A Gateway to Canada's Future

Authors: Charles McMillan, George Stalk

The explosion of imported goods from China, India, and other Asian economies is leading to serious congestion in the ports, rails and roads of North America, and our ability to meet this challenge.

The solution may lie with Canada's own transportation infrastructure. Canada is uniquely positioned to become the North American gateway from Asia and Europe to the markets of this continent. Canada is uniquely positioned to become the North American gateway from Asia and Europe to the markets of this continent. This is truly a nation-building opportunity to shape our country's future.

Today, over 90 percent of international trade is ocean-borne, mostly in containers. The volume of containers shipped to the west coast ports of Los Angeles, Long Beach, Seattle and Vancouver has grown tenfold in the last 40 years, from 2 million to 20 million TEUs (a measure of cargo capacity). The lingering effects of the global recession have dampened demand and masked this growing congestion, industry insiders believe we’ll reach a crisis point in 2015—if not sooner.

The United States’ key ports are "city locked." U.S. spending on logistics infrastructure is constrained by budget shortfalls, environmental concerns, and political gridlock.

Canada is well positioned. The ports of Prince Rupert and Vancouver in the west and Halifax and Montreal in the east have natural competitive advantages. They are closer to Asia and Europe, respectively, than any U.S. ports, can expand their capacity as demand increases, and are connected to inland markets by transcontinental railroads. These strengths—location, capacity, and rail connections—are powerful advantages.

Canada already has the beginning of an Asia-to-North America gateway in the port of Prince Rupert (PPR). PPR is closer to Asia than any other major port by about 2,000 miles (or 3 days transport time), and moves a growing number of containers from Asia to central North America, particularly to the United States, and the only container port on the continent to grow during the Great Recession of 2008. Impact studies show that port-related jobs generate wages of almost $130 million in British Columbia, add more than $290 million to the province’s GDP, and spur another $550 million in economic output. And this could just be the beginning.

Canada needs the capacity to handle bigger ships, an integrated technology platform and communication links for key supply chain players. Canada needs the capacity to handle bigger ships, an integrated technology platform and communication links for key supply chain players. But three factors are critical to success:

- Government commitment and support. Canada's government must be a catalyst and champion, driving the vision forward. Ottawa must invest not money but attention in infrastructure, develop new policies that support related projects and funding, remove taxes and regulatory impediments, expedite permits and approvals, and regularly update border security. Finally, federal and provincial departments of trade, transportation and industry must coordinate all gateway initiatives.

- Strategic port development. Montreal, Halifax and Vancouver can expand substantially without major disruptions. Prince Rupert would need to reach capacity of 5 million TEUs per year to achieve world-class size and capabilities. This development would present a number of challenges: costly topological changes to expand PPR's facilities; increased demand for rail transport that would bump up against current capacity; the need to attract a critical mass of shippers; potential involvement from First Nations groups; and mitigate possible U.S. protectionism.

- Alignment of supply chain players. To optimize end-to-end efficiency and reduce costs, the gateway will require deep collaboration among the port authorities, terminal operators, shippers, exporters, manufacturers, retailers, and other key players in the global supply chain. The greater good must trump individual and corporate self-interest— admittedly, a major hurdle. The goal is for key players to act as one company when managing the supply chain. Studies show that operating profits can be about three times greater when an end-to-end supply chain is integrated.

The Great North American Gateway requires a compelling vision, strong industry champions, and national support. Canada can assume this pivotal role in the global economy—and gain enormous economic benefits—if governments and business leaders make it a priority.

Charles McMillan is Professor of International Business, York University, Toronto. George Stalk, Jr. is Senior Advisor to the Boston Consulting Group and a Fellow of the Asia Pacific Foundation of Canada.

This piece was first published in National Post on March 6, 2013.

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