October 19, 2011
Transportation issues help reveal current concerns and long-term trends – Part 2
Chief Economist, CanaData
Note: This continues from Economy at a Glance Vol. 7, Issue 145.
Its energy sector beleaguered on a couple of fronts, Canada needs to facilitate shipments of oil to Asian customers.
Such a delivery system would probably move crude by pipeline or rail tanker car to Prince Rupert, B.C.
This segues into discussion of another trade issue that has cropped up.
Prince Rupert and the port of Vancouver are coming under attack for reasons that turn on both the jobs issue and increasing U.S. protectionism.
Under pressure from mainly Californian port authorities, the U.S. Federal Maritime Commission is investigating whether some Canadian harbors are luring away ship traffic.
Significant upgrades to the port of Prince Rupert over the past several years, involving some government subsidies, have presented an excuse to take retaliatory action, supposedly on the grounds of unfair advantage.
However, those expenditures have only helped Prince Rupert realize more of its potential.
Both Prince Rupert and Vancouver have natural advantages that are increasingly coming to the fore.
This dispute is reminiscent of similar cases in the past, most notably the ongoing softwood lumber “brouhaha” that has been in and out of the courts for more than 100 years.
Over the years, the matter of who’s right — and Canadian lumber producers have won more than their fair share of court battles — has meant little versus the economic clout of the opposition.
Trump card
Possible denial of access to the vast U.S. market is a trump card that often wins concessions from Canadian producers, regardless of the merit of the cause.
In its most recent incarnation (i.e., the “softwood lumber agreement”) Canadian producers have been glad to secure at least some assured sales to U.S. buyers, based on historical patterns, while having to pay a penalty to raise their share.
The fact is that investments to expand capacity and increase efficiency at Prince Rupert have made that port an attractive destination for Asian shipping.
The favored East-West route to cross the Pacific leads vessels to berths at sites along B.C.’s northern coast a day or two faster than if they proceed further south to Los Angeles.
Goods shipped from China can therefore reach Chicago by rail faster from B.C. than shoreline U.S. states, cutting down on delays and reducing overall transportation costs.
U.S. Harbor Maintenance Tax
Adding to the cost of the U.S. anchorage is the Harbor Maintenance Tax. Revenues collected are used to pay for dredging.
Some U.S. legislators would like to see a levy charged on Asian rail cargo shipped by train through Canada to the United States.
For the construction industry, these trade disputes aren’t just matters of academic interest. How they are resolved directly impacts where investment dollars are spent.
This article began in Part 1 with a statement that various transportation issues are highlighting current economic concerns and long-term trends.
Airline woes
Having already featured energy pipelines and port facilities, that leaves airlines.
Their problems are emblematic of the world economic slowdown.
More cautious tourism and business travel is expected to knock the stuffing out of earnings in the airline industry.
We’ve seen this scenario before.
Over the course of the next 12 to 18 months, a couple of major aerospace passenger and cargo carriers are likely to need bankruptcy protection.
The lucky one(s) will be saved by a white knight that offers a friendly takeover.
Airline stocks have been pummeled of late. AMR Corp., the parent of American Airlines has been judged especially vulnerable.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
