The Pressure for Scale: A New Dynamic for Canadian East Coast Container Ports?
Summary of a presentation made at the Journal of Commerce Canada Trade Conference, Toronto, June 19 2018.
A Balancing Act Between Hinterland and Foreland Connectivity
The introduction of larger containerships on transatlantic and Panama Canal services has placed the Canadian East Coast in a state of relative turmoil. Several port expansion and new container terminal projects are being considered. They include Contrecoeur for the port of Montreal, Beauport for the port of Quebec, Dartmouth for the Port of Halifax and two greenfield projects in Nova Scotia; Melford and Sydney. Each of these projects has a different value proposition and suitability to the often diverging needs of shipping lines, freight forwarders, logistics service providers, and rail operators. It can be argued that the suitability of container shipping options on the St. Lawrence can at start be seen as a balancing act between the market potential of its hinterland and the maritime connectivity of its foreland (Figure 1).
Figure 1: Hinterland and Foreland Potential along the St. Lawrence System
From an hinterland perspective the St. Lawrence can be considered as a triangle of growing hinterland density. From Halifax to Quebec, the hinterland is limited but from Quebec and upstream the inland network density increases as we reach Ontario and the Midwest. From a foreland perspective, the triangle is reversed since it is at the edge of the St. Lawrence that maritime accessibility is the highest, being next to the transatlantic great circle route. On the Atlantic coast, ultra large containerships of up to 20,000 TEU can technically call. Going down the St. Lawrence Estuary, the level of maritime deviation increases and the capacity drops to around 15,000 TEU up to Quebec. At this point the maritime deviation is such that usually only one call takes place for transatlantic services. Beyond Quebec, the capacity drops to around 5,000 TEU (Panamax) for the St. Lawrence Channel and to 2,000 TEU for the St. Lawrence Seaway (which has almost no container traffic).
There is thus a spectrum of options. In such a system the port of Montreal represented an efficient compromise since it offers a very good level of hinterland accessibility, but with a more constrained foreland connectivity. Until recently, Montreal mitigated well this constraint with full cargo rotation (full ship load for imports and for exports) for the containerships calling the port. However, the pressure for scale that maritime shipping companies are facing is inciting a reconsideration of the existing balance between foreland connectivity and hinterland accessibility for the St. Lawrence.
Four Possible Scenarios
Four scenarios can be considered, each with their respective impacts on shipping and inland distribution (Figure 2). It is important to underline that it does not mean that each scenario is equally valid.
Figure 2: Four Possible Scenarios for Container Port Development on the Canadian East Coast
The first scenario (current situation) involves no new terminal projects with the growth assumed by the existing ports (mostly Montreal and Halifax) through the intensification of their terminal assets. Because of capacity considerations, the Canadian East Coast cannot absorb more than half a million TEU of additional volume. Under such circumstances, the Canadian East Coast is facing increasing hinterland competition from the US East Coast, in addition of Montreal facing the risk of additional marginalization because of megaship services unable to call the St. Lawrence Channel.
In the second scenario (Montreal expansion), Montreal undertakes its greenfield Contrecoeur project, adding around 1 million TEU of capacity. The question remains about its implications for the existing terminals and if any of them will have the option to relocate to the new suburban terminal facility. Montreal, as a gateway, becomes more competitive over the hinterland, but on the medium or long term still facing the risk of marginalization because the new site does not effectively escapes the technical constraints of the St. Lawrence channel (around 5,000 TEU).
The third scenario focuses on the foreland with the development of a transshipment hub at the head of a rail corridor towards Quebec and Ontario (Great Circle Hub Strategy). This could involves the expansion of Halifax (Dartmouth) or the development of Melford or Sydney (Novaporte). This scenario allows the handling of ULCS and VLCS (8,000 to 20,000 TEU) and the possibility of short sea services towards the St. Lawrence and the Great Lakes as well as towards the US East Coast (New York / New England). Under such circumstances, Montreal is still called by direct services from Europe / Mediterranean but is facing growth limitations and strong hinterland competition.
The fourth scenario (St. Lawrence gateway strategy) sees the development of the Beauport project in Quebec City. The new post Panamax container port enables VLCS services (8,000 TEU and above) on the St. Lawrence and is coupled with inland rail services to Ontario and the Midwest. Montreal continues to have its direct transatlantic services with Panamax ships. This rebalancing between Montreal and Quebec is subject to market forces related to their respective cost structure and hinterland access, which is initially subject to a zero-sum game. The Port of Montreal runs the risk of having its expansion potential curtailed because of the new capacity at Beauport. This scenario also undermines the development of any new terminal along the Canadian Atlantic coast.
The issue is that none of these four scenarios offers an optimal solution simply because the existing geographical and commercial reality of the St. Lawrence.
Note: Several aspects of this piece are expanded in an article published in the Journal of Commerce titled " The pressure for scale — mega-ships reignite Canada east coast port competition". Co-authored with Peter Ford.