The H2O highway

Source: Financial post

Toronto -- The office and condominium towers lining Toronto’s harbour have made it increasingly difficult for the people of this city to see the blue-grey waters of Lake Ontario stretching out beyond. Many would be surprised to learn the Toronto port still operates commercially, mainly unloading cargoes of sugar, salt and cement at its docks.

But one of the city’s most underutilized assets may soon be living up to its potential, becoming a major hub of commercial activity and reminding the citizens of the country’s largest city of its strategic maritime position.

After successfully revitalizing the Billy Bishop Toronto City Centre airport over the past five years, the Toronto Port Authority (TPA) looks to bring short-sea shipping lines to the St. Lawrence Seaway and the Great Lakes.

Geoffrey Wilson, TPA’s chief executive, says he is exploring the feasibility of feeding Toronto’s swelling population — and demand for goods — by water, bringing everything from consumer goods to construction material in by barge.

Short-sea shipping, which simply means not crossing oceans, is more environmentally friendly than transporting goods by rail or truck; barges use less fuel. It also offers the bonus of cutting the number of trucks on the city’s congested arteries, he said.

Toronto’s population is set to swell to 7.6 million people in the next three decades. With that growth comes demand for more goods. As fuel prices rise and traffic congestion worsens, the economics of short-sea shipping in Toronto become more feasible, Mr. Wilson said.

“Toronto has a unique asset that no other cities on the Great Lakes and no other cities in Canada can claim. We have a population,” he said. A swelling population will not only put pressure on the amount of goods imported, but exported as well. “Toronto’s population has tremendous productivity and output of goods, and what I would suggest is that there will be forces that direct that back to the water. Our job, as the Port Authority, is to see that opportunity coming.”

Mr. Wilson, who came to the TPA with a shipping background, said his immediate priority remains the continued success of the Toronto Island airport, which has increased its traffic to an estimated 1.5 million passengers next year from 22,000 passengers five years ago, with Porter Airlines, Air Canada and Continental Airlines all slated to serve it by 2011.

He wants to use the success of the airport to help revitalize the 52-acre port of Toronto in the coming years.

“For us to be successful as facilitators of that shift back to water, I think we’re going to earn our credibility first and foremost in our management of the airport and to show the citizens of Toronto we have done an extremely good job on that asset and that we have the vision to see that come to fruition and transfer that over as a credible step into the next one,” he said.

Mr. Wilson’s ambitions may seem a little pie-in-the-sky. Rail and trucks still offer advantages over shipping by barge, both in time and speed. But he is not alone.

A movement to implement a short-sea shipping network along St. Lawrence Seaway and the Great Lakes has garnered the support of terminal operators and port authorities in both the United States and Canada, as well as federal and local governments in those jurisdictions.

Ports from Oshawa to Hamilton, Ont., as well as those in Cleveland and Toledo, Ohio, and Rochester and Oswego, New York, have all been considering the plan.

Rising fuel prices are one factor making shipping by barge more feasible. But traffic congestion in the Greater Toronto Area also has an impact on shipping costs, not to mention costs to the economy in terms of production.

Meanwhile, increased trade with Asia is expected to drive a 6% annual increase in container traffic to Canada, which is congesting ports on the West Coast, and making shipments to the East Coast through the Suez and Panama canals more viable.

Ottawa has estimated that at least 30% of the West Coast port growth could be diverted to the East Coast, which will already see “significant” growth across the Atlantic.

“[Short sea shipping] should be possible, especially if you get ports like Oshawa, Toronto, Cleveland, Rochester on board, if you have a real rotation for the barges,” said Ruth Snowden, executive director, Canadian International Freight Forwarders Association. “But you have to have some infrastructure on either end.”

CIFFA has also been pushing for a roll-on-roll-off barge service between the United States and Canada for trucks to ease congestion at the border.

To date, the port of Hamilton has been the most aggressive in trying to implement a short-sea shipping network from the port of Montreal.

Last summer, the Hamilton Port Authority ran a short-sea shipping pilot project. The so-called Sea3 initiative ran over a 28-week period, with 56 sailings.

While the recession dealt the program some challenges, it was successful in showing an underlying demand for short-sea shipping, said Ian Hamilton, vice-president of marketing and business development for the Hamilton Port Authority.

Shippers from the Liquor Control Board of Ontario (LCBO), the primary distributor of spirits and wine in the province, to steelmaker ArcelorMittal participated in the program, which imported consumer goods from ocean freighters in Montreal, and exported commodities like steel coil and scrap metal from Hamilton.

Short-sea shipping is ideally suited for heavy cargo that is less time-sensitive. The average train, for instance, has a capacity of 25 tonnes, whereas a barge can carry 30 tonnes, which automatically represents a 20% savings per load, Mr. Hamilton said.

Barges are also twice as fuel-efficient as rail, and nearly 10 times more efficient than trucks.

More important to citizens, perhaps, is that if a successful barge system were in place between Montreal and Hamilton, it would take roughly 700 trucks a week off the roads, reducing traffic in the region by up to 4%, Mr. Hamilton said.

“We really started to see the underlying demand coming through,” Mr. Hamilton said about test project. “Canada has put a lot of energy and effort into developing the road and rail network, and marine is under-utilized. I have to say that the actual service you get from road and rail is quite good. It’s only now that you’ve got escalating fuel prices and increased congestion that there’s a real value proposition to exploring marine.”

Mr. Hamilton said he would like to see some sort of short-sea shipping system between Hamilton and Montreal by next year. But he said that would require either the provincial or federal governments to step up, or the private sector to come up with the funds to get it to float.

Two new cranes, similar to the ones recently purchased by the Port of Toledo, would run about $7-million, he noted, while a new barge would cost $2-million to $3-million.

Shippers are excited about the prospect of having another option out of Montreal, said Nick Nanos, who handles shipping logistics for the LCBO in Toronto.

The LCBO was impressed by the Sea3 project, and if the price was right, would welcome a barge system as an alternative to rail or truck, he said, especially if one were established in the port of Oshawa, near the LCBO’s main distribution centre in the GTA.

“There are constantly challenges we face with rail-car shortages out of Montreal, so right now there’s only two options: truck it or rail it. This makes a third option more viable,” he said. “I think business, all different industries, need a third option out of Montreal, and I think the market requires that.”

He said there are certain goods, such as Bailey’s Irish Cream for instance, that require constant refrigeration and still need to be shipped by faster rail or truck. And while he also had some reservations about the frequency of barge travel times, there is plenty of high-volume inventory the LCBO would be interested in shipping by barge, he said.

But some major hurdles, both logistically and regulatory, must be overcome before a short-sea shipping system could be put in place, said Bruce Hodgson, director of market development for the St. Lawrence Seaway Management Corp. The SLSMC is at the forefront of the so-called Highway H20 initiative aimed at getting short-sea shipping in the St. Lawrence Seaway.

A sustainable system would not only require the right infrastructure, from cranes to barges, but would also require a much higher volume of container traffic. That would mean convincing shippers and shipping companies, such as Hapag-Lloyd, which actually own the containers, to embrace the move, Mr. Hodgson said.

Getting the adequate volumes moving in and out of the seaway to achieve the needed economies of scale would also likely require some regulatory changes in both the United States and Canada, Mr. Hodgson said.

Currently, Canadian-flagged vessels are not allowed to travel between two U.S. ports, which limits the ability of barges to move goods between ports, while ensuring there are no wasted trips carrying empty containers, Mr. Hodgson said.

These so-called cabotage rules are another barrier to making the system efficient for shippers, he said.

In the early 1990s, the European Commission took the first steps in establishing its own short-sea shipping network, with the goal of reducing emissions and traffic congestion. Instrumental in the success of that system, however, has been the ability of any vessel from any country being able to dock at any port in Europe.

“If you compare our North American model to the European model, the European model has had a very successful short-sea shipping system,” Mr. Hodgson said. “But what they allow is vessels from any flag [to dock in any country].

“The cabotage rules add to the cost.”

There are also duties in place in the United States for Canadian-flagged ships, which Transport Canada has identified as a barrier to entry for star up short-sea shipping operations.

Ottawa has, however, been meeting with its U.S. and Mexican counterparts. This past summer, the Trilateral Working Group on Short Sea Shipping met in St. Catharines, Ont., to find ways to eliminate or minimize such barriers in accordance with the recommendations of a binational study conducted in 2007 that offered short-sea shipping as a possible solution to increased container traffic, road congestion and rising fuel prices.

“Transport Canada has been working with the provinces of Ontario and Quebec, and with a number of industry stakeholders over the past two years. Their discussions focus on how to optimize each mode of transportation and how to better integrate the modes,” said Maryse Durette, a spokeswoman for the ministry.

“Short-sea shipping is at the forefront of these discussions.”

Financial Post