The Impact of an Atlantic Gateway on the Transportation System of Newfoundland and Labrador

Hosted by the Leslie Harris Centre of Regional Policy and Development

May 30th, 2007, Holiday Inn, St. John’s

The Atlantic Gateway proposal calls for a major transhipment port (or ports) to be located in the Atlantic Region for shipping to and from the Far East, Europe and other trade partners. Will this project be of benefit to Newfoundland and Labrador and what impact will it have on the Province’s transportation system? The Leslie Harris Centre for Regional Policy and Development hosted a one-day Atlantic Provinces Transportation Forum (APTF) in St. John’s on May 30th, 2007. Experts presented on the Gateway concept and community leaders commented on the potential benefits. A Mayors’ Panel debated the merits of the proposal. The Minister of Transportation and Works, the Honourable John Hickey, was the keynote speaker at lunch.

The questions addressed at the Forum included:

• What are the opportunities created by an Atlantic Gateway?
• What action needs to be taken to position the Province to realize the potential benefits?
• What public policy research needs to be undertaken to identify new transportation options and solutions?
• What role can Memorial University and the Harris Centre play in finding innovative solutions?

Download the conference program.

Download the summary report of the Forum.

Download the evaluation of the Forum.

Download the article in the St. John's Board of Trade's BusinessNews, July 2007

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Newfoundland and Labrador and the Atlantic Gateway: Why Canada’s Shipping Policy Needs to Change

Hosted by the Leslie Harris Centre of Regional Policy and Development

July 3rd, 2007, Spencer Hall, Memorial University

Download Professor Richard Hodgson's presentation.

Download a summary of the discussion.

The Impact of an Atlantic Gateway

on the Transportation System

of Newfoundland and Labrador

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Holiday Inn, St. John's, NL, May 30, 2007

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Event Summary

Introduction and Welcome

Dr. Rob Greenwood, Director of the Harris Centre, welcomed the audience and brought the meeting to order.

David Vardy, Research Associate with the Harris Centre, provided a few statistics on global cargo traffic and outlined the purpose of this forum: to explore the potential of an Atlantic Gateway and the role, if any, which Newfoundland and Labrador could play in it. He said that the Forum will examine issues associated with growing world merchandise trade to and from North America, largely driven by exports from low wage economies in the Far East. An Atlantic Gateway to eastern North America would be a major transshipment port which would respond to the following trends:

• Rapid growth in trade with countries such as China;
• Congestion in West Coast ports;
• Deployment of large, post-Panamax class container ships;
• Congestion in the Panama Canal for the period up to 2015, giving rise to;
• Likely routing of traffic through the Suez Canal.

The objective of the Forum is to explore Atlantic Gateway opportunities for Newfoundland and Labrador in the light of our natural advantages, location, deep water, ice free ports, and the Province’s transportation system. It is not expected that definitive answers will be obtained but rather the intent is to decide what are the questions and what next steps should be taken to realize the opportunities. The key questions identified at the outset are as follows:

• In the absence of rail connections on the Island can we build a transshipment port in this Province based upon short sea shipping?
• Do we have the necessary ice-free, deep water ports, with adjacent land?
• Do we have the necessary infrastructure?
• How can the Province’s transportation system and service providers promote participation in transshipment opportunities associated with one or more Atlantic Gateways?
  

Atlantic Gateway Presentation

David Chaundy, Senior Economist at the Atlantic Provinces Economic Council in Halifax, examined the current transportation system in Atlantic Canada and the potential economic benefits of an Atlantic Gateway based in Halifax. Some of the issues involved in setting up an Atlantic Gateway include: providing economic efficiency in the face of a small manufacturing base; streamlining regulations; resolving border and security issues; financing transportation infrastructure; and ensuring an adequate labour supply. His conclusions:

• An Atlantic Gateway is a matter of strategic regional and national importance.
• Success in establishing an Atlantic Gateway is not assured, given competition from other ports on the Eastern Seaboard.
• Establishing an Atlantic Gateway will require focus and a sense of urgency.
• In establishing an Atlantic Gateway, we should not neglect other transportation priorities in Atlantic Canada.

Regional Panel

Dr. Frank Wilson of the University of New Brunswick, chaired the panel and stressed that an Atlantic Gateway must cover the whole of Atlantic Canada (not just one region or community) and encompass all modes of transportation.

Jackie Chow, Chief Executive Officer of the Corner Brook Port Corporation, gave a profile of the Port of Corner Brook and explained why a new ferry service between Belledune and Corner Brook proved not to be feasible. As a result, the Port's strategy is to increase business to its current main tenant, Oceanex.

Richard Hodgson, Professor of Marine Affairs at Dalhousie University, outlined the conditions which would need to be met to establish an Atlantic Gateway:

• We would need to be able to divert enough cargo from existing ports in North America.
• Conditions in an Atlantic Gateway must be attractive enough to stimulate demand.
• The Gateway itself would need to be economically viable.
• There needs to be a supportive policy and regulatory regime at the provincial, Atlantic Canada, national and NAFTA levels. This includes reducing existing cabotage restrictions.

The results of his study show that the most viable short sea shipping service would be one that carried cargo between Halifax and Philadephia/ Camden. In terms of competition in short sea shipping, the true competitor to St. John's is Montreal, not Halifax.

Sean Hanrahan, Chief Executive Officer of the St. John's Port Authority, outlined the role which the Port of St. John's plays in regional transportation. He also outlined some of the uncertainties which plague the debate on an Atlantic Gateway, such as developments in West Coast Canadian ports and eastern seaboard US ports. He also emphasized the unevenness of the playing field, where Canadian port authorities are very limited in raising funds for expansion, while many US ports can issue bonds to raise funds.

Discussion Period

Burford Ploughman: Given that water transportation is the least costly (compared to other modes, such as rail and trucking), why would we not consider the South Coast of Newfoundland as the site of a trans-shipment port?

Hodgson: While we shouldn't rule out the South Coast, we should also consider Halifax's advantages, i.e., land, infrastructure and rail and road connection to central North America. However, there is enormous potential for Newfoundland in ship-to-ship transfer. Montreal can't compete for large ships because of its shallow draft. However, Canadian policy needs to adapt to be competitive with zero-tax ports and to address the cabotage issue.

Andrew Collins, PF Collins Customs Brokers: Shouldn't our focus be on how to get our export products to market? Why aren't we looking at direct service between Newfoundland and Europe? It costs as much to get goods from Europe to Halifax as it does to get them from Halifax to St. John's.

Chaundy: What's driving the current debate is not Europe but the huge influx of containers from China. However, many of these containers are leaving empty, creating an opportunity to increase exports from this province.

Wilson: Right now, the emphasis is on Halifax, but this is because of the absence of participation from the other Atlantic Provinces. The Port of Halifax will get congested quickly because of its limited land mass and because containers are expected to double in size.

Bill Stirling, Canadian Manufacturers and Exporters: For those who are not familiar with the term, can you clarify the term "cabotage"?

Hodgson: Cabotage is also called the "coasting trade", i.e., transporting goods between two ports within the same country. As a protectionist measure, some countries set high tariffs for foreign vessels sailing between two of its ports. Cabotage serves a valid trade policy objective and should not be eliminated, but it should be modernized. The United States attempted to amend its cabotage legislation, but this was abandoned as a result of the September 11, 2001, events.

Wilson: Cabotage is not only a problem for sea transportation, but also for air transportation. The cabotage situation in Canada is mostly due to protectionist trade policy in the United States.

Keith Healey, Department of Transportation and Works, Government of Newfoundland and Labrador: Is a "super-port" realistic on the South Coast of Newfoundland?

Chaundy: Establishing an Atlantic Gateway would be very expensive and the economics would have to be studied closely. The competitive situation should also be kept in mind; for example, a trans-shipment facility in Savannah, Georgia, might make more sense than even Halifax, not to mention a port anywhere in Newfoundland and Labrador.

Wilson: What is the most serious problem facing ports in Canada?

Chow: Cabotage is the most serious problem. For example, under Canadian law, there is a 25% tariff on the purchase price of a foreign-built vessel.

Hanrahan: There needs to be an even financial playing field for ports in both Canada and the United States.

Marine Services Panel

David Vardy chaired the panel.

Roger Flood, Chief Executive Officer of Marine Atlantic, outlined future plans for the company, and asked the question: how would an Atlantic Gateway affect Marine Atlantic? Would it siphon funding away from existing services and infrastructure needs? Would it squeeze out Marine Atlantic in its ports? Further study about the Atlantic Gateway is warranted.

Peter Woodward, Vice-President of Operations for the Woodward Group of Companies, made the point that transportation by boat is much less expensive than by any other transportation mode. And costs are rising in the other modes. He lamented that shippers in NL have not developed a marine system that is fully efficient and that fully exploits all opportunities (e.g., freight to and from Europe). We need to develop a vision for moving goods from anywhere in Atlantic Canada to centralized locations where they can be shipped out of the region.

Bill Stirling, Vice-President of Canadian Manufacturers and Exporters (CME), stated that the CME is lobbying for a national logistics strategy that would take in the Pacific Gateway, border security, transportation infrastructure, regulatory reform, and Atlantic Gateway(s). He pointed out some of the space limitations in Halifax and mentioned some other factors which need to be taken into account in any transportation policy: the possible completion of the Quebec North Shore Highway; a possible fixed link between Labrador and Newfoundland, completion of the TLH; and Marine Atlantic's current cost-recovery policy. He stressed the need for champions to further research about the Atlantic Gateway and to promote options more fully.

Discussion Period

Dave Rudofsky, The Atlantic Commercial Gateway: What is your vision of Newfoundland and Labrador as a gateway and a trans-shipment point for trade with Europe? Also, how can we lower manufacturing costs in the province to make our goods more attractive in our export markets?

Flood: We are already importing goods by sea from Europe, but containers are going back empty.

Woodward: There are many opportunities for joint ventures with European partners. There are also opportunities for short sea shipping, using smaller vessels.

Stirling: The manufacturing sector in Newfoundland and Labrador is as good as anywhere else. It just needs to be more creative in identifying these opportunities.

Bruce Sparkes, Hospitality Newfoundland and Labrador: Marine Atlantic recently reached an agreement with its unions to replenish the pension fund. Will this large investment divert funds away from necessary capital improvements to vessels and shore facilities?

Flood: No, the investment in pensions is completely independent of Marine Atlantic's capital budget. In addition, the proceeds from selling any vessel will be reinvested in refitting existing vessels.

George Parsons, Mariner Resource Opportunities Network: Most of the discussion during this panel has been focused on Corner Brook or St. John's. Are there any opportunities arising from an Atlantic Gateway for rural areas?

Stirling: The CME is not focused just on Corner Brook or St. John's. In fact, we see a new trans-shipment facility as being a "greenfield" facility in a rural area, much like the newly-announced trans-shipment facility in Port Hawkesbury, NS. As well, many of the CME's members are located in rural areas.

Woodward: Canada's current policy is an impediment to a trans-shipment facility in Canada and to short sea shipping. It is too expensive to construct a ship in Canada, while the 25% tariff makes it too expensive to import a ship into the country. In Europe, ships are financed using flow-through shares, which makes it easier to raise funds.

Ron Sparkes, Labrador Institute: With the impending global warming, are there any opportunities regarding Canada's Northwest Passage?

Woodward: Yes, we need to develop a port in Labrador for Arctic service. However, the United States does not recognize Canada's sovereignty in the Arctic. As well, the United States has full access to Canadian ports but Canada does not have similar access to American ports (Jones Act).

Stirling: With the labour shortage in Northern Alberta, it might be feasible to construct oil rig modules in Newfoundland and Labrador, and to ship these via the Northwest Passage to the mouth of the Mackenzie River, where they could be floated down to Northern Alberta.

Lunch Keynote Address

Honourable John Hickey, Minister of Transportation and Works with the Government of Newfoundland and Labrador, outlined the improvements which the Government has in store for the transportation infrastructure of the province, including major improvements to the Trans-Labrador Highway, major ferry refits, and improvements to the Island highway network. The Provincial Government is looking to the Federal Government to provide sufficient support to Marine Atlantic. Minister Hickey stressed that the Provincial Government will not support any Atlantic Gateway initiative that doesn't benefit the province. He also warned that any Gateway development will be expensive, and that investment in the Gateway should not ignore other transportation infrastructure needs.

Marine Transportation Issues Panel

Merv Andrews, Research Associate with the Harris Centre, chaired this session.

Glenn Etchegary, Vice-President of Operations with Oceanex, stated that he didn't yet know whether it was economically feasible for Newfoundland and Labrador to participate directly in the Atlantic Gateway initiative. More research seems to be needed. The Gateway concept goes beyond pure transportation policy to include: global transportation supply chains, the adoption of the latest technology, properly trained personnel, strategic alliances and commercial operations, and forward planning. He pointed out that the world's major shipping lines are consolidating to take advantage of new global opportunities. He asked whether a trans-shipment facility in the province would add value to the user; if not, it is not worth pursuing. A trans-shipment facility would require land, equipment, automation, a terminal information system, a regional carrier, and investment in shipping.

Gordon Peddle, President of the Atlantic Provinces Trucking Association, stressed the need to break down inter-provincial barriers and barriers between Canada and the US. He also pointed out that Atlantic Canada consumes more than it produces, creating a "back-haul" problem for truckers. Business can't afford to wait 10 years for a study on a possible Atlantic Gateway; an answer would be needed much sooner. However, it appears that a Gateway would provide more business and better access to export markets.

Cathy Bennett, President of the St. John's Board of Trade, expressed fears that, should Halifax be selected as the Atlantic Gateway, the Federal Government will concentrate all its attention and money on that city, at the expense of Newfoundland and Labrador. She also pointed out that Labrador seems to have no place in an "Atlantic Gateway" concept and wondered about Marine Atlantic's role in it. She encouraged business to consider all options in regards to transportation, including short sea shipping, the completion of the Quebec North Shore Highway, a trans-shipment port on the Island's South Coast, etc. She challenged the Provincial Government to combine both the Labrador Transportation Strategy and the Island Transportation Strategy, and to make transportation a strategic competitive advantage for the province. She hoped the debate on the Atlantic Gateway would spur the Provincial Government to lead a forward-looking transportation strategy.

Bruce Sparkes, President of Hospitality Newfoundland and Labrador, stated that the province has transportation challenges which most other places don't. The transportation priorities of his association include: gaining "essential service" designation for Marine Atlantic; refurbishing and refitting existing vessels; stabilizing ferry rates; working to make existing air carriers more viable by stimulating demand for their services; and increasing air access by recruiting low-cost carriers. Improvements resulting from the Atlantic Gateway (which are aimed at freight traffic) will also benefit tourism. Everyone must work together to improve transportation infrastructure.

Discussion Period

Waylon White, Combined Councils of Labrador: What is Hospitality Newfoundland and Labrador's position on a fixed link between Labrador and Newfoundland?

Sparkes: HNL is in favour of any means of increasing accessibility to Labrador.

Sean Cooper, Exploits Valley Chamber of Commerce: Why would Halifax's gain be St. John's' loss?

Bennett: That comment was made more to spur a pro-active role by St. John's in the Atlantic Gateway initiative. What will be our piece of the supply chain as a result of the Gateway? Let's not wait passively to see what Halifax will give us.

Dominic White, Department of Finance (Government of Newfoundland and Labrador): The real question in whether Newfoundland and Labrador can play any role in an Atlantic Gateway is whether we can add value to any transaction. Can we add value under any scenario?

Etchegary: It's possible. Freeport, Bahamas, is planning to become a trans-shipment point for ships sailing from the Pacific to the Atlantic, using the Panama Canal. Such a venture might be more challenging here, since we're further from the Eastern Seaboard than is the Bahamas, but it might still be possible. Some possible advantages could be a lower cost for fuel, reducing customs-clearing congestion, etc. We just need to be creative to find a niche. Also, just because Halifax might get more business doesn't mean that St. John's would get less; it is very possible that St. John's would get more business. We need to support each other.

Bennett: Value is not just price, but price + experience. If we can't change the price, perhaps we can improve the experience.

Dr. Frank Wilson: We need to keep in mind the Federal Government's "one-service-point" philosophy. It is highly likely that the Federal Government will want to consolidate services in Halifax, and therefore concentrate investment there. All Atlantic Provinces need to get involved to ensure that the Federal Government doesn't concentrate resources in one place.

Ali Chiasson, Groupe Options Group: Could Newfoundland and Labrador play a role in an Atlantic Gateway by partnering with the French Islands of St-Pierre et Miquelon? SPM has the ability to apply its own tariffs on certain goods, and the province could use this to its advantage. For example, a vessel could be purchased in Europe by a SPM-based owner, and then leased to a Canadian operator.

Burf Ploughman: Our vision should be long-term. Let's not forget that we may one day have a fixed link between Labrador and Newfoundland, which could carry Labrador power to the Island. This would greatly benefit manufacturing on the Island.

Merv Andrews, Harris Centre: We need to be mindful that we may lose ground economically if we do not participate in an Atlantic Gateway initiative.

Discussion Groups

Summary of break-out responses

Detailed group break-out responses

Detailed individual break-out responses

Reaction from Communities

Leo Abbass, Mayor of Happy Valley-Goose Bay, stated that his community would like to become the "gateway" to Labrador and to the Arctic, and wants to be part of any discussion on transportation issues in Atlantic Canada. He felt that the cost of goods would be cheaper if transported overland (Quebec route 389 and then route 500 through Labrador, and then through the fixed link) than by going through the Gulf of St. Lawrence. Labradorians would prefer to see their natural resources to be processed in Labrador and then transported out. The cost of travel to and from Labrador is still too high; it costs $1,800 to fly from Nain to St. John's

Elizabeth Lawrence, Director of Economic Development with the City of St. John's, reminded the forum that Newfoundland and Labrador has always had an export-based economy, which enhances the importance of the transportation system. (This is even more so for St. John's, which accounts for 47% of the province's GDP.) Transportation issues are business issues, and vice-versa. While St. John's is very competitive compared to other cities in the developed world (according to KPMG), transportation costs are a weakness. We cannot leave the Atlantic Gateway to others, to let them determine the provinces role in it. Short sea shipping merits further study. Public policy issues are fundamental, and we need to engage the community in the debate. St. John's is already a centre of excellence for ocean and marine technology, which is an asset to any gateway.

Sean Cooper, Executive Director of the Exploits Valley Chamber of Commerce, made the point that the Atlantic Gateway is gaining momentum and Newfoundland and Labrador needs to embrace it. The Gateway is not one place; rather, it is a state of mind. It is about how we facilitate global trade. For example, the Pacific Gateway is not just Vancouver; but also Prince Albert and even Winnipeg. If we fight among each other, this will simply give the advantage to another port on the Eastern Seaboard. St-Pierre et Miquelon is an asset which we should use to our advantage; it can make trade with the European Union easier. The Provincial Government needs to be more proactive in dealing with the Atlantic Gateway; the recent agreement between British Columbia and Alberta is a good model for Newfoundland and Labrador and Nova Scotia to follow. The Pacific Gateway is not led by the Federal Government, but rather government is following the private sector's lead. The Atlantic Gateway should be an impetus to develop all ports in the province.

Shawn Woodford, President of the Greater Corner Brook Board of Trade, repeated the need for further study of short sea shipping and a trans-shipment facility, especially for freight to the north. New, larger cruise ships are displacing smaller vessels to more northerly waters. The Pacific Gateway is not about East vs. West, but about working together to make Canada a leader in global supply chain management. The same is true about inter-provincial rivalries in Atlantic Canada.

Summary of the Forum

Ron Sparkes, Acting Director of the Labrador Institute (Memorial University), summarized the day's discussion by reminding the audience about the previous APTF in Labrador City in 2004, whose theme was making Labrador the gateway to the North. He also reminded the audience about a forum in Halifax taking place today on the Atlantic Gateway.

There are two kinds of opportunities knocking on our door: those that currently exist (such as short sea shipping) and those that we can create for ourselves. For example, increasing our manufacturing capacity would help address the "back-haul issue". We need to review and modernize our transportation policies (e.g., cabotage). We should also review the potential for air cargo for high value-added goods. And we need to transport more goods by ship to make that mode more efficient. We have expertise in ocean and marine sector. How we access the Gateway is more important that where the Gateway is located.

With global warming, the North will increase in importance. It now has a new Aboriginal government and new industrial developments. We need to keep this in mind as we develop a new vision for transportation in the province.

Conclusions

There are a number of conclusions emerging from the May 30, 2007 APTF. There was strong support for the view that the Atlantic Gateway offers potential economic development opportunities for the Province of Newfoundland and Labrador and should be included in the Province’s transportation planning. A transportation plan is needed and the Gateway should be part of it. The Province should include the Atlantic Gateway both in its transportation plan and its economic development strategy. The Province should raise its level of participation in the federal-provincial-local discussions which have up to this point centered on the port of Halifax, Nova Scotia.

The overriding conclusion is the need to undertake a study into the potential for Newfoundland and Labrador to participate in transhipment opportunities arising from emerging trends in global trade and shipping. There are many gaps in our knowledge that have to be filled. Most studies up to this point have focused upon Halifax as the Atlantic Gateway. The ongoing Intervistas study is being conducted by ACOA to prepare a business case for the Atlantic Gateway and to look at the impact on each of the Atlantic Provinces. This study may help in delineating the action that needs to be undertaken by the Province of Newfoundland and Labrador. The Harris Centre has prepared a draft terms of reference which might be useful in scoping out a pre-feasibility study, which can be accessed by clicking here.

Compiled by:
Michael Clair, Associate Director (Public Policy)
The Leslie Harris Centre of Regional Policy and Development
May 30, 2007