HIGHWAY H2O CONFERENCE
SPECIAL REPORT
Highway H2O initiative strives
to dig deeper into foreign markets
By JACK KOHANE
January 18, 2010
Despite a downbeat economy that buffets global shipping markets towards an uncertain horizon, there were some upbeat vibes among the 120-plus delegates at the fifth annual Highway H2O Conference held in Toronto.
Presented by the St. Lawrence Seaway Management Corporation, the agenda brought together experts from the financial, manufacturing and shipping sectors to assess the impacts of the sputtering economy on marine transportation and such major cargoes as steel and coal, as well as to shed light on the key European and Chinese markets that influence the health of the Great Lakes-St. Lawrence Seaway system.
“This may be the daddy of (economic) busts, but there are signs that the global economy is breaking free from the tenacious grip of recession,” said Aron Gampel, vice-president and deputy chief economist for Scotiabank, launching swiftly into his market overview. “Economic forecasts are being revised upward, indicating the global economy is transitioning from recession to recovery.”
The new forecast had Canada’s economy shrinking 2.2 per cent by the end of 2009 but growing 2.5 per cent in 2010, he said at the November conference. Mr. Gampel backed up his prediction, saying, “We have gone from being a below-consensus forecast to an above-consensus forecast. After a year of cutting predictions, the foundations for a recovery have been laid.”
Several market forces are contributing to the renewed economic optimism, Mr. Gampel told conference delegates, who listened intently to his unscripted presentation. “Lower prices are enticing households and businesses to increase their purchases, while industrial activity is gearing up to restock inventories depleted by massive production cuts and the recent improvement in sales,” he said.
Among the other positives, Mr. Gampel said borrowing costs should remain lower into the foreseeable future thus sustaining recovery; governments remain committed to providing fiscal stimulus; and the major emerging economics of the world, including China, India and Brazil, are already doing significantly better. “It will be a sluggish recovery (for North Americans),” he said. “Canadian balance sheets are in decent shape, spurring participation in the recovery. Though there’s a lot of pessimism out there, the markets – not economists – are forecasting a recovery. That shows confidence in a recovery gaining momentum.”
Allen Wright, president and CEO of the Calgary-based Coal Association of Canada, likened the global economic crisis to a tsunami, pointing out that first-quarter results for 2009 in the metallurgical (steel-making) markets showed collapsing demand worldwide and an oversupply of coal. “Demand was robust in China and India, however, and (was) expected to remain strong until the end of (2009),” he said.
As for thermal coal used in energy, Mr. Wright noted the ups and downs of demand, citing that Chinese imports were to increase 35 million tonnes over 2009, while the market in India was also expected to be up 12 million tonnes. On the downside, the U.S. market was expected to slide at least 8 million tonnes in 2009; Japan was to be down at least 5 million tonnes; and Spain was to drop 5 million tonnes.
Mr. Wright noted that both the global financial crisis and provincial environmental politics and environmental regulations conspired to reduce coal shipments on the Great Lakes-St. Lawrence Seaway system to about 10 million tonnes, compared to 17 million tonnes in 2007.
Last year was a “roller coaster ride for coal producers,” Mr. Wright said, adding that although he sees a current upswing in demand, its sustainability is questionable. “Canada is positioned well with high-quality coal resources and reserves. But coal and Highway H2O net throughput will drop in the years ahead,” he said.
Mark Parker, a partner with steel consulting firm Metal Strategies headquartered in West Chester, Penn., and a professor of international business with Niagara College in Ontario, told the audience that this recession resulted in a sharp drop in steel demand in North America in 2009 (U.S. demand was projected to decline almost 50 per cent last year, following a nearly 10-per-cent decline in 2008). Weak economic performance coupled with aggressive de-stocking of steel well into 2009 also contributed to the sharp decline, he said grimly.
On a positive note, Mr. Parker said the requirements for re-stocking of steel by end users and distribution centres will contribute to a forecast recovery in demand of 10 to 15 per cent each year over the next two years. “However, the underlying growth in real demand will be gradual, and it is expected that steel demand in the U.S., or North America for that matter, will not return to the average level of the last decade until 2013,” he said.
The decline in underlying real demand reflects weakness in automobile production, non-residential investment, and machinery and equipment production – these accounting for 75 to 80 per cent of steel demand. “Automobile production, while down (in 2009), has shown a turnaround … underpinned by producer and government incentives, especially the U.S. clunkers program, which has ended, and as such the sustainability of this turnaround is uncertain,” Mr. Parker said. “Investment in machinery and equipment remains weak, due to poor profitability and tight credit conditions. Clearly this will constrain steel production with declines in a key export market for Canadian iron ore.”
Against this backdrop of ongoing uncertainty, the Highway H2O initiative has needed to redouble its efforts to penetrate deeper into foreign markets to raise awareness of the Great Lakes-St. Lawrence Seaway system and its position linking the world to the U.S. and Canadian mid-continent.
Boosting the business case for the system, Alan Taylor, European representative for Highway H2O, noted that promotion of the facilities offered by the system is at the forefront of his activities. He has represented Highway H2O at Breakbulk Europe in Antwerp, Transport Logistic in Munich, TransRussia in Moscow, and Multimodal in Birmingham, England.
“The World Steel Association has said that global demand for steel will rebound (in 2010) in Europe, Japan and the U.S.,” Mr. Taylor began. “In Europe, demand had improved significantly due to the completion of commodities de-stocking with steel producers running down inventories built up in the last two years.”
Asked his suggestions for expanding use of the Great Lakes-Seaway system, Mr. Taylor replied: “If we can get an owner/operator, port and distribution company working together on specific projects, we have the opportunity to offer potential customers (of the system) a ‘one-stop shop’ rate. This can be particularly attractive where we see cargoes moving to or from other areas of North America but know that the sum of the components we can offer provide savings.
“If the rates are submitted standalone by each of the companies in the chain, they will often be used to pick off certain aspects of the service and quite likely the cargo will remain with its current routing.
“I have seen the (one-stop shop) model used to great effect in intra-Europe transportation. I see this as the way forward.
“We are still experiencing challenging times in the world economies and the Great Lakes-St. Lawrence Seaway system is enduring more than its fair share of pain with, in my opinion, no major recovery before 2011. You have over here a magnificent system with good quality ports, terminal operators, carriers and distribution specialists. If we work together and continue to promote what we have, new opportunities will arise and old businesses will recover and return.”
Naran Andreyev, managing director of Logistics Plus and Highway H2O’s representative in China, told conference attendees that his team works “to connect the dots between our partners in the Seaway and the many opportunities that are developing in China. Through active marketing and energetic education, we look to build relationships that will generate better understanding and more co-operation that will lead to increased business for the Seaway.”
Based in Shanghai, Mr. Andreyev said he receives many requests for assistance from companies that need to deliver cargo to and from the Great Lakes for freight as diverse as iron ore from Randville (Mich.) to Nanjing, pressure vessels from Qingdao to Oswego, and waste burning energy plants from Suzhou to various Great Lakes ports.
There are some key signs of economic turnaround in China. “The last two quarters of 2009 (showed) a sharp increase in business/shipping activity,” Mr. Andreyev said. “Carriers have reduced capacity, creating a temporary surge in demand, which in turn has inflated prices. China Inc. is also diversifying into other non-traditional markets such as Central Asia and Africa. So, China Inc. – meaning that as a country, (the government) has a sole purpose in creating business for the betterment of its country – is still China Inc.
“Domestic consumption is rising in China and infrastructure projects continue to roll. This means that China is still searching for resources to fuel its manufacturing base. (Highway H2O) offers an innovative product that is a lean, green, delivering machine.”
Discussing marine policy, Canadian Shipowners Association president Bruce Bowie spotlighted the efforts of his members in helping build the Highway H2O brand with a cleaner image. “Our organization’s priorities are aimed at achieving an investment climate that encourages renewal of an aging fleet, a bi-national regulatory framework that optimizes environmental performance in the Great Lakes-St. Lawrence waterway, as well as providing support for programs to aid the further greening of marine transportation and facilitate the attraction and retention of young Canadians into the marine industry to replace an aging marine workforce,” he said.
Emphasizing marine’s place as the safest and most environmentally friendly mode of transportation, Mr. Bowie said, “Part of our role is to ensure that government policy-makers and the general public understand the safety and environmental advantages of marine transport. Any policy or regulation that drives traffic to other modes will have an adverse impact on Canada’s environmental and safety performance. Marine transportation is green transportation and the marine carrier industry is committed to getting greener.”
Mr. Bowie underscored his organization’s commitment to the Green Marine initiative. “We support the new NOx standards on new vessels, assuming the technology can be developed,” he said. We support reducing sulphur emissions if sufficient time is provided for market adjustment and fleet renewal. But we cannot absorb the shock of doubling fuel prices across the entire fleet by 2012, and the (U.S.) Environmental Protection Agency has not made the case that such an unrealistic implementation timeframe is warranted in the Great Lakes.” Trucks in the U.S., with a useful life of about one fifth of that of a ship, were given a 10-year phase-in period to adjust to new fuel standards.
According to the CSA president, such new rules should be phased in over sufficient time to allow marine transportation markets time to adjust to increased costs rather than shifting to other modes, and to allow the ship fuelling industry to develop an efficient and effective supply chain. They should also provide an investment climate conducive to allowing the marine carrier industry to introduce new ships and/or new technologies with enhanced environmental performance before their markets are lost to other modes.
Lastly, Mr. Bowie expressed his hope that Transport Canada will someday partner with the EPA to develop a solution that is better for the environment and Canadian interests. “Bi-national regulations must establish a realistic approach to ballast water for existing ships and acceptance of systems installed on new ships for the life of the system,” he said. “For air emissions, timelines and transition targets must be set that strike a proper balance between environmental improvements, economic effects and the realities of the needed recapitalization of the Great Lakes fleet.”
Bruce Hodgson, director of market development for the St. Lawrence Seaway Management Corporation, spotlighted the thrust of this year’s conference that the Great Lakes-Seaway system is a natural route with plenty of room for more cargo. “The H2O brand is gaining recognition on a global basis and our message is clear: Highway H2O is open to new ideas in different markets. We want to work with you.”