St. Lawrence Seaway aims to showcase how it can beat obstacles and save shippers time and money
The number of vessels currently in the Great Lakes-Seaway system had exceeded the five-year average at the season’s close just before December 30, as ships made a final push to export grain from Thunder Bay and other Ontario ports.
The 2015 St. Lawrence Seaway shipping season mirrored North American and global economic trends, said Terence Bowles, President and CEO of The St. Lawrence Seaway Management Corporation.
Across the board, total year-to-date (April 2 through November 30) cargo on the Seaway was 31.5 million metric tons, down 10.4 per cent.
“Domestic and cross-border transport of cement, stone, gypsum, aluminum and machinery continues full throttle in response to heightened construction activity and a strong automotive sector. While steep declines in global consumption and pricing have largely curtailed coal and iron ore exports, we are encouraged by the recent surge in grain exports, which once again demonstrates the vital role played by the Seaway in supporting global trading activity.”
New business has helped to offset shortfalls with figures from April 2 to November 30 showing that the St. Lawrence Seaway attracted 1.7 million metric tons of cargo either coming from new origins or heading to new destinations, said the Chamber of Marine Commerce.
“New terminal announcements in the agri-food sector are helping to reinforce the Port of Hamilton’s role as a grain hub, with increased grain handling capacity,” said Bruce Wood, President and CEO for Hamilton Port Authority.
“Construction-related materials like sand and stone have also been very strong this year, owing to continued population and infrastructure growth in Canada’s most populous region. Heading into the last weeks of the season, these commodities are trending 16 per cent higher than the previous year.”
After its own major infrastructure renewal program, Eastern Ontario’s Port of Johnstown has had a record performance this season with ships transporting 784,000 metric tons for the season up to November 30.
“This has been a stellar year,” says Robert Dalley, General Manager of the Port of Johnstown. “Overall cargo tonnage so far is up 20 per cent. We’ve seen increases in every category from road salt and aggregates to liquid bulk and breakbulk. Grain transported by ship jumped by nearly 50 per cent, due to U.S. corn coming in for local ethanol production. Project cargo, 26 containers of parts for a Napanee generating station, also arrived for the first time on our brand new 19-acre River Front dock. We also completed the $8.9 million restoration of our Harbour Front dock and this extra capacity will hopefully help us with continued growth next season.”
Port of Oshawa investment has also attracted new companies and convinced others to grow. A wholesale distributor of structural steel products has opened a new warehousing operation at the port, creating 30 new jobs. Construction was recently completed on a new 45,000-foot transit shed, which is in close proximity to the port’s new $4.1 million rail spur. “We’re very proud of what we’ve been able to accomplish over the past year,” says Donna Taylor, President and CEO of the Oshawa Port Authority.
Elsewhere, the Port of Toronto continued to see strong levels of imports including salt, sugar and aggregate. Sarnia Harbour has also performed well this season and is now preparing for winter layup.
“Grain volumes at the Cargill dock are between 700,000 – 750,000 metric tons, and we have had two over-sized machinery shipments that illustrate the potential for the Sarnia Harbour to become the terminus of a heavy haul corridor for the region’s manufacturing and petrochemical industries. We have 10 ships booked for winter layup and maintenance and that will help employ up to 300 people over the winter,” said Peter Hungerford, Director of Economic Development & Corp. Planning at the City of Sarnia.
“We are also seeing the rewards of new investment in Canadian ports and new vessels,” said Stephen Brooks, President of the Chamber of Marine Commerce. “During the past two weeks, that trend has continued with Algoma Central Corporation ordering two more vessels and Parrish & Heimbecker revealing a $40 million investment in a flour mill at the Port of Hamilton.”
Speaking at the H2O conference this November, Terence Bowles noted that shippers want door to door capability.
The Seaway is a 3700-km “marine highway” running from the Western tip of the Great Lakes to the Atlantic Ocean, with 41 ports on the system and handling $35 billion in economic activity.
Bowles spoke of the “challenging conditions” out there.
“We’re working hard to match last year’s performance. We are slightly below the five-year average. Overall grain is down somewhat from last year, still a good year across the average. Steel, iron ore, and coal face difficult times,” Bowles noted.
Construction activity is picking up, while liquid bulk is a market that varies but overall has had a pretty good year. Wind energy and specialized cargo projects are up.
“It’s important to press on and look at ways of expanding our market, to continue to improve our efficiencies. The only way to compete with other gateways is to have lower costs. I’m pleased with the fleet renewal program; new ships keep coming into our system,” Bowles said.
Bruce Hodgson, Director of Market Development, for St. Lawrence Seaway Management Corp., said Highway H20 is now up to 52 members with all segments of industry being represented.
Target audiences include European bulk and container shippers and breakbulk shippers.
Highway H2O is present at various trade exhibitions including Breakbulk Antwerp and Breakbulk Americas.
A new website will be launched soon, which is three-screen responsive, with refreshed branding, quicker loading, and easier navigation, he said.
Betty Sutton, Administrator, Saint Lawrence Seaway Development Corporation, said the Great Lakes “represents the world’s 3rd largest economy, 30% of US-Canada activity. We are here to assist the Great Lakes seaway ports, to be a trusted asset and dependable partner,” she said.
The SLSDC launched the Great Lakes opportunity belt initiative aiming to reach out to more and more dynamic audiences about the waterway.
“We recently brought the message to Capitol Hill about what we do, as well as to business groups. These outreach efforts have been a critical component of our development initiative. We need to work to take this program to a new level. How do we build on the many positive steps? How does the program add value-what would benefit you more to promote business potential and economic growth?” Sutton said.
Mark Parker, Partner, Metal Strategies, commented on the steel market and the resulting effect on Seaway traffic.
“A few years ago we had reason to believe that demand would pick up and the sector would return to growth. Now suddenly the outlook is flatter than what we had believed even a couple of years ago. Steel demand indicators are mixed. There is surplus steel capacity worldwide and profitability concerns that will put pressure on commodity prices. There’s been a downsizing in iron ore, and steel demand has fallen to 100 million tonnes per year annual basis. At the moment, 28% of the demand for steel is from the automotive sector. That’s a positive for steel demand moving forward,” Parker said.
Construction-related demand for steel is at 38% and Parker said we’re looking at about 3% growth expected over the next 5 years.
“Energy and industrial equipment demand, however, is falling and is offsetting the other growth. U.S. manufacturers have too much capacity-they are running at a rate of 77 % and that’s continuing to drop. Investment in equipment is flat. Energy related steel demand will be down 60% this year,” Parker noted.
Reasons to be hopeful? U.S. oil production is still double what it was in 2008 because of shale.
“They are making investments in the viability of it. Shale oil and gas suppliers are now the ‘swing suppliers’. It’s easy to set up and take down a rig. That ability to shut down capacity so quickly is why we’re seeing steel demand drop so steeply,” Parker noted.
Two other factors clobbering the steel industry right now are import competition are excess capacity in steel worldwide.
Turkey and Russia are key suppliers whose currency has plummeted.
“China, the largest supplier, will be the wildcard that will continue to put pressure on the market. U.S. steel mills are running at only 70% capacity rate. China is operating at half its 1.2 billion capacity and could in theory supply virtually all demand outside its borders. It has small projects that could be coming on board there and it’s going to export its way out of trouble,” he said.
In Canada there will be no meaningful growth in steel demand over the next five years.
Iron ore will see some demand over the next year because the scrap supply is tight but after that demand will be flat to low.
“With the strong U.S. dollar it would be cheaper to import iron ore. The Canadian dollar is low which should help but the leading suppliers, Australia and Brazil, have faced currency depreciation so as a result, these producers will be more competitive than their North American competitors,” Parker said.
“Even though car production will grow 3% you are looking at (increased use of) alternative products, to reduce weight. With high strength low allow steels, a 30-50% drop in steel use in cars is possible in future. The real pressure in capacity reduction has to be outside North America,” he said.
How does the Seaway stack up against other gateways?
Cost is the primary driver of bulk/breakbulk shipper routing decisions.
“Seaway routings are very cost advantageous for many trades,” Roy said. He cited as examples iron ore from Labrador to the Great Lakes markets, steel slabs from Europe to the Great Lakes markets, and manufacturing steel from the Great Lakes markets to Europe.
“The basic message is Seaway competitiveness is relatively safe, aside from the fact that we are captive to what is happening in global economies. Following up from last year on the potential proposal of moving project cargo, we’ve since had the chance to look at that and found the Seaway more competitive than most think. There is a cost advantage vs. Houston for pipe, nacelles, turbines, and mining trucks from Illinois to Western Europe.
In some cases, competitiveness is close to the margin.
“The competitive cost advantage for other modes is in some cases very slight so changing the balance could help attract more business. What could change the landscape? Pilotage rates, ballast water requirements, Coast Guard navigation,” Roy said.
A 2012 competitiveness study offered some recommendations for the Seaway, Hodgson said.
“Some specific commodities were identified as potentials: pet coke, met coke, project cargo. The number one criteria shippers tell us is there is no service-not enough vessels. The Seaway needs to do a better job of establishing mechanisms and relationships to package and sell the entire Seaway routing, to promote and make available information about Seaway routing options and related competitiveness,” he said.
The study encouraged rate flexibility among transport chain partners to promote the Seaway routing’s competitiveness, and the facilitation of the consolidation of project cargo to promote the establishment of liner services.
“Can we incentivize more carriers to come into the system? Deep dives in the market research team were done on pet coke and its main traffic flows. Research has shown we are competitive and positioned for opportunities in the long term. With regard to the load centre consolidation initiative, the Seaway is found to be competitive with Houston and other centres, with a minimum of 5% advantage. There is a lot of project cargo from the U.S. Midwest to Houston that is being put on rail. We would have a huge cost advantage putting it on a vessel. The major challenge is a lack of capacity,” Hodgson said.
The Seaway has had a business incentive program in place since 2008, offering 20% reduction on tolls for cargo qualified as new business.
The program has been gaining in terms of popularity with 1.42 total new tonnes and $2.54 million in total new revenue from 2014 to 2015.
It’s about simplifying the system, he noted.
“The myth is that the Seaway is a complicated system-we know it’s not but we have to get that message out into the marketplace. We’re putting a concentrated effort on showcasing how the Seaway can save time and money. We have put in one direct number for shipping inquiries. That information is then passed on to stakeholders as required.”
The Seaway’s volume rebate incentive program offers a 10% refund on cargo tolls applicable to incremental volumes meeting a set of criteria, while its service incentive offers a reduction of 20% on applicable cargo tolls for carriers that implement a new service.
Towards a Mid-America freight coalition
Ernie Perry, PhD, with the University of Wisconsin in Madison, runs the Mid-America Freight Coalition.
Comprising 10 states, the coalition represents 22% of the U.S. population, 23% of the country’s total truck tonnage, and 63% of its total rail tonnage.
“There is a broad range of areas or systems we can work in to increase our competitiveness, such as looking at marine highways as corridors, that they need to be collaboration efforts, they need to be leaders.”
The Coalition aims to identify opportunities to collaborate, and to increase awareness of and commitment to freight plan activities across the participating states, and to identify and share best practices across all areas of freight planning and development.
“We’re in a situation where we have to use all the systems,” Perry said.
Ballast water discharge
David Reid, PhD, Consulting Scientist with the Saint Lawrence Seaway Development Corporation, said that 44 countries have signed the IMO convention on ballast water discharge standards, but there is concern over the robustness of G8 testing protocols, and over the reliability of original G8 type approved systems.
A report proposed revisions to G8, including wider temperature and salinity ranges, fresh water redefinition, and more.
“Evaluating compliance in the field is the preferred method, though you can’t go down to a certain level of examining waste, so you look at ‘gross exceedance’. In the U.S., the legal/policy arena remains unstable. Science based improvements to the testing policy and regulations are being incorporated, and alternative approaches and advancements in technology are being evaluated.”
We are closer to harmonizing IMO and U.S.- type approval processes. Practical limits for immediate compliance testing are being recognized and alternative measures are being assessed, he said.