A key $2 billion Terminal 2 container cargo expansion or a $2 billion terminal too far?
That’s the latest question at the centre of the Port of Vancouver’s (PoV) ongoing economy-environment tug-of-war.
A recently released West Coast container shipping outlook adds weight to the port’s side of the debate over the proposed Roberts Bank infrastructure project. But the US$4 trillion global container-shipping sector’s continuing financial bloodbath and industry questions raised over the need for Terminal 2 add resolve at the other end of the rope.
The 2016 Ocean Shipping Consultants (OSC) Container Traffic Forecast Study was released in August with the port’s first-half 2016 cargo numbers, which showed cargo shipped through the port fell 5.9% to 66 million tonnes compared with the same period in 2015.
While the numbers included a 6.5% drop in container cargo over the same period, OSC’s forecast painted a much brighter economic picture for PoV and other Pacific Northwest ports over the long term. The forecast conceded that China’s economic outlook is far more uncertain than had been noted in earlier OSC forecasts, but it said the slowdown in that economy is unlikely to significantly weaken transpacific trade between North America’s West Coast and Asia.
It projected annual container cargo growth to 2025 of 4.8% for the Pacific Gateway region.
PoV, according to the forecast, took a 37.8% share of the Pacific Northwest’s 8.07 million TEU (20-foot containers) total in 2015. That share is up from 31.5% in 2011. The OSC report noted that PoV and the Port of Prince Rupert enjoy numerous marketplace advantages, including good terminal productivity and relatively low intermodal and rail costs.
But it added that “there is already a pressing need for container terminal investment if further potential demand is not to be missed.”
PoV sees Terminal 2 as a fundamental piece of that investment and critical to the port’s ability to compete for market share and to accommodate the mega-container ships now being deployed on the Asia-West Coast North America trade routes.
The Vancouver Fraser Port Authority’s (VFPA) proposed three-berth container terminal at Delta’s Roberts Bank, in planning stages since 2012, would add 2.4 million TEU to the PoV’s annual container-handling capacity.
But opponents say the Terminal 2 expansion would come at a significant environmental cost.
Atop the list of environmental concerns for Against Port Expansion in the Fraser Estuary (APE) is the project’s potential damage to Roberts Bank’s unique marine ecosystem.
APE member David Jones said the group’s members are environmentalists “but not wild-eyed environmentalists.”
The former mining industry worker emphasized that, far from being a port opponent, he is a port advocate who is aware of its contribution to the region’s economy.
“So … no argument against the port. We need to bring containers in, but I draw the line at this Roberts Bank expansion because of the damage it’s doing to the Fraser estuary. … It’s a unique spot on the West Coast, where something like a half million birds go through.”
The VFPA’s environmental impact statement includes numerous proposed measures to mitigate Terminal 2’s environmental damage. They include placing the terminal almost entirely in subtidal water to reduce degradation to eelgrass and other bird habitat and creating subtidal reef habitat to offset potential losses from the project.
In June, the federal government announced an independent three-member panel to conduct an environmental assessment of Terminal 2. The review is expected to take approximately 14 months.
But there is more to Terminal 2 opposition than environmental issues.
Jones said, for instance, that rather than rising, PoV’s container shipping numbers are slowing to the point that sinking $2 billion into a massive terminal expansion is not justified.
His view is reflected in global concerns over major shipping industry changes and stalled container traffic growth.
Drewry, a U.K.-based shipping consultancy, reported earlier this year that sales in 2016’s first half were down 18% for major global carriers and that the industry has lost more than US$50 billion in sales since 2014. In late 2015, the company cut 2016’s projected growth to 3.3% from its previous estimate of 4.9%.
More recently, Drewry estimated 2016’s global growth rate on major container shipping routes could be the third lowest this century if the second half of the year follows the trend in the first six months.
Hanjin Shipping Co. Ltd.’s filing for receivership August 31 further underscores the container shipping sector’s financial challenges.
Faced with overcapacity and depressed container shipping rates, carriers are scrambling to form alliances to maximize economies of scale and investing in larger ships that allow them to make fewer stops at fewer ports.
The radical shipping sector changes have other terminal operators questioning Terminal 2’s game plan.
In a September 22, 2014, letter to Debra Myles, the Canadian Environmental Assessment Agency’s panel manager, GTC Global Container Terminals CEO Stephen Edwards suggested Terminal 2 might not be right for the new marketplace realities.
In the letter, Edwards urged the panel to “undertake more market analysis regarding the suitability of the project.”
It noted the aforementioned shift in the shipping industry to alliances and mega-container vessels and stated that GCT agreed with the container growth estimates used as a rationale for the project. But Edwards argued that “the manner in which this growth is brought to Canada will be different than assumed in existing plans.”
GCT, he wrote, has researched alternatives with lower capital cost and less environmental impact. The alternatives include increasing throughput at existing facilities.
GCT’s GCT Canada subsidiary operates the port’s Vanterm and Deltaport container terminals.
In an email response updating GCT’s position on Terminal 2, Louanne Wong, the company’s manager of market initiatives and development, said the two main themes in the 2014 letter – bigger ships and shipping alliances – remain valid today.
“Since 2014, both trends have gained momentum. With larger vessels, there are fewer calls and a higher volume of containers handled per call. As a result, terminals do not require more berths, but instead require the ability to more efficiently handle ‘surge’ volumes at berth and in container and intermodal yards.”
GCT consequently started a $280 million project last November to expand its Deltaport intermodal yard to increase its annual capacity to 1.9 million TEU.
Wong added that the number of carrier alliances operating on the Vancouver trade lane will drop to three from four beginning in 2017.
The overriding concern with Terminal 2, she wrote, “is the assumption that volume growth will be accomplished by more ship calls, where the evidence points to fewer alliances operating larger ships.”
But VFPA president and CEO Robin Silvester took issue with the argument that the port’s container business is flatlining.
He pointed to the OSC report projections as indication of the long-term health of the container shipping industry for ports in B.C. and along the west coast of North America.
“The container business isn’t static,” Silvester said. “Global economy is softer; trade flow has been softer this [past] six months, but last year through the port we had 5% [growth]. The year before we had 3% growth, and if you look at the west coast of the U.S. this year they are above that 5% growth.”
Silvester agreed that the cutthroat shipping business has hit a rough patch. “[But] it’s really important to decouple what’s going on in container shipping from what’s going on in ports; ports is a better place to be.”
He pointed to overcapacity as a key culprit in the sector’s record-low container shipping rates and the financial difficulties faced by some of its major players.
Silvester said ports have the advantage of much longer business cycles and longer-term projects to manage capacity with market demand.
Referencing the OSC report, he said, “You don’t build a long-term project based on a six-month result, and the underlying fundamentals for Vancouver are still very good. We have an efficient supply chain; we have a very stable long-term projection for Canadian demand, which is the core of our business.”
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