International Trade Committee on Oct. 18th, 2022

[Brian Masse, NDP, Windsor West, ON]

Mr. Dekovic, can you comment or add to that? I'll then return to Mr. MacDonald, who can think about it, because I want to see....

Are those costs being passed on to the OEMs—those originally supplying and sending it in—or are they being passed down to the other end of the supply chain, including the small and medium-sized businesses that are sometimes sharing containers? What's happening with that?

That's often the auto industry, which is tier one. Tiers two and three end up getting the costs from the OEMs passed on to them, and that's a challenge.

Please go ahead, Mr. Dekovic.

[Marko Dekovic]

Thank you.

From a container terminal perspective, I echo what's been said. We've seen a move from just-in-time delivery to just-in-case delivery. That mind shift has further exacerbated the challenge in the supply chain, with over-ordering congesting the warehouses, etc., which you heard about from other presenters today. That shift from just-in-time to just-in-case has caused an issue.

Furthermore, and as CN mentioned, as a terminal operator, we operate on long-term contracts. Our lift rates during these dynamic times in the supply chain have basically remained the same because of these long-term contracts. To illustrate how the market is correcting itself, I encourage you to look at the Drewry composite world index on containers. It tracks the index price of a container coming from Asia to the west coast of North America and back. A year ago, that index was just over $11,000. Right now, it's below $4,000 or somewhere in the mid-$3,000 range. You can see how massively this corrected itself, very quickly, due to market demands.

My assumption is that when the costs were high, some of those costs were ultimately passed on to the shipper and end-user, but, again, all those arrangements are usually commercial arrangements, so there are probably exceptions to every rule.

Hopefully, that helps answer your question.

[Brian Masse, NDP, Windsor West, ON]

That's excellent.

Mr. MacDonald, where does the bump in the price go up? Is it at the front end or later on in the second part of it? I'm sure you're having to deal with occupied space on your property and logistical issues.

[Doug MacDonald]

The railways have very little opportunity to change a long-term pricing model. What we have the ability to do is change anything that happens outside the norm—extra storage and things like that. This is why the storage fees went up: to encourage customers to remove containers from the terminal.

To answer your other question, it's usually the small guy who gets hurt the most, because it's a contractual arrangement. I understand that, but usually the big guy dictates what the contractual arrangements are. Retail customers were paying for the storage in Toronto because the CN shipping lines won't. That was the contractual arrangement they had with them.

With respect to the OEMs and parts suppliers, the OEMs are the big dogs. The parts guys end up eating everything until it gets inside the gate.

[Brian Masse, NDP, Windsor West, ON]

This is a common theme we're hearing. I appreciate it.

Mr. Gooch, I know you're ineligible for some government programs and funding, but ports.... The only concern I would have.... I am open to the discussion about that accessibility, but you are also exempt from municipal bylaws and planning, to some degree.

Is that something ports would reconsider? I could see considerable conflict. Most ports operate fairly well with the municipalities, but there are, at times, conflicts with regard to what takes place. Is that something the port authorities would be willing to reconsider, if there were a change in access to public funds?

[Daniel-Robert Gooch]

It's not something I've discussed with my members, but I would make a comparison with airport authorities, which are federal assets that operate at arm's length from government, and with locally responsive governance and a public interest mandate. Airport authorities are eligible for economic development funds, while port authorities are not.

As I said earlier, the port authorities have borrowing limits, which are time-consuming and difficult to change. It involves working with Transport Canada. It can take years. There may be opportunities for the ports to make their own investments based on the commercial viability of a project and credit-worthiness, but that's not an angle they have access to.

Really, we're looking for more tools that allow port authorities to be nimbler in making the investments they want to make. Federal funding is just one of those tools. Without changing the structure....

We do hope to see greater flexibility come into effect for ports through Minister Alghabra's upcoming port modernization legislation so federal funding is there to fill that gap.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Masse. Your time is up.

Mr. Martel, you have five minutes, please.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

I thank the witnesses for being with us today.

Mr. Gooch, according to the United Nations Conference on Trade and Development Maritime Transport Study 2021, a return to normalcy will require investment in infrastructure, freight transport technology and digitization.

What infrastructure do you think Canada is missing to improve this supply chain?

[Daniel-Robert Gooch]

I will answer in English.

I think I spoke to a bit of it just moments ago in terms of the flexibility that ports have to invest in their infrastructure. There's physical infrastructure, but there's also the digital infrastructure.

Perhaps I'll turn to my colleague Debbie Murray to speak to that in a little more detail.

[Debbie Murray, Senior Director, Policy and Regulatory Affairs, Association of Canadian Port Authorities]

Thank you for your question.

With regard to the anticipated demands on our infrastructure, one comment we've made repeatedly to the government is that there needs to be a determination and a systematic assessment of infrastructure across Canada.

Many of our port authorities, as Mr. Gooch has alluded to, have benefited from NTC funds, in the order of almost $1 billion. Many of these projects have actually addressed many of the infrastructure gaps, but to my point about a systematic assessment, I think that would identify not just the port requirements but also the requirements along the entire supply chain. Also, with that first systematic assessment, that could be folded into the transportation strategy that the supply chain task force alluded to.

I can also speak with regard to digitalization and the comment Mr. Gooch made with regard to the physical infrastructure. Specifically, there is an ongoing concern around deferred maintenance. Many of the port authorities have not had the funds to continue the maintenance of their ports; we've seen some instances of wharves deteriorating due to climate change, and they don't have the funds right now to improve their current infrastructure.

Then, on an ongoing basis, with the digitalization, we still need to determine specifically what the costs would be and what the technology would be. I do understand that Infrastructure Canada has conducted an infrastructure assessment, and that may also provide some information in terms of some of the gaps. We also are looking at potentially conducting our own infrastructure assessment moving forward, just to consider some of the recommendations put forward by the task force.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Thank you.

Mr. MacDonald, could you answer the same question and tell us, in your opinion, what infrastructure is missing in Canada to improve this supply chain?

[Doug MacDonald]

Digitalization is a great answer: You need digitalization to be able to automate. One of the few things that will really help is further automation within the entire supply chain, and that goes from the ports to the railways to the trucking industry. As that happens, you'll get rid of a lot of downtime, I'll say, in the different areas and be able to move more freight, and more issues for customers will get through the supply chain a lot quicker.

The other thing is that you still are going to need surge capacity in the longer term, because markets are never flat all the time. That's going to require infrastructure either at port or inland. Technically, when we went through the issue with Transport Canada, the customers asked for inland storage more than anything else. That's something that's lacking right now in the industry, and we have to look at how we make it available.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Mr. MacDonald, according to a July 2022 Financial Post article, Maersk recently warned its customers that heavy congestion in Toronto was forcing CN to regulate freight traffic from Prince Rupert, B.C., to Toronto to prevent congestion at its facilities.

What impact have the delays had on the ability of Canadian companies to import inputs?

[Doug MacDonald]

We've been trying to add the inputs. A great example is in Toronto itself. We did have to constrain because the terminal was absolutely full. If we didn't do that, then we'd shut down. We've been trying to get a second terminal up in Toronto at Milton for eight years now.

That goes back to my comments around how quickly we can get infrastructure put into this country. The regulations that go into it have made it very tough. I think we would have had the ability to buffer that supply chain dramatically more by having Milton up and running. Only time will tell as we get that up and running in the next two to three years.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Martel.

We'll go on to Mr. Miao for five minutes, please.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you, Madame Chair, and thank you to all of the witnesses attending this study today.

I would like to direct my question to Mr. Wilson. I had the pleasure of meeting him a couple of months ago and did a tour at the Vancouver Fraser port at the Burrard Inlet.

Can you give us an idea of how this pandemic has affected our ports in Vancouver in the number of containers coming in? What is the time spent from anchorage to port, off-loading to a truck or onto a railcar and delivering its logistics across Canada?

[Duncan Wilson]

Fortunately, the time spent is decreasing quickly, but we were seeing situations of multiple container ships at anchor for long periods of time. We measure the dwell of containers on the terminal. The terminal dwell has been continuing to come down steadily. I think it's now at about four days.

What needs to be emphasized here is that this was a big learning for all of us in terms of how resilient or not the Canadian supply chain has been and where we need to make improvements in the future to protect ourselves against this. As my colleagues have noted, we need to have some surge capacity available in different places in order to be able to address it.

I would just point to the recent task force recommendations. One principal recommendation was the need for a national transportation strategy. There have been questions about where and what the infrastructure should be. We really need to map that out. The learnings from these last couple of years will put us in a strong position to inform the development of that kind of strategy to figure out exactly where and how we need to make those investments.

Unfortunately, in terms of this question about the longest dwell, I don't know. It was many weeks for sure, but we're down to about four days in terminal now.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you.

I remember that during my visit, you did mention about a constraint on trucks that come into port. They are required to leave the port by a certain time before a fee is charged. What other fees are applicable, depending on how long the container is being stored?

Earlier you mentioned about the prime real estate, especially with most of the ports in the west coast located in urban areas. What is the challenge you see in transporting these containers to a temporary storage site before being sent out?

[Duncan Wilson]

First of all, yes, in terms of the trucking side of things, we do charge. We try to incentivize on-time performance. Truckers can pay for being late and terminals can pay for not getting the trucks through in a quick enough time to the terminal.

For example, right now I'm just looking at the turn times inside the terminals in Vancouver. Three of the terminals are turning at about 40 minutes, which is great. Deltaport actually looks like it's at about 18 minutes right now, which is a really quick turnaround. Things are moving really well on that side of things.

In terms of fees, basically demurrage works as was described by my colleagues. It really depends on the contracts you have in place, but you do pay for a container sitting around for too long. You pay that in different locations. You may pay that on a container terminal or at an off-dock facility. It really depends on the nature of the contract that you have set up. It typically does disadvantage the smaller mom-and-pop shops—the smaller businesses—because they don't have the market power to be able to negotiate contracts that are more beneficial with respect to that. It can be very expensive.

I can't speak to how long the dwell time is in off-docks right now.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you, Mr. Wilson.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. Miao. You have 10 seconds left.

[Wilson Miao, Liberal, Richmond Centre, BC]

Mr. Dekovic, what are your suggestions to improve our rail line infrastructure as we are expanding in the Roberts Bank terminal 2?

[The Chair, Liberal, Judy Sgro]

Can we have a brief answer, sir?

[Marko Dekovic]

I really can't comment on Roberts Bank terminal 2, other than to say that from our perspective, it is not the most effective solution for Canada's needs. On the rail infrastructure expansion, I think our colleague from CN Rail would be better to explain that.

[The Chair, Liberal, Judy Sgro]

He'll have to try to do that through someone else's question.

Mr. Savard-Tremblay, please go ahead for two and a half minutes.