Weak global economies and geopolitical instability. Pressure on household budgets, translating into softened consumer spending. Well-stocked warehouses of inventory. No sign of increased demand for imports. Labour issues. The North Atlantic, like other maritime trade lanes, is not immune to these challenges.
“The North Atlantic trade lane has been steadily undergoing a post-Covid normalization over the course of 2023 and has now fully entered the era of falling demand, excess capacity and economic and geopolitical uncertainty that has become endemic to all the world’s major trade routes,” said Karen Kancens, Vice-President of the Shipping Federation of Canada, which represents the interests of the owners, operators and agents of ships “This stands in sharp contrast to last year’s trajectory, when North Atlantic trade volumes were buoyed by double-digit growth in imports from Europe, ongoing congestion in western Canada and the western U.S., and fears of a strike at U.S. West Coast ports that compelled some carriers and shippers to switch their routings eastwards. Although those factors enabled North Atlantic freight rates to remain at relatively high levels for the first few months of 2023, those rates have now declined to – and in some cases fallen below – pre-pandemic levels.”
Ms. Kancens said another important factor that may impact the North Atlantic’s ongoing transition to the “new normal” is the effort to negotiate a new labour contract between the International Longshoremen’s Association and the longshore workers at U.S. East and Gulf Coast ports.
“Although the current contract’s September 2024 expiration date is still a year away, efforts to circumvent the effects of a potential work slowdown could result in ships and cargoes being diverted to West Coast routings as early as next summer,” Ms. Kancens said. “Closer to home and even more imminent is the potential of a work stoppage at the Port of Montreal, where the agreement that is currently in place between the Maritime Employers Association and longshore workers is set to expire in December.
“The reliability of Canadian trade routings has already been subject to an unprecedented level of scrutiny due to a number of recent events, including the rail blockades that occurred in early 2020, the two strikes that disrupted operations at the Port of Montreal during the pandemic, and, more recently, the chaotic on again/off again strike that shuttered ship and cargo operations at the ports of Vancouver and Prince Rupert throughout the entire month of July. Given the vulnerabilities that these events have exposed, Canada’s ports and trade routes – including those that connect our importers and exporters to the North Atlantic – can ill afford to withstand yet another blow to their reputation as reliable gateways to world markets.”
In view of these concerns, the Shipping Federation said it is encouraged by recent comments from federal Labour Minister Seamus O’Regan indicating that he plans to initiate a process under Section 106 of the Canada Labour Code to examine the structural issues underlying this summer’s West Coast strike, as well as previous labour disputes at ports across Canada.
“Although this is likely to be a lengthy and contentious process, labour stability is an issue that must be addressed in a meaningful way if Canada is to find effective, long-term solutions to the supply chain challenges it faces – regardless of the trade route involved,” Ms. Kancens said.
The Shipping Federation is also encouraged by the government’s recent progress in establishing a Transportation Supply Chain Office, which will play a central role in advancing the recommendations that the National Supply Chain Task Force unveiled last October. These recommendations include developing a long-term roadmap for planning and coordinating investments in trade-enabling infrastructure, ensuring greater cooperation and accountability among federal departments and agencies whose mandates intersect with supply chain operations, and developing a supply chain data and digitization plan that provides end-to-end visibility for all relevant stakeholders.
“We believe that these initiatives – which are national in scope and bold in vision – are essential to ensuring the long-term health and viability of all of Canada’s trade gateways, from coast to coast to coast,” Ms. Kancens said.
The Freight Management Association of Canada (FMA), which advocates on behalf of the buyers of freight transportation with governments, carrier groups and international agencies, qualified the North Atlantic trade environment as “stagnant” so far this year.
FMA President John Corey said there are many factors affecting the lack of growth in maritime trade volumes. “Is a recession coming or will there be a soft landing?” he said. “Will interest rates stop rising and perhaps decline? Will energy prices stabilize? There are the effects of the Ukraine war on shipping patterns and potash and grain supplies. Are economic and demographic issues significantly slowing growth in China? Is Covid 2.0 on the horizon?”
Mr. Corey said there has been about a 9-10% drop in container traffic in Canada so far this year. “Most of that decrease has been through the Port of Vancouver, with some of that no doubt due to the labour dispute in July,” he said.
For 2023 on the whole, any real volume increases are in a “holding pattern” until some of these issues become clearer, he said.
Ocean rates still higher than pre-pandemic levels
The FMA said it has not heard complaints from members about service levels. “But rates, although they have come down, are still higher than pre-pandemic rates,” Mr. Corey remarked. “The control over supply by the ocean carrier alliances is also worrisome.”
A review of the Shipping Conferences Exemption Act was proposed as part of the March federal budget. “I feel this is a good opportunity for the government to look hard at the cartel-like activities of the ocean carriers and put in place protective measures for Canadian ocean shippers,” Mr. Corey said.
Commenting on key challenges and developments moving forward, Mr. Corey said, “With the strained relationship with China, there may be a push to seek other South Asian markets with lower cost structures. These markets may ship more through the Suez Canal and to the East Coast of North America. The water level issues in the Panama Canal may also affect shipping routes in favour of East Coast ports. Rail congestion and poor rail service may encourage more nearshoring and an increase in warehousing in the east of North America. This could be good for East Coast ports.”
Moreover, the introduction of international container service by CPKC to Port Saint John, the consolidation of terminal services in the Port of Halifax, and the anticipated expansion of the Port of Montreal at Contrecoeur “bode well for Canadian shippers using the North Atlantic trade lane,” Mr. Corey said.
In general terms, the Canadian International Freight Forwarders Association (CIFFA) said it does not anticipate heavy volumes and backlog due to huge volumes on the trade lanes, and no big peak season. “There is still inventory in place to draw down from,” said Julia Kuzeljevich, CIFFA’s Director of Policy and Regulatory Affairs.
“Key challenges will lie around the various disruptions, whether political or environmental, and decisions made to divert for those. We continue to deal with domestic challenges around infrastructure and customs procedures and operations, but (there is) no massive issue currently.”
East Coast port volumes
Montreal Gateway Terminals Partnership (MGT), the largest container terminal operator in the Port of Montreal, serves major carriers sailing the North Atlantic. Michael Fratianni, MGT’s President and CEO, agreed that like most trade lanes, the North Atlantic routes have also seen a decline in activity over the last nine months or so.
“Softened consumer spending and sluggish EU economies have reduced the demand for container transport,” he said. “Like many other economic cycles, we see this as temporary, with likely a return to normal growth during the first half of 2024.
“The competition for volume among ports during downcycles intensifies, so we must improve our performance to remain a preferred gateway for shippers. Reliability, predictability and consistency of service and operating in a sustainable manner are key to success.”
Containerized cargo traffic through the Port of Montreal to the end of August stood at 8.6 million tonnes, down 12.4% from the first eight months of 2022. A longtime leader on the North Atlantic, North Europe and the Mediterranean represent more than half of the port’s containerized cargo volumes.
The port handled 1.01 million TEUs from January to August, a drop of 14.4% from the year-earlier period. The decrease in the number of TEUs handled in August alone was 21.3% compared with August 2022, and followed year-over-year decreases of 15% in July, 14.7% in June, 14.3% in May, 12.6% in April, and 16% in March.
In the Port of Halifax, containerized cargo throughput for the second quarter of 2023 stood at 137,774 TEUs, down 11.9% from the year-ago period. “It’s the result of overall weakness in the global economy and is consistent with what is happening with ports and supply chains across North America,” said Lane Farguson, Marketing and Communications Director for the Halifax Port Authority (HPA).
Containerized imports fell by 17.5% while exports decreased by 5.5% in the second quarter. About 40% of the port’s containerized cargo traffic moves to or from Europe.
However, non-containerized tonnage at HPA facilities totalled 168,517 tonnes in the second quarter, up 77.6% over the corresponding period in 2022. Total cargo tonnage through HPA and non-HPA facilities in the second quarter reached 2.62 million tonnes, representing a 0.5% increase.
“Weak global economies, inflation and geopolitical instability continue to contribute to risk and uncertainty in global trade,” Mr. Farguson said. “Consumer confidence has gradually been improving but remains patchy and low. Spending across Canada and the United States has softened. Inflation continues to ease across the board, but core inflation remains at uncomfortable levels. Bigger picture, we have a forward-thinking trade strategy and are well-positioned for Southeast Asia and Indo-Pacific opportunities.”
Given the current uncertainty in global supply chains, consumer spending patterns, currency values and monetary policy, the HPA said it will not be providing any cargo forecast estimates – volume or tonnage – for 2023.
Moving forward, Mr. Farguson said Halifax is a “big ship gateway, and this is where we add value to the Canadian supply chain. We are the only port in Eastern Canada that can handle these big ships.”
In April, THE Alliance, which comprises Hapag-Lloyd, Ocean Network Express (ONE), Yang Ming and Hyundai Merchant Marine, upsized vessels in the EC5 string to 14,000 TEUs, which continues to “solidify Halifax as Canada’s Ultra Atlantic Gateway,” Mr. Farguson said.
Mr. Farguson said the Indo-Pacific region will play a critical role in shaping Canada’s future over the next half-century. “Encompassing 40 economies, over four billion people and $47.19 trillion in economic activity, it is the world’s fastest growing region,” he said. “Halifax is the only container port in Canada with a direct connection to India (MSC Indus Service).” The HPA is working with partners including terminal operator PSA and CN to further develop this market.
Port Saint John emerging as bigger player
Port Saint John is positioning itself to be a bigger player on the North Atlantic. It completed a $205-million modernization project in March that, among other improvements, added a second berth at the port’s container terminal operated by DP World. In June, the terminal operator began operating two new post-Panamax cranes capable of servicing vessels with a capacity of between 10,000 and 14,000 TEUs, bringing the total number of quay cranes at the port to four.
“It’s quite common now in any given week to see two containerships docked simultaneously,” said Craig Bell Estabrooks, President and CEO of Port Saint John.
The port is now in the middle of a $42-million “enhanced modernization” that will create more land right behind the new berth, adding significant cargohandling capacity. The project is about 50% complete and should be finished later this year or in early 2024.
The enhanced modernization “really dramatically changes our TEU capacity,” Mr. Bell Estabrooks said. The modernization project brought the port’s container-handling capacity to 325,000 TEUs. “Enhanced modernization gets us all the way to 800,000 TEUs,” the Port CEO said.
Last year, Port Saint John handled 151,000 TEUs, up 72% over the previous year, and the largest container volume ever processed in a single year. “Last year was remarkable,” Mr. Bell Estabrooks said. “We had a line internally that we were building the house while we were living in it. We were in the busiest construction year of the entire modernization in 2022 and we experienced this massive growth.”
Port Saint John has longstanding services with MSC to the Bahamas and with CMA CGM to Central and South America and the Caribbean. Hapag-Lloyd operates services through Saint John on the North Atlantic and to the Caribbean.
The North Atlantic accounts for about half of the port’s containerized cargo traffic. “The North Atlantic trade is upwards of 50% of what we have,” Mr. Bell Estabrooks said. “We view the North Atlantic trade as being a growth opportunity. We are spending significant time in Europe and working with local exporters to understand those trade routes.
“We also know that our strong north-south value proposition is what sustained this port for many, many years. The more services we can offer, the better. It’s an exciting time to look at both of those trade routes.”
Looking ahead, Mr. Bell Estabrooks said, “This year has obviously been a challenging year for global trade and specifically containerized movements, but we believe we are tracking to do very similar numbers to last year. My hope is that we will be slightly above 2022. The economy is softening. But I am of the belief that our last four months are going to be quite strong from what we’re seeing. We had two of our best months in July and August. It gives me hope that the remaining four will be strong and that we will finish just a little bit above the 151,000 (TEUs) we did last year.”
Mr. Bell Estabrooks pointed to the rail optionality that the port has with CPKC, CN and CSX as a major reason for the port’s success. “We’ve seen big growth as a result of CPKC’s incredible work, designating our port as their ‘East Coast Advantage,’ on part of their unrivalled North American rail network that they’ve created through (the CP-KCS merger).”
Bulk potash has long been a mainstay of Port Saint John, and the port is looking to move a record amount of the commodity – upwards of 2 million tonnes – this year. Historically, the port handles 800,000 to 1 million tonnes of potash annually.
“We have traditional trade routes with Brazil and South America for potash, but now we’re seeing some movements go to Europe and as far as Pacific routes as well,” Mr. Bell Estabrooks said.