Transport Committee on Oct. 2nd, 2018

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

The Standing Committee on Transport Infrastructure and Communities, pursuant to Standing Order 108(2), is continuing to do a study of the Canadian transportation and logistics strategy. The witnesses we have with us today are David Chaundy, interim president and chief executive officer for the Atlantic Provinces Economic Council; and Rajesh Sharma, strategic adviser, former chief executive officer and managing director for Tata Steel. Welcome.

Mr. Chaundy, would you like to go first for five minutes, please?

[David Chaundy, Interim President and Chief Executive Officer, Atlantic Provinces Economic Council]

Thank you, Madam Chair, for the opportunity to appear this morning and for utilizing the technology that allows me to appear by video conference from Halifax.

As some brief background, the Atlantic Provinces Economic Council, or APEC, is an independent economic policy research organization whose mandate is to further economic progress in Atlantic Canada. We do this by providing economic and business intelligence that helps organizations develop their own business plans and find new opportunities. We also produce Atlantic-focused economic policy analysis and ideas.

APEC is a non-government, charitable and membership organization. Our membership revenue is derived primarily from membership fees, funded research, events and sponsorships. Our membership includes small and large companies, labour groups, academic institutions, municipalities and government agencies.

We just held our 64th annual meeting last week in New Brunswick.

Turning now to my substantive comments, trade is vitally important to the four Atlantic provinces. Interprovincial trade, both exports and imports, amounted to $65 billion in 2014. There are more recent data available, but they don't change the basic story. This trade is equivalent to almost 60% of Atlantic Canada's regional economic output or GDP, much higher than the 40% share nationally.

International trade, of which the U.S. is our prime trade partner, amounted to over $80 billion in 2014. That is almost 75% of regional GDP, again a higher share than nationally.

As a result, transportation linkages, whether marine, rail, road or air, are vitally important for the region's current economic activity and its future prosperity.

In 2006, APEC released a report on “The Changing Global Economy: The Implications and Opportunities for Transportation in Atlantic Canada”. As part of that research we identified several key elements in Atlantic Canada's transportation system. They include two truck corridors, one between Atlantic Canada and the U.S. northeast, and one linking the Atlantic region with central Canada through Quebec; one rail corridor, operated by CN, that links the Port of Halifax and the rest of the Atlantic region with markets in central Canada in the U.S. Midwest; one marine gateway for container traffic through the Port of Halifax; and several dedicated marine and port infrastructure for the domestic and international movement of crude oil and refined petroleum products.

Of course, there are many other ports, airports, roads and short-line railways in the region.

While some of the numbers behind our analysis may have changed over the last decade, I don't think the basic transportation structure is substantially different, although limited data impedes attempts to update some of this analysis.

Our report also identified some of the key transportation issues facing Atlantic Canada. Many of these are still apparent today.

First, low density creates undue reliance on a few—sometimes one—transportation providers, such as for intermodal rail service, while transportation providers may be heavily reliant on one or two key users. Imbalanced flows, such as greater volumes of exports to the United States than imports coming to the Atlantic region, or greater import volumes from Ontario than exports to Ontario, can create a challenge for transportation providers to provide profitable services.

Second, Atlantic firms report issues at the U.S. border in terms of movement of goods and people across the border. We released a report last week to help Atlantic firms manage uncertainty in the trading relationship with the U.S. While the newly announced U.S.-Mexico-Canada agreement is a welcome step, it is not yet clear if it will address all of these practical issues.

Third, regulatory differences between provinces, such as vehicle weights and dimensions, continue to be reported as impeding the operational efficiency of trucking companies.

Fourth, infrastructure capacity can sometimes be a constraint, such as a section of Highway 185 in Quebec near the New Brunswick border that is not twinned. This can also interact with the regulatory system, such that long combination vehicles, which are allowed in New Brunswick and other parts of Quebec, are not permitted along this route, impeding transportation efficiency.

To conclude, trade and the associated transportation linkages are vital for Atlantic Canada's economy. These include transportation linkages to the United States, road and rail linkages to central Canada, and marine and air access to international markets. Capacity, regulatory frameworks and density are all important dimensions of Atlantic Canada's transportation system.

Now I would be happy to respond to any questions you may have.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Chaundy.

We'll go on to Mr. Sharma.

Welcome.

[Rajesh Sharma, Strategic Advisor, Former Chief Executive Officer and Managing Director, Tata Steel]

Thank you very much.

I represent Tata Steel Minerals Canada. It's a mining company in the northern part of Canada in remote sub-Arctic conditions. We have iron ore deposits straddling Newfoundland and Labrador and Quebec. We have put a very significant investment—over $1.5 billion—into the company. We are the only surviving new mining company that started iron ore mining during the boom period in the early 2000s.

We are facing tough challenges and difficulties, and I'm very pleased to speak in front of this committee because mining and logistics are intertwined and interrelated.

I would like to draw specific attention to access to foreign markets. Iron ore, as you know, is a commodity that is 100% exported from Canada. We have an issue about the port. The federal government has put in place a multi-user deep sea terminal with a public-private partnership. The challenges that we are facing at present are in terms of access to the port and the associated material handling facilities.

The price really is that today the capacity utilization of the port—which is state of the art and top of the line—is 10% to 15%. Out of a 50-million tonne capacity, this year in 2018—the first year—the utilization will be five million to seven million tonnes. The limiting factors, as I said, are the associated facilities in terms of unloading and stockpiling, and then the connectivity to the port.

It is in Sept-Îles, around the Bay of Sept-Îles in Pointe-Noire. The Quebec government has acquired the assets in order to at least have a multi-user concept. However, this requires investment and further funds to develop. That will lay a platform for exports.

Just to give you a sense.... At seven million tonnes, there will be an export of about half a billion dollars. There is an opportunity over the next three to four years for that seven million to go to 20 million to 25 million tonnes.

Tata Steel Minerals Canada is a player. Alderon is another player, and there are Tacora and several other players, so there is a huge opportunity for exports. The projects and investments are made in the northern territories. It allows us to provide huge job opportunities. On our site, consistently, we have about 100 to 150 first nations employees.

On a sustainable basis and on a competitive basis, iron ore exports can grow from Canada only if the logistics are state of the art, world class and cost competitive.

I just want to give you a sense of the market and of another dimension that is very important and where this committee can play a role. The iron ore market has crashed from the peak of $170 per tonne in 2011 to around $60 to $70 now. Canadian iron ore deposits are high quality, but they are in difficult geography in remote locations, and the cost structure is higher. Our competition, really, is Australia and Brazil because their cost structures are low. Despite this, we have a sweet spot because of our good quality and low impurities. However, we can sustain and compete only if we are able to provide cost-competitive, efficient logistics and a gateway for the evacuation of the ore.

I think this is a very important dimension.

Just to give you a sense of the market, I will tell you that there is about 1.4 billion tonnes of seaborne iron ore trade, and Canada would be in the range of 50 million tonnes. The major players are Australia and Brazil. There is, therefore, a huge market.

The second is the Labrador trough, which straddles Quebec and Labrador. It has a resource of over 80 billion tonnes. There is no shortage of deposits. It's the ability to extract them in a cost competitive and an efficient manner.

Really, the upside is a huge number of jobs, very substantial investments, and sustainable development, including working with the first nations communities.

I would urge the committee to consider putting in investments and supporting the efforts of the Government of Quebec in developing this multi-user material handling facility in order to have connectivity to the federal deep-sea new terminal.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Sharma.

We'll move to questions from committee members.

Mr. Jeneroux.

[Matt Jeneroux, Edmonton Riverbend, CPC]

Thank you, Madam Chair, and thank you both for appearing before us here today.

We spent the last week going across the country. We started in the Niagara region, went and visited a few ports and opportunities there. Then we went to Vancouver and down to Seattle to visit their ports as well.

A constant theme for me throughout the trip was the impact, either positive or negative, of some pieces of legislation that have come forward recently. One that we heard of a lot in Vancouver was the impact of Bill C-69 and what that meant for a number of...whether they be importing-exporting companies or airport authorities.

I'm hoping to open it up to both of you. Perhaps to you, Mr. Chaundy, is there any impact that Bill C-69 legislation would have on your organization?

[David Chaundy]

We don't have any specific information right now on the impact of that particular bill. We have not heard directly from any particular company. Our research tends to be occasional. When we're doing work on trade and transportation, that's when we delve into those issues.

We have not done any specific study recently on transportation or on this particular bill. I'm not saying it's not a concern for any of our transportation users, authorities or shippers, but I don't have any specific insights on that specific legislation at this time.

[Rajesh Sharma]

In our dealings, we have not come across any conversations around the impact of this bill.

[Matt Jeneroux]

With regard to you, Mr. Chaundy, you referenced from your website, “Navigating U.S. Trade Uncertainty: A Practical Guide for Atlantic Firms”, which you published just a few days ago. In one of the pieces there, you talk about the advice you provide on tariff and non-tariff issues. I know a lot of us are going through the fine details of the USMCA agreement.

Have you heard from any of your stakeholders yet on some of the impacts on the tariffs?

[David Chaundy]

Not yet. My colleague was dealing with most of the analysis and made the interviews on that so I could prepare for today's session. Our overall sense would be something that you probably heard from other business users. The uncertainty about whether there will be an agreement has been a key issue impacting business decisions. Having an agreement is quite critical. In that regard, it's a positive step forward.

As we highlighted in our analysis, if we didn't come to an agreement, and the U.S. withdrew from NAFTA there would be potential tariff implications. With the agreement in place, that should minimize any of that risk. As has already been noted, some of the existing tariffs and existing trade issues around softwood lumber, steel and aluminum have not been resolved.

In terms of the risk we were looking at as to whether that would be there, our members and the companies in this region will be quite pleased that there are no new tariffs coming because that agreement is not there. We just haven't had time to fully go through the rest of the agreement to know whether there are any other major issues that might be of concern for Atlantic Canada producers in particular.

[Matt Jeneroux]

Would it be fair to say then that the uncertainty of not having a deal has subsided, but because the tariffs still exist, there's still that general uncertainty with your stakeholders?

[David Chaundy]

Yes. I think for those who are impacted by the steel and the aluminum, so any of our metal fabrication firms who still may be facing higher costs, that would still be an ongoing concern. There are issues around access with softwood lumber that would still be a concern.

Where there's existing [Technical difficulty—Editor] and those are not resolved as part of this agreement, yes, that would still be an ongoing concern. Again, the hope would be that with this agreement, the risk of any new tariffs coming would be eliminated. The fact that the U.S. has not eliminated the tariffs on Canadian steel and aluminum does raise a question about whether that's fully resolved or not.

[Matt Jeneroux]

I'll switch gears a little bit. With 700,000 trucks per year going through approximately 16 Maine-New Brunswick border crossings, is there a growing concern about the approach taken by the U.S. in terms of their zero tolerance policy when it comes to marijuana for drivers across the border?

[David Chaundy]

This was a point that we did raise in our guide. We did flag that as a potential concern. I don't think there's anything in this particular trade agreement on that specific issue. We did flag this as a concern, that this might be an issue given their policies. I think we have to wait and see exactly how that plays out and, again, see whether dialogue between Canadian and U.S. officials can result in some kind of understanding about how that will work.

Yes, we did flag that as a concern. We have not yet heard from the business community in terms of their experience with specific issues in that regard.

[Matt Jeneroux]

October 17 is just a few days away now. That's when it becomes legal. I'm curious, have you heard from the minister or any members of the government on what the impact of that might be?

[David Chaundy]

No, I haven't heard.

[Matt Jeneroux]

Okay. Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll move on to Mr. Rogers.

[Churence Rogers, Bonavista—Burin—Trinity, Lib.]

Good morning, Mr. Chaundy and Mr. Sharma. Coming from Atlantic Canada, and living on an island, of course, I have heard many times from the business community about the challenges of accessing markets.

Mr. Chaundy, I'll ask you for your thoughts first. I briefly reviewed your report on the regulatory issues in Atlantic Canada. As I read that report, I saw that one of the challenges that you clearly identified was having provinces work together to put in some kind of regulatory regime that would create efficiency, improve interprovincial trade and make other improvements to trade. Your report talks about the need for an Atlantic regulatory and co-operation agreement. What are the biggest barriers or challenges to implementing your proposal?

[David Chaundy]

Again, I think there are probably a number of issues. One is that these issues have been identified for many years. When we did the initial research talking to the business community—we released our initial report describing the barriers in 2016—a lot of the firms identified that in certain specific cases there were big issues that impeded their market. In many cases they just found a way to get used to it.

Although it's a challenge for them, and it prevents them, maybe, from having an Atlantic-wide strategy, and it impedes their efficiency in moving vehicles from one province to another and being able to deploy personnel and equipment, they have generally just had to live with that situation. In some ways, I think, the business community sees and recognizes it as an issue, but it's not their most pressing concern. Issues around NAFTA, the exchange rate, labour shortages and other things would be top of mind compared with regulatory issues.

The other practical challenge is the commitment of the four provinces to work together to resolve these issues. We saw some positive steps in commitments by the four premiers back in 2015-16 to establish a new office to work on these issues. They have been making progress. Our concern is that it's easy to say we're going to do this, but to actually do this is a big challenge.

One of the issues is that there are so many regulatory issues. Even in transportation, as we talk to firms, there are issues around vehicle weights and dimensions. There are oversize or overload permits, and different rates of fuel taxes. Just within the transportation field we had a number of issues identified to us. It's a huge agenda, therefore, just to start to work on those as well as labour standards and health and safety. That's partly why in our proposal we were recommending essentially a “negative list” approach. We will ensure that firms can operate seamlessly across the region and then take exceptions on areas where we can't yet make that adjustment.

The size of the task and the willingness of political leaders to make those adjustments and start to work as a region in practical ways rather than maintaining their own provincial policies and regulations, I think that's probably one of the biggest challenges.

[Churence Rogers]

Mr. Sharma, I understand the challenges you face in the Labrador environment, in getting product to market and achieving maximum dollar in terms of getting into some of the best and most demanding markets in the world to keep the product price at a good level.

What are some of the challenges in transportation logistics faced by your business in particular? What would you like to see come out of the ports modernization review?

[Rajesh Sharma]

Given where we are, ours is a 100% export business. We have two departs. One is the inland transport, which is the rail transport.

Our mine is situated up north in the Menihek and the Schefferville regions across Quebec and Labrador. The iron ore has to travel more than 600 kilometres to come to the port.

One part is the rail logistics. There are parts of the rail set-up that need improvement and upgrading. As you know, Schefferville is connected by air and rail. There are communities there and there are businesses that are running and there is opportunity to grow. That is one dimension of it—the rail part, which needs improvement and upgrading.

First, the plain economics may not work out. Individual mining companies may not be able to pump in the amount of money required to make it robust for their own consumption, the public's consumption and the growth opportunities that may arise.

The second is around the port. For bulk commodities like iron ore, when we talk about millions of tonnes, that's a huge volume. For those not in the business, it's difficult to visualize. World-class infrastructure in terms of cost and service is required. I think the transport policy should consider that as a trigger for economic development because that's where we are struggling right now in Canada. There is a huge gap in infrastructure, cost structure and port services.

To extend my argument for your information, the federal government along with the mining companies invested $220 million in a deep-sea terminal at Pointe-Noire. The issue of access and moving your product to the transfer tower of the new terminal is still unsolved. It's like having an apartment on the 48th floor in the best building in town, but there is no escalator or elevator. That's the situation.

[The Chair, Liberal, Judy Sgro]

Good explanation, Mr. Sharma.

I'm sorry Mr. Rogers, your time is up.

Mr. Aubin.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Madam Chair.

I want to thank the two witnesses for being here this afternoon.

It has been a pleasure listening to you, gentlemen, and benefiting from your expertise. I will begin with Mr. Chaundy.

You already answered one of my questions by giving specific examples of the differences in provincial regulations, which are problematic for you. In this regard, you focused on the Atlantic region, and it is clear why. Yet you also referred a number of times to the road that also leads to Quebec.

Since trucking regulations are partially under provincial jurisdiction, what kind of leadership do you expect from the federal government or what aspects should it address?

[David Chaundy]

As we have done our work on interprovincial trade focused on Atlantic Canada, we have clearly acknowledged, in our report, that in Atlantic Canada our business is not primarily within the region. As I mentioned in my opening remarks, we depend heavily on trade with the rest of Canada and internationally. Those cross-Canada and international linkages are very important.

The specific example I referenced was an example of a capacity and regulatory issue. The provinces of Ontario, Quebec, Nova Scotia and New Brunswick have come to an agreement to try to facilitate long combination vehicles. We see the provinces co-operating in that case. The challenge is that it's interacting with capacity issues in a particular location that impede Atlantic Canada's access, for example, to central Canada.

Again, if the provinces are not able to fully come to terms with how to address that, because Quebec has its own interests and it's essentially paying for that infrastructure even though there are other users and beneficiaries, that might be a role for the federal government to try to facilitate by saying, “This is a national corridor. This is of national importance. Therefore, how can we help facilitate and maintain infrastructure that's of national importance and not just for one specific province?”