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Quebec port’s container terminal plans raise questions of feasibility, Montreal’s future

Port of Quebec.

The Port of Quebec’s plan to build a container terminal represents a competition threat to Montreal — but the new facility, while offering an economies of scale/mega-ship advantage, nevertheless must address a logistics factor — one that may affect shipper transport decisions. (Above: The Port of Quebec.) Photo credit: Shutterstock.com.

The Port of Quebec’s plan to build and bring online a C$400-million ($310-million) container terminal within three years is the latest greenfield project in Eastern Canada aiming to attract mega-ships, spurring questions not just about its feasibility but also about the future of the Port of Montreal, which can handle ships up to only 5,000 TEU.

The Quebec Port Authority said the terminal, with an initial annual capacity of 500,000 TEU, will be able to provide shippers moving goods to and from the Great Lakes region and US Midwest with cheaper transits than afforded through downriver and ship size-restricted Montreal, starting in early 2022. The Quebec port, which used to handle containers, lost that business in the 1980s after CP Ships, later acquired by Hapag-Lloyd, shifted routing to Montreal.

Pointing to the success of the Prince Rupert port in attracting US and Canadian shippers via the Canadian National Railway line, Quebec sees similar potential for itself. Don Krusel, who built the Prince Rupert franchise as its longtime CEO, is advising the project. CN Railway has direct access to the Port of Quebec via a switching line, and Canadian Pacific Railway has access via a short line connecting through Montreal. It’s unclear, however, whether the railroads would risk cannibalizing volume flowing through other Eastern Canadian ports — unless shippers were requesting to move goods through Quebec.

Quebec port officials aim to attract trans-Atlantic and Asia services routed via the Suez Canal, and Port Spokesperson Alain Sans Cartier said the roughly 1,000 nautical miles between the port and the Atlantic Ocean make it unlikely that carriers would add the terminal to services calling at Saint John, Halifax, and New York-New Jersey. More likely, a service would call at Quebec solely or call at Montreal after unloading freight in Quebec so that it could pass through the shallower segment of the Saint Lawrence River.

Thanks to its 15-meter (49-foot) draft, the Quebec terminal would be able to handle ships of up to 15,000 TEU, although the workhorses will likely be in the 8,000-TEU to 10,000-TEU range, Cartier told JOC.com. Container lines’ ability to deploy larger ships on the Saint Lawrence River will reduce slot costs by up to 40 percent compared with those achieved through services to Montreal, the largest Eastern Canadian port and the country’s second-largest behind Vancouver, he said. Due to draft limitations, the largest ship Montreal can handle is slightly more than 5,000 TEU, said Tony Boemi, vice president of growth and development at the Montreal Port Authority. Most services calling at Montreal deploy 4,200-TEU ships.

Quebec’s proposed terminal draws praise, skepticism

Quebec City’s proposed container terminal, still requiring the go-ahead from the Canadian Environmental Assessment Agency, has drawn praise and skepticism. Quebec City Mayor Regis Labeaume has lauded the plan, saying the federal and provincial government must lend support so the port can compete with US ports and make it a European gateway to North America. Philippe Couillard, premier of Québec, has also voiced support for the project, and the Quebec government has launched a competitive study for the Saint Lawrence River, a move supporters say confirms their questioning of Montreal’s long-term viability.

The Maritime Employers Association (MEA), however, doesn’t see a need for a container terminal at the Port of Quebec, noting that Montreal has grown steadily and meets carrier requirements by offering a short transit time, proximity to markets, and road and rail connections

“The presence of a container terminal in the Port of Quebec would increase the costs associated with transportation,” MEA president/CEO Stéphane Morency said in a statement. “In order to reach the same markets, it would be necessary to add at least the costs associated with an additional 250 kilometers travelled by land transport,” which is more expensive than sea transport.

The MEA said the size of ships deployed by carriers is done to meet the market and not dictated by water depths. Additionally, the association said vessels larger than 8,000 TEU aren’t designed for difficult winter conditions on the Saint Lawrence River and that the development of a Quebec City container terminal would hurt the maritime labor force in the greater Montreal area.

“At some point Montreal could be in jeopardy even though it’s doing all the right things,” said Jean-Paul Rodrigue, a professor at Hofstra University and author of a soon-to-be-released paper tentatively called “Rocking the Boat: A new dynamic for Canadian East Coast container ports.”

Port of Montreal — the mega-ship factor

The Port of Montreal creates good accessibility via rail and truck to the Ontario market, he said. But its ability to only handle relatively small vessels in the mega-ship era puts it at risk of losing cargo to US ports, namely the Port of New York and New Jersey since it’s a one-day truck trip, and to proposed Eastern Canadian port projects, including Melford and Sydney, both in Nova Scotia, Rodrigue said. There is also a longer-term risk that carriers serving Montreal pull back service or end service entirely, choosing to route through other ports and no longer maintain a smaller ship fleet.

Rodrigue said there’s potential for Quebec to become a mega-ship gateway serving Ontario, but nothing is guaranteed. “If Quebec was a no-brainer, it would have been done years ago,” he said.

Having not seen the study supportive of the Port of Quebec’s plan, Boemi said he can’t speak to specifics on the project's feasibility. “While none can argue with the fact that larger ships have economies of scale, we argue that given the port and land infrastructure limitations, that the advantage is lost in the total supply chain costs,” he told JOC.com.

Further, there’s no sign that Montreal’s pull is eroding, with 85 percent of the Quebec province’s manufacturing, distribution, and logistics base being within 30 miles of the province’s largest city, Boemi said. He added there’s no evidence that carriers are rethinking their Montreal services, pointing to Hapag-Lloyd's addition of a sixth vessel to its Mediterranean service, and CMA CGM and Maersk Line having purchased slots on that service.

Its inability to handle mega-ships is unique for a port of its size, but carriers make the most of it, Boemi said. For example, 3,600 TEU will be loaded and unloaded on a single call of a 4,200-TEU ship, he said.

“With that in mind, containers discharged in Montreal are equal in many cases or surpass the vessel discharged of any one port on the east coast,” said Boemi.

Following record volume growth in 2017 of 6.2 percent, to nearly 1.54 million TEU, Montreal moved forward on its plan to build a $750-million container terminal at Contrecœur, which will add 1.15 million in TEU capacity when completed in 2022-2023. Nearly 20 months ahead of schedule, Boemi said the port is considering expanding the Viau terminal for an additional 250,000 TEU of capacity after the opening of the terminal in November 2016 added 450,000 TEU of capacity.

Shorter term, the Port of Montreal is investing C$120 million in its infrastructure, which includes C$55 million for rail, plus berth maintenance, and other terminal projects. The federal government contributed C$40 million, and the port authority is contributing $C61.6 million.

“When you look at needed investment, environmental rules to be met and needed funding, the depth of water is the least of the problems” for a new terminal, said Boemi. “If carriers see the right market, they will put the right ships in.”

The Quebec Port Authority, which has already received C$60 million for wharf construction related to the container port project, is looking to use public grants and private investment to fund the rest of construction and equipment purchases. Although the project has been submitted for funding via the National Trade Corridors Fund, a $2 billion national initiative to improve freight connectivity, and the Quebec Maritime Strategy, a provincial effort that already aids the Port of Montreal, the Quebec Port Authority doesn’t expect decisions from the governments until the project is further along, particularly in regard to the environmental assessment.

Contact Mark Szakonyi at mark.szakonyi@ihsmarkit.com and follow him on Twitter: @szakonyi_joc.

 

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