‘At the precipice of a crisis of confidence’
With record volume already going through the Port of Vancouver terminal, and the pending ratification of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which is expected to bring billions of dollars more in trade, concerns abound about Canada’s ability to capitalize on future opportunity and transport goods in and out of the increasingly busy West Coast.
“The port business has been able to successfully grow to meet Canada’s trade expectations, and we continue to do so, but we are encountering some headwinds in our potential growth in terms of infrastructure funding and also a lack of clarity and predictability in the various permitting and consultation processes,” said Wendy Zatylny, executive director of the Association of Canadian Port Authorities, a group that advocates for the port industry.
She said that lack of clarity, which is part of what contributed to the Trans Mountain pipeline decision, makes it difficult to launch expansion initiatives required to meet future demand.
“There are no certainties for approximately how long the processes are going to take. It’s not even about the outcome, it’s whether we know that we’ll have a decision in a few years, for example,” she said. “That ends up being quite a financial drag on any kind of project and becomes a disincentive for investment. I’m dismayed.”
The Port of Vancouver, home to the Westridge Marine Terminal that Kinder Morgan is upgrading and expanding for the Trans Mountain pipeline, is Canada’s busiest port. According to Silvester, $1 of every $3 of Canadian imports and exports, excluding North America, go through the West Coast port and demand is expected to remain strong through 2018.
It’s the focal point of the so-called Pacific Gateway, the transportation network that includes the ports, road and rail infrastructure that allows goods to flow in and out of Canada, to and from Asia. Offering the shortest distance between North America and Asia, the B.C. government has called it the “gateway to prosperity.”
Both the provincial and federal governments have implemented various strategies over the past 30 years to bolster the Pacific Gateway, largely through infrastructure funding.
The Pacific Gateway includes the Port of Prince Rupert, which recently underwent a $200-million expansion, as well as ports in Kitimat, Stewart, Nanaimo and Port Alberni.
But the largest, and most diversified port is the Port of Vancouver, which had record volume last year, with 142.1 million tonnes of cargo worth around $200 billion traded through it, an increase of five per cent from the year before.
Vessels coming in and out of the port transport everything from automobiles (more than 400,000 vehicles passed through last year) to coal and grain products destined for overseas consumption. It adds $12 billion in GDP for Canada. Three Class 1 railroads, including Canadian National Railway Co. and Canadian Pacific Railway Ltd., bring products to the port.
China is Canada’s top trading partner at the port, with more than 33 million metric tonnes of cargo going in and out last year, an increase of nearly 4 million tonnes from the year prior. But the port is crucial not just for Canada’s trading partners across the Pacific, but for its southern neighbour as well. Last year, Canada shipped more than 4.4 million metric tonnes from the port to the United States.
With the signing of the CPTPP, the volume going through the Port of Vancouver is expected to surge. According to Export Development Canada, the CPTPP could bring $4.2 billion into the Canadian economy over the next few years.
But Iain Black, chief executive of the Greater Vancouver Board of Trade, is concerned that uncertainty surrounding the Trans Mountain decision will impact Canada’s trade potential in the future.
“I think the great headway that’s been made on the revised Trans Pacific Partnership will be lost if there is a global consensus that Canada does not have its act together,” Black said.
“I think we are at the precipice of a crisis of confidence. I do not believe we are there yet, but I think our toes are over the edge ... Alarm bells are ringing across industries, communities and governments right now.”
The Pacific Gateway has been growing its capacity as demand has increased over the years. Last summer, the Port of Prince Rupert unveiled its upgraded Fairview Container Terminal, which increased the annual capacity at the port to 1.35 million twenty-foot equivalent unit (TEU) containers from 850,000.
But the Port of Vancouver estimates that is not enough and the West Coast will need additional capacity by the early to mid-2020s, thanks to increased trade with Asia, growing world demand for Canadian resources and GDP growth.
The Port of Vancouver has proposed the Roberts Bank Terminal 2 Project, a new three-berth container that would provide 2.4 million TEUs of container capacity to meet forecasted demand, which is largely expected to come from Asian countries. The project is currently undergoing a federal environmental assessment, a process that started in 2015. If approved, it would take approximately 51/2 years to complete.
If it doesn’t go through, Canada is facing a potentially catastrophic capacity crunch, Silvester said.
“When we look at all of the existing opportunities to increase capacity and put that against this steady three- to four-per-cent growth per year of demand, we know that by the mid 2020s we’re going to run out of capacity,” Silvester said. “Without Terminal 2, Canada will run out of capacity on the West Coast. There is nothing else anywhere in the planning and permitting process that could deliver capacity for demand by the mid-2020s.”
There are plenty of questions about whether the project will move forward.
In a written response to an information request about Terminal 2, Environment and Climate Change Canada said the project “could potentially implicate the long-term viability of Western Sandpipers as a species” and that impacts to the bird are “potentially high in magnitude, permanent, irreversible and continuous.”
Roger Emsley, a representative for B.C. Nature and the community group Against Port Expansion, told the Vancouver Sun that “damning” response should be enough to kill the project.
“If it were a torpedo, I’d say the ... port has been holed below the water line,” he said.
RBC Capital Markets analyst Walter Spracklin said in a note to clients following a tour of the Port of Vancouver in early April that uncertainty about the project remains.
“We note that the price tag for the terminal has increased to $3 billion and it could have a negative impact on nearby wildlife,” he said. “As such, in our view there remains uncertainty as to whether the project is greenlighted. In that scenario, GCT Deltaport (the terminal currently located at Roberts Bank) noted that it would then re-propose a project to expand its footprint in the north end of the terminal.”
Zatylny, of the Association of Canadian Port Authorities, said it’s the lack of predictability in terms of permitting requirements and timelines as well as infrastructure investment that remain key challenges for the transportation supply chain.
“Investment is absolutely critical to start moving these projects along,” she said, pointing to the federal government’s National Trade Corridor Fund as an example of the type of funding that could be doled out.
However, that funding will still fall well short of the transportation system’s needs. Zatylny said 177 proposals were seeking a total of $9.9-billion in funding, but just $2 billion is available over 11 years.
Silvester said the Port of Vancouver applied for $300 million in funding from the NTCF, but it needs to spend between $700 million and $1 billion on “last-mile” corridor investments connecting mainline transportation infrastructure to the terminals.
Jean-Jacques Ruest, interim chief executive of Canadian National Railway Co., said he hopes the federal government will fund the Port of Vancouver. He would like to see several expansion projects completed, including the Centerm Expansion Project, which would increase the terminal footprint by 15 per cent and increase capacity by 60 per cent. (Negotiations for commercial agreements are currently underway for the project. Construction is expected to begin in late 2018.)
“Hopefully, the federal government will eventually announce some investment in the City of Vancouver, at both the south and north shore,” Ruest said.
“We will participate if they do so.”
So far, the government has announced $18.4 million for the Port of Montreal to optimize the rail network capacity at the port’s interchange zone. More announcements are expected in the future, and Silvester said he is “cautiously optimistic” about getting some of the initial funding.
Silvester said he is an optimist by nature and, despite mounting concerns, is hopeful that the infrastructure will be created in time to capitalize on the economic opportunity facing Canada.
“We’ve got to show we can permit projects in a timely way, while still properly considering the environmental impacts and ensuring that they are minimized ... I know we can do it, but we have to prove we can do it and make it happen and quickly,” he said.
“The decisions we make today won’t come home to roost for another eight to 10 years. But if they start coming home to roost, it’s already too late.”