BC Regional Report 2017
August 1, 2017
Freight rates took a downward turn in 2015, which caused a lot of challenges for carriers in general due to an oversupply of vessels and a weakening demand for commodities, according to Chamber of Shipping of British Columbia president Robert Lewis-Manning. "However over 2016 and into the early part of 2017, there's been some reorganization," he says. "And I would say that we've seen partnerships, amalgamations and mergers and alliances form, largely in the containerized carriers, that we haven't seen before, and that really was driven by a necessity to seek out efficiencies in vessel utilization."
Now as that process is over, the marine industry is going through a period of significant change, as the alliances are deciding how they'll operate together. "On the optimistic side of the coin, we're seeing freight rates recover ever so slowly, which is important for the health of marine transportation in general," says Lewis-Manning. "We're also starting to see an increase in demand, certainly in agricultural products for export from Canada, with a five percent year-over-year level of growth, and forest products also continue to be in strong demand, despite some of the protection or counter-levying duties that are being imposed by the US. We're still seeing a strong export market into Asia, which is great."
Liquid propane gas exports continue to bring new opportunities, but LNG has taken a back seat due to the slow process of gaining investor confidence, not to mention, the number of regulatory requirements needed to get projects off the ground. Still, Lewis-Manning believes some of those projects will go ahead during 2017-2020, such as the Woodfibre LNG Limited project, which remains a strong possibility. The proposed project would see a medium-sized LNG facility that would be purpose-built to process and export LNG at a site near Squamish, BC. Should the project be given the green light, the company, which is already licensed to export close to 2.1 million tons of LNG per year for the next 40 years, could bring more than 650 jobs to the local community during construction.
Turning to the regulatory environment on several initiatives, the controversial moratorium on the export of crude oil from Canada's north coast ports is quite significant, says Lewis-Manning because the jurisdictional issue is the key point. Since Prime Minister Trudeau ultimately did not approve the Northern Gateway pipeline project, the moratorium won't have an impact on any existing business but "I think the greatest concern from that piece of legislation is the fact that it is precedent-setting. It's banning specific commodities in a specific geographical region without the full benefit of a risk assessment."
"The concern is that that sends a signal to the supply chain that Canada could be closed for business. It's not just a risk for western Canada. This could happen anywhere in Canada, so it seems that it is not that the government is making the decision, it's that it's not based on the evidence, and that's the real challenge I think that we see with a piece of legislation like this."
Some other very significant pieces of legislation include Bill C-55, which is an act to amend the Oceans Act and the Canada Petroleum Resources Act. This is a very significant piece of legislation because it provides the ability of the government to establish marine protected areas very quickly through a ministerial order, and it is actually going to freeze the footprint of current activity within the area of a marine protected area. "We don't really understand what that looks like yet, and the combination of the fact that the government is considering large offshore areas for marine protection, we think there is some risk that this may impact shipping, and we want to be working with the government to identify marine trade corridors such that marine trade can continue responsibly through those designated areas," explains Lewis-Manning.
The Species at Risk Act is a new area that the BC marine industry is coming to terms with – the critical habitat for designated species must be protected. The act covers a large part of the BC coastline, both for the southern resident and northern resident killer whale, and the transient killer whale. "It's largely related to the underwater noise created from vessel traffic. And certainly, the marine industry, in cooperation with the Port of Vancouver and the Port of Prince Rupert, is working quite hard to identify the source of noise from vessels, and to determine how to best mitigate that noise. This is a very, very high priority, especially as this federal government has indicated that it will take action to reduce vessel noise by 2019."
In fact, the Vancouver Fraser Port Authority is launching a voluntary vessel slowdown trial August 7 to October 6, 2017 in Haro Strait to study the relationship between underwater noise, commercial vessel speed and its effect on the southern resident killer whale. The trial is being planned and coordinated by the ECHO Program with the assistance of a vessel operators committee representing BC Coast Pilots, BC Ferries, the Chamber of Shipping of British Columbia, Cruise Line International Association North West and Canada, the Shipping Federation of Canada, the Pacific Pilotage Authority, Vancouver Fraser Port Authority, Washington State Ferries and Transport Canada.
How does Lewis-Manning see the outlook over the next year or so for shipping in BC? "From a commercial perspective, I think it's fairly positive. We're seeing recovery in both the demand for agricultural and natural resources, and manufactured products, so generally it's cautiously optimistic. We will see that demand increase and hopefully freight rates with it."
He says the complexity of the environment in western Canada will continue to increase as well, and a lot of that will be related to environmental protection and conservation initiatives on the west coast associated both with ecosystem-based conservation planning and also recovery strategies for endangered species. Ninety percent of the Chamber's work in the next two years will be related to how to make those two –increasing trade and also the increasing protective measures – work collaboratively in order to ensure that trade continues and continues responsibly.
"Another thing that's really important is the increasing involvement of First Nations in coastal management," says Lewis-Manning. "If you look at two of the major marine incidents that have happened on this coast in the last decade-one being the sinking of Queen of the North, and then the grounding of the tug and barge Nathan E. Stewart-in both of those situations, First Nations were the first responders, with a critical element in both the first response and then the follow-up spill response."
"I expect we're going to see an increasing involvement of First Nations on the whole coast that will want to be involved in the management of both shipping and likely conservation initiatives as well. So as an industry, that means that we also have to be proactive and more sophisticated in our relationship with coastal communities and First Nations in BC. I think that has started, but we still have a long way to go in building that relationship as an industry."
Two of BC Ferries' (BCF) new Salish class vessels, built by Remontowa Shipbuilding S.A. in Gdansk, Poland, entered into service this spring. The Salish Orca began service on the Comox-Powell River route in May, the Salish Eagle entered into service on the Tsawwassen-Southern Gulf Islands route in late June, and the Salish Raven will begin servicing the Southern Gulf Islands in the fall. BCF estimates the use of natural gas for these dual-fuel vessels will result in the reduction of an estimated 9,000 metric tons of carbon dioxide equivalent per year, the same as taking approximately 1,900 passenger vehicles off the road annually.
It's been approximately nine years since BCF has put a major new ship into service. Starting this year, the Spirit class ships, Spirit of British Columbia and Spirit of Vancouver, will go through a major midlife upgrade and conversion to LNG at Remontowa Shipbuilding S.A.
All this activity is part of a C$3 billion capital renewal plan for ships, terminal and BC Ferries' IT infrastructure launched last year. "We're essentially building ships on a continuous basis now, and what you'll see over the next five to seven years is essentially, we're introducing new ships into service every year, so it's very busy and very exciting for us," says Wilson.
The company also recently contracted with Damen Shipyards Group for an $86.5 million design-build of two Minor 44 vessels, each with the capacity to carry at least 44 vehicles and up to 300 passengers and crew. The North Island Princess, the oldest in the fleet, that services the route between Powell River and Texada Island, will be replaced, as well as the Quadra Queen II which services the Port McNeill to Alert Bay and Sointula route. The investment, partially funded by the Government of Canada, will see the smaller-route ferries be standardized, allowing for improved maintenance and reduced operating costs, by running on a hybrid diesel-electric system. The new ferries are expected to enter service in 2020.
Damen entered into an agreement with Point Hope Maritime Ltd., located in Victoria, to provide technical and warranty support for the new Minor 44 vessels, ensuring repair and maintenance activities will be performed in BC. BCF and Point Hope Maritime have agreed to a five-year supply agreement for scheduled dry-docking, maintenance, repair or refit requirements, as well as emergency dry-docking services, for eight of BC Ferries' minor vessels.
While BCF has its own ship repair yard with approximately 200 employees, it doesn't have a dry dock capability, so it relies on local industry for that. "I think both Point Hope Shipyard and BC Ferries are cautiously optimistic about the stability it will provide us and the fixed rates, so at the end of the day, we believe that that's going to benefit the fare-payer out there in terms of certainty around our vessels for operational reliability, and also around cost certainty," says Wilson.
On the BCF terminals front, the move to modernize and standardize interoperability between terminals and vessels is key, which allows the company flexibility to move ships around to meet demands without specific restrictions on them by route. Wilson is also pleased that the first year of service for BCF's first-ever cable ferry, the Baynes Sound Connector, which services the Buckley Bay to Denman Island route, has gone very well. "It was a very good investment in the vessel itself and the terminals, and its business case is still strong," he says. "It is generating significant operational dollar savings into the system and still delivering the same level of safe, reliable, and efficient service to the communities that it is serving, so we're very happy with its performance to date."
Point Hope Maritime Ltd. is undergoing a revitalization program of its own. On the brink of bankruptcy in 2003, the foundering company was acquired by Ian Maxwell, President and CEO of Ralmax Group of Companies, and given an infusion of $20 million to upgrade its infrastructure. The investment comprised the remediation of the old docks, the introduction of environmental systems on the site, and the construction of a new marine turntable, along with three new spur lines, a significant upgrade to the existing single-slip marine railway. Upon completion in 2006, Point Hope had tripled its capacity.
In 2014, Ralmax Group purchased the harbor‐front land where Point Hope is located from the BC Government, and embarked on a $3 million expansion comprising an extension of an existing spur line and introducing a fourth spur line. As a result, Point Hope has seen a 55 percent increase in permanent employment at the Shipyard. Operating at capacity, with up to nine vessels, including those in the yard and others moored along the quay, it now provides jobs for up to 200 workers, including contractors and service providers.
The yard carries out maintenance, repair and refit work on a wide range of ships that include vessels for the Canadian Navy and Coast Guard, BC Ferries' vessels, pilot vessels, fishing vessels, a growing number of well boats used for marine aquaculture, as well as tugs and barges. The BC Ferries five-year service agreement with Point Hope Maritime will see approximately 20 scheduled dry-dockings for the smaller vessels, which will contribute millions of dollars in supporting local employment and services.
In 2015, Ralmax explored the viability of introducing a graving dock at Point Hope Maritime to service larger vessels up to 560 feet. It will be approximately 73 meters long and 55 meters wide, with a maximum draught of six meters. Following market assessment in 2016, Ralmax refined its plan and is proceeding with the process of federal government and local approvals. "Connected to the recent expansion and the expansion we're planning for, we have been able to grow our average workforce from 10 people in 2003 to an average of over a hundred people today. And with the graving dry dock, we expect between 300 and 400 employees," says Riccardo Regosa, Point Hope Maritime's General Manger. "I see a lot of benefit for ship owners and shipyards in having long-time dry-docking agreements, like we have with BC Ferries."
Last year, the Prince Rupert Port Authority (PRPA) saw overall volumes down, which, Shaun Stevenson, VP, Trade Development and Public Affairs, says is entirely attributed to the decline in coal. "As we move into 2017, we've seen some modest recovery of coal volumes, and our container volumes are going quite strong. Overall, we're set for growth this year in probably both coal and grain, and then container volumes we're expecting growth over 2016."
Over the last four years, the Port's Fairview Container Terminal has handled some of the biggest ships ever handled at Canadian ports. An ambitious expansion project will increase capacity from approximately 850,000 TEUs up to 1.35 million TEUs by late this fall. The project includes construction of a second berth, and the addition of three new Malacca-max dock gantry cranes equipped with a horizontal reach of 25 containers, capable of working the largest vessels in the world.
Recently, PRPA announced an expansion project for containerized cargo on Ridley Island that will help crops from the Canadian agricultural industry reach international markets while expanding intermodal logistics capacities at the Port of Prince Rupert. Ray-Mont Logistics is developing an integrated logistics and container loading operation at the south end of the Ridley Island Industrial Site on the recently-constructed Road, Rail and Utility Corridor. Operation of the completed facility will employ an estimated 40 people. The 10-acre facility will include a rail loop corridor in excess of 100 railcars, a grain dumper pit, and a state-of-the-art conveyance system.
Additionally, AltaGas has mobilized construction for a propane export development with Ridley Terminal, the first of its kind on the west coast of Canada. "Vopak, a Dutch company in the liquid bulk cargo business, has come in as a joint venture partner with AltaGas on this first phase, then looking to explore the development of a larger liquid bulk cargo complex on Ridley Island," Stevenson explains.
Stevenson also hopes a final investment decision on the Pacific Northwest LNG project-a proposed natural gas liquefaction and export facility on Lelu Island within the District of Port Edward on land administered by the Prince Rupert Port Authority-will be made by the end of 2017.
In 2016, PRPA signed a feasibility assessment agreement with SSA Marine and its wholly-owned subsidiary Western Stevedoring to explore the viability of a breakbulk and bulk import/export terminal located on Kaien Island at the Port of Prince Rupert. The terminal project has been part of the Port's Gateway 2020 development planning and is integrated with the Ridley Island Road, Rail and Utility Corridor. The south shore of Kaien Island has been identified as a suitable site for the 80-hectare terminal development. Located adjacent to CN's mainline, in the proximity of existing bulk terminals on Ridley Island, the site provides effective marine access for ships calling on the Port.
In addition to increasing cargo diversity at the Port, the addition of a breakbulk and bulk terminal could provide capacity for breakbulk forest products, steel, project cargo, bulk specialty agricultural products, bulk mineral concentrates and automobiles.
PRPA is also nearing completion of detailed planning and engineering for a connector road that will connect Fairview Container Terminal to lands that are in the planning stage for an integrated logistics park that will allow the movement of trucks and containers along this dedicated corridor, rather than transiting through the downtown core. Construction is expected to begin later this year.
In addition, this year, the Port completed the installation and activation of a $5 million shore-based radar system. "It's probably the biggest thing we've done with respect to marine safety investments," says Stevenson. "And that's been a strong partnership with the Coast Guard and other agencies to make sure that we've got a strong basis of collaboration with those parties."