Foreign Affairs Committee on May 30th, 2017

[Wendy Zatylny]

Primarily, it's shifting global trade flows. Canadian ports have developed other areas of business and other areas of import and export. Consistently over the past decade, we have seen that trend of Canada–U.S. cargo movement declining overall as we've built up other areas.

[Dean Allison, Conservative, Niagara West, ON]

Good. That's great.

I know our government had some initiatives around ports and trade quarters, etc. Obviously, there's a lot of conversation around infrastructure and infrastructure banks. Talk to us about the state of infrastructure with the ports in Canada, and whether that affects our competitiveness. There is always a need for infrastructure, so that's probably not a question at all.

Talk to us about the state of infrastructure in our ports and the requirements as we move forward, and how that relates to our competitiveness with the U.S.

[Wendy Zatylny]

That's probably at the very heart of the story of ports and transportation. As you've noted, there's never not a need for additional infrastructure. To put it in context, about five or six years ago, the association did a study with Transport Canada of the projected growth of Canadian ports and their associated infrastructure needs. At that time, pre-CETA, we found that there was a need for about $5.8 billion worth of investment into Canadian ports—simply port infrastructure. One-third was developmental, for projected growth requirements, and two-thirds was rehabilitative, to fix the legacy infrastructure that ports had inherited.

Ports are extremely adept at coming up with a patchwork quilt of financing to manage that, and they leverage private sector financing extremely effectively, but of course any infrastructure funding that comes from the various levels of government, including the federal government, is an extremely important part of that.

In terms of how that affects our competitiveness, I've talked a lot about biases with our North American counterparts. We collaborate with them, but we also compete against them. As a measure of the effectiveness and the efficiencies we have managed to extract from our supply chain and working with our supply chain partners, we have been able to capture in some cases a greater share of cargo bound for the American Midwest. As I mentioned, that has been routed up into Prince Rupert and Vancouver, for example. That's simply a function of being efficient and working to extract efficiencies within the supply chain.

That being said, infrastructure investment is still needed. We are at risk now of starting to fall behind if we don't start investing quickly. The American ports have been investing in the tens of billions of dollars in upgrading their infrastructure to meet changes in global supply chains and transportation routes with the advent of larger, deeper ships. The American ports have been able to invest a lot more than we have. We are eagerly looking forward to opportunities like the Canada infrastructure bank, as well the trade and transportation corridor fund from Transport Canada, to help us keep up in that area.

[Dean Allison, Conservative, Niagara West, ON]

Thank you.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

To stay on the business topic, the economic topic of the ports, I have three questions. How efficient are we? How profitable are we? Is there room for growth, and how?

[Wendy Zatylny]

I'm sorry, was the first question how efficient we are?

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

Yes, how efficient are we as Canadian ports? Are we making money?

[Wendy Zatylny]

Yes.

However, let's be clear that we are shared governance organizations; we are not profit-seeking. We do need to have retained earnings, and those are what get reinvested back into port infrastructure investment. We are efficient, and by the measure of port competitiveness, we are successful at retaining and attracting a greater share of cargo to be able to compete internationally.

Ports operate within a system, and it is noteworthy that the World Bank does a logistics performance index analysis every two years. About six years ago, Canada went down to 14th, and we're now back up at 12th. It sounds good when you compare it to the rest of the world's countries, but the World Bank makes the point that it's the 10 percentile you're in that is the most important. By that standard, Canada should be in the top 10 per cent, and we're not. We are effectively, right now, punching below our weight. Part of that is due to lack of infrastructure investment. We do need a bit more to get us up there and help make more seamless connections between port, road, and rail.

[Ziad Aboultaif, Conservative, Edmonton Manning, AB]

In the growth of the American economy—and they're doing well economically it looks like, and that's the outlook for the future—is that good news for us or not in port business or are they going to be growing their ports at the same level, and then we're not going to get any of that?

[Wendy Zatylny]

The global shipping industry is highly competitive. As the American economy grows, we stand to be able to grow with it. Pardon the marine example, but a rising tide lifts all boats. How much of that we will retain or capture relies on our overall competitiveness, which is a function both of infrastructure and then of supply chain efficiency. Our advantage, again, is that the port authorities have been very effective at working with their supply chain partners, especially road and rail, to remove any of the speed bumps within the transportation supply chain. They have developed data-sharing initiatives, where essentially they share key performance indicators and then work to identify how they can overcome some of the challenges. That's one of our great competitive advantages, and the Americans have recognized that as well. It's up to us now to be able to keep supporting that.

[The Chair, Liberal, Bob Nault]

Thank you.

We'll go to Mr. Saini, please.

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning. Thank you very much for coming.

I want to follow up on a comment you made in your opening preamble, where you talked about the thickening of the border. Could you explain to me, as someone who is unfamiliar with how ports and their logistics work, what the challenges are? What would the further challenges be if there were a thickening of the border?

[Wendy Zatylny]

There are two sides to that answer, cargo and people. In terms of cargo, most of that would be expressed through the movement of containers that would come in through one of our container ports: Halifax, Montreal, Prince Rupert, or Vancouver. If additional security or screening requirements were imposed on cargo movements, that would serve to thicken the border by slowing the processing and increasing the time getting the box off the ship and down to its intended destination. Currently, we operate at a much higher level of security than the Americans. For example, 100% of our containers run through radiation portal screenings. We have a comparatively high level of secondary screening. So we have very high security procedures in place already; however, additional regulatory requirements would serve to slow things down.

Similarly, on the person side, on cruise passengers, especially in the St. Lawrence Seaway and the Great Lakes, but even up on the coast, when you have ships that leave the United States on itineraries that come up into Canada or through the Great Lakes and the St. Lawrence Seaway, where they essentially bounce back and forth between Canadian and American ports, one of the issues is that we constantly have to clear people as the passengers cross the border. This simply becomes a disincentive. That would be another example of thickening.

[Raj Saini, Liberal, Kitchener Centre, ON]

Will the recently signed CETA trade deal place a greater burden on ports? Are we prepared to handle the increased traffic flow of goods and people between Europe and Canada?

[Wendy Zatylny]

Our Canadian port authorities are very much looking forward to the increased traffic flow and have been building toward that and preparing their infrastructure projects and their growth potential as a function of that.

[Raj Saini, Liberal, Kitchener Centre, ON]

Something that you wrote I found very interesting. You talked about the domestic economic multiplier effect of having port cites. You said that 90% of goods we purchase have been transported by boat; $200 billion are shipped through our ports; and that our ports present a focal point where innovation, creativity, and cultural dynamism have rippled outwards. I agree with that.

I'm wondering how we can keep it going. What do we need to do? One of the statistics you've cited is that every million tonnes of new cargo generates 300 well-paying jobs. You talked about efficiency also. We're twelfth out of 155 countries in terms of efficiency, according to the latest World Bank report. How do we increase our efficiency? If we just bring it down to a more micro level of boosting our own domestic economy, especially in certain port cities, what advice do you have? What should we be doing to maintain or to increase the economic affect of ports in Canada?

[Wendy Zatylny]

It ultimately comes down to recognizing that a port city is a lucky city and to getting that message out there for exactly the reasons you've talked about. But that is a difficult message to convey to people who have to deal with truck movement and light and dust, all of which are things that port authorities work very hard to mitigate.

That said, it's then also necessary to support the activities of the ports, the port authorities themselves, in the work that they do.

The nature of ports has changed over time and the port authorities, again, by virtue of being shared governance organizations that are related to the federal government, have been able to benefit from a more trusting relationship with their supply chain partners to broker the kinds of dialogue and information sharing that I mentioned. This has translated into the efficiencies and discussions of trade corridors as a system. To be able to continue to support that would be extremely important, that notion we're talking about of supply chains and systems that are in fact growing, that span the country now. That's one important part.

The second part is to allow the port authorities to expand into that role more fully. One way of doing that, which we've talked about quite a bit, is allowing us to become even more competitive through increased financial flexibility.

We have challenges. When we were created the government was risk- averse and we were given extremely low borrowing limits. Borrowing on the open market is part of the patchwork quilt of financing that I mentioned earlier. I keep saying that the current borrowing limits are the equivalent of your going to your bank and asking for a mortgage and the bank coming back and saying, great, lucky you, you've been pre-approved for a mortgage of $150,000, and you say, thanks, but I'm trying to buy in Vancouver.

The limits are artificially low. The port authorities have to go on an individual project-by-project basis to plead their case before three government departments. It takes years to actually get that moved. That starts to become a drag on the speed with which a port authority can proceed with an infrastructure project.

So there are a number of financial flexibilities that we need to be able to have to respond in a more competitive market. Amendments to letters patent is another issue. We acquire land. We sell land. It happens in commercial timelines on the commercial market, but again, there's the same issue: it takes upwards of two years to amend our letters patent to recognize the acquisition of land. In the meantime, the port is either trying to pay extra to hold on to that land, or in the case of one port authority, it was given 50 acres from the municipality for free, but it cost them $55,000 in legal fees just to process the change.

These kinds of flexibilities would go a long way towards keeping the ports moving in commercial real time. Then again, the question of infrastructure funding is extremely important.

[Raj Saini, Liberal, Kitchener Centre, ON]

Thank you.

[The Chair, Liberal, Bob Nault]

Madame Laverdière.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

Before I begin, I want to say how pleased I am to see a woman back on the other side of the table again; I believe she is Mr. McKay's assistant. I do not feel as alone when I can see at least one other woman.

By the way, ladies, thank you for being here today.

I represent a riding in the centre of Montreal and I often have to deal with port authorities, whose activities extend into my riding. It is always a pleasure to work so effectively with them.

I was especially pleased to hear you mention the four oceans, in a way, including the river and the adjoining system. Yet we do not often talk about the ports in northern Canada.

First of all, do you have any general comments? What are the plans and forecasts for the development of the Arctic in particular?

As to the Port of Churchill, which if I am not mistaken it is at risk of being closed, what impact could its closure have on our overall situation and our relationship with the United States, among other things?

[Wendy Zatylny]

Thank you for your question, Ms. Laverdière.

I will try to answer your question in French, but I might have to switch into English since I always think in English.

As to the ports in northern Canada, including Churchill, I must point out that our association represents Canadian port authorities, which is a subset of ports in Canada.

The Arctic has great development potential. The only thing we can say, however, is that we are ready to help, to share our knowledge and experience should the government decide to create a port authority for the ports in the Arctic.

Canadian shipping companies certainly have a great deal of experience. They already serve the Arctic. As I said, with the opening of the Northwest Passage, there is tremendous potential which one hopes will be developed.

The Port of Churchill is a private port. It was privatized by the government. We have seen that the Port of Churchill was in competition with the Thunder Bay Port Authority for wheat shipments. We often wondered why concessions had been made to support the Port of Churchill, since it was a very important location, although that took business away from the port of Thunder Bay.

In our opinion, one of the consequences of the potential closing of the Port of Churchill would be that those shipments would then go to the port of Thunder Bay.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much.

I have what might be an odd question. You said that from 23% to 25% of containers in circulation go to the United States or arrive in the United States. What about the remaining 75%? Are they from or going to Canada, Europe or Asia?

[Wendy Zatylny]

Yes, that is correct.

Madame mentioned Asia, and when we think about Asia we always think of the Asia-Pacific gateway on the west coast, but at the port of Halifax, nearly 50% of its containers now arrive from Asia. There's been a significant change and switch in trade flows.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

You also mentioned an issue that, as my colleagues know, I ask about at nearly every meeting: the border adjustment tax. It is of great concern.

I know it has not yet been adopted and quite possibly never will be. Various stakeholders have nonetheless shared their concerns about it.

What would you recommend to the federal government to exert pressure on the U.S. authorities to make them understand that such a tax could hurt us both, on both sides of the border?

[Wendy Zatylny]

That's a great question. It's one that we're dealing with as well.

Part of the answer is to really draw a complete picture for the American government and governors, as well as for the businesses along the continental supply chain, as to what the impact of the border tax would be, by describing to them and getting them to fully understand the complexity of what I've tried to allude to here.

The auto sector speaks much more eloquently on its own than I possibly could, but as I said, we bring auto parts in through our container ports. In Windsor, the parts go back and forth. If you start to impose a border adjustment tax, how do you start to piece it out? Do you start to impose costs every time a piece crosses the border? To be able to describe that, to tell that story, and then also to describe how American manufacturers and American industries also benefit from being able to export back out through Canadian ports, I think, would go a long way in mitigating....