International Trade Committee on Oct. 7th, 2022

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call this meeting to order.

Welcome to meeting number 29 of the Standing Committee on International Trade. Today's meeting is taking place in a hybrid format, pursuant to the House order of June 23, 2022. Members are therefore attending in person in the room and remotely using the Zoom application.

I need to make a few comments for the benefit of witnesses and members.

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Today, from AGT Food and Ingredients Inc., we have Murad Al-Katib, president and chief executive officer, by video conference. We also have Masoud Negad, chief operating officer for N. Tepperman Limited, and from Quorum Corporation, Mark Hemmes, president. Carmel Transport International Ltd. is unable to be with us today.

Welcome to you all. My apologies if my connection goes in and out.

We will start with opening remarks and then proceed with the rounds of questions.

Mr. Al-Katib, I invite you to make an opening statement of up to five minutes.

[Murad Al-Katib, President and Chief Executive Officer, AGT Food and Ingredients Inc.]

Good morning. Thank you for inviting me to participate.

Canada, with a specific focus on western Canada, has been blessed with a significant agricultural endowment, with some of the best and most productive agricultural lands in the world, making Canada a world leader in agricultural production and export. For decades, we've been known as the Canadian breadbasket or the breadbasket of the world. However, in recent years, we've been increasingly known as the first stop on the protein highway.

With food, fuel, feed and fertilizer, Canada has what the world needs and wants, and Canadian agriculture is on the front line, providing societal solutions to global challenges in protein, food security and renewable fuels. We'll be vital to the United Nations FAO mission to produce the same amount of food in the next 40 years as we have done in civilization for the past 10,000 years. To feed the growing middle class and a world population that will exceed 10 billion, we need to meet that target.

International trade is the lifeblood of the Canadian economy, making transportation, and specifically rail, ports and containers, the veins and arteries that allow everything to flow, providing goods to Canadian consumers, allowing Canadian companies to supply their products to markets around the world and creating economic benefits and jobs for all Canadians.

In the ag sector, we've always wrestled with transportation-related issues, specifically during cold Canadian winters. When you're landlocked 2,000 to 3,000 kilometres from port, you're dependent on rail and road infrastructure to get your products to market, and on the availability of containers to ship them in, while also staying competitive on costs in the marketplace.

In western Canada, we're dependent on containers to bring our retail goods from far-reaching origins around the world, and we use those empty containers to move our products—our agri-food output as well as other products and manufactured goods—to markets around the world. Rail, intermodal and containers are in high demand. We're urging governments, railways and all supply chain partners to be diligent in their planning to be ready for these opportunities.

At AGT, we're a large user of ocean containers. In fact, we are among the largest agriproduct container shippers in the whole world. We've navigated the system of containerized shipments for decades. However, this process is getting more and more difficult, with escalating costs, lack of access to container units and supply chain disruptions.

Without primary shipments of retail goods from origins around the world and the willingness of the steamship lines to allow their containers to stop in western Canada empty to be filled with ag products, Canada does not get access to empty cubes to refill our goods for shipment to our customers before that cycle begins again. Even when we do have access, the escalating costs may make using that container for shipment prohibitive to doing business without an ability to pass on increased costs, particularly in staple foods and commodities.

Part of the issue is supply and demand. It's a basic economic theory. Freight costs have risen extremely fast, with steamship lines reporting record profits throughout this period of COVID and now with the costs in Ukraine and supply chain disruptions. As an example, a container costing $3,000 in 2019 is now costing over $23,000 in certain lanes. Some of the largest global steamship lines have recently reported earnings that exceed their average earnings over the past years by multiples.

Far be it from me, as a free market economy participant, to criticize profitability. However, this does come at a cost for customers and consumers around the world. Part of it is the lack of oversight by governments in industrialized countries to establish a playing field for containers, steamship lines and customers that equals a competitive playing field.

In recent periods, the governments of the U.S., the U.K., Australia, New Zealand and Canada have begun discussions and inquiries into cartel behaviour, price-fixing and steamship line competitive behaviour. With no global regulatory body in this sector and with being thousands of kilometres from port, our federal government and governments around the world are very critical to ensuring that we have a level and competitive playing field.

While the global demand for protein is strong and growing, Canada is in a unique position to fill this gap, which has been magnified by the conflict in Ukraine, where, again, food insecurity is open and is going to be felt by up to 600 million people around the world.

The national trade corridors fund's availability of funds has really been helpful, and strong leadership to create a transportation policy framework to support trade has been critical and important in maintaining Canada's reputation as a reliable supplier.

As you may recall, I was involved with the David Emerson Transportation Act review a number of years ago. I was honoured to be a part of the Industry Strategy Council with Monique Leroux. We actually rekindled recommendations around long-term infrastructure planning in the trade space, in particular moving the windows from two- to four-year mandates of government to 10 to 50 years of actual trade infrastructure planning.

We have a generational opportunity in agriculture and for our country more broadly. Within this, containers are a key surge capacity for Canada’s agricultural sector, augmenting the traditional rail and ships that carry our products.

I would be happy to take questions from committee members on rail, transportation and supply chain challenges.

Thank you, Madam Chair.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Al-Katib.

Mr. Negad, you have up to five minutes, please.

[Masoud Negad, Chief Operating Officer, N. Tepperman Limited]

Good day, Madam Chair and members of the committee. Thank you for the invitation to speak about our view on logistics issues with transportation containers as a comparison.

I represent N. Tepperman Limited, which has operated a chain of retail stores in six cities in southern Ontario for 97 years. We sell furniture, mattresses, appliances and electronics. Many of my comments are based on our business challenges. I have submitted a written brief, with references, that goes into more detail.

We are experiencing many challenges in the supply chain, specifically importing containers to Canada. Some are related to steamship lines. Others refer to inland challenges with delays, reduced planning ability and cartel-like pricing, leading to massive price increases for Canadian consumers. We are witnessing Canadian inland bottlenecks due to several factors: infrastructure and ownership interest in ports and rail that are not Canadian-focused, congestion at ocean container terminals, congestion at rail terminals at port and destination, lack of available resources and lack of available equipment.

In the first half of 2022, container volumes at the Port of Vancouver dropped 7%, but containers sat on the port’s docks for six days, twice as long as 2019. Despite the drop in overall volume, Vancouver’s performance and efficiency continue to fall, leading to longer wait times. Out of 370 ports around the globe, the Port of Vancouver is ranked 368th—the world’s third-worst port.

Tepperman’s ocean freight containers go to west coast Canadian ports and end up on rail. The world uses 40-foot containers to ship goods from overseas. Only half of CN and 10% of CP cars are designed for 40-foot containers, causing blockages and delays and leading to additional charges levied by rail companies. Cargo destined for the Toronto area is off-loaded at the Brampton rail terminal. We have seen unprecedented wait times of 10-plus hours this year in Brampton for drivers to pick up containers.

Another issue with inland terminals is the buildup of empty containers that need to be returned. In some cases, steamship lines have refused to offer freight pricing to Toronto due to the wait times involved with shipping empties back. Prepandemic, we had a fixed-price contract for ocean containers, but steamship lines have refused to honour our contract pricing since early 2020. Prepandemic, we were able to ship a full container from Asia to Canada for $3,500. That increased to $30,000 in early 2022, an increase of over 800%, while steamship lines reported record profits. The price-fixing of ocean freight increased costs exponentially, causing some of our furniture to double in price by early 2022.

Recently, due to extremely low demand, container costs started to drop. Last May, steamship lines tried to force us to sign a three-year contract at a rate of $16,500 per container. Today we are seeing pricing at around $7,500, but they are already talking about blank sailing. That is a practice of strategically removing some vessels and port calls from their posted schedules, forcing customers to buy into the few remaining ships at premium prices. As this behaviour continues to be unregulated, shippers and producers face the prospect of additional price increases in the future.

While one might assume that these issues are impacting Canada and the U.S. equally, this is not the case. Canadian importers often pay more. If demand suddenly spikes, we expect that steamship lines will immediately and aggressively increase their pricing. Although freight costs may not return to $30,000 per container, we believe they could easily double.

In closing, Tepperman’s is guided by the principles of being a good employer and providing great value to our customers. This international shipping crisis challenges those principles and threatens our continued operations. We hope our government can intervene to protect retail, wholesale and manufacturing sectors and ultimately Canadians across our nation.

Thank you for your time.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Negad.

Mr. Hemmes, you have five minutes, please.

[Mark Hemmes, President, Quorum Corporation]

Thank you, Madam Chair and committee, for the invitation to attend today's meeting.

I'm Mark Hemmes, president of Quorum Corporation. Quorum has been responsible for monitoring Canada's prairie grain handling and transportation system on behalf of Transport Canada and Agriculture and Agri-Food Canada since June 2001. I've already provided a document to the committee. I don't plan on reading the whole thing, but there are some points that I would like to make.

First, the export of grain in containers has become an integral part of the logistics of the grain industry in Canada. As a proportion of the export movement, it has increased from 1.3 million tonnes in 2000 to over 5.5 million tonnes in 2021. This represents an increase in the total exports of grain, from 4% to over 10% today. That has allowed for an increase in the diversification of crops that producers grow and is a very lucrative business for the country. This came about through an increase in the availability of container capacity in the marketplace. Grain is typically moved in bulk, but the empty containers actually gave an opportunity to expand into niche markets, as Murad was explaining earlier.

In the last three years, from 2018 to 2021, an average of more than six million tonnes of special crops have been exported out of the country using containers. That's an important part of the sector. That sector has grown incredibly in the last 10 to 15 years and is almost wholly dependent on the use of containers to get into the markets its selling to.

What happened in the summer of 2020 with the pandemic hitting was that the container shipping lines significantly reduced the number of sailings, called blank sailings. By doing that, essentially what they left was a whole bunch of loaded containers on the docks in Vancouver and Prince Rupert, and to an extent in Montreal. As such, shippers had to pay an incredible amount of storage fees and demurrage, and the out-of-contract penalties that were associated with them. With the reduction of those incoming vessels, the empty container capacity and the vessel capacity for loaded movement were both significantly strained.

Container shipping lines then began to reduce requests for empty containers in North America for loading those export goods, ordering the railways and the container terminals to remove all the empty containers back to the origin countries, mostly in the Asia-Pacific area. The Port of Vancouver's average monthly total of loaded export containers dropped by 33% compared with the average in the same 12 months in 2019 and 2020, while the number of empties moved out increased by 96%.

This change had a significant impact on the export of grain in containers and the business volumes of the five transload operations in the Port of Vancouver. The total volume of grain in containers was reduced by half from April 2021 to May 2022. Some of that reduction was because of the reduced crop size, but most of it was because there were no containers available to move it.

The consequence of these issues compounds and reveals itself in the actions taken by the container shipping lines to expedite empty containers back to the line haul origins, as well as in the increased price they charged for the movement of containers through that period. As was just pointed out, while those container prices have dropped, it's not terribly significant when it comes to this movement.

Canada has little in the way of real-time or historical data on this. This makes it very difficult to analyze and assess the movement of containers, except through the data supplied by port authorities on a voluntary basis. In the grain industry, both the Canada Transportation Act and the Canada Grain Act offer legislative and regulatory solutions for the collection, analysis and assessment of data on the bulk movement of grain. However, there is little in the container movement.

This applies to all other commodities as well, other than grain. To provide a detailed assessment of the impact these shortfalls have on capacity, data at a level that is equivalent to what is provided for the bulk movement of grain is absolutely essential.

In closing, I would point out that Canada grows some of the best and most desired grain in the world, but must contend with barriers and risks no other competitor nation must. We have a longer length of haul to port, extreme geographic impediments in the form of the mountain range, climatic conditions that can vary from -40°C to 40°C through the year and ocean distances that are some of the longest to our buyers. As such, just staying even with our competitors on a global basis is dependent on us having the world's most efficient transportation and logistical system in the delivery of our products.

The fact that we've not been as efficient as we need to be and have experienced a continued number of supply chain breakdowns has damaged our reputation as a reliable supplier. Canada's position in the global grain marketplace depends on us getting a lot better.

Thanks for the opportunity. I look forward to any questions you may have.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Hemmes. We appreciate your contribution while we study the trade implications of transporting goods in railway corridors.

We'll move on to the members now.

Mr. Hoback, you have six minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Madam Chair.

Thank you, witnesses, for being here on a Friday afternoon, or a Friday morning, depending on where you are.

Where do I start? It seems like in my years as a politician here in Ottawa, we've been fighting with railways to get movement of product to market every year or every second year. It seems like they're always front and centre in our targets.

I'll start with this. Because this is a trade committee, are there things we should be doing as a trade committee in our trade negotiations and in our agreements, whether it's at the WTO or, let's say, on the multilateral side, that address the steamship lines, their monopoly and their level of service and that put in some guarantees for shippers?

I think I'll start with you, Murad, and then I'll go to Masoud afterwards.

[Murad Al-Katib]

I would say that competition regulation should probably not be done by a multilateral agency. However, the overall collaboration we're seeing between the U.S., the U.K., Canada, New Zealand and Australia is an interesting approach.

The one thing we have to recognize is the steamship lines are international companies, operating in international waters and calling at our local ports. There is definitely a need for a bit more oversight to ensure that accessibility, pricing and behaviour don't become completely out of balance.

I think that urging our competition authorities to collaborate is probably a very important step.

[Randy Hoback, Conservative, Prince Albert, SK]

Go ahead, Masoud.

[Masoud Negad]

Thank you, Madam Chair.

I would say the issue we face is potentially twofold.

One is that steamship lines, in their behaviour, as another person and I referenced, use cartel-like pricing. In terms of what jurisdictions the government would have in putting restrictions around that, it would be great if there were things that could be done.

The other part of this is that the supply chain system in Canada is broken, as Mark referenced. Potentially, that's where the government can also have a significant influence to improve the supply chain. With reference to other ports, other ports are not efficient. Part of the reason we get higher pricing than the U.S. is that these shipping lines get stuck when they come to a Canadian port. They have a much better transition of unloading and reloading their ships if they go to the U.S.

I looked at a price list yesterday. By the time the a container gets delivered to our door, coming through Vancouver, it is around $7,500. If we look at one in Seattle, which is not very far from Vancouver, coming from Shanghai—in both cases, they're coming from Shanghai—it is $2,015. How do you compare $2,015 with close to $7,000? That's because the steamship lines would prefer to go to the U.S. than to Canada. Part of it is volume and the other part of it is all the backlogs we have.

In terms of backlogs, I think we have lots of opportunity to improve those with—

[Randy Hoback, Conservative, Prince Albert, SK]

That raises a million questions, then. What has the U.S. done? Is it the modernization of their ports? Is it the functionality of their ports? Is it the bureaucracy? Or is there legislation that has allowed them to expedite products through their ports? What's the difference between the two?

[Masoud Negad]

The first one would be the volume and the ability to receive a lot of products quickly and efficiently.

We can look at the age of other key ports. They were built somewhere between 1972 and 2008. When you look at a port that was built in 1972 and see the size of the ships and how many containers they used to carry, the maximum size at the time was 2,500 containers. Today, the maximum size is 25,000. Our ports haven't been updated quickly enough.

There are plans for some of these ports to be upgraded from when they were originally planned, but not quickly enough to receive these ships that are completely differently sized. The efficiency would be a component of that.

[Randy Hoback, Conservative, Prince Albert, SK]

Wouldn't it be up to the Vancouver port authority to put in process the upgrades and the updates? Or is this something where the federal government should be stepping in and footing part of or most of the bill?

[Masoud Negad]

I believe that government support would help, because all of these private sectors are driven by ROI for their shareholders. Ultimately, they will invest in what they believe they're guaranteed to get back.

If we want to solve a Canadian problem, influence from the government could help us, whether it's for subsidies or support in other ways, but helping them plan to really get rid of the problem in Canada—

[Randy Hoback, Conservative, Prince Albert, SK]

I'm sorry. We're tight for time. I don't mean to cut you off.

Mr. Hemmes, when it comes to moving products through the ports, is it a port issue, or is it actually the railways not getting and delivering the product to the port on time? Where's the actual problem? Where is the bottleneck?

[Mark Hemmes]

I think it's all of the above. I think given what happened through the pandemic and then coming out of it, there was a sudden surge of traffic. There was a surge in demand, if you will, for traffic to move through all of the west coast ports.

The railways have a fixed number of railcars. They don't plan on a lot of surge capacity, and I would go back to the earlier point that I think this whole situation has really pointed to how fragile the whole supply chain is, the whole container supply chain.

Yes, you can point to the railways, because when you have so many containers piled up on the docks at the ports, it's really up to the railways to get those containers off the docks. The challenge that the container terminals had is that you can bring your ship up to the dock and try to unload it, but if there's no room on the dock to put down any more containers, they're stuck.

That's how they ended up backing up all of the vessels in Vancouver and where that frustration came from, but the same problem was occurring down in L.A. and Long Beach, to a far greater degree. At one point in time earlier this year, there were as many as 90 container vessels at anchor waiting to be unloaded.

[Randy Hoback, Conservative, Prince Albert, SK]

When we have a situation—

[The Chair, Liberal, Judy Sgro]

I'm sorry, Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

That's no problem.

[The Chair, Liberal, Judy Sgro]

We'll move on to Mr. Sheehan for six minutes.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much, Madam Chair. I truly appreciate the opportunity to ask some questions.

For our witnesses, as you're aware, we're studying opportunities in the Indo-Pacific. We had a group of soybean representatives here, and that triggered a line of questioning that I had from one of my constituents, who is a broker dealing with soybeans. It was about container shortages.

MP Masse has been after this for a long time, and so has our chair, Judy, so thank you for coming and presenting, because we want to figure out how we might make some recommendations to immediately improve the situation. We also have to take a look at long-term logistics.

My questions are for Mark, one of our witnesses. I'll start with him, and perhaps the other witnesses may wish to chime in.

It seems to me that there's a multitude of issues out there, and they've been identified by all our speakers. One of the issues that we haven't delved into too much and that I'd like you to speak about is the labour shortage.

We understand the shortage of containers themselves, the monopolies that certain countries are creating and the cartel and whatnot, but it seems to me that there is a labour shortage. It can be in the trucking industry. This particular broker mentioned to me that recently there has been a shortage of truckers, and that begins the process of the problem, with the rail companies and the shipping companies as well. He also shared the opinion of one of our speakers about shipping companies making record-breaking profits.

I'll start with the question about labour shortages. What does it look like for you and are you experiencing that as well? Do you see that as an issue?

[Mark Hemmes]

Yes, there is an issue. Truckers have had a long-standing issue trying to hire people in the industry. They have a big bubble that's starting to get to the age of retirement. They're in a challenging time.

On the other hand, what happened with railways—and one in particular—was that when the pandemic hit and the volumes decreased, and then again with the smaller crop last year, they laid off a lot of people. When you lay off people who are at the younger end of the spectrum, they will go out and find another job, and it's not as if you can call them back.

Both CN and CP have been working through the summer trying to increase their workforce. Of course, you can start the training, but it takes four to six months before you can get a person out on the ground. I was at CN's training facility just a couple of weeks ago and it is full. They have multiple classes running, trying to replace some of the people they need to fill those jobs, but they're challenged. It's no different from anybody else in the industry right now. It's very difficult to find people who will come to work.

After speaking to some of the transloaders on the west coast, I know they're having the same issue. They had to lay off a lot of people last year, but now that they're trying to get back into business, they're having a difficult time getting people to come to work. Of course, Vancouver is not a favourable economy to get blue-collar workers, who aren't making the kind of money that you need for living in Vancouver.

All of those things have an impact on trying to fill a lot of those labour positions in the industry.

I'm sure, Murad, you've probably had a similar situation in Saskatchewan.

[Murad Al-Katib]

I think we should look at all of the issues that play out on top of each other. There's one thing we have to be very clear on, Terry. We have to ensure that we have the infrastructure that suits the business model of the steamship lines too.

For instance, in Regina, we at AGT spent $35 million of our own capital in a partnership with CN Rail to build an inland container terminal to stop the empty containers that were flowing from Chicago and Toronto to Vancouver. We stop them in Melville, Saskatchewan, bring them to Regina, fill them with grain and ship them back. That infrastructure didn't exist. What we try to do with that is minimize the dwell times that containers sit here empty.

While we're talking about the steamship lines and cartel behaviour, which I mentioned, we have to recognize it's an international market. We have to get the containers in and out as quickly as possible to ensure that steamship lines want to bring their business to Canada.

With all due respect to our witness Mr. Negad, I don't know if I agree that Vancouver and Prince Rupert are less efficient. The problems at Long Beach, as Mark mentioned, have been far worse. I think the problem here is we just don't have enough sailings. The steamship lines have cut our service. There's not enough supply, which is why they can charge so much more.

In the U.S., there's a competitive market. Everybody has to go there. They've chosen not to come to Canada, and for containers that are coming here, they're charging three times the amount. That's our problem. It's a simple, fundamental supply and demand problem. Hopefully that's going to switch back.

I believe the efficiency of Vancouver and Prince Rupert is going to bring more containers into Canada over the next periods.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Sheehan.

We'll move on to Monsieur Savard-Tremblay, please.