Industry Committee on Jan. 31st, 2008

[The Chair, Conservative, James Rajotte]

Merci, Madame Brunelle.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you for appearing before us this morning.

It's an incredible, important industry. We all know this, and yet sometimes we forget it.

I want to ask the transportation panel, first of all, what is the potential for growth? Are we seeing a decline in the services needed? What's your long-term forecast?

Mr. Barone, I'm sorry, but I just want to ask the transportation panel, and then please do respond after that.

[Graham Cooper]

It's a good question. In this economic environment, there's a lot of doom and gloom out there. Moods are bad. You see it in the stock markets and you certainly see it in our business, where people are worried about the immediate future.

I don't have the numbers off the top of my head, but if you look at the forecasts that have been made by the transportation ministers of the NAFTA countries, for example, we are certainly looking at long-term growth, both in terms of economic expansion as well as in replacing the existing drivers and equipment we have on the road today.

So I would have to say that the long-term prospects are good. We know there will always be a trucking industry, and we know the trucking industry is able to do things in the transportation sector that other modes are not able to do. There's a place for the rail industry, absolutely. There's a place for the marine industry. There's a place for air freight. We each have our unique set of skills and the types of commodities we carry.

So I would say that over the longer term, yes, there's optimism. We are looking at new types of equipment, cleaner, more environmentally friendly equipment, with lower emissions in terms of pollution and GHGs, and all of those kinds of things. The industry is making tremendous investments in that modern equipment. They wouldn't be doing that if they didn't have some optimism, if I can use that term, about the future.

When is the future going to arrive? We don't know. From the forecasts—and I'm not an economist, and I'm certainly not an expert—and from what I'm reading and from what I'm hearing from our members, this is going to be a tough year, but in the longer term we should be fine.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Barone, I think my colleague is going to direct his question to that of airports, so I'm going to continue to put my line of questioning to transportation.

You spoke quickly about border crossings. I want to ask you about the Windsor-Detroit crossing. We all know how important it is, but can you possibly shed a little bit more light for this committee as to the urgency of the situation, where you see it going, and whether or not you feel we're headed in the right direction?

[Graham Cooper]

Again, I must preface my comments by saying that I'm not an expert on Windsor. We have people in the organization who are, and I can certainly provide to you and to the committee more details about the Windsor situation.

But let me just say a couple of things. As you probably know, the Detroit–Windsor gateway, specifically the Ambassador Bridge, is the busiest international trade gateway in the world. The infrastructure is bursting at the seams. The deck needs to be replaced and all those kinds of things. There have been binational and trilateral groups looking at this in terms of the Government of Canada, the Government of Ontario, and the governments of Michigan and the United States. There is a level of disappointment I think in terms of the delays the studies are encountering. But the latest study that was supposed to have been issued in 2007 I think is now going to be hitting the streets sometime in 2008.

So there is some concern that perhaps the urgency with which the industry sees this situation in terms of the congestion and the potential for congestion, the fact that the trucks have to go through the city of Windsor residential streets and so on and so forth, is perhaps not being addressed with the kind of immediacy that the industry on both sides of the border would like.

However, as I said in the outset, I'm not as expert in that particular situation as some of our colleagues are, particularly at the Ontario Trucking Association, and I would be delighted to get some information on Windsor specifically, on their views and statements they've made on Windsor, and provide it to the committee.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I spoke to you a little earlier. I had an issue with a trucking company in my city of Chatham, so we took a drive to the border crossing and got a pretty good education as to some of the things you go through.

I have to ask you this question about what struck me. Does there exist a vehicle between the government and your industry to convey your issues? Is there an organization?

[Graham Cooper]

There are vehicles that from time to time take up these issues. We saw the most evident example of that I think after 9/11.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm sorry to cut you off, but in regard to some of the issues that came up after we were done, I thought, man, this could have been solved so simply if we'd just had a bit more continuity.

[Graham Cooper]

Yes, I think I see where you're going, and that was perhaps an unnecessary preamble I was making.

If you're asking if there is a champion for the trucking industry in government, there are ministers who have responsibility for trucking in one form or another: the transport minister, the international trade minister, the immigration minister, and so on. Is there one person in the Government of Canada to whom we can go and say, here is our problem, here is our tax problem, here is our international trade problem, here is our infrastructure problem? The answer is no.

This is something for which we have been calling for some time, since 9/11 really. We've asked, do we need a border czar in this country?

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go to Ms. Nash.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

Good morning to all the witnesses.

The first question I'd like to ask is related to the price of the dollar, the exchange rate. I know the transportation sector is very price-sensitive. You can have very low margins, and when you're faced with rising fuel costs, the travelling public, for example, isn't always as understanding as they might be on that. So you really do get squeezed.

With respect to the dramatic rise of the dollar, I'm wondering what impact that has on all of you. For example, in the airlines or in long-haul trucking, is there a trend sometimes, just like with cross-border shopping, for people to shop across the border for cheaper rates or fares? Whenever I travel—it's mostly just Toronto–Ottawa, since I'm a Toronto MP—the flights are usually full. I'm wondering if there's an overall impact, especially in the long-haul transportation.

That's a question to all of you.

[Sam Barone]

Thank you, Ms. Nash.

I think you can safely say it's a double-edged sword as far as the airlines are concerned. Whether you're driving or flying to the United States or taking the train or the bus, going southbound we have an advantage, of course, as our currency either is at par with the United States or surpasses the U.S. value of the dollar.

Northbound, I think we've seen a softening of traffic as Americans do not fly as often to Canada, perhaps because of the perceived increase in cost because of currency fluctuations. Most of that traffic comes over by service vehicles rather than air transport. Nevertheless we've seen a softening of weekend travel, as we stated earlier in response to Madame Brunelle's question, the discretionary traveller. Business travellers are a little bit less price-sensitive, to that end.

What I mean by the fact that it's a double-edged sword is that while our fuel is priced in U.S. dollars, our aircraft are also priced in U.S. dollars. At the time we buy our aircraft—we have $12 billion U.S. outstanding right now in aircraft orders with Boeing, for example—that $12 billion is financed at the time of purchase, at different currency fluctuations. So while the U.S. dollar amount is advantageous to us, when it goes up for us, we have a little bit of a price break on aircraft. All our aircraft parts are priced in U.S. dollars, so we were able to buy inventories in the last six months at more advantageous prices. That's the backdrop under which we're looking at currency fluctuations and their impact.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Do you lose any of the transcontinental traffic to people saying, “Well, I'll go out of Buffalo or New York, or wherever”, or on some of the Caribbean or European travel?

[Sam Barone]

Absolutely. I'll give you an example.

Out of the greater Toronto area we have two international airports just on the other side of the border, in Niagara Falls and Buffalo. Just this morning, out of Niagara Falls International, there was a $99 U.S. fare to Myrtle Beach and St. Pete's-Tampa Bay on Direct Air. As well, out of Buffalo, you have Southwest and jetBlue operating, along with Delta, American, Continental, and other U.S. carriers.

I would venture to say, out of just Buffalo alone, of the six million passengers, they're taking in about 1.2 million Canadian passengers. That's why some of our fiscal policy comparisons come to light here, because their fuel is lower, they're subsidized airports, they have lower security costs, and they're able to withstand a $99 fare—which, by the way, we match. That story is the same at Plattsburgh; it's sucking traffic out of Dorval and Longueuil and the south shore of Montreal. That story is also played out in Bellingham, Washington, where $79 fares to Reno and Las Vegas suck traffic out of Vancouver.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay, thank you.

I'd like to hear from Mr. Cooper as well.

[Graham Cooper]

Just very briefly, as I mentioned, the trucking industry is a derived-demand industry. So as we see the softening of the U.S. economy and the rise in value of the Canadian dollar and its impact on our exports, that portion of our industry—which is a large portion—that has devoted its investments and its activities to cross-border trade is hurting, there's no question.

But trucks are not cheap. The fleets have trucks. They have drivers. They want to keep the drivers. They want to keep the trucks on the road. So what we're seeing, to some extent, is a shift from north-south traffic to the already congested domestic lanes—for example, Toronto-Montreal—which again exacerbates the competitive situation we have where people start competing on price. Once they start competing purely on price—and Madame Brunelle expressed some concerns over the prospects for companies—when you start, effectively, selling at a loss just so you can keep your equipment moving and your drivers employed, you're really playing with fire. That's the kind of situation we're seeing now, to some extent, particularly in central Canada.

[The Chair, Conservative, James Rajotte]

Mr. Armstrong, did you want to comment?

[Bob Armstrong]

I just want to add, again, from a service industry perspective, that what we're really seeing happening is U.S. multinationals shutting their distribution centres in Canada or downsizing them dramatically, and of course they use a third-party logistics provider or warehouse operator.

You go around to most of our border towns, or even to a lot of our cities, and you see empty warehouses today or downsized warehouses. What they're doing is going back to the American side and then trucking it over, so it even hurts our trucking industry. I'm talking strictly about us, on the service provider side, losing service provider jobs because the dollar has changed it to where they feel they can do it cost-effectively on their side of the border.

[The Chair, Conservative, James Rajotte]

Everyone else went a little over, Ms. Nash, so you have 10 seconds.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Okay.

Can you give us a sense of how much of the logistics sector has been impacted? You said that some facilities have shut down. How many would that be?

[Bob Armstrong]

We're just beginning some research on that, because we're just starting to hear it from our members. It's just appalling; I have four members on my board who've lost their jobs in the last few weeks running distribution centres. They've been told to downsize. All four were working for subsidiaries of American companies.

So it's worrisome.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

We'll go to Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you to each of you for being here today. I appreciate the input.

I was just saying to my colleague Mr. McTeague that you are in service, but in many ways you're also part of a global supply chain, as part of manufacturing and the rest of it. When there are cost issues in terms of your business, ultimately that affects manufacturing competitiveness, which ultimately affects consumer pricing and the rest.

There has been an emergence over the last year in particular--with the Canadian Council of Chief Executive Officers, the council of sustainable environment, the World Economic Forum, and others--of a growing global consensus that there's going to be a price put on carbon through cap and trade, through carbon taxes in some cases, and in other cases through carbon tariffs. There are even discussions now that France and California are moving toward a carbon tariff regime so that imported goods will be hit with a carbon tariff. The U.S. Congress at some point is going to discover that they can call it an environmental policy, but in fact it can be a protectionist policy that can add to the price of goods coming in from China, India, and other emerging economies.

What would be the impact on your industry? Or perhaps I should first ask, are you seeing the same movement toward this kind of regime that we as policy-makers are seeing? What impact would there be, and how would you pass on those costs? Whether or not we as policy-makers act in Canada, if other jurisdictions move in this direction, it's going to have an impact on the economic environment here.

[Sam Barone]

Thank you, Mr. Brison. That's a very timely question, given the debate on climate change and global warming. We, of course, have just as much interest in that issue, especially from the perspective of making sure we have a sustainable environment under which we operate.

First, when considering policies with respect to the environment and whatever measures the government policy-makers take with respect to the environment, be they emissions trading or carbon taxes, you have to take a look at the fact that transportation is a derived demand. So as to your question about what would be the impact on our industry, it's not so much about what would be the impact on our industry but what would be the impact on the Canadian economy from the perspective of us being an input into the process of trade, of people travelling, of tourism, and the other sectors. So that is one aspect.

If you look at it from a sustainability point of view, we would argue and would humbly submit that we absolutely consider balance in approaching these questions--economic sustainability, environmental sustainability, and social sustainability--because we do play a role socially within Canada in terms of remote community service and northern community service. All of those things taken together have an impact.

The other point I'd like to make to your question is the fact that we're already under a very penalizing and rather punishing fiscal regime with respect to our industry that creates a drag on the rest of the economy.

We should also explore ways of using the government policy strategically to look at alternative fuels, for example, and research. It goes without saying that it's in our self-interest as well to have alternative fuels, because fuel represents 30% of our costs. If we could bring that down by looking at such other alternatives as jet biofuel or alternative fuel, we would welcome that. We're working with partners like Boeing, Airbus, General Electric, and Pratt & Whitney to make engines a lot more sustainable, environmentally friendly, and so on.

For the record, the Canadian air transport industry--we just did a study, which we're pleased to share with you today--is responsible for approximately 1.2% of total greenhouse gas emissions in Canada.

That's just to give you the parameters and some statement as to where we stand on that.