same for either gateway, but others were told that it would be $500 a box cheaper if they went through Canada.

“To the little guy with 20 boxes a month that is not really that much, but to the big boys with thousands of boxes, we are getting into real money.”

If President Trump pulls the plug on Nafta or, indeed, alters the agreement, Mr Lidinsky questions whether routing cargo from the north will still have the same appeal.

“If we could apply the maintenance tax to this cargo when it enters the country, then it is not going to flow so freely,” he said.

“And from the US perspective this is a positive on two fronts, as not only could this put some money in the till, but maybe give people using the gateway second thoughts on using US ports once more.”

The US ports of Seattle and Tacoma, the Seaport Alliance, would certainly appreciate a helping hand, having seen their market share of transpacific trade shrink more than any other US west coast ports. Since 2000, the alliance has lost about 5% of its share of traffic to rivals in the region, with the majority of cargo heading north.

Seaport Alliance public affairs director Nick Demerice was unwilling to comment on how the two ports might benefit from the potential axe-wielding of Nafta and new tax rulings, as nothing is certain at this stage.

However, the Puget Sound pairing would clearly welcome a more level playing field, whereby boxes moved through Canada would also be subject to the Harbour Maintenance Tax.

Mr Demerice said that the Seaport Alliance was already trying to gain some relief from the levy, having never been a traditional beneficiary due to its natural deepwater harbours.

Uphill battle

Even if this cost advantage is removed from the Canadian gateway, however, US ports still have an uphill battle to rid an industry reputation of being unreliable and heavily congested.

A senior official at a household name in the global freight forwarding business, who is based in North America, told Lloyd’s List that until this was addressed, the rising trend of cargo arriving into the US inland from Canada would only continue.

“Shippers don’t mind paying those extra couple of dollars, or the overall transit being those extra couple of days, because they know if it says it is going to be there on the 15th of the month then it is going to be there on the 15th,” he said.

“I’ve not only got clients asking me about Canadian ports in the Pacific Northwest, but also when they can start using the northwest passage to come in over Hudson’s Bay all the way south into northern Ontario. For them, it is all about speed of delivery and reliability.”

Ms Snowden says this is why shippers continue to call Canadian ports, maintaining that it is not always about cost.

“Shipper’s decisions are made on a variety of factors, cost being one, but efficiency, speed, options of carrier selections. So there are a lot of reasons why shippers, forwarders and carriers choose Canadian ports.

“But we need to ensure that Canadian ports are the most competitive, the most reliable, have the most stable workforce and the best rail connections.”

Big sell

For Prince Rupert these attributes are the big sell.

The port’s tight relationship with its workforce has kept labour disruption to a minimum and ensured high productivity, but the jewel in Prince Rupert’s crown is its seamless on-dock rail connectivity.

The Canadian National Railway network is linked directly to the port’s container terminal, providing Prince Rupert with a high-velocity train corridor to key inland markets, whether this be Chicago, Montreal or as far south as Memphis.

Speaking at Cargo Logistics Canada in early February, the port’s vice-president of trade development said that this was a tremendous advantage for shippers that are seeking to have reliable supply chains and cut their transit times.

“We have the shortest dwell times on the Pacific coast, we are the shortest crossing route from Asia to North America, and we know from third-party data that end-to-end transit savings can be up to eight days,” he said.

With an offer simply too good to ignore, Prince Rupert saw volumes soar from the get-go. From handling just a few thousand boxes in its inception year, it was handling more than 500,000 teu by 2014, following year upon year of double-digit growth. Its success also caught the eye of terminal operator DP World, which took over the port’s Fairview Terminal, the centre of its box operations, the following year.

Armed with one of the most experienced port operators and unrivalled rail links, Prince Rupert’s volumes continued to surge in 2015, rising 26% on the previous year to 776,412 teu. With the port expected to post similar growth for 2016 it is fast approaching annual throughput figures close to 1m teu.

Although Vancouver did not look to exploit the US market to the same degree initially, concentrating largely on its sprawling metropolis and western outreaches, it could not ignore Prince Rupert’s meteoric rise. It, too, has since looked to capitalise. Carriers calling at Vancouver may not have the same transit advantages as they do in Prince Rupert, but there is still the demand from shippers seeking a more cost-effective route into the US.

Vancouver has a number of expansion projects either under way or in the build pipeline to meet growing demand. These include increasing the capacity at the DP World-operated Centerm terminal from its current 900,000 teu to 1.5m teu annually, and at Global Container Terminals Deltaport facility by around 50% to 2.4m teu.

Both ports have committed a large investment on the proviso that cargo will continue to head south. 

Fighting back

If they are to take back some of the Mid-West market, then US ports have a mighty challenge on their hands. But they are fighting back.

And in the case of Seattle and Tacoma, Mr Demerice says that the newly forged alliance is certainly a step in the right direction.

“Removing that competition between the two home ports allows us to focus on securing our competitive position on the west coast, prioritise investments and look more holistically as a state and a gateway rather than as individual facilities,” he said.

The Seaport Alliance is also in the process of deploying new technologies to improve port efficiency, dwell times and truck queues.

But the major issue for the Seaport Alliance is its rail links heading out into Washington state, which according to one US shipper are “cumbersome at best”.

Seattle and Tacoma have ambitions to welcome the next generation of ultra-large containerships currently serving the Asia-Europe, which will inevitably be transferred onto the transpacific trade in the near future.

With question marks already surrounding the state’s creaking rail infrastructure, whether it can handle the peaks in traffic of even bigger ships is debatable.

However, the Seaport Alliance is not alone when it comes to insufficient railroads. Vancouver, too, is struggling. The rail network surrounding Canada’s largest port is nearing full capacity, and expansion opportunities are limited in the tight confines of the city.

Long Beach and Los Angeles have hinterland issues of their own, but with such a large local population, the need to address its links to the Mid-West is not seen as such a priority.

But if Washington state can match the Seaport Alliance’s ambitions to expand by bringing its railroads up to speed, and the cost benefits associated with Canadian ports are indeed removed, then the battle for the Mid-West will really start to heat up in the Pacific Northwest.

This article appears in the March edition of Containerisation International

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