Socio-economic Considerations for the Proposed Roberts ... · number of terminal operators. In view...

GCT Canada Limited Partnership

Socio-economic Considerations for the Proposed Roberts Bank Terminal 2 project May 30, 2019


Outline

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1. About GCT Global Container Terminals Inc.

2. Expertise and Relevance to RBT2 Panel Public Hearings

3. Socio-economic Considerations

The Role of Terminal Operators

Port Authorities Governance

Market Overview and Container Forecasting

Canada’s Competitiveness and Operational Sustainability of RBT2

• US Destined Discretionary Cargo

• Business Case

• Labour Impacts and Automation

4. Summary


ABOUT GCT

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1


GCT Global Container Terminals Inc.

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HQ in Vancouver, 4 million TEUs at two leading global gateways

GCT CANADA GCT Vanterm GCT Deltaport GCT Inc. HQ

GCT Bayonne GCT New York

GCT USA


GCT Global Container Terminals Inc.

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• Majority owned (62.5%) by Canadian Institutional Investors, investing on behalf of Ontario teachers, and BC government and municipal employees

GCT Ownership


2 EXPERTISE AND RELEVANCE TO RBT2 PANEL PUBLIC HEARINGS


GCT’s Expertise

• Expertise in container terminal operations business:

o Experienced operators and responsible stewards at Roberts Bank

o History of significant and successful port infrastructure investments

• Support the Panel’s work to make informed and comprehensive recommendations to the Minister

• Inform the Panel of additional relevant information during the Public Hearing process

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Responsible Stewards of Roberts Bank

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• GCT Canada honoured with prestigious Clean50 Top 15 clean projects award

• As part of our initiative to set the standards for sustainability in the marine industry, all four GCT terminals are Green Marine certified earning “Excellence & Leadership” in nearly every category

• GCT Canada was recognized by CN EcoConnexions Sustainable Partner program for 2018

Proven environmental performance


Community Partner Investing in the communities in which we operate

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DELTA VANCOUVER

Delta Chamber of Commerce BC Children’s Hospital

Delta Farmland & Wildlife Trust BC Lung Association

Delta Firefighters Greater Vancouver Board of Trade

Delta Hospital Foundation Hastings Community Policing

KidSport Delta Hastings Elementary School

North Delta Blue Jays Baseball Heart & Stroke Foundation

Operation Red Nose – Delta Society Mission Possible

Reach Child & Youth Development Ride to Conquer Cancer

Rotary Club of Tsawwassen UBC Supply Chain Program

Tour de Delta Union Gospel Mission

South Delta Secondary School Scholarship & Drama Program

Vancouver Maritime Museum


Long-Term Canadian Port Infrastructure Investor

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History of GCT investment in Port of Vancouver

1997 + 2001 DP Commissioned + Expanded

2010 3rd Berth Expansion complete

CO

MP

LE

TE

D

2018 Yard Expansion & Densification (DREP)

PL

AN

NE

D

Active plans Investment at GCT Vanterm

Future Investment at GCT Deltaport

$180M $300M

$160M ~$1B+


GCT Deltaport Rail Densification Project (DREP) Part of Deltaport Terminal Road Rail Improvement Project (DTRRIP)

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(DREP)


SOCIO-ECONOMIC CONSIDERATIONS

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Canada’s Port Terminal Ownership landscape

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Terminal Operator # of terminals

Dubai Ports World (DPW) 5

G3 5

SSA Marine 5

Oceanex 3

GCT Canada 2

PSA International 1 1 (inland)


BC Marine Terminal Operators

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Source: www.bcmarineterminals.com

http://www.bcmarineterminals.com/


Canada’s West Coast Container Terminals

Dubai Ports World Centerm (900,000 TEU)

• Current expansion project to increase berth length & yard size

• Limited ability to further expand

Dubai Ports World Prince Rupert (Fairview) (1.35M TEU)+

• No local catchment area

• Rapid growth in volume due to US destined imports

• Serviced solely by CN Rail (and not CP Rail)

• Second phase of expansion opened in 2017

• Further expansion has significant physical and operational challenges

Dubai Ports World Fraser Surrey Docks (450,000 TEU)

• Limited to ~5,000 TEU ships

• Limited on-dock rail capacity

• Unable to expand further due to physical constraints

• Serves secondary/niche trade lanes

GCT Vanterm (835,000 TEU)

• Most efficient terminal in POV

• Highest throughput per acre

• Highest vessel productivity (moves per hour)

• Near term densification & expansion plans to deliver 25% capacity increase

• Serves the 2nd largest POV call

GCT Deltaport (2.4M TEU)

• Canada’s premier terminal

• Best intermodal connectivity, switching efficiency and overall transfer yard capacity

• Direct rail link

• Serves the largest POV call

• Rail densification project substantially complete, making GCT Deltaport the world’s most advanced on-dock rail facility.

Port of Vancouver Navigational Jurisdiction

Port of Vancouver Managed Federal Lands and Waters

Major Rail Lines

NOTE: GCT Deltaport includes recent near term capacity gain of +600K TEU from Intermodal Expansion.

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NOTE: DPW recently acquired pending regulatory approval


GCT Deltaport

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• Tenant of Vancouver Fraser Port Authority (VFPA)

• Remits to VFPA directly or collects on behalf of a 3rd party

o Rent

o Wharfage

o Berthage

o Gateway Infrastructure Fee

o Water/Sewage

o Vessel wait time fees

o Non-road diesel fee

o Terminal Gate Efficiency Fee

• Remits taxes to City of Delta

o $2.8M taxes (2018)

GCT Canada Limited Partnership 17

Port Authority Governance

The Vancouver Fraser Port Authority has multiple roles which have already caused confusion in the Public Hearing process.

• When is the VFPA acting as a landlord?

• When is the VFPA acting as proponent?

• When is the VFPA acting as a regulator?

The VFPA’s Project and Environmental Permitting Process applies to all proposed physical works and activities on federal lands and waters within the VFPA’s jurisdiction, including the VFPA’s own projects.

GCT Global Container Terminals participated in and made a submission to the Ports Modernization Review in December 2018.

March 2018: Hon. Marc Garneau, Minister of Transport announcing Port Modernization Review at GCT Deltaport

https://www.tc.gc.ca/documents/GlobalContainerTerminals.pdf




Customer Alliances

Where will alliances be in 2022 and beyond?

(+APL)

(+APL)

(+OOCL as of July)

ZIM part of

Hyundai possibley part of THEA

Will hapag be acquired, by whom

1ZIM has joined 2M on East Coast as a slot charter

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2017 2018

13 customers in 3 Alliances 9 customers in 3 Alliances

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2016 1

(+APL) (+OOCL)

H H

G6 Alliance

CKYHE Alliance

CMA/CSG/UASC

2M Alliance Maersk

MSC

G6 Alliance Hapag Lloyd

NYK

MOL

HMM

OOCL

APL

CKYHE COSCO

K Line

Yang Ming

Hanjin

Evergreen

CMA/CSG/UASC CMA-CGM

China Shipping

UASC

16 customers in 4 Alliances


VESSEL UPSIZING

Industry Trends Rapidly changing market fundamentals

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19,100 TEU

18,300 TEU

16,020 TEU

15,550 TEU

9,500 TEU

8,200 TEU

7,400 TEU

5,000 TEU 4,500 TEU

2004 2013

Source: UNCTAD, based on Lloyds Intelligence data


Marketplace context

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CARRIERS REQUIRE FEWER BUT LARGER TERMINALS IN EACH PORT

Source: Drewry, Future of Ports and Shipping, 2015

Ocean Carriers & Alliances

Terminals

Consolidation has occurred

Consolidation still needs to occur

“The dominance of the three alliances has

changed the character of that competition, as

it provides a lot of leverage to alliances.

A port with calls from the three alliances would

ideally have three or more competing terminals

that have exactly the right capacity to serve the

calls from the respective alliances. Needless to

say, this is rarely ever the case.

Ports with three terminals and calls from three

alliances can find themselves confronted with

three alliances that predominantly use two

terminals. Other ports might have two terminal

operators that will have to deal with cargo from

three alliances.

Often the outcome of such dynamics is a

“winner takes all” phenomenon, where one

terminal is over-utilised whereas the

competing terminals will be underutilized.”

(Source: pg.63, The Impact of Alliances in Container Shipping, International Transport Forum, OECD/ITF 2018)


Marketplace context Competing for U.S. destined discretionary cargo

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• In 2018, 35%* of all B.C. container import cargo was U.S. destined and discretionary in nature

• It can reach desired markets through Seattle, Tacoma, L.A./Long Beach or other ports

• We must remain competitive to continue capturing those cargoes o Cost of new container

handling capacity needs to be at lowest all-in cost in order to maintain advantage over US ports

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* Source: Analysis of BC Ports Container Volume by Origin/Destination – Mercator 2019


Marketplace Summary

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Ocean carrier consolidation challenges Container Terminal Operator (CTO) capacity expansion.

• Container terminal industry is fragmented. With consolidation, it is increasingly difficult for CTOs to generate economic returns to justify new investments for growth.

US West Coast ports have had challenges maintaining an economic demand/capacity balance.

• The ports of LA, LB, SeaTac, and Oakland (each with multiple CTOs) have underutilized capacity. BC has won market share, outperforming US ports.

Transportation, a capital intensive industry, is typically more concentrated.

• Evidenced in North American railroad, global ocean carrier alliances, ports, and CTOs.

The VFPA’s Project Rationale (CEAR document #1341) claims that “… expanding Deltaport would mean one terminal operator would control a significant majority of the market for container terminal services. Healthy competition is necessary to ensure users continue to pay reasonable rates for reliable service.”

• The VFPA’s conclusion was made without evidence and is unsound.

- In January 2018, GCT received a report by CPCS Transcom, a firm of management consultants specializing in the transportation and infrastructure sectors, that would test the validity of the VFPA’s view that port performance was necessarily enhanced through increasing the number of operators.

- The report concluded that there was no established correlation between port performance and the number of terminal operators. In view of industry trends, intra-port competition (i.e. competition within a port) is increasingly less relevant as compared to inter-port competition (i.e. competition among various ports).*

Canadian West Coast container terminals are nearing capacity; right sized expansion will be needed to meet market demand

* Source: Port Performance and Terminal Operator Numbers, CPCS (January, 2018)


Pacific Gateway Container Trade Historic Forecasts vs. Actual

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Source: Analysis of Capacity Options on the West Coast of Canada, Black Quay. Figure 5: Pacific Gateway Trade Performance vs Historic Forecasts (various sources)


Summary of Pacific Gateway Container Trade

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• Container traffic has grown and generally trended near base case forecasts

• During economic downturns, volumes have dipped below low case forecasts

• GCT agrees with VFPA that capacity is needed

• Looking to forward, we are at a cross roads and must decide how we build needed container terminal capacity, where we build it, and who will pay for it.


Pacific Gateway Overview Capacity expansions vs. forecast

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New capacity needed


Business Case Cost of new capacity

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• Questions remain as to whether the Proponent has the financial feasibility to

deliver RBT2 (CEAR Document No. 1755)

• Proponent has confirmed an estimated $3B price tag for the project

• The VFPA has requested project-specific changes to its borrowing limit ($2.8B)* in

submissions to the House of Commons Standing Committee on Finance Pre-

budget Submission in August 2016

• Further analysis is needed to assess:

o impact on Canada’s competitiveness vis a vis ability to capture of US

discretionary cargo

o debt servicing cost of a $3B new terminal facility and impacts to cost

differential compared to US ports

o impact on VFPA fiscal capacity if unknown terminal operator defaults on

payments

o VFPA’s ability to continue investing in off-terminal trade enabling

infrastructure supporting non-container cargo handling

* Source: Record released pursuant to the Access to Information Act, RIDMS#12459005 (November 2017)

https://www.ourcommons.ca/Content/Committee/421/FINA/Brief/BR8398518/br-external/Vancouver Fraser Port Authority-e.pdf




Lack of returns leads to underinvestment

• Terminal 5 in Seattle, closure of Oakland outer harbour

• Consolidation of Seattle/Tacoma Port Authorities

• APM terminals exiting Tacoma

Business Case Economic Risk of Overcapacity in the Gateway

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Image: Vacant Terminal 5 in Seattle


Business Case Status of Terminal Operator Procurement

On November 2, 2015 VFPA announced shortlist of potential terminal operators. However, on May 16, 2019, the VFPA indicated that they will have to return to the market to find a terminal operator.

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Business Case Status of Terminal Operator Procurement

• Many of the environmental impacts will need to be mitigated directly by the terminal operator. The VFPA indicated they would rely upon “reasonable management” to enforce those standards. (CEAR Document No. 1413, pg. 45) “And so long as the operator is doing those things which generally it is entitled to do under the lease, we have very little ability to tell them more specifically how to do it.”

• Without full conclusion of that process, there remain significant questions as to whether RBT2 provides relevant and necessary financial rates of return for a terminal operator to support sustainable operations at prices which will keep VFPA the preferred destination for discretionary cargo.

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Labour Impacts and Automation

• The VFPA cannot guarantee that a terminal operator will not attempt to fully automate RBT2. (CEAR Document No. 1755)

• Full automation may significantly impact the number of jobs available at RBT2 and force established terminal operators to fully automate.

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Quote from the Senate Committee on Transportation (March 21, 2018)

• RBT2 needs to be built in consultation and negotiation with labour, using innovation and new technologies while supporting quality well-paying jobs and middle-class growth.

• In order to have comprehensive socio-economic impacts of the project understood, VFPA needs to confirm what mode of operations the potential terminal operator will undertake.

Rob Ashton, President ILWU Canada

“Now what the Port Of Vancouver is saying is, “We’re going to

utilize your money to work against you, and by the way, you can’t

have any ability to run the terminal, so we’re going to send it out

to another corporation. Some other company, an investment bank

or whatever it is”

“Then what happens is they create a fully automated terminal or

mostly automated terminal, which then drives the current

tenants either out of business or forces them to automate their

terminals, which then drives workers out of jobs.”

“With GCT at Deltaport, there has been some automation there.

That automation has happened through discussions and

negotiations with the labour unions that are represented there.”


SUMMARY

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Summary

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As a trusted terminal operator with a long history in operating on two coasts, we urge the Panel to be very cautious with respect to the RBT2 proposal based on: • VFPA’s confusing and opaque mandates as landlord, regulator,

competitor and proponent • The changing marketplace moving to larger terminals in each port • The cost of new capacity and VFPA’s uncertain financing concept • Uncertain labour impacts • The lack of a committed terminal operator

GCT Canada Limited Partnership 23/05/2019 This is the footer. Edit by choosing "Header and Footer" from the Insert menu 33

Socio-economic Considerations for the Proposed Roberts ... · number of terminal operators. In view...

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