Trans-Pacific trade with Asia is continuing to grow in significance for Canadian importers and exporters, accounting today for nearly one-fifth of Canada’s total two-way merchandise trade of more than 900 billion dollars with the world. While the US remains our leading commercial partner, analysts predict this bilateral relationship could slip well below 70% of overall trade within a decade as trade with emerging countries surges. Such a major trend is reflected in the number of visits to China-led Asia by Prime Minister Stephen Harper. And most recently, in March, foreign minister John Baird made his seventh trip to Asia – a voyage that took him to Hong Kong, Vietnam and Thailand.
Among the top 10 Canadian trading partners, three come from Asia: China, Japan and South Korea. India does not presently figure in this group, but its potential is widely recognized by shippers.
Several years ago, China overtook the United Kingdom as Canada’s second biggest trade partner. In 2012, Canadian exports to China increased markedly to $19.3 billion from $16.8 billion in 2011. Imports rose to $50.7 billion from $48 billion.
Slower Chinese growth of 7.8% in 2012 made only a minor dent on Canadian commodity shipments feeding Chinese factories. Also noteworthy: Canadian metallurgical coal exports to Japan rose markedly. As illustrated by maritime traffic trends at West Coast ports, containerized Chinese consumer goods are flowing to Canadian retail outlets. The latest economic indicators suggest consumer demand in China will fuel GDP growth still in the high single digits in 2013.
The great bulk of Canada-Asia trade is transported overseas by container and bulk shipping lines, but Vancouver International Airport and Calgary International Airport in particular have become rising air freight gateways for high-value shipments, including machinery and perishables. Large courier companies with strong connections with Asia, such as Fedex, UPS, and DHL, as well as Cargolux and CargoJet, are using top-of-the-line freighter aircraft. And in northern B.C., the scene of mounting mining, forestry and energy developments, the Prince George Airport Authority is attracting new business with the third longest runway in Canada.
Mike Broad, president of the Shipping Federation of Canada, points out that container services between Asia and Canada have evolved over the past 35 years from the all-water routes through the ports of Vancouver, Halifax and Saint John, N.B., to the mini land bridge route between Vancouver and Canadian inland points and to the establishment of container service at the Port of Prince Rupert.
“Canadian importers and exporters,” he told CT&L, “have been, and continue to be, well served by all of the major shipping lines which trade between Asia and North America, due in large part to excellent intermodal connections between ports and inland points.”
Bob Ballantyne, president of the Canadian Industrial Transportation Association, says he has not received acute concerns expressed by CITA members over ocean shipping services. “On the other hand, the continuing trend of slow-steaming and ultra slow-steaming may save money for carriers when rates are under pressure – but the downside for shippers is the additional time that inventory is tied up.”
Ballantyne also notes that while Canada’s Shipping Conferences Exemption Act permits confidential contracts and gives Canadian shippers the possibility of competitive pricing, the continuation of shipping conferences in routes outside of Europe (including the trans-Pacific trades) is something that shippers would generally like to see abolished.”
Ruth Sol, president of the Western Transportation Advisory Council (Westac), has a specific vision for the future of Canada’s Pacific trade and is critical over recent certain public policy trends in British Columbia.
“Our international priorities for Pacific trade are twofold: reducing trade barriers and locating and accessing best practices to make us more competitive,” she says.
“And here in British Columbia, we need to examine the tendency to oppose development. Somehow, economic growth has come to be viewed as a necessary evil. The reality is that industry is anxious to build trust with communities by having meaningful consultations. We owe it to all Canadians, importers and exporters, employees and taxpayers, local politicians and citizens to grow thoughtfully and appropriately.”
Ocean freight rate hikes on the horizon Among the persistent irritants facing shippers, Ruth Snowden, executive director of the Canadian International Freight Forwarders Association (CIFFA), singles out the plethora of fuel surcharges and General Rate Increases (GRIs) by carriers. There have been eight increases in the trans-Pacific trades in a 12-month period. “This imposes a huge administrative burden on freight forwarders who must reluctantly re-quote rates to their customers,” Snowden complains.
“Invoicing accuracy from the carriers,” Snowden continues, “is often poor, as quotations change so rapidly and are usually handled by e-mail, that forwarders must keep administrative staff just to track that payables are quoted. Volatility in the market remains one of the key stressors.”
Snowden also noted that shippers experienced “a very poor six or seven weeks of winter service from CN on intermodal cargo coming in from Asia over Canada’s west coast ports, which increases frustrations and stress in the trans-Pacific trade.” By mid-March, there were signs of service returning to normal – “just in time for the next round of rate increases, it seems,” she said.
On the freight rate front, recent ocean rates have been running in the US$1,600 to US$1,800 range for 40-ft containers (FEUs) from China-based ports to container yards in Vancouver or Prince Rupert, almost twice as high as the recession-induced lows of a few years ago.
But cash-strapped ocean carriers in the trans-Pacific trades regard such rates as still too ‘shipper-friendly’ and announced their intention to impose a GRI of $400 per FEU this spring. Assuming this plan sticks, the GRI will affect accounts not tied into contract rates. A smaller GRI was under consideration for westbound shipments. In addition, there will be missed sailings by some carriers to help firm up rates.
Offering the perspective of a major importer was Michael Tan, vice-president of supply chain, distribution and transportation with Hudson’s Bay Company. The latter’s overall import volume in 2013, he indicated, is expected to total between 3,000 and 4,000 FEUs this year versus about 10,000 FEUs when Zellers was part of the BHC portfolio.
“With the number of steamship lines operating in the Pacific trade and the amount of newbuilds coming into the global marketplace, together with global demand that remains relatively soft, HBC is fully prepared to manage steamship line capacity constraints and/or increasing freight rate levels in the Pacific trade lanes,” Tan told CT&L.
“Capacity has not been an issue for HBC over the last two years – because of diligent planning and forecasting with our partner carriers.
“We have seen east to west freight rates on a steady rise over the last couple of years, but we lock in our rates for one to two years with a small handful of core carriers, depending on market conditions.
“It saves us from having to manage through any volatility in the marketplace during the retail industry’s relatively short two peak seasons each year.”
As far as Tan is concerned, the biggest issue for Canadian importers is “the capacity constraints” through the terminals of Port Metro Vancouver.
“Record levels in 2012 with anticipated high growth rates over the next 10-15 years is going to place a lot of stre
ss on those ports without drastic capacity increase measures such as hours of operations changes,” Tan emphasized.
“We would increase the use of Prince Rupert as a gateway to the East Coast, and as an export hub as well,” he continued.
Tan recalled that a few years ago, HBC worked with CN to utilize marine containers for store deliveries originating in Toronto for stores in northern Alberta and northern B.C. that would otherwise go back empty to Prince Rupert. “The same concept could be applied to Pacific trade exports originating from Toronto.”
Tan further noted that the expansion of the Panama Canal in 2015 will enhance the economic viability of an all-water trade route from Asia to the US/Canadian east coasts.
Last year saw container throughput at Port Metro Vancouver (PMV) and the Port of Prince Rupert achieve impressive growth. In the case of the former, box cargo climbed by 8% to 2.7 million twenty-foot equivalent units (TEUs). For the latter, the container total soared 37% to 564,856 TEUs.
Boosting their performance has seen improvements in container dwell times and in rail services to both Canadian and US destinations.
Both ports are, however, facing infrastructure, capacity and other issues (not totally addressed) to support trade with fast-growing Asian markets.
Stephen Brown, president of the Chamber of Shipping of British Columbia, observes that “container drayage capacity at Vancouver’s terminals continues to be challenged on account of trucker preference for day-shift reservations. However, a stakeholder group known as the Container Drayage Leadership Team is focused on creative solutions to spread the load across night shifts and Saturdays.”
For their part, freight forwarders remain dismayed over customs examination backlogs in Prince Rupert recently described as “a nightmare” by CIFFA. It deplores that average delays for containers identified for examination by the CBSA have attained 13 days.
“When volumes spike, examinations spike,” CIFFA commented, adding: “With little forecasting data available, examination facilities are caught unprepared and cannot handle the increased load.”
Port of Montreal appoints Hong Kong representative Meanwhile, on the East Coast, the Port of Halifax is pursuing its strategy of expanding its Asia business through carriers transiting the Suez Canal and has completed dredging of its terminals to accommodate the largest container vessels calling on the eastern seaboard of North America.
Of special interest, too, is the recent decision by the Port of Montreal to appoint a representative in Asia-based Hong Kong: Jeremy Masters. A former senior executive with CP Ships (eventually absorbed by Hapag Lloyd), he knows the Port of Montreal well.
Last year, Asia was the point of origin or final destination of about 14% of the containers moving through Montreal, which sees an opportunity to increase its share of traffic moving between Asia and North America via the Suez Canal and transshipped at ports in the Mediterranean region. “The Port of Montreal has all the advantages necessary to be very competitive on this route,” affirms Tony Boemi, the port’s vice-president of growth and development.