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Final Report

Halifax Gateway Council Strategic Plan strategic transportation & tourism solutions Prepared in association with

and

Prepared for

November 2005

Halifax Gateway Council Strategic Plan

Page ii

Table of Contents Executive Summary .......................................................................................................................iii 1.0

Introduction ........................................................................................................................1 1.1 1.2

2.0

Halifax Gateway Today ......................................................................................................3 2.1 2.2 2.3 2.4

3.0

Global Marketplace.............................................................................................................. 45 Government Policy .............................................................................................................. 49 Aviation Trends.................................................................................................................... 68 Shipping Trends................................................................................................................... 80 Cruise Trends ...................................................................................................................... 87 Ground Transportation Trends............................................................................................. 96

Strategic Assessment......................................................................................................98 4.1 4.2 4.3 4.4 4.5 4.6

5.0

Airport .................................................................................................................................... 3 Port – Shipping .................................................................................................................... 15 Port – Cruise........................................................................................................................ 26 Ground Transportation......................................................................................................... 33

Changing Environment....................................................................................................45 3.1 3.2 3.3 3.4 3.5 3.6

4.0

Background............................................................................................................................ 1 Purpose and Scope ............................................................................................................... 2

SWOT Analysis.................................................................................................................... 98 Halifax Gateway Potential.................................................................................................. 102 Vision................................................................................................................................. 105 Regional Economic Impact ................................................................................................ 106 Key Strategic Issues .......................................................................................................... 106 Best Practices.................................................................................................................... 113

Action Plan .....................................................................................................................123

November 2005

Halifax Gateway Council Strategic Plan

Page iii

Executive Summary The Halifax Gateway Council was established in 2004 with the purpose of providing meaningful input into local, provincial, and federal policy discussions on improving the competitiveness and efficiency of the Halifax Gateway (in the future, efforts will be undertaken to examine how the gateway council concept can be broadened to include all four Atlantic provinces). The purpose of this Strategic Plan is to develop a new vision for the Halifax Gateway and establish a detailed Action Plan to achieve it. This plan is based on the extensive research and analysis undertaken during the course of the assignment, as well as on feedback obtained during consultations with over 20 industry organisations and government agencies. The Halifax Gateway is an important transportation complex on North America’s east coast for the movement of international cargo and passengers. The region’s Gateway infrastructure is made up of the Port of Halifax, the Halifax International Airport, and the rail and road infrastructure connecting these facilities to each other, and to the east-west and north-south road and rail corridors. Presently, the Gateway handles roughly 14 million metric tonnes of cargo, over 3 million air passengers, and approximately 200,000 cruise passengers. The Gateway is also a major generator of employment in Nova Scotia with an estimated 11,930 jobs generated by Gateway-related activities, equivalent to 11,200 person years of employment. Although global developments are intensifying competition amongst gateways, they are also generating significant opportunities for growth in the transportation industry by expanding international trade. With a capacity crisis occurring at west coast North American ports, and the expected explosion of the Chinese and Indian economies in the years ahead, the Halifax region is well positioned to take advantage of emerging market opportunities for the economic benefit and social wellbeing of Atlantic Canada. The Halifax Gateway has several strengths which positions it well for future growth. It also faces several weaknesses that must be addressed if it is to retain and expand its share of the market. Strengths

Weaknesses

ƒ

Strategic location

ƒ

Low population density

ƒ

Proximity to large market (U.S. east coast)

ƒ

Local economy

ƒ

Well developed infrastructure

ƒ

Distance to inland markets

ƒ

Land availability for development

ƒ

Low market awareness

ƒ

Skilled labour pool

ƒ

U.S.-Canada border

ƒ

Technology (Smart City)

ƒ

Lack of air capacity to key markets

ƒ

Natural attractions

ƒ

Limited hotel room inventory in high season

ƒ

Marine access and conditions

ƒ

Less efficient than east coast port competitors

ƒ

Jones Act exemption

ƒ

Canadian dollar exchange rate

ƒ

Unrestricted airport operations

ƒ

Regulatory/bureaucratic processes

ƒ

Surplus capacity

ƒ

Some infrastructure deficiencies

ƒ

Strong stakeholder alignment

ƒ

Lack of rail competition

ƒ

Limited funding capacity by all levels of government

ƒ

Lack of political influence

November 2005

Halifax Gateway Council Strategic Plan

Page iv

There is an opportunity for Halifax to increase its gateway market position. The region benefits from a strategic geographic location (astride major trade corridors and proximate to the large U.S. market), favourable year round marine conditions, and well-developed infrastructure with surplus capacity. The following vision is recommended to guide the strategic development of the Halifax Gateway:

To become North America’s preferred eastern gateway for the economic and social benefit of Atlantic Canada Achieving this vision would result in the following activity: Performance Target

Metric Container Traffic (TEUs)

1.1 million

Air Passengers

5.4 million

Air Cargo (metric tonnes)

64,800

Cruise Passengers

501,000

The projected economic impact associated with achieving the vision in 2020 is: Component

Jobs

Person Years

Wages (millions)

GDP (millions)

Output (millions)

Current Direct Economic Impact

11,930

11,200

$477

$602

$1,482

2020 Direct Economic Impact

18,400

17,270

$736

$928

$2,286

Increase

6,470

6,070

$259

$326

$804

% Change

54%

54%

54%

54%

54%

In order for the Gateway to realise its vision, the following four issues must be addressed: ƒ

Government policy – government policy was identified as a key area that needs to be addressed in order to expand business through the Gateway;

ƒ

Infrastructure development and funding – Gateway infrastructure must be expanded and improved to better serve trade and industry;

ƒ

Market development – marketing and business development activities will play a critical role in the continued development of the Halifax Gateway; and

ƒ

Economic and industrial development – additional economic growth is required in the region for the Gateway to prosper.

November 2005

Halifax Gateway Council Strategic Plan

Page v

Objectives □

Develop a strong and consistent Gateway brand identity



Develop and implement a Gateway marketing strategy to increase market awareness and demand to/from/through the region



Obtain federal government commitment to increase marketing and financial support of the Halifax Gateway



Identify and prioritise potential Gateway market opportunities



Develop marketing/financial incentive packages to assist in attracting business to the Gateway



Aggressively pursue initiatives to reduce Gateway taxation (e.g. fuel taxes, property taxes)



Promote a review of Canadian agency cost recovery policies

November 2005

2010

2009

2008

Use a coordinated approach to pursue sustainable market opportunities

2007

Goal #1 – Market Development

2006

A detailed Action Plan has been developed to address each of these issues. The plan, provided below, contains four strategies and roughly thirty specific initiatives to be completed during the next five years to build the Gateway and achieve the ambitious vision described above. Success will only accrue to the Gateway, however, if industry and government work together as partners towards the common goal of increasing the competitiveness of the region’s international trade and tourism industries through the development of a better transportation system.

Objectives □

Develop a master plan for the Port of Halifax



Acquire and remediate land adjacent to Fairview Cove container terminal



Build a common use air cargo facility at Halifax International Airport



Convert the existing rail cut for truck/commuter traffic use and/or build an inland terminal to reduce truck traffic in the downtown core



Upgrade the infrastructure at the port’s container terminals to allow for faster truck turnaround times



Build group staging areas at Halifax International Airport to support cruise homeport operations



Improve access and widen apron areas at Piers 20-22 to support cruise homeport operations



Upgrade rail facilities and services



Complete construction of limited access highways



Obtain community support for the Gateway’s long-term growth objectives



Ensure the protection of airport buffer lands



Work with business partners to protect strategic industrial locations



Work with business partners to pursue changes to allow new sources of long-term investment capital (e.g. tax exempt bond financing)

November 2005

2010

2009

2008

Ensure integrated infrastructure planning and aligned priorities

2007

Goal #2 – Infrastructure Development and Funding

Page vi

2006

Halifax Gateway Council Strategic Plan

Halifax Gateway Council Strategic Plan

Page vii

2006

2007

2008

2009

2010

2007

2008

2009

2010

Grow the economy of Atlantic Canada by expanding transportationrelated businesses

2006

Goal #3 – Economic and Industrial Development

Objectives □

Develop a master plan for distribution centre activity



Build a distripark/transload logistics facility



Work with the Department of National Defence to develop a logistics hub



Promote expansion and development of logistics businesses in Atlantic Canada



Ensure existing plans and resources in Atlantic Canada are aligned to optimise transportation planning and development Work with industry partners to promote a common voice for the Gateway and the Atlantic Canada region Promote the development of inter-organisation and inter-agency cooperation, particularly between Gateway Council members Promote regional cooperation (domestic and cross border) to improve development prospects, improve ability to address complex goals, and strengthen political presence

□ □ □

Goal #4 – Government Policy

Establish policies to support the development of Halifax as North America’s preferred east coast gateway Objectives □

Promote liberalisation of Canada’s international air policy



Aggressively pursue full U.S. preclearance



Actively promote development of 24-hour customs operations at Halifax International Airport



Pursue initiatives to streamline airport-port transfers



Work to harmonise different provincial trucking regulations



Ensure adequate staffing levels for border agencies



Champion the development of harmonized border entry requirements and processes



Promote adoption of new technologies to facilitate border crossings



Promote development of the Perimeter Clearance concept

November 2005

Halifax Gateway Council Strategic Plan

Page 1

1.0 Introduction 1.1

Background

With an excellent airport and modern port infrastructure, Halifax is an international gateway to the world. Halifax International Airport is one of Canada’s fastest growing airports and the Port of Halifax is Canada’s third largest container port. In addition, Halifax is a major origin and destination point in Atlantic Canada for both rail and trucking. With a capacity crisis occurring at west coast North American ports, and the expected explosion of the Chinese and Indian economies in the years ahead, the time is ripe to take proactive action to further develop the Halifax Gateway for the economic and social benefit and wellbeing of Atlantic Canada. To realize its true potential, the Halifax Gateway will need to deal with the real competition posed by several Canadian and U.S. airports and ports, including Toronto, Montreal, New York, and Boston. In addition, the Gateway and its transportation partners in Halifax will need to address several key issues, including government policy, infrastructure development and funding, market development, and economic and industrial development in the region. As a multimodal transportation hub, the Gateway plays a critical role in the economy of Atlantic Canada. The Halifax Gateway Council was established in 2004 with the purpose of providing meaningful input into federal, provincial, and local region policy discussions on improving the competitiveness and efficiency of the Halifax Gateway. Gateway Council members include: ƒ

Atlantic Container Line

ƒ

Halifax Chamber of Commerce

ƒ

Air Canada Jazz

ƒ

Halifax Regional Municipality

ƒ

CanJet Airlines

ƒ

Nova Scotia Business Inc.

ƒ

CN Rail

ƒ

ƒ

Armour Transportation Group

Nova Scotia Office of Economic Development

Halifax International Airport Authority

ƒ

ƒ

Nova Scotia Department of Transportation and Public Works

ƒ

Halifax Port Authority

ƒ

Transport Canada

ƒ

Destination Halifax

ƒ

Atlantic Canada Opportunities Agency

ƒ

Greater Halifax Partnership

Going forward, efforts will be undertaken to examine how the gateway council concept can be broadened to include all four Atlantic provinces (Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland).

November 2005

Halifax Gateway Council Strategic Plan

1.2

Page 2

Purpose and Scope

InterVISTAS Consulting Inc. (InterVISTAS), in association with Bermello, Ajamil & Partners Inc. (B&A) and associate consultant Patrick Morin, was retained by the Halifax Gateway Council to develop a five-year strategic plan that would establish a vision for the Gateway, and develop a clear set of priorities and policy initiatives. The Executive Director of the Gateway Council, James Frost, also worked on this assignment and made significant contributions to the project. The project team was guided by a Steering Committee that provided input into the assignment, ensured the co-ordination and support of critical departments and agencies, and provided information as required. This Steering Committee was composed of: ƒ

James Frost, Halifax Gateway Council;

ƒ

Jill McLean, Halifax Port Authority;

ƒ

Alastair Cox, Halifax International Airport Authority;

ƒ

Fred Morley/Ruth Blades, Greater Halifax Partnership; and

ƒ

Bill MacDonald, Atlantic Canada Opportunities Agency.

The development of this Plan involved a number of key components, including market and industry analysis, a strategic assessment of the Gateway, and a planning workshop with members of the Gateway Council.

November 2005

Halifax Gateway Council Strategic Plan

Page 3

2.0 Halifax Gateway Today The Halifax Gateway provides the citizens and businesses of Atlantic Canada with a variety of aviation, maritime, and ground transportation services. The Gateway also contributes significantly to the regional and national economies. The following sections review the basic characteristics – facilities, traffic levels, services, and market/competitive positioning – of the Gateway’s key components (the Port of Halifax, the Halifax International Airport, and the ground transportation services/facilities in the region).

2.1

Airport

Halifax International Airport is the largest international airport in Atlantic Canada. Strategically located 30 minutes from the city’s downtown core, Halifax International Airport handled over 3.2 million passengers and roughly 90,000 aircraft movements in 2004, while contributing over $1.5 billion to Nova Scotia's economy. It also processed approximately 33,000 tonnes of cargo. Historically, Halifax International Airport has acted as a gateway for the Atlantic Region. In this role, Halifax International Airport linked the cities of Atlantic Canada and the north east U.S. to major world markets. In recent years, however, Halifax International Airport’s role as a gateway has declined due to a reduction in the number of destinations served by the airport. This decline in destinations can be attributed to the merger of Air Canada and Canadian Airlines, and the trend in the airline industry of replacing short range commuter turboprop aircraft with longer range regional jets serving point to point destinations. To replace this activity, the airport has repositioned itself as a base for low cost carrier operations.

Facilities Halifax International Airport encompasses 960 hectares of land and operates with a Category II Instrument Landing System (ILS). It is one of only four airports in Canada to provide simultaneous intersecting runway operations, providing the airport with increased traffic capacity, reduced delays, and improved fuel efficiencies for airlines. Figure 2-1 summarises the current airside infrastructure available at Halifax International Airport. Figure 2-2 provides an aerial view of the facility. Figure 2-1 – Current Airside Facilities at Halifax International Airport Airport Area

960 hectares

Runway Information

Runway 06-24

Dimensions: 2,682 m x 61 m Aircraft Load Rating: 11 Surface: Asphalt/Concrete Condition: Fair ILS: Yes

Runway 15-33

Dimensions: 2,347 m x 61 m Aircraft Load Rating: 11 Surface: Asphalt Condition: Good ILS: Yes

Number of Gates

29

Apron Area

6

Total area: 195,000 m2

Number of Taxiways

10

Average width: 23 m

Source – Halifax International Airport Authority.

November 2005

Halifax Gateway Council Strategic Plan

Page 4

Figure 2-2 – Aerial View of Halifax International Airport

Several years ago, Halifax International Airport embarked on a multi-year Airport Improvement Program (AIP). Phases of this program have already been completed, including improvements to the air terminal building, expansion of the public parking lot, and construction of a public observation area. Halifax International Airport currently has a single passenger terminal building, which was recently expanded to approximately 54,000 m2. The facility has approximately 65 check-in positions and 5 baggage carousels. A variety of services are also available in the passenger terminal building, including retail, automated teller machines, foreign exchange services, food and beverage, passenger observation deck, a chapel, and a children’s play area. Air cargo operations at Halifax International Airport are conducted in 4 buildings and several warehouse facilities (Figure 2-3). In addition, specialized facilities are available to handle sensitive items such as radioactive material, dangerous goods, and live animals, enabling the airport to service the needs of its five main cargo providers – Air Canada, FedEx, Purolator, CargoJet, and Prince Edward Air (Polar Air Cargo, Icelandair, and MK Airlines also provided cargo service in 2004). Halifax International Airport’s location, away from the city centre, ensures that no curfews are in place for aircraft movements, thereby permitting very flexible service.

November 2005

Halifax Gateway Council Strategic Plan

Page 5

Figure 2-3 – Air Cargo Facilities at Halifax International Airport Number of Terminals

4 110,051 m2

Warehouse Facilities

(including bonded warehouse space) Aircraft Maintenance Mechanical Handling

Special Services

Health Officials X-Ray Equipment Express/Courier Centre Heated Storage Air-Conditioned Storage Refrigerated Storage

Special Storage Facilities

Animal Quarantine Fresh Meat Inspection Dangerous Goods Radioactive Goods

Operational Curfew

No

Source – Halifax International Airport Authority and A-Z World Airports Guide.

Traffic Passenger traffic has grown steadily at Halifax International Airport during the past 10 years, with the exception of the period between 2000 and 2001 (Figure 2-4). During the latter period, traffic at the airport fell by approximately 8% due to changing economic and industry conditions, and the September 11, 2001 terrorist attacks in the U.S. Since 2002, traffic at Halifax International Airport has increased steadily, reaching a record high of 3.2 million passengers in 2004. Figure 2-4 – Halifax International Airport Passenger Traffic 3,500

Passengers (thousands)

3,000

2,662

2,934

3,007

3,089

1997

1998

1999

3,242 2,981

2,745

2,852

2,854

2001

2002

2,973

2,500 2,000 1,500 1,000 500 0 1995

1996

Source – Halifax International Airport Authority.

November 2005

2000

2003

2004

Halifax Gateway Council Strategic Plan

Page 6

Air cargo traffic at Halifax International Airport has undergone a number of cyclical changes over the past 10 years but has showed strong growth since 2000, with an average annual growth rate of 16% (Figure 2-5). Figure 2-5 – Halifax International Airport Air Cargo Traffic 40

Metric Tonnes (thousands)

32 29

30

27

25

24 21

23

22

20

23 18

10

0 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source – Halifax International Airport Authority.

Services With 16 passenger airlines operating to/from the airport, Halifax International Airport offers travellers a wide variety of passenger services. Figure 2-6 and Figure 2-7 illustrate how monthly seat capacity and flight frequency have changed at the airport between 2000 and 2005. Figure 2-8 and Figure 2-9 review the changes in destinations served over the same time period. The following conclusions can be made from the data: ƒ

Total seat capacity to all non-stop destinations has decreased 6% from 235,676 to 221,715 seats;

ƒ

The total number of non-stop destinations served has decreased 27% from 33 to 24;

ƒ

Domestic service levels have not seen significant changes;

ƒ

Seat capacity to U.S. cities has decreased 13% while the number of destinations served has increased from 3 to 4; and

ƒ

Seat capacity to Europe has decreased by 55% and flight frequency has decreased by 56% (attributable to the discontinuation of services by Canada 3000 (Amsterdam, Dusseldorf, Hamburg, and London), Canadian Airlines (London), and Icelandair (Reykjavik)).

November 2005

Halifax Gateway Council Strategic Plan

Page 7

Figure 2-6 – Comparison of Halifax International Airport Seat Capacity by Region July 2000

July 2005

% change

Seats

Destinations

Seats

Destinations

Seats

Destinations

Canada

193,275

18

190,483

14

- 1%

- 22%

U.S.

27,933

3

24,419

4

- 13%

+ 33%

Europe

13,808

11

6,213

5

- 55%

- 55%

Central America

660

1

600

1

- 9%

0%

South America

-

-

-

-

-

-

Asia

-

-

-

-

-

-

Total

235,676

33

221,715

24

- 6%

-27%

Source – Planet System.

Figure 2-7 – Comparison of Halifax International Airport Flight Frequency by Region July 2000

July 2005

% change

Canada

2271

2270

-

U.S.

570

478

-16%

Europe

57

25

-56%

Central America

5

5

-

South America

-

-

-

2903

2778

-4%

Total Source – Planet System.

Figure 2-8 – Halifax International Airport Non-Stop Destinations in 2000 (33 destinations)

YVR

AMS

YEG

DUS

YYC

FRA

YYR

YDF YSJ YGR YJT FSP YQB YQM YFC YYG YOW YYZ

YUL

YYT

HAM LHR LGW MUC

YQI BOS

GLA

YQX

YHZ

KEF

EWR IAD

BDA

Source – Planet System.

November 2005

Halifax Gateway Council Strategic Plan

Page 8

Figure 2-9 – Halifax International Airport Non-Stop Destinations in 2005 (24 destinations)

YYC FRA

YYR

GLA YDF YSJ YGR YJT FSP YQM YFC YYG YYZ YHM DET

YOW

YYT LGW

YUL

BOS

MUC

YHZ

JFK EWR

BDA

Source – Planet System.

Air cargo capacity between 2000 and 2005 is reviewed in Figure 2-10. The following observations can be made: ƒ

Halifax International Airport’s overall monthly capacity has decreased 3% from 2,676,000 kilograms in 2000 to 2,594,000 kilograms in 2005;

ƒ

Domestic cargo capacity has decreased by 8% or approximately 162,000 kilograms;

ƒ

New services have been established to U.S. markets that were not available in 2000 (total cargo capacity to the U.S. was estimated to be 46,000 kilograms in July 2005; this increase in U.S. cargo capacity has offset some of the decreases in domestic capacity); and

ƒ

Service to Europe increased roughly 5% during this period.

Figure 2-10 – Comparison of Halifax International Airport Air Cargo Capacity July 2000

July 2005

% Change

Kilograms

% Share

Kilograms

% share

1,992,000

74%

1,830,000

68%

-8%

-

-

46,000

2%

-

684,000

26%

718,000

27%

5%

Central America

-

-

-

-

-

South America

-

-

-

-

-

Asia

-

-

-

-

-

Total

2,676,000

Canada U.S. Europe

Source – Planet System.

November 2005

2,594,000

-3%

Halifax Gateway Council Strategic Plan

Page 9

Market/Competitive Position In its efforts to attract passenger and air cargo traffic, Halifax International Airport competes with other facilities in the region. For the purposes of this analysis, Halifax International Airport’s key competitors were determined to be Boston Logan International Airport, Toronto Pearson International Airport, Montreal Pierre Elliot Trudeau International Airport, and Ottawa International Airport (Figure 2-11). Figure 2-11 – Halifax International Airport Competitors

Ottawa Montreal Halifax Toronto

Boston

Facilities The airside infrastructure available at Halifax International Airport and at competing facilities on the east coast is displayed in Figure 2-12. The following observations can be drawn: ƒ

Halifax International Airport is the smallest airport in terms of land size, just behind Boston;

ƒ

Halifax International Airport’s longest runway is 2,682 metres in length, which can accommodate a Boeing 777, but is shorter than the longest runways at competing airports; and

ƒ

Halifax International Airport ranks 5th with respect to gate capacity (29 gates).

Figure 2-12 – Comparison of Airside Facilities Boston

Toronto

Montreal

Ottawa

Halifax

971

1,792

~2,024

1,821

960

Number of Runways

5

5

3

3

2

Number of Gates

94

84

43

22

29

3,073

3,368

3,650

3,048

2,682

Airport Area (hectares)

Longest Runway (m) Source – Individual airports.

November 2005

Halifax Gateway Council Strategic Plan

Page 10

The passenger terminal infrastructure available at Halifax International Airport and at competing facilities is displayed in Figure 2-13. The following observations can be made: ƒ

None of the airports have operating restrictions that would limit their capability to handle late night services; and

ƒ

Halifax International Airport has the lowest number of check-in positions (44 in total).

Figure 2-13 – Comparison of Passenger Facilities Number of Terminals

Boston

Toronto

Montreal

Ottawa

Halifax

5

3

1

1

1

Terminal Size (m2)

600,000+

500,000+

190,000+

62,000

54,000

Number of Check-In Positions

96

370

190

50

44

14

6

4

5

Number of Baggage Carousels Operational Curfews

No

No

No

No

No

Total Carriers

60

57

28

11

25

Source – Individual airports.

The cargo terminal infrastructure available at Halifax International Airport and at competing facilities is displayed in Figure 2-14. Halifax International Airport’s competitive position is highlighted below: ƒ

Halifax International Airport has the largest warehouse space among the competing airports; and

ƒ

Halifax International Airport, Boston, and Toronto offer a wide range of services for handling specialised goods.

Figure 2-14 – Comparison of Air Cargo Facilities Component

Boston

Toronto

Montreal

Ottawa

Halifax

Number of Terminals

2

4

4

3

4

Number of All Cargo Airlines

9

10

23

2

6

Warehouse Space (m2)

51,000

82,000

64,000

-

110,051

Total Ramp Space (m2)

156,000

125,000

88,000

-

112,000

Heated Storage

Yes

Yes

Yes

Yes

Yes

Agricultural Inspection

Yes

Yes

-

Yes

Air Conditioned Storage

Yes

Yes

Yes (70 kms away) Yes

Refrigerated Storage

Yes

Yes

Yes

Yes

Yes

Animal Quarantine

Yes

Yes

Yes

-

Yes

-

Yes

Yes

Yes

Yes

Dangerous Goods

Yes

Yes

Yes

Yes

Yes

Radioactive Goods

Yes

Yes

Yes

Yes

Yes

Customs

Yes

Yes

Yes

Yes

Yes

Fresh Meat Inspection

Source – Individual airports.

November 2005

Yes

Halifax Gateway Council Strategic Plan

Page 11

Traffic Figure 2-15 compares total enplaned and deplaned passenger traffic at the competing airports in 2000 and 2004. The following observations can be made: ƒ

From 2000 to 2004, total enplaned and deplaned passengers at these airports decreased 0.8% from 71.6 million to 71,0 million;

ƒ

Total enplaned and deplaned traffic at Halifax International Airport increased from 3.0 million in 2000 to 3.2 million in 2004; and

ƒ

Halifax International Airport’s market share increased from 4% to 5%.

Figure 2-15 – Comparison of Passenger Traffic 35,000 28,930 28,616

Passengers (thousands)

30,000

27,727

26,143

25,000 20,000 15,000 8,493

10,000 5,000

9,415

3,434 3,610

2,981 3,242

0 Halifax

Montreal

Toronto 2000

Ottawa

Boston

2004

Source – Planet System.

Figure 2-16 compares total air cargo traffic at the competing airports in 2000 and 2003 (the most recent data available). The following observations can be drawn from the data: ƒ

Between 2000 and 2003, total air cargo traffic at these airports decreased by 9% from 911,000 tonnes to 832,000 tonnes;

ƒ

Halifax International Airport traffic levels increased from 18,000 tonnes in 2000 to 29,000 tonnes in 2003; and

ƒ

Halifax International Airport’s market share increased from 2% in 2000 to 4% in 2003.

November 2005

Halifax Gateway Council Strategic Plan

Page 12

Figure 2-16 – Comparison of Air Cargo Traffic 450 387

Metric Tonnes (thousands)

400

360

350

338 308

300 250 200 150

125

135

100 50

18

29

21

21

0 YHZ

YUL

YYZ 2000

YOW

BOS

2003

Source – Planet System.

Services Figure 2-17 compares scheduled non-stop seat capacity at each of the airports. The data permits the following conclusions: ƒ

Halifax International Airport possesses the lowest seat capacity amongst the competing airports; and

ƒ

All airports, with the exception of Montreal, have experienced decreases in seat capacity since 2000.

Figure 2-17 – Comparison of Monthly Seat Capacity (2000 versus 2005) 2,500

Monthly Seats (thousands)

2,011

2,000

1,875 1,774

1,671

1,500

1,000 632 676

500 236 222

254 244

Halifax

Ottawa

0 Montreal 2000

Source – Planet System.

November 2005

2005

Toronto

Boston

Halifax Gateway Council Strategic Plan

Page 13

With respect to flight frequency, Figure 2-18 permits the following observations: ƒ

From 2000 to 2005, the total number of monthly flights at the 5 competing airports has decreased 9% from 50,939 to 46,269 flights;

ƒ

Total flight frequency at Halifax International Airport dropped approximately 4% from 2,903 flights in 2000 to 2,778 flights in 2005; and

ƒ

All competing airports, with the exception of Montreal, have seen a reduction in flight frequency during this time period. Montreal’s success during this timeframe can be attributed largely to the consolidation of passenger operations at Montréal-Pierre Elliott Trudeau International Airport, as well as the shifting of some Halifax hub activities to the airport.

Figure 2-18 – Comparison of Monthly Flight Frequency by Region Boston

Toronto

Montreal

Ottawa

Halifax

2000

2005

2000

2005

2000

2005

2000

2005

2000

2005

1,306

1,029

7,358

7,226

3,619

3,493

2,155

1,921

2,271

2,270

18,759

14,883

8,161

7,279

2,585

2,783

1,170

1,019

570

478

627

651

932

1,135

335

586

36

31

57

25

62

204

309

413

42

144

-

-

5

5

South America

-

-

26

62

-

-

-

-

-

-

Asia

-

-

43

122

-

-

-

-

-

-

Africa

-

4

-

-

13

27

-

-

-

-

20,754

16,771

16,829

16,237

6,594

7,033

3,361

2,971

2,903

2,778

Canada U.S. Europe Central America

Total

Source – Planet System.

Changes in air cargo capacity between 2000 and 2005 are displayed in Figure 2-19. The data permits the following observations: ƒ

Total air cargo capacity has decreased 18.4% from 163,079,000 tonnes to 132,992,000 tonnes;

ƒ

Halifax International Airport has seen a reduction in air cargo capacity of 3.1% from 2,676,000 to 2,594,000 tonnes; and

ƒ

All competing airports, with the exception of Montreal, have seen a reduction in air cargo capacity during this time period.

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Figure 2-19 – Comparison of Air Cargo Capacity

Monthly Metric Tonnes (thousands)

75,000

70,877 62,902 57,440

50,000 34,832 29,330 27,227

25,000

2,676 2,594

4,859 3,334

Halifax

Ottawa

0 Montreal 2000

Toronto

Boston

2005

Source – Planet System.

Key Findings ƒ

Halifax International Airport possesses a comprehensive array of passenger and cargo-related aviation infrastructure and services.

ƒ

The number of non-stop destinations served by Halifax International Airport has decreased from 33 in 2000 to 24 in 2005. This reduced connectivity impairs Halifax International Airport’s ability to function as a regional gateway for Atlantic Canada.

ƒ

Halifax International Airport has successfully positioned itself as a base for low cost carrier operations. This has resulted in steady traffic growth since 2001.

ƒ

Amongst the airports compared, Halifax International Airport is the smallest, both in terms of physical size as well as traffic volumes.

ƒ

Although Boston is only slightly larger than Halifax International Airport in airport size, it handles roughly 26 million passengers per year, nearly 8 times the volume of Halifax International Airport.

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Port – Shipping

In 2004, the Port of Halifax handled approximately 2,000 vessels, generated nearly 9,000 jobs, and produced over $670 million in employment income. Halifax’s strategic location, efficient infrastructure and services have made it a preferred gateway to Europe, the Mediterranean, the Middle East, and Southeast Asia. Figure 2-20 provides an overview of the Port of Halifax. Figure 2-20 – Port of Halifax Overview Oil Wharfs Gypsum Wharf Fairview Cove Terminal

Richmond Terminals & Offshore CN Terminal Grain Terminal

Autoport

Ocean Terminals South End Container Terminal

In 2004, approximately 14 million metric tonnes of cargo passed through the port, making the Port of Halifax the third-busiest container port in the country behind Vancouver and Montreal. The port plays a vital role in serving world markets, with more than 20 direct liner services as well as short sea services. Some of the factors that have made the Port of Halifax a major port-of-call include its proximity to Europe, good intermodal connections (rail, truck, sea, and air), and deep berths (which makes it one of only two east coast North American ports capable of handling fully laden post-Panamax container ships).

Facilities The Port of Halifax offers a range of shipping facilities for container, cruise ship, roll-on/roll-off, break bulk, liquid and dry bulk, and offshore oil and gas operations. Combined, the port’s terminals provide more than 13 berths, over 10 cranes, and a total storage capacity of roughly 68,000 square metres. Container The Port of Halifax container facilities include the South End terminal (operated by Halterm Ltd.) and the Fairview Cove terminal (operated by CeresGlobal). Halterm Ltd. is owned by the Halterm Income Fund and is the oldest common user terminal in Canada. The Halterm terminal comprises 30 hectares, 1,171 metres of quay, and six gantry cranes – including two post-Panamax units, as show in the figure below. Halterm’s customer base has shrunk in the past two years, having lost ACL as a client to Fairview Cove, and Maersk Sealand, which left the port entirely. Its present customer base includes Zim Integrated Shipping Services, Costa Container Lines, Melfi Marine, and the Newfoundland short sea and feeder service operated by Oceanex Income Trust. A new Suez service by China Shipping began in October 2005.

November 2005

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Figure 2-21 – South End Terminal (Halterm)

Fairview Cove, operated by CeresGlobal (a unit of Nippon Yusen Kaisha (NYK)), is approximately 28 hectares, with 660 metres of quay and 4 gantry cranes, including one post-Panamax unit, as shown in Figure 2-22. The water depth at the CeresGlobal terminal has been increased to 55 feet, or 16.6 metres. CeresGlobal serves six shipping lines operating in three services – the Grand Alliance AEX and PAX services and ACL’s North Atlantic service. Figure 2-22 – Fariview Cove (CeresGlobal)

Other facilities that also handle containers include the Ocean Terminals (Piers A and A1), as well as the Richmond Terminal (Pier 9 and 9A). Piers A and A1 include 762 metres of quay, as well as an 8,520 m2 shed, used mostly for forest products. Logistec Stevedoring provides service to several container/break bulk services at Piers A and A1. Principal commodities handled are rubber for Michelin Tire and forest products. The main carriers are Indotrans and National Shipping Company of Saudi Arabia. Pier 9A is leased to Scotia Terminals which provides container service. This terminal has 1,394 m2 of open area and a 5,574 m2 shed. Pier 9 is also leased to Scotia Terminals which provides container and break

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bulk service to Cuba via Nirint Shipping Line. The principal break bulk commodity is nickel sulphite, which is shipped by rail to Alberta. Roll-On/Roll-Off Autoport is a 41-hectare facility, as displayed in Figure 2-23, with a 201-metre wharf that handles roll-on and roll-off cargo. It also has five rail sidings for inward and outward vehicle processing. Autport processes European import vehicles and domestic vehicles destined for Atlantic Canada. Autoport is 100% owned by CN Rail, and North American network of similar facilities under the same brand is managed from Halifax. Figure 2-23 – Autoport

Autoport processes approximately 100,000 autos per annum through Eastern Passage. These comprise European imports, well as domestic autos destined for the Atlantic Canada market, including all vehicles except DaimlerChrysler products, going to Newfoundland. Other roll-on/roll-off cargoes are handled at the South End, Fairview Cove, and Piers A1 and A. Offshore Oil and Gas The port has two offshore supply bases, one at Richmond Offshore (Pier 9B, 9C and Area 9D), which is leased to EnCana Corporation, and another owned and operated by ExxonMobil at Woodside. Richmond Offshore includes two berths of 216 metres and 140 metres, and one 5,853 m2 shed. It also includes two open areas of 9,290 m2 and 21,368 m2, respectively. The EnCana base is operated on a common user basis, whereas the ExxonMobil base is not. Intermodal CN operates Halifax Intermodal Terminal (HIT) near Richmond Terminals in the north end of the city. It offers on-dock double stack train service direct to Montreal, Toronto, and Chicago. Two gantry cranes can handle 150 units per day, with total annual lift capacity of 52,000 units. CN handles about 25,000 intermodal units per annum at HIT. The facility handles CN’s own intermodal cargo, as well as truckers’ and major retailers’ 53 foot domestic intermodal containers.

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Break Bulk Richmond Terminal and Offshore Pier 9 (includes 9, 9A, 9B and 9C) offers 4 sizeable berthing areas – 213 metres, 241 metres, 216 metres, and 140 metres, as well as three sheds of 8,175, 5,574, and 5,853 m2. Piers 23-24 include a combination of open area and shedded space suitable for break bulk operations. There are two berths of 213 metres and 142 metres, and a shed of 4,706 m2. Piers 23 and 24, as well as A1 and A also handle break bulk cargoes such as drill pipe and rubber. Gypsum National Gypsum owns and operates a facility in Wright’s Cove for the shipment of raw gypsum mined at their site in Milford. The berth is 197 metres and the open area is 10 hectares. The facility has storage capacity for 180,000 metric tonnes of cargo and receives cargo in unit trains powered by CN Rail directly from the mine. National Gypsum ships about 3.8 million tonnes of gypsum annually through the Port of Halifax, in approximately 200 vessel loads. Grain The Halifax grain elevator, operated by Halifax Grain Elevator Company, has 140,000 tonnes of storage capacity, with maximum loading capacity of 2,000 tonnes per hour. The marine leg can unload at 700 tonnes per hour and the self-unloading marine facility can discharge at 1,200 tonnes per hour. The facility has both on dock rail and truck access and well as direct ship discharge. Crude and Refined Oil Crude and refined petroleum account for the largest tonnages handled at the Port of Halifax. Imperial Oil operates docks at Woodside for unloading crude oil and loading refined product for consumption in Atlantic Canada. The facilities include three berths of 67 metres, 122 metres, and 67 metres. The refinery also provides bunkering facilities, either directly at the refinery or via a bunker barge. The largest vessel that can be accommodated at Imperial Oil is 70,000 tonnes. Marine Industry Nova Scotia Business Inc. owns a common user dock in Woodside Atlantic Wharf, which has 229 metres of berth and an open area of over 2 hectares. Water depths are 8.8 metres. The common user dock in Woodside is used for vessel lay ups, and ship repairs and rebuilds. It is mainly used to support oil and gas drilling activities.

Traffic Container traffic at the Port of Halifax has undergone a number of cyclical changes over the past 10 years, due largely to changing economic and industry conditions (Figure 2-24). Between 1995 and 2004, container traffic at the port increased by over 37%. In 2000, the Port of Halifax handled a record 548,000 TEUs1; since then, traffic has remained fairly flat albeit with annual fluctuations (2004 traffic totalled almost 526,000

1 A twenty-foot equivalent unit is a measure of containerised cargo equal to one standard 20 ft (length) × 8 ft (width) × 8.5 ft (height) container (approximately 39 m3).

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TEUs). The range of containerised goods moved through the Port of Halifax varies greatly, from computers and electronics to fresh produce. Figure 2-24 – Port of Halifax Container Traffic 600

TEU (000s)

500

459

400

383

392

1995

1996

548

542

2000

2001

524

541

526

2002

2003

2004

463

425

311 300 200 100 0 1994

1997

1998

1999

Source – Halifax Port Authority.

Break bulk is cargo that is carried in a ship’s cargo hold rather than in containers. In 2004, the Port of Halifax handled over 158,000 metric tonnes of break bulk cargo, a 4% decrease from 1995. Figure 2-25 displays the historical break bulk cargo volumes at the Port of Halifax between 1995 and 2004. Typical break bulk shipments at the Port of Halifax include lumber, steel, machinery and rubber. Figure 2-25 – Port of Halifax Break Bulk Traffic 250

Metric Tonnes (thousands)

209

200

190

181

172

166

183

169 151

160

158

150

100

50

0 1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source – Halifax Port Authority.

Bulk traffic at the Port of Halifax has undergone a number of cyclical changes over the past 10 years. Figure 2-26 displays the historical bulk cargo volumes at the port between 1995 and 2004. Typical bulk shipments at the port include crude oil, refined fuels, gypsum, and grain.

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Figure 2-26 – Port of Halifax Bulk Traffic 12,000

Metric Tonnes (thousands)

10,000

9,476

9,338

9,880 9,301

9,823 8,999

9,248

8,800

9,000

2003

2004

8,206

8,000 6,000 4,000

2,000 0 1995

1996

1997

1998

1999

2000

2001

2002

Source – Halifax Port Authority.

Roll-on and roll-off traffic, including automobiles, accounted from roughly 1% of the total cargo moved through the Port of Halifax in 2004. Almost 200,000 metric tonnes of roll-on/roll-off cargo was handled during the year, representing an 8% decrease from the previous year.

Market/Competitive Position Market Position Halifax serves a number of key markets, including Atlantic Canada, Quebec, Ontario, New England, and the U.S. mid-west. Figure 2-27 outlines the four major geographic markets and their population base. Figure 2-27– Port of Halifax Market Regions and Population Market

Population

Atlantic Canada

2.3 million

Quebec

7.4 million

Ontario

11.8 million

U.S. Midwest

67.9 million

Source – Statistics Canada, Census of Canada, and U.S. Census.

Most of the Port of Halifax’s cargo is origin and destination to/from Atlantic Canada, Quebec, and Ontario. The Maritime provinces (Nova Scotia, New Brunswick, and Prince Edward Island) are served by truck. Quebec, Ontario, and the U.S. mid-west are served by rail. With a bi-weekly short sea service, Halifax also handles cargo moving between the Canadian mainland and Newfoundland, a significant portion of which is overseas transhipment cargo. It also handles New England to Portland and Boston cargo via feeder. Another weekly service provides transhipment service to St. Pierre et Miquelon. Figure 2-28 summarises the Port of Halifax’s container traffic by origin and destination. November 2005

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Figure 2-28 – Port of Halifax Container Tonnage by Origin/Destination 2004 Province/State

Tonnes

Laden TEUs (10 tonnes per TEU)

Atlantic Canada

848,698

84,870

Inland Canada

2,060,379

206,037

- Quebec

903,729

90,373

- Ontario

953,010

95,301

- Western Canada

203,640

20,364

2,909,077

290,907

- U.S. Midwest

724,485

72,448

- New England

345,381

34,538

- Rest of U.S.

527,533

52,753

1,597,399

159,739

518,178

52,753

4,497,123

450,649

Total Canada Inland U.S.

Total U.S. Other Markets Total Source – Halifax Port Authority.

Most importantly from the point of view of the Halifax Gateway, the Port of Halifax is Atlantic Canada’s gateway to world markets. Even though it has a smaller market share than Montreal, it offers more services to more world ports than any other port in eastern Canada, with services to and from the United Kingdom, North Europe, Baltic, Mediterranean, Middle East, Indian sub-continent, South East Asia, Far East, and Australia/New Zealand ports. The volume of regional cargo is comparatively small, and to provide the range of services available, is very dependant upon the larger volumes of cargo going to or from larger inland markets. The total export and import volumes for the combined mix of shipping lines offering service at the Port of Halifax is shown in Figure 2-29.

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Figure 2-29 – Port of Halifax Container Traffic by Region Route/Region

Export (tonnes)

Import (tonnes)

Total (tonnes)

U.K. Continent

469,685

683,675

1,153,360

Mediterranean

222,682

511,684

734,547

China and Indian Sub Continent

402,613

185,740

588,353

Far East

351,490

108,450

459,940

Other Canada/U.S.

229,951

30,995

260,946

Caribbean

173,296

69,016

242,313

Middle East

102,746

72,791

175,537

Central America

120,835

40,154

160,989

Scandinavia

32,959

98,566

131,525

South America

107,903

18,255

126,058

Eastern Europe

22,857

1,177

24,034

Africa

17,289

619

17,908

Oceania

1,482

2,092

3,574

245,044

172,995

418,039

2,500,732

1,996,390

4,497,123

Transhipment Total Source – Halifax Port Authority.

Competitive Position In its efforts to attract cargo and passenger traffic, the Port of Halifax competes with other ports in the North Atlantic region. For the purposes of this analysis, Port of Halifax’s key competitors were determined to be the Port of New York/New Jersey, the Port of Virginia, and the Port of Montreal (Figure 2-30). The following sections review the Port of Halifax’s competitive position relative to these facilities.

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Figure 2-30 – Port of Halifax Shipping Competitors

Montreal Halifax New York Norfolk

Facilities Port of New York/New Jersey The Port of New York/New Jersey is located at the centre of one of the world’s most concentrated and affluent consumer markets. In 2004, more than 25 million tonnes of oceanborne general cargo moved through the port, including 4.5 million TEUs of containerised cargo. The majority of this cargo is processed through four terminals managed by the Port Authority of New York/New Jersey: ƒ

Port Newark/Elizabeth-Port Authority Marine Terminal complex (NJ) (2 terminals);

ƒ

PA Auto Marine Terminal (NJ) (1 terminal);

ƒ

Brooklyn Piers Red Hook Container Terminal (NY) (1 terminal and 2 piers); and

ƒ

Howland Hook Marine Terminal (NY) (1 terminal).

The remaining cargo is handled by private operators such as Global Marine Terminal, the City of New York's South Brooklyn Terminal, and a number of marine terminals operated by private oil companies along the southern coastline of New Jersey (which handle loads such as imported liquid bulk crude oil). The port is equipped with a variety of cranes, including Paceco, Paceco Post-Panamax, and ZPMC Post-Panamax. Ports of Virginia The Virginia ports are located just 18 nautical miles from the open sea in a year-round, ice-free harbour offering deep waters of up to 15.2 metres. The ports provide an unobstructed channel that allows easy access and manoeuvring room for very large container vessels. The Ports of Virginia own four general November 2005

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cargo terminals – Norfolk International Terminals, Portsmouth Marine Terminal, Newport News Marine Terminal, and the Virginia Inland Port in Front Royal. All facilities are operated by Virginia International Terminals Inc., a non-profit operating affiliate of the Virginia Port Authority. The port is equipped with chassis stackers, container cranes, a gantry crane, PACECO cranes, Kone cranes, a CEMCO crane, a Deer Park crane, and a Clyde Gantry crane. In addition, the port is connected to an extensive, modern network of interstate and local highways that permit direct inland motor-freight transportation to any point in the U.S. Currently, more than 50 motorcarrier companies offer full freight-handling and load-consolidation services at the port. Port of Montreal Montreal is one of the busiest inland ports in the world, and a key transfer point for transatlantic cargo. Approximately half of its containerised cargo traffic is destined to/from from the Canadian market, mainly Quebec and Ontario, with the other half to/from the U.S. market. The Port of Montreal has excellent rail links that provide shippers with faster transit times to several U.S. destinations – such as Chicago and Detroit – than the port of New York. The port operates six container terminals – Bickerdike Complex (9 berths), Racine Terminal (8), Maisonneuve Terminal (4), Cast Terminal (6) and 4 specialised terminals (Grain Terminal (3 berths), Contrecoeur Terminal (2), Petroleum Berths (11), and Logistics Berths (20)). The port is equipped with 30-60 tonne dockside gantry and yard gantry cranes. Figure 2-31– Comparison of Shipping Facilities NY/NJ

Norfolk

Montreal

Halifax

Number of Terminals

5

4

6

6

Terminal Size (acres)

1,423 acres

1,330 acres

175 acres

145 acres

21+

30+

13+

34+

19+

31+

10+

9.9 – 12.8

9.2 – 15.2

7.6 – 10.7

8.8 – 16.8

Cargo Capabilities

Container, roll-on/ roll-off, bulk, breakbulk, neobulk

Container, roll-on/ roll-off, bulk, breakbulk

Container, roll-on/ roll-off, bulk, breakbulk

Container, roll-on/ roll-off, bulk, breakbulk

Specialized Services

Auto exports, fumigation facilities, wallboard manufacturing

-

-

Gypsum, oil, auto imports, ship repair, grain elevator

-

-

-

68,000 m2 (excluding specialized service areas)

On-dock double-stack rail service, on-dock rail service, truck and highway access

On-dock double-stack rail service, on-dock rail service, truck and highway access

Number of Berths Number of Cranes Berth Depth Range (m)

Storage Capacity (tonnes)

Intermodal Connections Source – Individual ports.

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Traffic In terms of this analysis, the two most relevant market positions are those for container traffic and cruise vessel throughput. While container cargo grew around the turn of the 21st century, the Port of Halifax’s market share, in terms of its North Atlantic competitors, has fallen almost continuously in the past decade. In the past five years, its traffic has stagnated or declined in an overall market that has grown 32% during the past five years. Figure 2-32 shows the amount of container traffic at all four ports between 2000 and 2004. Overall, container traffic has risen an average of 5.7% per annum from 6,088,379 TEUs in 2000 to 8,039,282 TEUs in 2004. Figure 2-32 – Comparison of Container Traffic (TEUs) Port

2000

2001

2002

2003

2004

548,404

541,640

524,336

541,650

525,553

Montreal

1,014,148

989,427

1,054,603

1,108,837

1,226,296

Norfolk

1,347,517

1,303,797

1,437,779

1,646,279

1,808,953

New York

3,178,310

3,316,275

3,749,014

4,067,811

4,478,480

Total

6,088,379

6,151,139

6,765,732

7,364,577

8,039,282

Halifax

Source – Individual ports.

Figure 2-33 displays the relative market shares of each port during this same time period. In terms of market share, the Port of Halifax’s market share has declined from roughly 9% in 2000 to approximately 6.5% in 2004. By comparison, the Port of New York/New Jersey has seen its market share grow by 3.5 points during this period. Figure 2-33 – Comparison of Market Share Port

2000

2001

2002

2003

2004

Halifax

9.0%

8.8%

7.7%

7.4%

6.5%

Montreal

16.7%

16.1%

15.6%

15.1%

15.3%

Norfolk

22.1%

21.2%

21.3%

22.4%

22.5%

New York

52.2%

53.9%

55.4%

55.2%

55.7%

Total

100.0%

100.0%

100.0%

100.0%

100.0%

Source – Individual ports.

Key Findings ƒ

The Port of Halifax possesses a comprehensive array of uncongested shipping infrastructure and services.

ƒ

The Port of Halifax’s overall container traffic and market share declined between 2000 and 2004. This has occurred in a market that experienced growth of 32% during the period.

ƒ

Even though it has a smaller market share than Montreal, the Port of Halifax offers more services to more world ports than any other port in eastern Canada.

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Port – Cruise

Facilities Passenger Terminals The Pier 21 Cruise Pavilion currently offers the best cruise line and passenger experience in terms of portof-call and potential homeport operations in Halifax. For Piers 20 to 22, the largest issue for homeporting lies in the width of the apron area and access onto the apron by supply trucks. Piers 30 and 31 are preferred for homeport operations due to the size of the aprons and additional walking room for passengers. Overall, both pier length and height of the berths are sufficient for all of the major cruise ships operating in the region. The Pier 21 Cruise Pavilion, in many ways, reflects the current thinking regarding cruise vessel port-of-call facilities. It is a renovated structure situated close to the downtown area where passengers can enjoy the destination and where there is a mix of retail and other uses incorporated into the cruise complex. It is in this proximity to the downtown area that the Pier 21 Cruise Pavilion serves as a significant strength for Halifax, an observation supported by responses from cruise line operational personnel. Apron and Gangways Apron areas for cruise ship operations are small and would present significant challenges for cruise vessel homeport operations, especially those requiring provisions associated with a homeport operation. Apron widths are generally less than 25-feet (7.6 metres) for the Seawall – Piers 20 to 23. By comparison, cruise lines generally prefer apron widths of approximately twice this amount (50-feet/15.2-metres.) for homeport operations. Ground Transportation Area Ground transportation areas within the Pier 20 and 21 areas provide adequate marshalling space for up to 40 motorcoaches, however, with more than one tour operator supporting ship operations on a given call, communication and cooperation will be an essential element for further development. Incorporating a homeport operational plan will assist in overall efforts to attract cruise homeporting operations. Availability of Other Cruise Berthing Areas As noted above, additional cruise berthing – apart from the Pier 21 and 20 berths – is available for use as required, although at present, Halifax would primarily be a one-ship homeport operation utilising the Pier 21 Cruise Pavilion. Within the context of the general cruise homeport market in the region, this is not presently a significant constraint for the future growth of cruise homeport operations in Halifax. Provisioning The availability of provisions is a strong point for Halifax, and with potential exchange rate savings on the Canadian dollar, may serve as a strength for the destination overall. While the provisioning area along the apron is small, the availability of provisions and stores is reported as good.

Traffic Cruise passenger traffic at the Port of Halifax has grown considerably over the past 10 years from roughly 30,000 passengers in 1995 to approximately 213,000 passengers in 2004 (an increase of over 600%). November 2005

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Figure 2-34 below displays cruise passenger throughput, vessel calls, and the number of different vessels calling on the Port of Halifax between 1995 and 2004. It is important to note that, while the overall passenger throughput has significantly increased since 2002, the total vessel count has remained generally flat and the number of vessel visits has decreased since 2003. This trend indicates that the Port of Halifax is receiving larger, higher passenger capacity ships, which deliver more cruise visitors. This trend is consistent with the cruise industry’s strategic plan of moving to larger vessels to expand economies of scale. This trend highlights the port’s potential to handle the same number of vessel visits while increasing passenger throughput. Figure 2-34 – Cruise Passenger Traffic Year

Passengers

Cruise Calls

Cruise Operators

Cruise Ships

Pax Per Ship Call

Pax % Growth

Ship % Growth

1995

30,257

39

15

16

776

-25.0

0.0

1996

36,584

46

13

13

795

+17.3

+15.2

1997

44,238

46

14

15

964

+17.5

0.0

1998

47,798

53

16

18

902

+7.3

+13.2

1999

107,837

73

16

19

1477

+55.7

+27.4

2000

138,371

93

16

20

1488

+22.1

+21.5

2001

160,237

96

15

23

1669

+13.6

+3.1

2002

157,036

87

16

20

1805

-2.0

-10.3

2003

170,697

104

15

23

1859

+8.7

+15.0

2004

212,834

122

16

28

1730

+24.7

+17.9

Source – Halifax Port Authority.

It should be noted that preliminary data suggests that Halifax’s cruise passenger traffic is projected to decline by approximately 7% in 2005 to 197,000 passengers. This situation can be attributed to two significant developments – Royal Caribbean’s reduction of 5 port visits (shifting some capacity to Bermuda/Caribbean market) and Holland America Line’s elimination of 8 port calls (shifting some capacity to Europe). Cruise ships moving away from Canada/New England to Bermuda and Europe itineraries indicates the growing global prominence and competition now faced by Halifax and the region. While the region’s move into the global realm is a consolation, it also brings with it new and important marketing challenges. Overcoming these new competitive challenges will be an important factor in the region’s and Halifax’s continued cruise growth.

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Market/Competitive Position Market Position Once focused primarily in the Caribbean and Mediterranean regions, cruise operations are now found around the world. Inclusive of all cruise operators, the Caribbean remains the principal location for cruise capacity placement, followed by the Mediterranean, Europe, Alaska, and the west coast of Mexico (Figure 2-35). In total, over twenty different primary cruise sub-regions are present within the global marketplace, with many of these consisting of even smaller deployment characteristics and typical itineraries. Figure 2-35– Cruise Capacity Placement by Region (2004)

Northern Europe

Alaska

3

4 Caribbean

5

1

2 Mediterranean

Mexico West

For North American cruise lines, the Caribbean received a significant increase in terms of capacity placement between 1996 and 2004 – over 15 million bed-nights – resulting from delivery and deployment of several of the industry’s new, large vessels. Capacity growth was also very strong in the Mediterranean, with North American operators increasing their presence significantly during this period.

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Figure 2-36 – Cruise Capacity Placement by North American Operators Bed Nights Route/Region

1996

2004

% Change

Caribbean

16,041,139

31,210,605

94.6%

Mediterranean

3,447,675

9,704,398

181.5%

Alaska

3,543,051

5,913,967

66.9%

Bahamas

2,632,370

3,656,705

38.9%

Panama Canal

2,582,102

2,930,528

13.5%

Mexico West

1,910,728

4,827,262

152.6%

N. Europe

1,225,433

7,560,171

516.9%

Bermuda

1,016,863

1,324,690

30.3%

Trans Atlantic

609,580

1,425,596

133.9%

Hawaii

710,658

2,629,458

270.0%

South Pacific

282,954

683,506

141.6%

SE Asia

415,552

20,372

-95.1%

Africa

362,567

17,640

-95.1%

Canada / New England

305,635

1,488,585

387.0%

Far East

200,764

403,538

101.0%

Mississippi

350,896

0

-100.0%

World

718,422

462,934

-35.6%

S. America

212,256

1,088,569

412.9%

Coastal West

75,881

643,792

748.4%

Indian Ocean

119,493

10,544

-91.2%

-

60,072

-

Other

355,811

1,235,534

247.2%

Total

37,119,830

77,298,466

108.2%

U.S. Coast East *

Source – Cruise Lines International Association.

The U.S. east coast region covers the entire Atlantic region, inclusive of eastern Canada, the mid-Atlantic states, Bermuda, and routes to the Caribbean and Bahamas. It is a vast area of potential cruise destinations that are only constrained by speed and distance of the modern cruise industry. Taken as a whole, it can be regarded as the largest cruising region for North American capacity deployment following the Caribbean, Mediterranean, Alaska, and north European regions. The U.S. east coast region continues to be a summertime mainstay of the North American market and is dominated by the large North American cruise lines with Bermuda, Caribbean, and Canada/New England deployments. This is also a region that is exploited by the shoulder season markets of the transatlantic, world, and Canada/New England ‘fall foliage’ itineraries. Today, the region is becoming a year-round North American cruise homeport for sailings to the Caribbean and Bahamas. This last market still must go through more development, but this is now viewed as a consistent deployment option for the region. Northeasterners may eventually prefer to forego the poor weather conditions that can be encountered onboard a cruise ship sailing along the Atlantic Coast in the wintertime for a short flight to Florida. However, thus far it has sold consistently well for all cruise lines, and it is likely that other cruise lines will follow suit November 2005

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with a similar deployment. This cruise capacity placement is illustrated in Figure 2-37, where the destination analyses over the past five years are indicative of the growth of the cruise region. Overall capacity in the primary east coast markets has grown by 27.7% between 2000 and 2004 with the total North American market share projected at 3.8%. In addition, to the small, but steady growth of the primary feeder markets for the region, as illustrated below, the impact of the strong Caribbean and Bahamas market has been the driving force in growth from 2003. In 2004, we estimate that the east coast region will be responsible for 2,352,000 bed nights, which translates into approximately 8.1% of the total Caribbean and Bahamas North American market share. The transatlantic, world and small ship coastal markets are also factors for regional growth. Figure 2-37– Cruise Capacity Placement in U.S. East Coast Region by North American Operators Bed Nights Route/Region

2000

2004

% Change

Bermuda (Bed Nights)*

988,391

1,324,690

25.4%

Bermuda (Passengers)**

152,060

203,798

-

Canada/New England (Bed Nights)*

1,107,689

1,488,585

25.6%

Canada/New England (Passengers)**

170,414

229,013

-

U.S. Coastal East (Bed Nights)*

1,402,429

60,072

-22.3%

U.S. Coastal East (Passengers)**

215,758

9,242

-

Source – Cruise Lines International Association.

From a North American operator perspective, the east coast region has been one of the main beneficiaries of the expansion of the U.S. homeland cruising industry and the diversification of itineraries away from the traditional Caribbean sailings departing from southern U.S. homeports. Halifax continues as the most visited destination in all the major cruise lines’ Canada/New England itineraries. This valued positioning is expected to continue for the near to mid-term. Halifax is a natural choice for the cruise industry to conduct port-of-call operations and the strongest port for potential, future homeport actions. Halifax’s regional reputation as a premier city with superior tourism infrastructure, and its strategic location all serve as significant pluses for cruise lines considering future operations in Atlantic Canada. Challenges to Port of Halifax’s market position and its desire to attract homeport operations continue to exist and require on-going attention. In addition to the previously stated operational concerns, recent market activity has also produced new challenges to Atlantic Canada, and in turn, Port of Halifax’s cruise business growth. The identified factors influencing passenger throughput at Halifax generally fall within one of two categories. They are: ƒ

Cruise line marketing strategy as it relates to revenue demands; and

ƒ

Local Halifax market conditions with respect to global market competition.

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Competitive Position Port of Halifax’s competitiveness is measured with respect to homeport operations. The Port of Halifax’s key competitors in this endeavour have been determined to be the Port of New York/New Jersey, the Port of Montreal, and the Port of Boston (Figure 2-38). The following sections review the Port of Halifax’s competitive position relative to these ports. Figure 2-38 – Port of Halifax Cruise Homeport Competitors

Montreal Halifax Boston New York

Figure 2-39 compares total cruise passenger throughput at competing ports in 2000 and 2004. The following observations can be drawn from the data: ƒ

Between 2000 and 2004, cruise passenger throughput at competing ports increased roughly 166% from 581,000 to 1.55 million passengers;

ƒ

Total cruise passenger throughput at the Port of Halifax has increased approximately 54% from 138,000 passengers in 2000 to 213,000 passengers in 2004; and

ƒ

Between 2000 to 2004, all competing ports experienced an increase in cruise passenger throughput.

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Figure 2-39 – Comparison of Cruise Passenger Traffic

Passengers (thousands)

1,200

1,093

900

600

300

220

213

198

199

138 25

43

0 Halifax

Montreal

New York 2000

Boston

2004

Source – Individual ports.

The Port of Halifax has historically been a port-of-call, that is, where cruise lines call at Halifax in the middle of their itineraries. The Port of Halifax is currently working to entice cruise lines to utilise Halifax as a homeport, thereby further stimulating the overall of the region. Figure 2-40 displays the relative ratings of Halifax as a port-of-call and as a homeport by target market. Figure 2-40 – Port of Halifax Cruise Service Presence by Target Markets Target Market

Halifax as a Port-of-Call

Halifax as a Homeport

Canada & New England

Å

 /Æ

Atlantic Coast Repositioning

Å

 

Transatlantic

 

Æ

 /Å

Æ

North Atlantic

Æ

Æ

Newfoundland & Labrador

Æ

 /Å

Dry-dock/Ship Servicing

n/a

n/a

Bermuda

n/a

 /Æ

Round-the-World

Key: Strong (Å), Fair ( ), Weak (Æ) Source – Bermello, Ajamil & Partners.

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Not surprisingly, other nearby ports are also vying for homeport positions. Figure 2-41 identifies key competitors and their relative competitive threat level. Figure 2-41 – Port of Halifax Cruise Competitors Threat Potential Competitor

Competitive Threat Potential

Port of Saint John, New Brunswick

  (Port-of-Call) Æ (Homeport)

Port of Sydney, Nova Scotia

  (Port-of-Call)

Port of Boston, Massachusetts

Å (Homeport)

Port of New York City, New York

Å (Homeport)

Port of Portland, Maine

  (Port-of-Call)   (Homeport)

Port of Quebec City, Quebec Port of St. John’s, Newfoundland

  / Å (Homeport)  (Homeport)

Key: Strong (Å), Fair ( ), Weak (Æ) Source – Bermello, Ajamil & Partners.

Key Findings ƒ

In general, no significant marine conditions or access issues were identified that serve as a constraint for present or future cruise operations. In fact, in combination with its weather, safe-harbour access, and cruise pier location (within walking distance of the city’s downtown core), the Port of Halifax exceeds general industry standards for cruise ports.

ƒ

The Canada/New England cruise market sector has experienced impressive growth over the past decade, but the pace has slowed in recent years.

ƒ

Halifax continues as the most visited destination in all the major cruise lines’ Canada/New England itineraries. This valued positioning is expected to continue for the near to mid-term.

ƒ

Halifax has the strongest potential to secure future cruise homeport operations.

2.4

Ground Transportation

Facilities Road The main road infrastructure in and out of Halifax consists of a number of 100 series highways, some of which are part of the National Highway System (Figure 2-42). Highway 103 leads to destinations on the South Shore, Highway 101 leads to the Annapolis Valley, and Highway 102 is the main transportation corridor connecting Halifax to the Trans-Canada Highway at Truro. Highway 102 also serves as the access route to Halifax International Airport. Highway 107 serves the Eastern Shore. November 2005

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Two bridges provide access to Halifax Peninsula. The Macdonald Bridge has three lanes, one in each direction and one reversing depending on the predominant traffic flow. Access to this bridge is limited to automobiles and very light pick-up trucks. The MacKay Bridge has two lanes in each direction and handles a large amount of truck traffic since it is the most convenient route between the container terminals on Halifax Peninsula and the major industrial centre of Burnside Industrial Park. The MacKay Bridge also provides convenient access to the 102, via the 111 and 118, rather than taking the normally congested Bedford Highway towards the 102, or alternatively, the Joseph Howe Drive in the opposite direction to reach Highway 102. Figure 2-42 – Halifax Road Network

Rail In the Greater Halifax region, CN Rail is the only Class 1 rail carrier that provides rail service to inland markets. Halifax is CN Rail’s eastern terminus for its transcontinental mainline (Figure 2-43). Freight trains generally arrive at or depart from Rockingham yard, and traffic is dispatched from the Rockingham yard towards the port terminals of Fairview Cove, the South End as well as the Halifax Intermodal Terminal, which is the CN operated domestic terminal for Halifax.

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Figure 2-43 – Nova Scotia Rail Network

Figure 2-44 – Greater Halifax Rail Network

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On the Dartmouth side of the harbour, CN serves the oil refineries using the Dartmouth switching yard. Beyond the Dartmouth yard, and at the end of the Dartmouth subdivision, is Autoport, a purpose-built ship rail distribution facility for automobiles. Industrial spurs exist in Bayers Lake/Lakeside, Burnside, on DND properties, and along the CN mainline. The most heavily used industrial spur in the Halifax area leads to the National Gypsum export dock. A Via Rail terminal and train station is located in the south end of Halifax (Figure 2-45). Figure 2-45 – Via Rail Network

Short Sea There are no dedicated short sea facilities in Halifax. Short sea services use one or more of the existing port facilities described earlier.

Services Virtually all types of road transportation services are available in Halifax. These services include: ƒ

Intermodal carriers;

ƒ

Full load carriers;

ƒ

Consolidated freight carriers;

ƒ

Heavy haul; and

ƒ

Express freight services.

There are over 49 road transportation service providers in Halifax. Some of these trucking companies are small or very specialised, but at least 15 companies are recognisable names in the transportation industry.

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Some of the larger companies have their own warehousing, container storage yards or cross dock facilities. Most of the larger trucking companies operate their own fleet of trucks with employee drivers. They also hire owner-operators when needed. Rail CN offers freight services and Via Rail provides rail passenger services in Halifax on CN trackage. CN runs four scheduled intermodal trains and two mixed freight trains per day and Via runs two passenger trains per day. CN also runs two unit trains per day to/from Milford Station for bulk gypsum destined for the National Gypsum wharf on the Dartmouth side of Bedford Basin. Project and over-dimensional cargoes are also handled by CN on their mixed trains. Short Sea Several short sea operators offer service from Halifax – Oceanex, Halship, Sea Transit, and some steamship lines, barges, and tugs. Currently, Oceanex provides two sailings per week to St. John’s and Corner Brook, out of Halifax. They offer roll-on/roll-off as well as container service and carry automobiles from Autoport to Newfoundland. Halship offers a weekly feeder service to Boston and Portland. This service has replaced the SPM Marine International that provided a similar service with the MV Shamrock until 2004. Sea Transit provides transportation to and from the islands of St. Pierre et Miqueleon on a weekly schedule. Steamship lines occasionally carry short-sea freight from Halifax to New York although this service is not advertised or actively sold. Such short-sea activities are often considered transhipment activities between carriers. Barges and tugs are available locally but there is no scheduled service.

Traffic Road The trucking industry is very fragmented and competitive, and as a result, traffic data is not readily available. The Canadian Council of Motor Transport Administrators (CCMTA) has a project underway to construct a database of road traffic that would include movements throughout Nova Scotia, but the study is scheduled for completion in one to two years time. A recent polling of some of the major carriers in Halifax has identified the typical pattern for the distribution of intermodal traffic to/from Halifax. Figure 2-46 shows the direction/provenance of the Port of Halifax’s container movements: Figure 2-46 – Port of Halifax Container Traffic Provenance

Halifax Regional Municipality 22%

Valley 5% South Shore 13%

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Toll stations in Nova Scotia provide some additional information on total truck traffic. The 5 and 6-axle commercial vehicle traffic through the Cobequid Pass is a measure of the combined domestic and international traffic. Since the estimated ocean freight truck volume over this road is between 50,000 and 60,000 trucks per year, domestic traffic volumes would appear to be nine to ten times as much as the international freight volumes shown in Figure 2-47. Figure 2-47 – Historical Traffic on the Cobequid Pass (2000 to 2004)

Trucks (thousands)

600

400

502

501

511

180

178

178

322

323

2000

2001

200

542

561

191

197

332

351

364

2002

2003

2004

0 5 axles

6 axles

Source – Province of Nova Scotia.

Similarly, the volume of Class 4 traffic over the MacKay Bridge would indicate that international traffic would make up approximately 25% of the Class 4 vehicle traffic to/from Halifax Peninsula over the bridge. Figure 2-48 displays historical traffic levels on the MacKay Bridge from 2000 to 2004. Figure 2-48 – Historical Traffic on the MacKay Bridge (2000 to 2004)

Class 4 Vehicles (thousands)

300

281 257

255

2000

2001

291

292

2003

2004

200

100

0

Source – Province of Nova Scotia.

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The analysis suggests that the capacity of road transport to/from Halifax is limited only by the road system to/from Nova Scotia. It is estimated that at least within the province, the road system is presently operating at approximately 30% of its practical capacity. Despite the available capacity, the road infrastructure in the region does have some shortcomings. In particular, stakeholders have noted that a more direct routing is needed between the Halifax region and key inland markets such as Montreal, Toronto, and Chicago (Figure 2-49). Figure 2-49– Halifax Road Network

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Rail Over the past 5 years, the railway handled an average of 70,000 cars and 230,000 cargo containers per year to/from Halifax. Figure 2-50 and Figure 2-51 display the detailed historical rail traffic, broken down into car volume and container volume to/from Halifax. Figure 2-50 – Historical Halifax Car Volume (2000 to 2004) 100

81

77

76

2003

2004

Cars (thousands)

75

59

56

50

25

0 2000

2001

2002

Source – CN Rail.

Figure 2-51– Historical Halifax Rail Container Traffic (2000 to 2004) 250

238

239

226

235 211

Containers (thousands)

200

150

100

50

0 2000

Source – CN Rail.

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2001

2002

2003

2004

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As a general rule, a single-track railway is considered to reach its practical capacity at 16 trains per day. With 8 trains per day (10 on short sections), the railway is presently considered to be operating at 50% capacity in terms of daily trains. However, train length can be extended to further increase capacity if required, and the railway could add another 8 intermodal trains per day if there was a sudden demand for increased import-export freight movement. Based on this scenario, our analysis suggests that the rail system in Halifax is operating at roughly 20% of capacity. Although CN’s track utilisation to key inland markets such as Montreal or Chicago tends to be higher than in the Halifax region, additional capacity is also readily available to these destinations. VIA passenger trains average roughly 100 passengers. Via trains can carry up to 1200 passengers, so if one assumes a practical capacity of 50% overall utilisation, Via is presently operating at 15% to 20% of its practical capacity. Short Sea Over the past five years, short sea shipping has moved an average of 51,000 TEUs per year. Figure 2-52 shows the detailed freight movement volumes to/from the Halifax gateway. Figure 2-52 – Historical Halifax Short Sea Container Volume (2000 to 2004) 60

Containers (thousands)

50

56

57 49

47

44

40 30 20

10 0 2000

2001

2002

2003

2004

Source – Halifax Port Authority.

Short sea capacity is limited only by its use of existing Halifax port facilities, and as such, its current levels are considered to be low, with a capacity utilisation of less than 20%.

Market/Competitive Position Currently, Halifax is the dominant gateway for freight destined to Atlantic Canada, and other existing gateways offer little or no advantages over Halifax. For freight destined to larger markets such as Montreal, Toronto, and Chicago, Halifax is seen as a discretionary port-of-call, thus its inland connections are a critical component to its competitive advantage.

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Efficient inland transportation is critical for the Halifax gateway. The distance to and from major markets puts Halifax at a geographical disadvantage compared to ports such as Montreal and New York. Shipping lines often can (and will) change a routing for a very small overall cost difference, as long as the service is reliable. The competitive position is thus a function of the total (door) cost of transportation. Figure 2-53 illustrates the rule of thumb costs by transportation mode. The table demonstrates why trucking is not competitive with rail on long inland hauls (higher cost per mile component). It also identifies the reason why short-sea has so far been limited to niche markets, due to its high cost structure and high fixed cost component. Figure 2-53 – Cost Comparison between Modes Truck

Rail

Short Sea Large Ship

Short Sea Small Ship

Included

$200

$200

$200

-

$100

$250

$200

Terminal Charge (port)

$35

$35

$200

$150

Fixed Cost

$35

$335

$650

$550

$1.71

$0.44

$0.40

$0.50

Inland Transportation Mode Local Pick-Up/Delivery Terminal Charge (inland)

Inland Haul/FEU-Mile Source – Global Port Services Inc.

Figure 2-54 shows the cost of inland transits for various distances travelled for each mode of ground transportation. Figure 2-54 – Inland Transportation Costs $2,000 $1,800 $1,600

Cost

$1,400 $1,200 $1,000 $800 $600 $400 $200 $0 1

2

3

4

5

6

7

Distance in milesX100 Truck

Source – Global Port Services Inc.

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Rail

Lg ship

Sm Ship

8

9

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Road Road transport (trucking) is the predominant transportation mode for domestic freight and international freight destined to and from Atlantic Canada. Much of the domestic freight consists of consumer goods for the Atlantic Region and this flow drives the demand for trucking services. Moncton continues to be the hub for domestic trucking in Atlantic Canada. Halifax is the hub for international freight to and from the Atlantic Region. Port facilities serve as storage and empty yards for cargo within trucking distance. Steamship containers destined to/from the larger markets of Montreal, Toronto, and Chicago are normally routed by rail and trucked only in exceptional cases such as the cargo becoming urgent due to transit delays. The Halifax Gateway has little real competition for the local market served by road, as alternative intermodal routings are more expensive, less flexible, and not very practical. As can be seen in Figure 2-54, trucking is only competitive with rail if the inland distance is less than 480 kilometres. Rail Rail is the inland transportation mode of choice for steamship containers to/from the major cargo markets served by the Halifax Gateway. The alternative to using rail for these markets is to use another gateway rather than using an alternate inland transportation system. Other inland transportation modes are simply not an option at the present time. Main inland market transportation is a very competitive arena. The competitive position of the Halifax Gateway and inland transportation system is quite different for each of the three main inland markets. ƒ

Montreal is served directly by a relatively large number of carriers and nearly the full cost of the inland transportation needs to be absorbed by a steamship line that wishes to participate in the Montreal market via Halifax.

ƒ

Toronto is the largest market in Canada and Halifax’s traditional base market. Montreal offers more viable inland transportation options (CN, CP or trucks) to Toronto than either Halifax (rail only) or New York (truck only). However, a Halifax routing can be cost competitive into that market.

ƒ

The U.S. mid-west is roughly two and a half times the size of Canada (based on population). Halifax routings generally become more cost-effective further inland due to the relatively low variable cost of rail transportation. Containers railed to Chicago from either Montreal or New York incur the same types of handling costs.

Short Sea The present short sea routes out of Halifax either shorten the inland transportation distance (Boston) or serve areas surrounded by water (Newfoundland and St. Pierre et Miquelon). Oceanex offers a reliable option to Newfoundland and is the routing of choice for freight arriving in Halifax by ship or rail. Cargo also moves to Newfoundland via Marine Atlantic services out of North Sydney. Domestic freight is generally much more time sensitive and sailing frequency favours the Marine Atlantic route between North Sydney and Port aux Basques. However, Oceanex captures part of the domestic freight market to Newfoundland as well, and could attract more with a higher frequency service (as was introduced in spring 2005). November 2005

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Halship mainly competes with barges from New York to Boston. They offer their customers a better delivery time into Boston and economical access to Portland, Maine. The viability of the service is dependent on volume and the recent departure of Maersk from the Port of Halifax will make it more difficult to fill the ship.

Key Findings ƒ

Halifax offers a comprehensive set of facilities and services and is well positioned as an alternative routing for cargo moving to inland markets.

ƒ

Halifax presently lacks the critical mass to become a ‘must call’ port. This is mainly due to the small local market and the concentration of distribution centres in the Toronto area.

ƒ

Halifax’s role as a lightening and topping-off port for vessels on the way to/from New York, provides the region with shipping services to many world-wide destinations.

ƒ

Halifax has ample inland transportation capacity and could attract significant freight volume as U.S. inland facilities become insufficient to handle projected future growth.

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3.0 Changing Environment The ability of the Halifax Gateway to realize its objectives will be influenced by many factors. This section reviews the Gateway’s position with respect to the global, regional and local economic environment, regulatory developments, and transportation industry trends.

3.1

Global Marketplace

Economic Growth A positive relationship exists between economic growth and transportation demand. Economic development stimulates transportation demand by increasing the number of products shipped, employees commuting to and from their places of employment, and customers travelling to and from service areas. This positive relationship exists for all modes of transportation. Figure 3-1 isolates the specific relationship between global GDP growth and air traffic growth. Passenger and cargo traffic tend to grow approximately two and three times as fast as world GDP, respectively. Figure 3-1 – World GDP Growth versus Air Traffic Growth 12 10 8

W orld GDP Passengers Cargo

6 4 2 0 1970

1975

1980

1985

1990

1994

1998

2002

Source – ICAO and World Bank.

Knowing that a positive relationship exists between transportation demand and economic growth is useful when attempting to quantify the future demand for transportation facilities. Examining forecasted economic growth can be an important building block when trying to estimate future transportation needs. The following sections briefly discuss the short and long-term outlooks for both the global and regional economies.

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Global In the short-term, global real GDP is forecasted to grow approximately 4.3% in 2005 and 4.4% in 2006.2 This is lower than the growth experienced in 2004, but still significant given that the global economy grew at its fastest pace in 20 years in 2004. However, global economic growth could be slowed if oil prices remain at their current high levels. Over the longer-term, the global economy will continue to experience several key structural changes that will significantly affect the economic climate in the long-term. Future global GDP growth will be affected by the emergence of the Chinese and Indian economies, and a fundamental change in the structure of the world’s population. ƒ

China – after many years of isolation, China is now an emerging part of the global economy. Since commencing structural reforms 20 years ago, China has achieved average annual output growth rates in excess of 9%.3 China’s integration into the global economy is likely to continue increasing as long as the necessary structural reforms are implemented.

ƒ

Demographic change – as mentioned above, a fundamental demographic change is occurring which will no doubt have a significant affect on the global economy. The United Nations predicts three significant changes to the global population:4 –

Global population growth will continue to slow. Global population growth sits around 1.25% per year, but is expected to fall to 0.25% per year by 2050;



The world’s population will continue to age; and



The share of the working-age population will fall in advanced countries and increase in developing nations.

If the above predictions do in fact come true, these could significantly affect the growth of the global economy. The IMF performed a study which utilised an econometric model to measure the macroeconomic impact of demographic changes.5 Their model suggests that per capita GDP growth is positively correlated with changes in the relative size of the working-age population, and negatively correlated with changes in the share of the elderly. Thus the predicted demographic changes would have a dampening effect on future global GDP growth.

2

Real GDP refers to the value of GDP in constant (e.g. inflation-adjusted) dollars, which is used as a measure of a nation’s final output.

3

‘World Economic Outlook – Advancing Structural Reforms.’ International Monetary Fund April 2004: 82.

4

‘World Economic Outlook: The Global Demographic Transition.’ The International Monetary Fund September 2004: 140-141.

5

‘World Economic Outlook: The Global Demographic Transition.’ The International Monetary Fund September 2004: 143.

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Regional Regional economic trends can be split into two geographic components – Canada and Atlantic Canada. In the short-term, Canadian real GDP is forecasted to increase 2.8% in 2005 and 3.0% in 2006. The Conference Board of Canada predicts that following the current recovery, real export growth will diminish over the long-term due to declining U.S. economic growth and an appreciation in the Canadian dollar. In the long-term, the Canadian economy is expected to grow at a compounded annual rate of 2.6% between 2004 and 2025. According to the IMF, several important challenges for the Canadian economy are expected in the near future. Prospective trade liberalisation, the appreciation of the dollar, and a significant increase in the share of elderly within the population are all challenges listed by the IMF. In Atlantic Canada, economic growth for the region in 2005 is forecasted to be lower than that expected for the nation as a whole. After sub-par economic performances in 2004, Nova Scotia and New Brunswick will expand by 2.6% and 2.9% in 2005, respectively.6 This outlook is brighter than it was earlier this year, largely due to two major capital developments – a $500-million liquefied natural gas terminal in Cape Breton, Nova Scotia and a $750-million project at Canaport in Saint John, New Brunswick. The forecasts are not as encouraging for Newfoundland and Prince Edward Island, as economic growth in both provinces is expected to be sluggish in 2005, at approximately 1%. In 2006, however, Newfoundland is expected to lead all Canadian provinces in economic growth as production ramps up at Voisey's Bay and White Rose.

International Trade Global As globalisation spreads, international trade will become more prevalent within the global economy (Figure 3-2). In 2004, world trade increased 10%, primarily reflecting significant increases in industrial production.7 Over 20% of the increase in world merchandise trade volumes is attributable to China. In fact, total Chinese imports grew 32% in 2004, reflecting both its inclusion into the WTO and significant increases in consumption demand.8 Over the past 20 years, China’s share of world trade has increased from less than 1% to close to 6% in 2004, and it is now the fourth largest trader in the world.9 The World Bank predicts slower trade expansion in 2005 and 2006. Trade in goods and non-factor services are expected to expand by 8.5% in 2005, compared to the 10% experienced in 2004. It is believed that much of the decline relates to efforts by the Chinese government to slow the pace of activity in China. World GDP forecasts for 2005 and 2006 are provided for advanced economies and emerging markets in Figure 3-3.

6

‘Provincial Outlook, Autumn 2004.’ The Conference Board of Canada Autumn 2004.

7

‘Prospects for the Global Economy.’ The World Bank Group 16 November 2004.

8

‘Prospects for the Global Economy.’ The World Bank Group 16 November 2004.

9

‘World Economic Outlook: Advancing Structural Reforms.’ The International Monetary Fund April 2004.

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Figure 3-2 – World Exports as a Percentage of GDP $35

GDP (US$, trillions)

$30

Exports

Total

54%

54%

2000

2002

43% 38%

$25 33%

$20

32%

$15 $10 $5 $0 1980

1985

1990

1995

Source – World Bank and InterVISTAS Consulting Inc.

Figure 3-3 – GDP and Consumer Price Forecasts Consumer Prices10

GDP Region

2005

2006

2005

2006

China

8.5%

8.0%

3.0%

2.5%

6.7%

6.4%

4.0%

3.6%

ASEAN-4

5.4%

5.8%

5.3%

4.5%

Canada

2.8%

3.0%

2.1%

1.9%

U.S.

3.6%

3.6%

2.7%

2.4%

Western Europe

1.6%

2.3%

1.9%

1.7%

World

4.3%

4.4%

-

-

India 11

Source – World Bank.

Regional Trade makes up a large share of Canadian real GDP. In 2004, trade accounted for approximately 82% of real GDP. The OECD predicts Canadian trade growth will increase slightly less than 8% in 2005.12

10

Annual averages, rather than December/December changes during the year

11

ASEAN-4 represents Indonesia, Thailand, Philippines, and Malaysia

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Implications for the Halifax Gateway ƒ

Current forecasts call for the global economy to grow at healthy rates in 2005 and 2006 (4.3% and 4.4%, respectively). These favourable conditions will continue to fuel trade and tourism, and provide growth opportunities for the Halifax Gateway.

ƒ

The structural changes taking place in the world economy – the emergence of the Chinese and Indian economies – bode well for Halifax. With congestion at west coast ports and increasing numbers of postPanamax vessels, Halifax is well positioned to increase its participation in trade to/from these regions.

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The Canadian economy is expected to face challenges in the short to medium-term (e.g. trade liberalisation, appreciation of the dollar, and significant growth in the share of elderly population). These developments could reduce Canadian wealth and decrease the demand for travel.

3.2

Government Policy

Rapid changes in trade, global logistics, and tourism places significant pressure upon governments to establish policy frameworks that enable their countries to better participate in world trade and commerce. The following sections review key regulatory and policy issues and trends that may influence the Gateway’s current and future markets.

Global Due to increasing globalisation and changing trade patterns, many governments around the world are finding it increasingly difficult to act autonomously in formulating and implementing transport policies. As production is relocated and the share of east Asia’s share of world trade increases (both in terms of exports and imports), the liberalisation and growth of trade is being accompanied by a growth of transportation. As a result, the consolidation of regional trading blocs and the resulting increase in international traffic has led transport companies to seek global alliances and greater market liberalisation in the transport sector. Internationally, governments are pursuing deregulation and divestiture policies in the transport industry. Increasingly, they are also withdrawing from the management, operation, and ownership of national carriers, ports, and airports. This has led to the rise of transnational transport corporations that are governing the global flow of air, maritime, and land exchanges and the management of airports, ports, and rail yards. Given this environment, several key transport polices and trends are emerging globally, including: ƒ

Trade and transportation corridor approaches in policy formulation especially in the marine, rail, and trucking modes (e.g. within the EU, APEC, NAFTA countries);

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Liberalised trading bloc air transport agreements such as that amongst several (not all) APEC members. This also includes a separation of air cargo from passenger provisions in the agreement, a trend that is starting take hold;

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‘OECD Economic Outlook No.76.’ Organisation of Economic Co-ordination and Development December 2004.

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More cross border ownership of airlines and airports (e.g. EU, Australia);

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Common aviation areas such as in EU;

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Multilateral rather than bilateral air service negotiations (e.g. U.S.-EU discussions);

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Port infrastructure investments to handle largest cargo/bulk ships, which in turn, leads to more gateway competition;

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Port, airport, rail, and airline privatisation/transnational ownership policies;

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Greening and environment/sustainability policies;

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Harmonisation of security, facilitation, and safety frameworks/codes/standards for all modes;

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Alternative fuel policies;

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Intermodal integration policies;

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More stringent shipping safety policies and standards;

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Private highways, bridges and tunnel building, operation and development;

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Private public partnerships;

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Border agency modernisation; and

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Regional transport integration that aligns market access, user charges and standards. This will include policy alignment and standards (e.g. weights and dimensions, driver visas).

Canada There are several policy and regulatory developments/issues affecting Canada’s transportation industries, many of which directly impact the Halifax Gateway. The following sections discuss these developments/issues in more detail. CTA Review When the Canada Transportation Act (CTA) came into effect in 1996, it required that a comprehensive review be undertaken within four years. The Minister appointed a five-member review panel on June 29, 2000, to conduct the review. The panel was to report within one year on the economic regulation of transportation activities under the legislative authority of Parliament. The Minister received the CTA Review Panel’s final report on June 28, 2001, and it was tabled in Parliament on July 18, 2001. The Minister asked that the review panel consider: ƒ

The effectiveness of the legislative and regulatory environment to sustain capital expenditures required to enhance productivity and promote innovation;

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Support for Canadian transportation stakeholders in meeting global logistics requirements and adapting to the new e-business environment;

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Public policy issues that may emerge from newly arising industry structures;

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Government powers to support sustainable development objectives; and

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The advisability of measures to preserve urban rail corridors for future mass-transit use.

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The panel was also asked to submit an interim report on ways to increase competition in the railway sector, including enhanced running rights, proposals for regional railways and other access concepts. These concepts needed to be assessed in the broader context of increasing North American integration and ensuring cost-effective service for shippers over the long-term. The interim report highlighted stakeholder positions and presented a review of various proposals. The panel determined that more detailed work was necessary as their review continued to properly assess the full economic, regulatory and legal impacts of competitive rail access. The panel’s final report contained more than 90 recommendations which will be considered by Transport Canada in the transportation blueprint policy review process. The transportation blueprint project is intended to renew the transportation agenda of the Government of Canada by developing a strategy that will guide future decisions in transportation over the next decade and beyond. The panel’s recommendations in key areas are summarised below. ƒ

Competition in the rail freight and airline industries – The panel’s review focused on the concerns of shippers using rail freight services and the extent of market power exercised by the mainline railways, concerns arising from Air Canada’s acquisition of Canadian Airlines International and increased concentration in the domestic airline industry, and how to review possible future mergers in the transportation sector. For the rail freight industry, the panel made a number of recommendations including that interswitching provisions be retained, that competitive connection rates replace competitive line rates and that running rights provisions be enhanced. With respect to the airline industry, the panel recommended that the Government of Canada pursue the benefits of foreign competition through multilateral negotiations to liberalise air services, raise the foreign ownership ceiling, eliminate potential barriers to market entry for domestic airlines, remove the Canadian Transportation Agency’s responsibilities for monitoring air fares, and required Air Canada to give at least 180 days notice of services it planned to terminate in the first six months of 2003.

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Transport mergers – The panel recommended that, in parallel with the Competition Act review process that looks into competition issues, a process be established to review potential mergers in all transportation modes under federal jurisdiction and report to the Minister of Transport on public interest considerations.

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Commercial operations in ferries, passenger trains, and urban transit – The panel recommended a stronger relationship between the cost of providing services and the prices charged for them as well as less reliance on public subsidies. For ferries, the panel recommended that the Government of Canada continue its efforts to promote innovation through commercialisation and divestiture to other levels of government. The panel recommended for intercity passenger rail services that the Government of Canada continue to support rail services to remote communities but commercialise tourism services and services in the Quebec City-Windsor corridor. For urban transit, the panel identified cost-effective ways for local governments and agencies to improve transit’s attractiveness and recommends experimentation with alternative delivery models and innovative forms of service.

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Efficiency in other modes –The panel’s recommendations promote the principles of commercially driven competition and harmonisation for a seamless transportation system. For marine, the panel recommended full cost recovery and early negotiations with the United States to promote greater competition in the domestic shipping industry. On the trucking side, the panel recommended that federal, provincial, and territorial governments establish a time frame for developing and implementing an effective framework to govern all elements of the trucking sector. The panel also recommended that the intercity bus industry continue to work toward reducing regulatory fragmentation.

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Discipline in the provision of infrastructure services – The panel commended the Government of Canada’s policy of placing the provision of transportation infrastructure on a more commercial footing over the past decade or more. For airports, air navigation, ports, and the St. Lawrence Seaway, the panel believed that it may now be the time to consider a long-term strategy to transform the major ports and airports into for-profit corporations. In the meantime, the panel recommended several measures to strengthen the accountability and control of airport and port authorities. For roads, the panel recommended that the Government of Canada encourage provinces and territories to establish road management and funding agencies to set charges and fees for road use. This would give road users a say in decisions about how much to charge for road use. The panel also recommended that other modes providing alternatives to road expansion should be allowed to compete for road funds.

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Urban rail corridors – The panel recommended enhancing access for commuter rail services and amending the existing process to preserve urban rail corridors for urban transit.

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Sustainable development – The panel believed its proposed approach to road management offers an opportunity to achieve needed cooperation. Progress is likely to result from charging directly for road use and permitting urban transport and other potentially more sustainable modes to compete for funding with road projects.

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Other matters – In addition, the panel suggested that all transportation policy be guided by overlying principles, proposes to increase the availability of transportation data and recommends that the Government of Canada increase its support for transportation research.

Air Policy International Air Policy Canada’s current International Air Policy for scheduled passenger services was introduced in December 1994 (the Canada-U.S. agreement is governed by a separate policy because of its scope and importance). In early 2001, Transport Canada announced an undertaking to review Canada’s International Air Policy. A new policy had been anticipated in Fall 2001, but was deferred as a result of September 11th. None of the policy changes under consideration would require legislative changes. On May 21, 2002, Canada’s Minister of Transport announced some minor changes to the International Airport Policy. The first change was the removal of the requirement that a market must have more than 300,000 annual passengers before more than one Canadian air carrier is designated to operate on a scheduled route. In effect, this change allows Air Transat to operate to a few additional destinations, mainly to/from Europe, that it was previously shutout of by policy. In practice, the carrier already operates to these destinations as a charter carrier, so the net effect may be small. November 2005

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The announcement also included changes to the ‘use it or lose it’ provisions of the International Air Policy. This change was designed to provide some stability for charter carriers like Air Transat which operate seasonal services, rather than year-round services. Previously, carriers had to operate a minimum of twiceweekly service year-round to maintain a designation to any particular market. Canada-U.S. Open Skies A new Canada-U.S. Open Skies air transport agreement was negotiated in November 2005. Potential benefits from the expansion of the 1995 agreement include greater access for Canadian passenger and cargo carriers to a much larger U.S. market (as a platform by which to serve third countries), increased pricing flexibility for Canadian and U.S. carriers, more options for Canadian airports to attract U.S. carriers, and lower prices for consumers. The most significant amendments in the new agreement involved liberalizing Canadian air carrier access to U.S. third country markets, and vice versa. The 1995 air services agreement between Canada and the U.S. created a more open regime for air services between both countries, but contained several restrictions. This agreement follows through on a pledge made earlier in the year by Transport Minister Lapierre and U.S. Transportation Secretary Norman Mineta to discuss opportunities for further air liberalization. It also supports the Security and Prosperity Partnership of North America, and its goal of achieving the most vibrant and dynamic trade relationship in the world. These changes are scheduled to become effective on September 1, 2006. Airport Policy Airport Rent Review A review of the rent policy for 21 Airport Authorities in the National Airports System (NAS) was launched in 2001 in response to the demands of airports and aviation communities and to the issues raised by the Auditor General in October 2000. The review was designed to assess whether the federal government's airport rent policy balances the interests of all stakeholders, including the air industry and Canadian taxpayers. It was conducted at the same time as, but independently of, the development of proposed airport legislation. Efforts were undertaken to produce new airport legislation throughout 2004; new legislation is expected to be tabled in 2005. In May 2005, the Transport Minster announced a new rent policy for Canada’s airports. The new program has two components: ƒ

Cancellation of any remaining payments for chattels from NAS airports. The chattels forgiveness is an important benefit for 12 NAS airports which collectively still owed $22 million over a period ending in 2014. The largest beneficiary is Prince George ($4.2 million) followed by Gander ($3.4 million). The largest airport in this group is Halifax International Airport ($1.3 million), with additional benefits to a number of small airports, such as Charlottetown and Saint John. There are beneficiaries in 8 of the 10 provinces.

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Reduced rent for each of the 21 rent paying airports in the National Airport System (NAS). This rent reduction announcement followed several years of intense lobbying by the airports, their communities and stakeholders, the airlines, the tourism industry and, some pundits would say, the Transport Minister himself (with the Minister of Finance being the lobbying target). The announcement

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essentially indicated that the rent review found that rents paid by the Canadian NAS airports were excessive when compared to public utilities and to foreign airports that had been privatised. Under the new policy, every one of the 21 airports will eventually enjoy reduced rent. The reduced rent will be phased in slowly until FY2011, as illustrated in Figure 3-4. The new rent formula (Figure 3-5) is simple, transparent, and eliminates anomalies where airports of similar size paid very different rent. Figure 3-4 – Phase In of Airport Rent Reduction

Source – InterVISTAS Consulting Inc.

Figure 3-5 – Airport Rents and Savings Under New Rent Formula

Halifax

All Airports

Airport

Rent

2006

2010

2015

2020

Total

Old Formula

$337 million

$390 million

$818 million

$1.2 billion

$12.9 billion

New Formula

$289 million

$214 million

$274 million

$0.3 billion

$5.1 billion

Savings

$48 million

$176 million

$544 million

$0.9 billion

$7.8 billion

Old Formula

$4.5 million

$5 million

$8 million

$11 million

$119 million

New Formula

$4.2 million

$3 million

$3 million

$4 million

$63 million

Savings

$0.3 million

$2 million

$5 million

$7 million

$56 million

Source – InterVISTAS Consulting Inc.

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Maritime Policy CMA Review The Canada Marine Act (CMA), which received Royal Assent in 1998, constituted the first, single, comprehensive piece of legislation to govern many aspects of Canada’s marine industry and allowed for the establishment of Canada Port Authorities (CPA). The act facilitated the commercialization of the St. Lawrence Seaway, allowed for the continued divestiture of certain harbour beds and port facilities and contained provisions for the further commercialization of federal ferry services. It also aimed to improve the way Pilotage Authorities operate in Canada. The CMA required the Minister of Transport to complete a review of the provisions and operation of the act and report back to both Houses of Parliament in the fifth year following Royal Assent. A review panel undertook consultations with stakeholders and prepared a report that the Minister of Transport tabled in the House of Commons in June 2003. The review report made two general recommendations and a number of specific recommendations concerning implementation issues related to CPAs, the St. Lawrence Seaway, public ports, pilotage, and ferries. The report also included a number of observations on general marine issues. A comprehensive review of the act addressed issues such as the competitiveness of Canada Port Authorities in light of the rapid pace of change in the marine sector and levels of funding provided to ports in the United States. Overall, stakeholders, and CPAs in particular, have reacted positively to the CMA review report. The principal concerns identified by the review were the marine sector’s financial flexibility, especially for CPAs, to maintain economic viability and respond effectively to changing market demands, as well as access to federal funding for infrastructure investment. In an effort to address the key concerns of the marine industry and establish an environment that is more favourable to investment, the department is proposing a combination of legislative amendments with particular attention to recommendations related to the financial concerns of ports. Proposed amendments will establish a framework that respects accountabilities and provides CPAs with access to federal funding for infrastructure. They will also allow the Minister, in certain cases, to increase a port authority’s borrowing limits and to reduce the minimum number of directors on the boards of most CPAs. In order to improve the competitiveness of the Canadian marine industry, the department will not limit its activities to legislative amendments. Transport Canada will pursue other policy initiatives in key areas to continue to maximise the efficiency of the marine sector and strengthen its role in relation to Canada’s international trade. Port Divestiture The Port Divestiture Program was originally scheduled to end on March 31, 2002. However, it has been extended by Cabinet until March 31, 2006. Therefore, Transport Canada will continue to transfer ownership and operations of its regional/local ports. Giving local communities more control over port operations is part of the federal government's efforts to modernise Canada's marine system by instilling commercial discipline and efficiency. This will ultimately lead to a more effective and efficient port system with local accountability. By having greater autonomy, ports will be able to apply more effective business principles at the same time as they promote employment and economic growth. Once ports have been transferred, Transport Canada November 2005

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ends its operational role, which includes directly enforcing regulations, collecting user fees, and monitoring port operations. Of the 549 public ports and port facilities originally controlled and administered by Transport Canada before the National Marine Policy came into force, 457 have been transferred, deproclaimed or demolished, or have had Transport Canada's interests terminated. As of December 31, 2004, Transport Canada still had 92 sites under its control. In addition, there are 18 sites where facilities have been transferred but cannot be deproclaimed because the harbour bed has not yet been divested. Rail Transportation Policy Railway Network Rationalisation After a successful acquisition bid, Canadian National (CN) incorporated BC Rail into its operations in July 2004. This was part of the British Columbia government’s effort to increase BC Rail’s efficiency and facilitate rail network connectivity at the Port of Prince Rupert. The structure of Canada's rail system remained relatively stable in 2004. There was only a slight loss of track – Canadian Pacific Railway discontinued 129 kilometres of track in Saskatchewan and Alberta, while Southern Manitoba Railway discontinued about 100 kilometres of its system. There was also a large transfer of track, approximately 2,300 kilometres, when CN completed takeover of BC Rail in July. The only other transfer was in southern British Columbia, where Burlington Northern Santa Fe partially sold and leased nine kilometres of track to the newly formed Kettle Falls International Railway. Open Rail Access Open rail access generally refers to one railway (the guest railway) operating trains on tracks owned by another railway (the host railway). Open access can take on one of two forms. Firstly, the access can be limited to running rights, whereby the host railway grants permission to the guest railway to move traffic from one place to another on the host’s tracks. Secondly, open access can include broader 'traffic solicitation rights', where the guest railway is also permitted to compete directly with the host by soliciting business on the host's line. Open access can occur on a voluntary basis, resulting from commercial negotiation, or through regulation or legislation requiring track owners to open their lines to competing carriers. Canada’s national rail carriers are strongly opposed to a regulated open access, and cite several examples where commercial agreements have been established. Co-production agreements have been negotiated in several Canadian jurisdictions by Canada’s major rail carriers allowing each party to optimise their infrastructure by allowing access to the other party’s tracks. Moreover, Canadian rail carriers note that the Canada Transportation Act contains two competitive access provisions – interswitching and competitive line rates (CLRs), which provide competitive rate protection to shippers. Given that the railways in Canada are private shareholder enterprises, it is not likely that rail open access will be forced on them by legislation. Furthermore, should the government legislate open rail access, the outcome could be negative. For example, CP Rail announced that it would not proceed with its planned Western Canada capacity investment of up to $500 million, unless it gets a commitment from the federal government that open access would not be forced on them. The proposed amendments to the Canada Transportation Act, tabled in 2005 (Bill C-44), do not include any consideration for enhanced rail access, and instead maintain existing provisions of the Act.

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Road Transportation Policy The following legislative and regulatory changes have been undertaken: ƒ

Motor Carrier Safety Fitness Certificate Regulations — these proposed amendments to the Motor Vehicle Transport Act were published for public comment in the Canada Gazette Part I on May 3, 2003. These proposed regulations would give provinces and territories the responsibility to monitor the safety performance of all extra-provincial motor carriers licensed in their jurisdiction. Provinces would maintain a complete safety compliance profile of each motor carrier, using input from all jurisdictions in which those carriers operate. They would give all carriers an initial safety fitness certificate of ‘Satisfactory – Unaudited’ until a safety performance is known and/or a facility audit is completed. If a carrier is rated ‘Unsatisfactory,’ it could be prohibited from operating on Canadian roads. It is anticipated that these new regulations will be implemented in 2005.

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Hours of Service Regulations — on February 15, 2003, revisions to the federal Hours of Service Regulations for Commercial Vehicle Drivers (bus and truck), applicable to extra-provincial carriers, were published in the Canada Gazette Part I. Transport Canada received 50 submissions commenting on the proposed changes. On December 20, 2004, Transport Canada announced that a consensus had been reached among key players in the Canadian trucking industry to limit commercial vehicle drivers to 13 hours of driving and 14 hours on duty per 24-hour period. The proposed regulatory changes are the product of long consultations with industry, the provinces and territories, and others, including Teamsters Canada. The new rules will increase minimum off-duty time over a 24-hour period by 25 per cent, from 8 hours to 10 hours. This will provide significantly more opportunity for drivers to rest. The new rules will also reduce on-duty time by 12 per cent, from 16 hours to 14 hours, and will reduce the maximum daily driving time for truckers in a 24-hour period by 19 per cent, from 16 hours to 13 hours. The expectation now is that a final federal regulation will be published in the Canada Gazette Part II in 2005 and mirrored shortly thereafter in provincial and territorial regulations.

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Vehicle Weights and Dimensions — the federal, provincial, and territorial governments agreed to make three changes to the national standards for the weights and dimensions of trucks and buses. The country's transportation ministers endorsed these changes following a recommendation by the intergovernmental Task Force on Vehicle Weights and Dimensions Policy, which considered them at the request of industry stakeholders. The new standards were targeted for implementation by individual provinces and territories on July 1, 2005. Canada's national standards are defined in the Memorandum of Understanding (MOU) on Interprovincial Vehicle Weights and Dimensions.

Safety and Security The government of Canada carries out policy development, rule-making, monitoring and enforcement, and outreach activities in support of its safety and security objectives. Through these efforts, Transport Canada establishes and implements legislation, regulations, standards, and policies. Two specific areas of interest for the Gateway are aviation security and marine security. Aviation Security The safety of Canada’s commercial air transportation industry has received considerable attention since the terrorist attacks of September 11, 2001. Several government directives have been announced and the November 2005

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federal government, in its budget of December 2001, committed $2.2 billion towards aviation security over the next five years, including: ƒ

Deployment of advanced Explosives Detection Systems (EDS) at airports across the country;

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Requirement that airlines supply Advanced Passenger Information System (APIS)/Passenger Name Record (PNR) data for all flights, including domestic operations;

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Expansion of the RCMP sky marshal program to cover selected domestic and international flights; and

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Establishment of a Canadian Air Transport Security Authority (CATSA) to be responsible for the delivery of air transportation security services in Canada.

Many of these directives have increased industry costs and decreased passenger satisfaction with air travel. Going forward, airports such as Halifax International Airport, will need to remain flexible to accommodate changing security regulations and policies. Marine Security The Government of Canada is taking major action to strengthen marine security. The 2004 budget provided $605 million over five years for security initiatives. These funds will be used to address security priorities, such as intelligence enhancement, marine security, integrated threat assessments, cyber security, emergency response, and enhanced co-ordination of systems. Following the budget, the Government of Canada also announced the National Security Policy in April 2004, which set out a six-point, $308-million plan to strengthen marine security. The National Security Policy proposes to strengthen Canada's marine security by: ƒ

Clarifying and strengthening accountability for marine security among the various responsible departments and agencies. The Minister of Transport has primary responsibility for marine security and policy co-ordination. The Minister of Public Safety and Emergency Preparedness is primarily responsible for enforcement and policing, while the Minister of Defence is responsible for co-ordination of on-water response to maritime threats and developing crises.

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Establishing Marine Security Operations Centres to bring together all civil and military resources necessary to detect, assess and respond to marine security threats.

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Increasing the on-water presence of the Canadian Forces Maritime Command, RCMP and Canadian Coast Guard, as well as increasing the Department of Fisheries and Oceans’ aerial surveillance activities.

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Investing in secure communications technologies to enhance the ability of Canadian civilian and naval fleets to communicate with each other and Marine Security Operations Centres.

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Pursuing greater cooperation with the United States to enhance Canada’s marine defence and security.

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Strengthening security at ports and other marine facilities, through the Marine Security Contribution Program.

While enhancing marine security has many benefits (e.g. combating of organized crime, enhancing search and rescue capabilities, conserving our fisheries, combating marine pollution, prevention of terrorists from November 2005

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entering Canada or accessing our marine transportation system), these efforts must be balanced to maintain the free flow of trade and people, which in turn maintains the competitiveness of Canada’s marine sector and the country’s economic vitality. Additionally, the International Ship and Port Security Code (ISPS Code), which became effective July 1, 2004, is a new, comprehensive security regime that seeks to establish an international framework of cooperation between governments, government agencies and the shipping and port industries in order to detect and take preventive measures against security incidents affecting ships or port facilities used in international trade. Border Facilitation Countries around the world are facilitating the movement of people and goods across national borders through the implementation of more streamlined customs and immigration procedures. As NAFTA markets become more closely integrated, the seamless movement of people and goods across the continent will increasingly become important to ensure continued economic growth. The Canada-U.S. Shared Border Accord that was signed at the same time as the Open Skies agreement, provides a framework for streamlining and harmonising Canada-U.S. travel and trade opportunities. Since signing, progress on a number of initiatives including the establishment of common inspection facilities, information sharing, and other co-operative measures have been achieved. However, over the short, medium, and long-term periods, a number of issues will need to be resolved. Perimeter Clearance Perimeter Clearance has been widely endorsed as a means of delivering the Smart Border Action Plan to facilitate trade and travel between Canada and the U.S. The concept strengthens security and expedites trade through pre-registration of individuals and goods. Perimeter Clearance sets a specific course of action to allow clearance of international goods and passengers at first point-of-arrival. A strategy has been developed by a coalition of airports, ports, shippers and tourism groups on both sides of the border for bi-national modernisation of border management practices through the joint application of new information technologies, biometrics and process re-design. Specifically, Perimeter Clearance would involve: ƒ

Common procedures for admission of goods and people between Canada and the U.S.;

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Providing better security, particularly by interceding inadmissible people offshore and goods at the first point of arrival – our common perimeter;

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Distinguishing between low and high risk goods/people in order for both to be processed more quickly, efficiently and securely;

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Sharing data to maximise the intelligence and co-ordination of information;

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Increasing efficiencies through flexible use of customs and immigration officers working in either country to administer national laws; and

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Streamlining traffic flows at border crossings for all modes.

Automated Processing Systems

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The introduction of automated and other technology-based passenger control systems is generating interest in a number of nations. The Nexus system, a joint initiative of Canada Border and Services Agency and U.S. Customs and Border Protection, facilitates quick and secure entry into Canada and the U.S. for preapproved, low-risk air travellers. The program is proving that technology-based services can provide viable and successful alternatives to traditional passenger facilitation processes. To date, Nexus Air has been implemented on a pilot project basis at Vancouver International Airport and Nexus Highway is operating at 11 Canada-U.S. border locations. For security reasons, existing systems do not incorporate other passenger processing and airport services. To date, system development has also excluded cargo applications. Investment in Transportation and Infrastructure The federal government of Canada continues to play a major role in transportation infrastructure investment. The government’s role includes research, on-going policy development, and program investments in the transportation sector. Infrastructure Canada Infrastructure Canada, led by the Minister of State, John Godfrey was established in 2002, with the mandate to manage the development of long-term strategies to meet Canada’s modern infrastructure needs. An important part of its mandate is to administer funding programs that support public infrastructure initiatives and to provide strategic advice and policy direction. The federal government’s role and investment in infrastructure initiatives has increased considerably over the past decade, as have the scope of infrastructure projects. Several funding programs were established to aid both national and provincial infrastructure needs. They include: the Canada Strategic Infrastructure Fund (CSIF), the Border Infrastructure Fund (BIF), the Municipal Rural Infrastructure Fund (MRIF), the Infrastructure Canada Program (ICP), the Strategic Highway Infrastructure Program, and the Green Municipal Funds. In 2004, the Federation of Canadian Municipalities estimated a $60 billion infrastructure ‘deficit’ in our cities and communities. To address this issue, the federal government has proposed a ‘New Deal for Cities and Communities’, where stable, predictable, long-term funding will be given to municipalities to deal with infrastructure development. This ‘new deal’ will supplement infrastructure programs currently in place. Infrastructure Canada Funding Programs Infrastructure Canada currently oversees the management of four contribution programs. Two of these, focus on large-scale strategic investments: the Canada Strategic Infrastructure Fund and the Border Infrastructure Fund; and two focus on smaller community-based projects: the Municipal Rural Infrastructure Fund and the Infrastructure Canada Program. Canada Strategic Infrastructure Fund ($4 billion) The Canada Strategic Infrastructure Fund (CSIF) addresses the problem with large-scale infrastructure projects across the country which are beyond the scope and capacity of previous financial programs. The CSIF is unique in that it emphasises partnerships with any combination of municipal, provincial, territorial governments, as well as the private sector, and each partnership is governed by specific arrangements. Funding & Investment Criteria

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Infrastructure Canada, together with provincial/territorial governments, determines priority projects and funds five main areas: highway and railway infrastructure, local transportation, infrastructure, tourism and urban development infrastructure, water and sewage infrastructure, and broadband. Priority projects must aim to provide safer and faster movement of people and goods on Canada’s major land transportation routes, reduce production of greenhouse gases and airborne pollutants, generate more-effective urban development, and/or use innovative technologies and practices to minimise pollution. Border Infrastructure Fund ($600 million) As border infrastructure is critical to our growing economic and trade relationship with the United States, the Border Infrastructure Fund (BIF) targets some of the busiest Canada-United States border crossing points with the aim of increasing long-term efficiency of the movement of goods and people. The BIF supports the initiatives in the Smart Borders Action Plan, a 30-point plan, produced by Canada and the United States, which identifies security risks in expediting the flow of goods and people. Three categories of projects are funded under the BIF: Physical Infrastructure, Intelligent Transportation System Infrastructure, and Improved Analytical Capacity. Funding & Investment Criteria The Border Infrastructure Fund is implemented in cooperation with provincial and municipal governments, and partners from the public and private sectors from both Canada and the U.S. The Government of Canada contributes up to 50% towards the total eligible costs of the project. Project selection is based on the ability to reduce congestion, enhance infrastructure capacity, coordinate with adjacent U.S. border facilities and road access networks, enhance safety and security at border crossings, and/or include financial participation of other public and private sector partners. Municipal Rural Infrastructure Program ($1 billion) The Municipal Rural Infrastructure Program (MRIF) was announced in 2003 to support smaller scale municipal infrastructure projects that improve the quality of life, sustainable development, and economic opportunities for smaller communities. This program also includes a component that addresses the infrastructure needs of First Nations communities. The MRIF aims at improving core public infrastructure in areas such as water, wastewater, cultural, and recreation. Funding & Investment Criteria As the MRIF aims for an equitable balance between provinces, territories and the First Nations component, a base allocation of $15 million is given to each jurisdiction, with the remaining funds allocated on a per capita basis. Furthermore, 80% of the total funding under the MRIF is allocated to municipalities with a population of less than 250,000. Infrastructure Canada Program ($2.05 billion) The Infrastructure Canada Program (ICP) was created in 2000 to enhance infrastructure in Canada’s urban and rural communities and to support long-term economic growth. The ICP's main priority is green municipal infrastructure – projects that improve the quality of our environment and contribute to clean air and water. Funding & Investment Criteria Funds from the ICP are awarded to projects that target water and wastewater systems, water management, solid waste management, and recycling. The program also targets projects that improve local transportation, roads and bridges, affordable housing, telecommunications, and tourism, cultural and recreational facilities. November 2005

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Other Infrastructure Funding Programs Two other major infrastructure funding programs, not administered by Infrastructure Canada but sponsored by the federal government are the Strategic Highway Infrastructure Program, managed by Transport Canada and the Green Municipal Funds managed by the Federation of Canadian Municipalities. Strategic Highway Infrastructure Program ($600 million) Transport Canada established the Strategic Highway Infrastructure Program (SHIP), in 2001, with the aim of improving Canada’s highway infrastructure over 5 years. The program consists of two components: a $500 million highway construction component and a $100 million national system integration component. The Government of Canada, together with the provinces and territories identify parts of the national highway system that need immediate attention due to growing traffic and increasing trade. This component aims to provide a safer and more efficient highway system across Canada. The national system integration component targets projects that deploy Intelligent Transportation Systems across Canada, improve border crossings, and advance transportation planning. Intelligent Transportation Systems include applications such as advanced systems for traveller information, traffic management, public transport, commercial vehicle operations, emergency response management, and vehicle safety. Green Municipal Funds ($250 million) The Green Municipal Funds (GMF) consist of a $250-million endowment from the federal government and are designed to remove investment barriers, such as real or perceived risks and higher capital costs, for green municipal infrastructure. The GMF consists of a $200-million Green Municipal Investment Fund (GMIF) and a $50-million Green Municipal Enabling Fund (GMEF). The Funds’ priorities are to cut greenhouse gas emissions, to improve local air, water and soil quality, and to promote renewable energy. Funding & Investment Criteria All municipalities can apply for financial services of the Green Municipal Funds. Loans and grants are given to projects that generate environmental improvements, measured as a reduction in: pollutants to air, water and soil; energy or water consumed; or energy generated by non-renewable resources. Funded projects must also demonstrate innovation in one of the following areas: the development of a new knowledge, practice or advanced technology; a unique application of an existing technology; or the adoption of a technology or process not previously within an area. Figure 3-6 outlines federal funding for each Infrastructure program and the associated funding period. Available forecasts and planned spending for each infrastructure program is shown in Figure 3-7. Figure 3-6 – Federal Budget for Infrastructure Programs (as of 2004) Infrastructure Programs

Federal Funding

Funding Period

Canada Strategic Infrastructure Fund

$4.0 billion

2003-2013

Border Infrastructure Fund

$600 million

2003-2013

$1 billion

2004-2009

Infrastructure Canada Program

$2.0 billion

2000-2007

Strategic Highways Infrastructure Program

$600 million

2002-2007

Green Municipal Funds

$250 million

Indefinite

Municipal Rural Infrastructure Fund

Source – Government of Canada.

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Figure 3-7 – Federal Budget Planned Contributions (as of 2004) Contributions (thousands) 2002-2003

Forecast Spending 2003-2004

Planned Spending 2004-2005

Planned Spending 2005-2006

Planned Spending 2006-2007

Canada Strategic Infrastructure Fund

n/a

$92,165

$376,736

$623,606

$784,241

Border Infrastructure Fund

n/a

$9,695

$72,714

$119,559

$99,556

0

0

$125,000

$150,000

$250,000

Infrastructure Canada Program

$317,000

n/a

n/a

n/a

n/a

Strategic Highways Infrastructure Program

$128,420

$202,393

n/a

n/a

n/a

n/a

$5,191

$1,925

0

0

Infrastructure Programs

Municipal Rural Infrastructure Fund

Green Municipal Funds Source – Government of Canada.

Proposed New Infrastructure Programs In addition to current Infrastructure Programs, the federal government also established the ‘New Deal for Cities and Communities’ in the Budget of 2004. The objective of the program is to continue to promote new partnerships between federal, provincial, and municipal governments and to begin to deliver stable, predictable, long-term infrastructure funding for cities and communities in urban and rural areas. The focus of the New Deal is on providing funding for environmentally sustainable municipal infrastructure projects. As rural and urban communities have very different infrastructure needs, the new deal was created to help address these challenges by engaging and consulting with key stakeholders: all orders of government, the private sector, and national and civil societies. Roles and Involvement The New Deal is administered under John Godfrey, Minister of State (Infrastructure and Communities). This Ministry was established in July 2004 by combining the Secretariat for Cities with Infrastructure Canada. Its aim is to orient the ministry towards sustaining and developing vibrant communities. The New Deal is administered under the Ministry of Infrastructure and Communities. The Prime Minister also established an External Advisory Committee on Cities and Communities (EACCC) in December 2003, chaired by Mike Harcourt, to develop a long-term vision for sustainable communities and to provide recommendations to the Prime Minister. The EACCC reports solely to the Prime Minister. The funding distribution mechanism is through tripartite agreements for each province, where the government of Canada, the provincial government and the municipality will work together to coordinate resources effectively. To date, five tripartite agreements have been signed, committing funds for a five-year period: British Columbia ($636 million); Alberta ($477 million); Ontario ($1.87 billion); Quebec ($1.15 billion); Yukon ($37.5 million); and Prince Edward Island ($37.5 million). Funding The program proposes three new programs to fund municipal infrastructure: accelerated infrastructure funding to existing programs, full GST/HST relief for municipalities of all sizes, and a portion of the gas tax revenue.

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Acceleration of Infrastructure Funding In 2003, the federal government committed $1 billion for the Municipal Rural Infrastructure Fund to be spent over the next 10 years. In the ‘New Deal for Cities and Communities’, this funding will be administered over five years, which will give municipalities across Canada quicker access to the funds they need to plan their infrastructure improvements. GST/HST Relief In addition to increased funding under current infrastructure programs, the federal government has allowed municipalities to recover 100 per cent of the GST and the federal component of the harmonised sales tax (HST) they contribute. This is estimated to be $7 billion in GST/HST relief over the next 10 years to municipalities. Portion of the GAS Tax Revenue Cities have been engaged in on-going discussions with the federal government over receiving a portion of the $4.5 billion gas tax revenue. The federal government has preliminarily offered five cents per litre of the federal gas tax to municipal governments which would amount to about $2.5 billion a year. The federal government and the mayors have set a November 2005 deadline to determine a formula for dividing the new gas-tax funds. This revenue is to be a source of stable, predictable funding to allow municipalities to make long-term financial commitments on major infrastructure projects. Allocation of Gas Tax Revenues Figure 3-8 summarises the provinces that have signed agreements to the New Deal. It also describes the administration process for the federal gas tax funds. All other provincial agreements are set to be signed in the coming months.

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Figure 3-8 – Provincial Allocation of Gas Tax Revenues Province, Date of Agreement and Amount

Agreement Signatories

British Columbia

- Prime Minister

- April 25, 2005

- Premier of British Columbia

- $636 million

- President of the Union of British Columbia Municipalities

Alberta

- Deputy Prime Minister

- May 14, 2005

- Minister of State (Infrastructure and Communities)

- $477 million

Administration - Funds will flow directly to Union of BC Municipalities - Committees will be established to ensure accountability for money spent - Funds will flow from the federal government to the provincial government, and the province will forward the funding to municipalities - The funds will be distributed based on estimated 2006 populations (99%), with the remaining given to very small municipalities who will receive a minimum base amount

- Alberta Minister of International and Intergovernemental Relations - Alberta Minister of Infrastructure and Transportation - Alberta Minister of Municipal Affairs Ontario

- Prime Minister

- June 17, 2005

- Minister of State (Infrastructure and Communities)

- $1.87 billion

- Funds will flow to the AMO and the City of Toronto - Committees will be established to maximize effectiveness of the partnership and to ensure spending accountability

- Minister of Ontario Municipal Affairs and Housing

- Allocation of funds to all Ontario communities as determined by Canada in consultation with the Association of Ontario Municipalities and the City of Toronto, will be based on population, using the 2001 National Census data

- President of the Association of Ontario Municipalities

Quebec

- Prime Minister

- June 21, 2005

- Premier of Quebec

- $1.151 billion

- Minister of State (Infrastructure and Communities) - Quebec Minister of Intergovernemental Affairs

Yukon

- Yukon’s Minister of Community Services

- May 26, 2005

- Member of Parliament for the Yukon on behalf of Minister of State (Infrastructure and Communities)

- $37.5 million Prince Edward Island - April 27, 2005 - $37.5 million

- Minister of Atlantic Canada Opportunities Agency - Parliament Secretariat to the Minister of Fisheries and Oceans - Premier of Prince Edward Island - Minister of Community and Cultural Affairs

-

Funds are paid to the Societe de financement des infranstructures locales du Quebec (SOFIL), an agency created by the Government of Quebec, whose mandate is to provide financial assistance to municipalities and municipal organizations for infrastructure projects - A joint Committee with representation from Yukon First Nations, the AYC, and the Yukon and Canadian governments will be established to oversee the funds - A senior-level partnership Implementation Committee will include: - Infrastructure Canada and the Atlantic Canada Opportunities Agency (ACOA) (on behalf of Canada) - Prince Edward Island’s departments of Intergovernmental Affairs and Community and Cultural Affaires (on behalf of the provide) - Supported by other parties such as Transport Canada - Gas Tax Funds will be funneled to this committee for disbursement

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Figure 3-9 outlines the annual funding commitments by provinces for the next five years. Figure 3-9 – Annual Provincial Funding Commitments 2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

Cumulative Total

% of Total

Newfoundland

9.9

9.9

13.2

16.5

32.9

82.3

1.65%

Prince Edward Island

4.5

4.5

6.0

7.5

15.0

37.5

0.75%

Nova Scotia

17.4

17.4

23.2

29.0

58.1

145.2

2.90%

New Brunswick

13.9

13.9

18.6

23.2

46.4

116.1

2.32%

Quebec

138.1

138.1

184.2

230.2

460.4

1,151.0

23.02%

Ontario

223.9

223.9

298.5

373.1

746.2

1,865.5

37.31%

Manitoba

20.1

20.1

26.8

33.5

66.9

167.3

3.35%

Saskatchewan

17.7

17.7

23.6

29.5

59.1

147.7

2.95%

Alberta

57.2

57.2

76.3

95.4

190.8

476.9

9.54%

British Columbia

76.3

76.3

101.7

127.1

254.2

635.6

12.71%

Yukon

4.5

4.5

6.0

7.5

15.0

37.5

0.75%

Northwest Territories

4.5

4.5

6.0

7.5

15.0

37.5

0.75%

Nunavit

4.5

4.5

6.0

7.5

15.0

37.5

0.75%

First Nations

7.5

7.5

10.0

12.5

25.0

62.5

1.25%

600.0

600.0

800.0

1,000.0

2,000.0

5,000.0

1.25%

Province

Total

Source – Individual provinces.

Issues Surrounding the Proposed Infrastructure Programs ƒ

The federal government has proposed working directly with the cities, bypassing the provincial government. Though city officials welcome this opportunity, provincial governments feel slighted by the federal government. The provincial government has complained the cash transfer could be complicated and goes against their constitutional jurisdiction over municipalities. Paul Martin has also proposed that cities be invited to a First Minister’s Conference.

ƒ

Mayors of small municipalities have expressed concerns about the absence of details on how it would filter through to the municipal level.

ƒ

There may be ‘strings-attached’ to the GST/HST rebate and gas tax contributions. A recent bulletin published March 22, 2004 from the Federation of Canadian Municipalities confirms the ‘no strings’ attached nature of the additional funding but states that the federal government’s expectation is that the funds will be used for capital investments.

ƒ

There are concerns that some current municipal accounting systems are not set up to track and monitor investments for long-term infrastructure assets on an ongoing life cycle basis, making it difficult to manage long-term infrastructure projects. This has been called the ‘financial information gap’.

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Transportation and the Environment In Canada and abroad, transportation and the environment continue to be a major policy focus. The federal government (Transport Canada and others) has undertaken several initiatives to help curb green house gas emissions and other pollutants. A number of new federal transportation-related initiatives were introduced in 2004: ƒ

The One-Tonne Challenge, a campaign aimed at providing Canadians with information and tools to reduce their own GHG emissions by one tonne, including emissions related to travelling;

ƒ

The announcement of the Hydrogen Highway, an initiative to stimulate the development and commercialisation of hydrogen and fuel cell technologies;

ƒ

The Urban Transportation Showcase Program, an initiative to demonstrate and evaluate the impacts of integrated strategies for reducing GHG emissions, air pollution, congestion, urban form and land use, and increased active transportation;

ƒ

Federal and provincial announcements of investments in public transit; the New Deal for Cities and Communities announced in the Speech from the Throne (October 5, 2004); and a national urban transit bus retrofit program;

ƒ

The Advanced Technology Vehicles Program, aimed at reducing GHG emissions in the transportation system;

ƒ

The Freight Efficiency and Technology Initiative, aimed at reducing the growth of GHG emissions from freight transportation;

ƒ

Proposed amendments to the Sulphur in Diesel Fuel Regulations to introduce limits in off-road, rail and marine diesel fuels aligned with the levels adopted by the U.S. Environmental Protection Agency in June 2004; and

ƒ

Proposed Off-Road Compression-Ignition Engine Emission Regulations to introduce emission standards for diesel engines starting in 2006.

Implications for the Halifax Gateway ƒ

Canada has pursued and continues to pursue (bearing in mind the foregoing) a very market-driven policy framework – divestiture (ports and airports), P3s, air transport liberalisation, privatisation (e.g. Air Canada and CN Rail), and commercialisation (e.g. Nav Canada, deregulation, user pay systems, toll roads and bridges, etc. have been cornerstones of Canadian Transportation policy).

ƒ

While the emerging transport policy environment in Canada is still concerned with fine tuning the frameworks described above, it is becoming increasingly focused on security and facilitation, and border management services with the U.S. and Mexico. The latter includes harmonising security approaches for all modes, greening/environmental policies, infrastructure investment policies, intelligent transportation systems, fiscal and taxation policies, mobility policies, intermodal approaches, planning at ports, short sea shipping, and seaway development policies. The government is also exploring the pros and cons of a multilateral approach in negotiating aviation agreements as opposed to the traditional bilateral approach (a reflection that trade patterns and trading regions are beginning to drive transportation demand and consumption).

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Aviation Trends

To better understand the airport operating environment, the following sections examine important developments affecting the aviation industry that must be assessed in order to develop marketing strategies and initiatives for the Halifax Gateway.

Airline Airline Profitability The global airline business is highly cyclical, experiencing peaks and troughs closely mirroring those of the economy. The industry’s high fixed costs combined with the demand elasticity of air transportation places significant pressures on the health of airlines during economic downturns when revenues shrink due to decreased levels of business travel, reduced vacations by air, and increased price sensitivity by those consumers electing to fly. Figure 3-10 illustrates global airline operating profits between 1973 and 2004. While the most recent declining trend began in 1999, due largely to slowing economic conditions, the terrorist attacks of September 11, 2001 further exacerbated the financial problems affecting the industry at that time (Figure 3-11). As a result, after eight consecutive years of profitability, the industry as a whole posted losses between 2001 and 2003. Pressure will continue to be placed on reducing costs, simplifying fare structures and reconfiguring route networks in an effort to increase profitability. Figure 3-10 – Airline Profitability

Operating Profit/Loss (US$ millions)

$18,000

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

($12,000) Source – International Civil Aviation Organization.

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Figure 3-11 – September 11 and Other Market Shocks September 11 & Economic Downturn Recovery ? Asian Flu 1.5-year Recovery

2,000

Gulf War & Recession 3-year Recovery

Passengers (millions)

1,500

Global Recession 3-year Recovery 1,000

500

0 1973

1975

1977

1979 1981

1983

1985

1987 1989

1991

1993

1995 1997

1999

2001

Source – InterVISTAS Consulting Inc.

Price of Air Travel The strong growth of air transport has been driven over the past 50 years by the continuously declining cost of air travel. As shown in Figure 3-12, over the 40-year period between 1962 and 2002, revenue per passenger-mile in inflation adjusted constant 2002 dollars decreased from $0.40 to $0.12. The decline was continuous over the period, steadily making air travel more affordable to all segments of society. The downward trend in the cost of passenger air travel is expected to continue into the future indefinitely. Airlines continue to focus on reducing costs and manufacturers are producing aircraft with dramatically lower fuel consumption and operating costs. Figure 3-12 – Decline in U.S. Airline Yields $0.45

Domestic

Yields ($US) - in 2004 dollars

$0.40

System-Wide

$0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05

Source – Air Transport Association.

November 2005

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

$0.00

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Airline Alliance Networks The airline industry has been characterised by a rapid increase in global alliances over the past decade. These relationships have shifted the competitive structure of the industry away from individual airlines competing on individual routes, to global alliances competing on the basis of a network of services. The figure below outlines the composition of the three primary global alliances. Collectively, this elite group transports close to 50% of the world’s air passenger traffic. Figure 3-13 – Global Airline Alliances

• 9 members

• 17 members

• Key partners: Delta Northwest, Air France, Continental, KLM

• Key partners: Lufthansa United Airlines, Singapore Airlines, Air Canada, US Airways

• 19.1% of global RPKs

• 21.9% of global RPKs

• 316 million pax

• 342 million pax

• 512 destinations

• 798 destinations

• 8 members • Key partners: American Airlines, British Airways, Qantas Airways, Cathay Pacific, Iberia

Non-Alliance Airlines • 43.6% of global RPKs

• 15.4% of global RPKs • 209 million pax • 591 destinations Source – Airport Business.

Air Canada's participation in the Star Alliance means that the latter is the dominant alliance brand in Canada. While the Oneworld Alliance continues to have a presence in Canada, their access to markets beyond major gateway cities has been seriously compromised because of the loss of competitive add-on fares previously provided to them by Canadian Airlines. For its part, WestJet Airlines continues to shy away from alliances or strategic partnerships. As these global airline alliances continue to mature, a number of developments can be expected to occur. These include: ƒ

The entrenchment of key hubs;

ƒ

The intensification of hub competition to attract higher passenger traffic from alliance partners;

ƒ

An increasing focus on air cargo within existing alliances despite strong competition among members of the same alliance; and

ƒ

Changes in the airlines making up each global alliance.

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It should also be noted that not all of these alliances are stable. As a result, some alliances could cease to exist, with current member airlines joining other alliances or establishing new alliance families altogether. Growth of Low Cost Carriers Another noticeable trend in the airline industry has been the tremendous growth of low cost airlines. Originally conceived in the U.S., they have now been established in virtually every region of the world (Figure 3-14). Figure 3-14 – Distribution of Low Cost Airlines

Low cost carriers, such as WestJet Airlines, Southwest Airlines and Ryannair, offer primarily point to point service with few in-flight or airport amenities. They are committed to value pricing, high resource utilization, internet marketing and distribution, and good customer service. In 1990, the market share of low cost carriers in the U.S. was only 7%. By 2002, this share had increased to 24% and industry experts now project that this figure will increase to roughly 50% by 2010.

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Figure 3-15 – Airline Industry Transformation Low Cost Carriers 7% Low Cost Carriers 24% Network Carriers 93%

Network Carriers 76%

1990

2002

Network Carriers 50%

Low Cost Carriers 50%

2010

Source – U.S. Department of Transportation.

Looking to the future, JetBlue Airways has placed a large order for Embraer 190 jet aircraft (regional jets with a capacity of 90-100 seats). These aircraft have very attractive economics and can be operated by low cost carriers in markets that are 30% smaller than those required for Boeing 737 or Airbus A320 aircraft. Consolidation of Canada’s Airline Industry The Canadian airline industry has experienced some dramatic changes over the past few years, including the Air Canada/Canadian Airlines merger, the introduction of new carriers (e.g. CanJet) and the exit of some carriers from the market (e.g. Jetsgo). These developments have impacted revenues, air service levels, and the competitive positions of many airports across the country. As the industry continues change, it will undoubtedly present new challenges for Halifax and other Canadian airports. U.S. and International Airline Industry Consolidation Since the development of global airline alliances, air transport economists have been predicting that these alliances would be the precursor to global airline consolidation. Over the next few years, considerable restructuring could occur in the U.S. and in the international airline industry due largely to changing foreign ownership laws. As these nationality rules are relaxed around the world, it is expected that cross-border mergers and acquisitions will begin to replace the more common alliance agreements. Before any merger is authorised to proceed, however, considerable scrutiny will occur, particularly with respect to its impact on pricing, competition, hub dominance, and labour. In the event that these carriers are successful in obtaining the necessary regulatory approvals, industry experts speculate that others could soon be forced to follow suit in order to maintain their market positions. It should also be noted that if consolidation occurs, it will undoubtedly influence existing airline alliance networks and further entrench certain gateway hubs. Charter Carriers Charter airlines are continuing to play an important role in the development of tourism and leisure markets world-wide. Generally speaking, these carriers are best suited to markets that are seasonal in nature, have November 2005

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a high concentration of leisure travellers, and a low number of independent travellers. Many charter carriers are tied to integrated travel groups that predominantly serve the package holiday market. In Canada, there has been considerable growth in the charter market in recent years, particularly to sunspot and European destinations. Socio-Economic Changes A number of socio-economic changes are also occurring, which will have an impact on aviation demand, including: ƒ

Increasing leisure travel – leisure travel accounts for over half of total air travel and is growing much faster than business travel. Recent studies also indicate that travellers are increasingly combining business and leisure travel.

ƒ

Changing incomes – family incomes are increasing, and as they do, the demand for air travel is growing as well. In addition, evidence indicates that people are taking shorter, but more frequent holidays. These people have a greater propensity to fly because they want to minimize the amount of holiday time spent in transit between origin and destination.

ƒ

Demographic changes – the demographics of society are changing. Today, the fastest growing population segments are empty nesters and echo boomers (now 10-27 years of age). Both groups have high tendencies to travel.

New Outbound Tourism Markets Over the longer term, the emergence of major new markets will also affect aviation demand. According to the World Tourism Organization, China is expected to grow from 12 million outbound tourists in 2001 to 100 million outbound tourists by 2020, making it the fourth largest tourism generating nation in the world. Other markets anticipated to show large outbound tourism growth include India, the Philippines, Mexico, Chile, Venezuela and Brazil. These markets tend to have relatively young demographic profiles and strong GDP growth, combined with a change in attitude towards both foreign and domestic travel. Figure 3-16 – Comparison of Source Markets (1990 versus 2002)

1990

2002

United States, Germany, Japan, United Kingdom, Italy, France, Canada, Austria, Netherlands, Sweden

United States, Germany, United Kingdom, Japan, France, Italy, China, Netherlands, Hong Kong, Russia

70%

58%

30%

42%

Other

Other

Source – World Tourism Organization.

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Aircraft Technology Trends Significant advances in aircraft technology have taken place in a relatively short period of time. New aircraft designs are expected to have a significant influence on airlines and airports in the future. These aircraft can be categorised into two groups: large and long-range aircraft and small and regional aircraft. Large and Long-Range Aircraft Developments in large and long-range aircraft will further entrench the role of hub airports; this is particularly the case with high capacity aircraft. In order to maximise the efficiencies of these aircraft, airlines may choose to further consolidate international operations, and depend on regional feeders to supply passengers at hub airports. Specific aircraft designs in this category include: ƒ

High capacity aircraft – the first high capacity aircraft, the Airbus A380 is expected to enter service in 2006. Due to its size, A380s will likely operate on high-density trunk routes linking some of the world’s largest airports.

ƒ

Long range aircraft – somewhat smaller capacity, longer-range aircraft, such as the A330/340 and B777, have significantly affected international air travel. This new generation of aircraft enable air carriers to bypass traditional gateway airports and provide non-stop flights between markets as distant as New York and Delhi.

Small and Regional Aircraft In addition to the impressive developments in new large and high-speed aircraft, advances in small aircraft, such as regional jets and single engine turboprops have been equally impressive. These new generation small aircraft are able to fly increasingly faster and further with greater levels of comfort. In particular, significant developments have been achieved in the following areas: ƒ

Regional jets – since their introduction in 1993, regional jets have revolutionised the standards for travel in short to medium-range markets. With fewer seats and lower operating costs than larger aircraft, regional jets can compete aggressively for passengers in smaller markets. As a result, they are being used to replace turboprops and larger jets on hub routes, develop new spoke-to-spoke markets, provide direct service between smaller communities, by-pass traditional hubs, and add frequency to mainline hub feed. Over 1,300 regional jets are currently in operation world-wide and another 900 are on order.

ƒ

Single-engine turboprops – single-engine turboprop aircraft such as the Pilots PC-12 integrate aerodynamically advanced airframes and engines to provide an economical and reliable single-engine turboprop package. With longer ranges, faster cruise speeds, lower operating costs, and good operational flexibility, these aircraft permit regional point-to-point services to be established in markets that cannot be served with larger regional equipment such as regional jets or larger turboprops.

New Noise Standards Noise impacts from aircraft operations are an increasingly critical issue for airports around the world. In Canada, airlines were required to eliminate noisy Chapter 2 aircraft by April 2002, and similar rules applied in Europe and the U.S. While new Chapter 4 noise standards have been developed, no timeframe has November 2005

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been established for their enforcement. As a result, aircraft operating with Chapter 2 conversions (including many in Canada) are expected to remain in use for at least the next five years. Most Chapter 3 aircraft meet the new Chapter 4 standards. Internet Reservations Air carriers are increasingly using the Internet as a means of marketing, selling, and distributing air tickets. In recent years, airlines have divested their interest in the major Computer Reservation Systems (for example, AMR Corporation sold Sabre in 2000), while at the same time, significantly increasing investments in Internet technologies. These investments extend beyond the airlines’ own corporate web sites and include development of ‘independent’ travel sites. The increased use of the Internet for reservations has created some issues for the industry. Firstly, Internet sales have a detrimental effect on travel agent sales. Secondly, many of the issues that emerged over a decade ago with airlines exercising control over Computer Reservation Systems (e.g. biased displays that favour one carrier’s services over another) are now beginning to reappear with the Internet. To date, no action has been taken to prevent this anti-competitive behaviour, but the U.S. Department of Justice is actively monitoring air carrier activities with regards to the Internet.

Cargo Continued Growth in Cargo Since 1970, air cargo has grown at approximately three times the rate of the world economy, rates which are greater than those for passenger transport. Very strong continued growth is anticipated in international air cargo volumes, necessitating greater use of freighters which are less tied to major passenger markets. Domestic air cargo is also anticipated to continue growing, albeit at lower rates. The growth in air cargo has been driven by declining costs and changing logistics patterns and practices. Since 1985, Boeing reports that air cargo costs have declined by 2.4% per annum, resulting in a shift from shipping only high-value products by air to mid-value-range goods such as fresh seafood and fashion apparel. A continued reduction in freight rates will result in an ever broadening the scope of air-compatible shipments, making Halifax more of an air cargo market (e.g., a wider range of seafood products) (Figure 3-17).

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Value of Goods: $ per kilogram

Figure 3-17 – Air Cargo Value Pyramid

Platinum Gold Electronics High-Value Fashion Apparel Fresh Shellfish, mushrooms

Today’s cargo rate

Mid-Range Fashion Apparel Fresh Seafood Fresh Vegetables Coal

Tomorrow

Canned Fish

Grain

Oil

AREA REPRESENTS TOTAL VALUE OF ECONOMY

Items above line are viable for air cargo Source – Boeing Corporation and InterVISTAS Consulting Inc.

Trends in Aircraft Type A number of trends in aircraft usage may impact air cargo at Halifax International Airport. The increasing reliance on narrow-body and RJ service has had detrimental impact on cargo lift. While these aircraft have been effective in replacing larger jets in selected passenger markets, their limited cargo capacity usually results in a loss of cargo lift for the impacted communities. The increasing range of freighters has also lessened the need for tech stops. For example, the Boeing 777 freighter will be able to travel 5,200 nautical miles with a full load of 101 tonnes, while the Airbus A380 freighter will be able to travel 5,620 nautical miles with a full load of 150 tonnes. In contrast, the longest range freighter today, the Boeing 747-400 freighter, can only travel 4,300 nautical miles with a 112 tonne load. Other trends include the likely replacement of the Canadian domestic workhorse, the Boeing 727 freighter, with the 757 freighter. International Air Agreements Continued liberalisation of international air agreements will facilitate innovative new cargo services, particularly ones built up on fifth freedom rights (the right to enplane traffic at one foreign point and deplane it in another foreign point as part of continuous operation also serving the airline's homeland) and seventh freedom services (the term applied to an airline operating turn around service and carrying traffic between points in two foreign countries without serving its home country).

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Air Cargo Security Issues Increasing security requirements could have a negative impact on international air cargo growth as they may cause the cost of air transportation to rise. However, increased security requirements in the U.S. could create potential opportunities for air cargo to be routes through Canada (air to Canada and surface to U.S.). Other Cargo Trends A number of other cargo trends may be relevant for Halifax: ƒ

There has been an increasing market share of integrated carriers, which have different airport needs than heavylift carriers;

ƒ

The emergence of polar routings as a standard for Asia-North America services may lessen frequencies on traditional routings; and

ƒ

As Air Canada Cargo acquires their own freighters and builds up Toronto-oriented international services, the Atlantic Canada market may be fed by surface travel (though increasing costs at YYZ may work against freighter operations there).

Airport Airport Improvement Fees As not-for-profit corporations, Canada’s airport authorities do not possess equity capital. Consequently, like any other commercial organisation, they cannot obtain 100% debt financing for infrastructure projects. To overcome this challenge, the majority of Canada’s not-for-profit airport authorities have introduced airport improvement fees (AIF) to generate cash, which can then be levered to finance new airport investments. Airport improvement fees were introduced into the Canadian airport marketplace in 1993, and today, most airports in Canada have an airport improvement fee. Commercial Focus Many nations around the globe, including Canada, have pursued partial or wholesale privatisation of their airport infrastructure. In Canada, all of Transport Canada’s major airports have been transferred to local airport authorities. In the U.K., Australia, New Zealand, Austria, Germany and many other countries, airport operations have been privatised. This trend extends to developing nations as well. Countries such as Chile, the Dominican Republic, Costa Rica and China and others have turned to the private sector to finance, build and operate airports. As a result, airports are increasingly being run as businesses with a bona fide commercial focus. This means that, like Halifax International Airport, they must focus on customer needs, provide high levels of customer service, and earn revenues to support needed infrastructure investments. In addition, they are discovering that like any other business, they must be strategically positioned, and that these strategies need to be implemented through careful planning. Non-Aeronautical Revenues Airports have traditionally derived the majority of their revenues from airline charges (e.g. landing and terminal fees). Increasingly, however, airports are focusing on developing and growing their passenger driven revenue sources by expanding the availability of their in-terminal product and service offerings. November 2005

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Airport operators are also looking with greater frequency to airport land development as a potential nontraditional non-aeronautical revenue source. Development opportunities exist for many airports in the following areas – air cargo facilities, maintenance-repair-overhaul facilities, and distribution type businesses. Shift in Airport Fee Structures Some small airports are dropping their landing fees, and replacing them with a fee per passenger to cover operating costs (this fee is separate from the AIF which is used for infrastructure investments). This approach tends to stabilise an airport’s revenue base because when one carrier leaves, the remaining carrier’s traffic will increase and hence that carrier's payments to the airport will increase as well. Similarly, if a single carrier reduces its number of flights, then load factors on remaining flights rise, as do airport revenues per flight. One drawback to this approach is that it removes the upside revenue growth potential for airports. Increasing Importance of Air Cargo Air cargo is a $40 billion industry and will play an increasingly important role in modern distribution systems, particularly in support of the growing e-commerce sector. Over the next 20 years, air cargo traffic is expected to more than triple, outpacing passenger growth. This is expected to provide airports with incremental revenue generating opportunities through increased and more intense land utilisation. Airline Incentive Programs Airports and communities are becoming increasingly more aggressive in the pursuit of new air services. In order to attract carriers to their facilities, many airports in North America have developed incentive programs to encourage airlines to initiate and maintain service to their facilities. In fact, in order to remain competitive with other facilities, most airports will need to develop and offer an incentive program. The key strategic question for most airport operators is not whether to develop an incentive program, but rather, what incentive approach should be adopted. Some common incentive program approaches include: ƒ

Fee waiver/reduction program;

ƒ

Revenue guarantee program;

ƒ

Marketing support/assistance; and

ƒ

Business-airline partnerships/prepaid travel programs.

Integration into Local and Regional Transportation Systems As air transport grows, it will continue to put pressures on regional transportation systems. Not only will there be increasing numbers of passengers accessing the airport, but there will also be larger numbers or meeters/greeters, employees and air cargo trucks. Airports will need to be integrated into regional transportation systems that make primary use of high capacity mass transit (e.g. bus, light rail, heavy rail) to move people to and from airports. Increased Use of Technology Airports are already deploying smart technologies to reduce costs, improve customer service, and expedite the movement of passengers and goods. These technologies are being uses for airport administration,

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security screening, border processes, automated check-in, wireless communications, and radio chip tracking of passenger baggage and cargo shipments. Air Transport Security The safety of the air transportation industry has received considerable attention following the events of September 11, 2001. In Canada, the Canadian Air Transport Security Authority (CATSA) was created in April 2002 with the mission of protecting the public by securing critical elements of the air transportation system as assigned by the government. In the U.S., the Aviation and Transportation Security Act created the Transportation Security Administration (TSA) under the Department of Transportation. The U.S. subsequently created the Department of Homeland Security to centralize functions, including border and transportation security. These agencies are working with airports to develop and implement new security procedures for passengers and their luggage, as well non-passengers who access restricted areas. Border Facilitation Perimeter Clearance is a concept that has been widely endorsed as a means of delivering new international border management to the external borders of Canada and the U.S. By strengthening security and expediting trade through pre-registration of individuals and goods, Perimeter Clearance would co-ordinate the actions of the largest trading partners in the world – Canada and the U.S. A strategy has been developed by a coalition of airports, ports, shippers and tourism groups for bi-national modernisation of border management practices through the joint application of new information technologies, biometrics and process re-design. Specifically, Perimeter Clearance would involve providing better security, particularly by interceding inadmissible people offshore and goods at the first point of arrival; distinguish between low and high risk goods/people in order for both to be processed more quickly, efficiently and securely; sharing data to maximise the intelligence and co-ordination of information; increasing efficiencies through flexible use of customs and immigration officers working in either country to administer national laws; and streamlining traffic flows at border crossings for all modes. Growth Outside Airport Boundaries In the long-term, airports will need to explore solutions to manage growth, including use of lands outside of current boundaries. This may include offsite check-in (e.g. downtown, in hotels or on cruise ships) and Internet based boarding pass issuance. Other off-site growth strategies may include utilising secondary airports in metropolitan areas, development of new airports at greenfield sites and acquisition of additional lands.

Implications for the Halifax Gateway ƒ

The air transport industry continues to be in a growth mode for both passengers (especially leisure) and cargo. As a result, the market prospects in the medium to longer-term for Halifax are very positive.

ƒ

Halifax is well connected to the Star Alliance through Air Canada, but has very limited access to the Oneworld Alliance.

ƒ

Low cost carriers will continue to be significant players in the marketplace. Low airport costs and fast turn-around times are critical to the success of these airlines.

ƒ

The air cargo industry is growing rapidly, and as a result, will continue to provide opportunities for Halifax in the medium to longer-term. This could translate into increased traffic in the belly of passenger

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aircraft operating at Halifax International Airport, as well as more activity for integrator carriers such FedEx and Purolator. ƒ

Self-serve check-in kiosks, automated border facilitation programs, and use of biometrics will all benefit Halifax International Airport through improved efficiencies, and in turn, could ‘free up’ facility space. However, new security measures, especially the application of EDS, will have a negative effect on passenger processing times, which in turn, could lead to lower passenger satisfaction levels. Investments in terminal wireless technology should be anticipated, and could reduce the costs of cabling.

ƒ

As expected, changes in aircraft design will impact airports, both in terms of operational considerations and in terms of passenger and cargo convenience. Among the new aircraft technology developments noted above, the development of long-range aircraft could have the greatest implications on Halifax International Airport for market development because of their ability to bypass traditional gateways and provide point-to-point services.

3.4

Shipping Trends

Shipping Lines There are several trends impacting container shipping in 2005. They include increases in vessel size, trade shifts in China and India, the revival of all water services to the U.S. east coast, further consolidation within the shipping industry, and the potential for increased short sea shipping services. Market Shift Figure 3-18 – Historical Containerized and Bulk Cargo Traffic 900 800

[Millions of Tonnes]

700 600 500 400 300 200 100 0

1980

1985

1990 Bulk Cargo

Larger Vessel Size

November 2005

1995

2000

Containerized Cargo

2005

2010

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As of June 2005, there were 241 post-Panamax vessels on order and due to be delivered by 2007. To put this in perspective, assuming eight ships in a Far East-Europe rotation and a 5 ship transpacific rotation, they would fill 15 new loops. They are expected to be placed on these two routes before finding their way onto secondary routes like the transatlantic or Suez express services. The vessels they replace, which are first generation post-Panamax units, may find their way onto those routes. In 2004, the first 8,000+ TEU vessel was delivered to OOCL. Six 9,150 TEU ships have been ordered by Seaspan of Vancouver to be chartered by China Shipping Company. Maersk has 19 ships on order that are officially rated at either 7,226 TEUs or 7,900 TEUs, but which will be in excess of 104,000 dwt. At 10 tonnes nominal capacity, they could carry about 10,500 TEUs (Figure 3-19). Figure 3-19 – Generations of Vessel

1,703 TEU 1st Generation (Pre-1960 - 1970)

2nd Generation (1970 - 1980)

3rd Generation

(1985)

2,305 TEU 3,220 TEU 4,848 TEU

4th Generation

(1986 - 2000)

10,000 TEU 5th Generation

(2000 - ?)

China Effect The so-called ‘China effect’ has had an enormous impact on world trade and container shipping. Shipping lines generally have healthier balance sheets than anytime in the past ten years. Volumes on the two biggest trade lanes have risen substantially, driven by the trade with China. The Economist Intelligence Unit was forecasting world GDP growth of 4.3% in 2005, with China leading the way at 7.5%. Its industrial output grew 15.5% in 2004 with exports and imports increasing over 34%. China’s industrial output helped fuel an average increase of over 10% at the top 100 container ports worldwide in 2004. All Water Services Congestion on the west coast has led many carriers to re-introduce all water services from the Far East to the U.S. east coast. These services typically transit the Panama Canal and turn around at New York. Shippers appear willing to sacrifice faster transit times for slower, more reliable service (Figure 3-20).

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Figure 3-20 – All Water Service Routes

Halifax

Mergers and Acquisitions Maersk Sealand’s purchase of P&O Nedlloyd may signal another round of merger activity. At the very least, it will shake up the existing alliance structure, as P&O Nedlloyd is a member of the Grand Alliance, which calls at Halifax. Maersk is reported to be as much interested in P&ONL’s vessel orderbook as it is its trade routes and cargo volumes. Another company, CP Ships, that was seen as an acquisitor in 2004, was acquired by TUI AG, the owners of Hapag Lloyd in 2005. There are other large and strong shipping lines which may see the need to get larger to thwart Maersk’s dominant market share, which will go from 13% to 22% worldwide. Short Sea Shipping In Europe, the EU has had programs in place for over a decade to encourage short sea shipping, and an intermodal shift away from trucks to more environmentally friendly shipping. The U.S. Maritime Administration (MARAD) and Transport Canada have followed suit, but thus far have no programs in place to facilitate modal shifts. There are some interesting trends in this sector too. Some operators are opting for purpose-built lift-on/lift-off vessels, whereas others are building large roll-on/roll-off vessels with full width ramps to permit speedy loading and unloading. A few major shippers, such as StoraEnso, are building their own in-house short sea services with specialty containers only suitable to themselves. Halifax has the largest short sea sector in Canada, with services to Newfoundland, St. Pierre et Miquelon, and New England. Roll-On/Roll-Off There are very few roll-on/roll-off operators still mixing containers and roll-on/roll-off cargo. The notable exception is ACL, a long time Port of Halifax customer. Other operators such as Whilhelmsen have built new roll-on/roll-off vessels which carry only cars, trucks, and machinery such as heavy equipment and farm tractors, having decided that there is a huge amount of container capacity capable of carrying those cargoes. Pure car carriers, or PCTCs, are now able to carry over 7,000 autos. November 2005

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Offshore Oil and Gas The offshore supply boat business locally is somewhat dependent upon local drilling activity. However, most operators have been forced to seek markets in the North Sea, Brazil, West Africa, and the Middle East, in order to keep their fleets deployed.

Port The port industry is also in transition, as the following examples illustrate. Port Congestion on West Coast The rapid rise in trade flows between North America and the Asia Pacific region is putting significant pressure on North America’s west coast ports. Shippers have stated serious concerns about the condition, capability, and future reliability of ports, road, and rail services and infrastructure. To overcome this concern, shippers are now turning to all options for shipping goods from Asia to North America, including shipping product via the Suez Canal and across the Atlantic Ocean to East Coast Gateways, creating growth opportunities at Gateways such as Halifax. While shipping products via the Suez Canal requires longer times at sea, some shippers believe the routing to be more reliable and in some cases faster than shipping via west coast gateways due to the congestion and lengthy backlogs found at the latter. As it will be at least a year before any new west coast capacity is added, there is a window of opportunity for Halifax to capture a share of the growing Asia Pacific trade, and demonstrate to shippers that the Suez Canal routing is a viable long-term option. Investments in New Facilities On both the west and east coast of the U.S., ports are responding to record cargo levels and increases in world trade by investing in new facilities and refurbishing older ones. In New York, the Port Authority is completing upgrades to three terminals, APMT, Maher Terminal and Port Newark Container Terminal, which will effectively double that port’s capacity. The APM Terminal will add 34 hectares, and encompass a total of 108 hectares when completed. At 180 hectares, Maher Terminal will become the largest container terminal in North America when completed. Port Newark, operated by P&O Ports, will be a 71 hectare terminal, with seven post-Panamax cranes. Another project involves dredging and deepening New York’s harbour and berths. The first phase was completed to 13.7 metres in 2004. Further deepening to 15.2 metres will be completed between 2009-2013. The Virginia Port Authority's operating company, which handled 1.8 million TEUs last year, is expanding Norfolk International Terminal South, adding 500,000 TEUs of additional capacity over the next six years. Maersk Sealand is building a large 162 hectare private container terminal with 1,220 metres of berth, at nearby Portsmouth, Virginia. When that facility opens in about five years, VIT will have an additional 300,000 TEUs of capacity at the terminal vacated by Maersk Sealand. This fall Norfolk will be the first U.S. east coast port capable of handling fully loaded 8,000 TEU ships when it completes a project to dredge the harbor to a depth of 50 feet. The VPA is also studying the feasibility of the phased development of a fourth VPA-owned terminal at Craney Island, which would cost $1.6 billion, eventually handle more than 2 million TEUs, and be built over the next 25 years. In Canada, Montreal has a $150 million investment program which will be spent between 2004-2009 upgrading terminals and infrastructure.

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On the west coast, a new terminal has been announced for Prince Rupert and plans are well advanced for an expansion of DeltaPort at Roberts Bank and Vanterm in Burrard Inlet to handle an expected 5 million TEUs by 2020. In March 2004, P&O Ports Canada Inc. signed a new 51-year lease with the Vancouver Port Authority to operate Centerm and announced it will invest $148 million expanding the terminal. The work, which is scheduled to be completed by the spring of 2006, will more than double Centerm's containerhandling capacity to almost 800,000 TEUs. The project includes adding two Post Panamax container cranes, 16 RTGs - rubber tired gantries used to move and stack containers – and more than doubling ondock rail to 8,000 feet. The work will be done on the existing 73-acre terminal footprint located east of downtown on the south shore of Burrard Inlet. Global Terminal Operators The past decade has seen the emergence of a number of global terminal operators, with significant financial resources and worldwide marketing capability, which has significantly changed the landscape for small, independent terminal operating companies. The so-called ‘big four’ are Hutchison Port Holdings, P&O Ports, PSA Corporation and APM Terminals. In 2003, they handled 34.1% of the world’s container port throughput, or 107.6 million TEUs. Global terminal operators, of which there are at least 25, together handle about 60% of the world’s containers, or 188.2m TEUs. The largest operator, Hutchison Port Holdings, with 34 terminals and four under development, had revenues of HK$26.9 billion in 2004, with EBIT of HK$8.8 billion and profit of HK$4 billion, a 26% increase over the previous year. PSA Corporation is owned by the Singaporean government through Temasek Holdings. It operates 15 facilities with six under development and handled 33.1m TEUs in 2004, including 20.6 million in Singapore. APMT, the third largest operator with 22 terminals worldwide, is a unit of AP Moller, which owns the world’s largest container shipping company, Maersk Sealand. P&O Ports is the fourth largest operator, with the broadest worldwide coverage. It had revenues of £1 billion and net profit of £153.8m in 2004. It is closely affiliated with the Grand Alliance, which includes Hapag Lloyd, NYK Line, P&O Nedlloyd, OOCL and Malaysian International Shipping Company (MISC). Transhipment Hubs In the past decade, there has been phenomenal growth in the development of transhipment hubs in the Far East, Middle East, Mediterranean, and Caribbean. Thus far, no such hub has emerged on the east coast of North America, although aspects of such are present at both Halifax and New York. Figure 3-21 illustrates the importance of transhipment at major worldwide ports.

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Figure 3-21 – Leading Transhipment Ports by Volume Port

Country

Estimated Transhipment (TEU)

Estimated Transhipment Incidence

1

Singapore

Singapore

12,768,302

82.0%

2

Hong Kong

China

5,286,600

29.7%

3

Kaohsiung

Taiwan

4,120,620

54.6%

4

Busan

S.Korea

2,899,426

36.7%

5

Gioia Tauro

Italy

1,990,666

80.0%

6

Tanjung Pelepas

Malaysia

1,968,000

96.0%

7

Rotterdam

Netherlands

1,830,000

30.0%

8

Algeciras

Spain

1,790,273

83.2%

9

Dubai

United Arab Emirates

1,729,899

49.4%

10

Hamburg

Germany

1,410,000

30.0%

11

Port Klang

Malaysia

1,406,160

37.8%

12

Marsaxlokk

Malta

1,215,500

93.5%

13

Colombo

Sri Lanka

1,194,811

69.2%

14

Salalah

Oman

1,144,994

96.4%

15

Khor Fakkan

United Arab Emirates

860,000

80.0%

16

Bremerhaven

Germany

848,314

29.1%

17

Antwerp

Belgium

843,635

20.0%

18

Kingston

Jamaica

835,890

85.0%

19

Felixstowe

United Kingdom

817,335

30.0%

20

Miami

U.S.

668,970

70.0%

21

Manzanillo

Panama

664,044

70.0%

22

Damietta

Egypt

596,369

85.6%

23

Piraeus

Greece

562,500

45.0%

24

Freeport

Bahamas

554,400

99.0%

Rank

Source: Drewry Shipping Consultants Ltd.

Attraction of Distribution and Transload Facilities Led by Savannah and Norfolk, many ports in North America are pursuing the establishment of distribution warehouses in close proximity to port facilities in order to attract the cargo of those retailers and distributors. This trend is epitomized by Home Depot’s 2 million square foot facility less than 10 miles from Savannah’s major container terminal. If a carrier seeks to carry Home Depot’s business, it makes logistical and financial sense to incorporate a Savannah port call. Other U.S. ports such as New York and Houston, are trying to emulate this strategy. In 2004, Houston attracted a massive distribution facility built by Wal-Mart.

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Intermodal and On-Dock Rail U.S. ports were late in discovering on-dock rail, but they are investing in intermodal infrastructure. The new 237 acre Evergreen terminal in Tacoma will boast an on-dock rail facility of 31 acres capable of loading 108 rail cars. With a 17% increase per year since its inauguration ten years ago, New York is also investing another $141million in its ExpressRail facility to move cargo inland, on top of a previous commitment for $310 million. The facility will have the capacity to move 1 million containers inland when completed between 2007-2009. Inland Terminals Several ports in the U.S. and overseas such as Auckland, as well as Vancouver, have developed inland terminals to alleviate port and truck congestion. The terminals speed up local deliveries and provide better asset utilization, both in terms of trucks and terminals. They also help to postpone the need to invest in expensive terminal infrastructure and attract distribution and transload activity nearby. Green Ships Inspection and certification is applicable for crude oil tankers, product tankers and bulk carriers with a minimum deadweight of 20,000 tons. Currently about 170 vessels have a Green Award Certificate. Worldwide about 1,500 tankers and 1,500 bulk carriers, in the categories for which in principle the Green Award is available, are operational. The next step on this would be the extension of the Green Award to container carriers. Another trend that may become noteworthy is that of Alternative Maritime Power (AMP) or cold ironing vessels when they are in port for loading and unloading cargo. The Port of Los Angeles is leading the way with this trend, as air quality is such an important issue there.

Implications for the Halifax Gateway ƒ

Congestion on the west coast presents an immediate opportunity for east coast ports. The potential for Suez Express-type services sailing westbound from Hong Kong, southern China, South East Asia, and the Indian sub-continent provides a better transit time via Halifax than other east coast gateways.

ƒ

Halifax is one of the few ports in North America that has unused capacity. Halterm is operating at 25% capacity while Ceres is at 75%. Should the port attract a new carrier and new cargoes, they can easily be accommodated. The port has an ongoing plan to invest over $100 million to deepen berths to 55’, which will make them the deepest in North America.

ƒ

On the other hand, investments by other competing ports such as New York and Norfolk will make them even more formidable. The bigger they get, the better their economies of scale and the better they are able to afford continuous investments in terminals and equipment. There is a risk that Halifax will lose its critical mass.

ƒ

Halifax presently has one terminal operated by a small-medium sized global terminal operator and another by a local, independent operator, which is listed on the Toronto Stock Exchange. The latter company seems particularly vulnerable to a takeover and in order to compete globally, this may be a desirable option. Global terminal operators are able to marshal significant capital resources and marketing muscle, which could be of benefit to Halifax.

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ƒ

Halifax already handles more transhipment cargo than other Canadian and most U.S. ports and has considerable upside potential. Because transhipment to U.S. ports is not restricted to Jones Act vessels, the costs to operate between Canadian and U.S. ports is considerably less expensive than between two U.S. ports. There is potential to tranship cargo to points south of Boston, as well as Bermuda.

ƒ

In 2004, the Port of Halifax and its partners undertook a study of potential distribution and transload activity that could take place from Halifax. Since this study commenced, a deal was signed between the Canadian Retail Shipper’s Association (CRSA) and Armour Transportation Group to move 4,000 TEUs through Halifax and be distributed from a facility in Burnside Industrial Park. There are several more major retailers interested in moving additional volumes through Halifax if there was more shipping capacity.

ƒ

The development of ExpressRail in New York signals that it is serious about handling hinterland cargoes, which could threaten Halifax’s markets in Ontario and the mid-west.

ƒ

Halifax is not congested enough at this point in time to justify building an inland terminal. When capacity at the two container terminals is being approached, the construction of an inland terminal potentially frees up space on the terminals and allows the development of new terminal capacity at a lower cost.

ƒ

Green Ships and AMP could be a way for Halifax to differentiate itself from other east coast ports. Besides being SmartPort, it could become the GreenPort.

3.5

Cruise Trends

Market Growth Over the past two decades, the cruise industry has emerged as one of the fastest growing and popular segments of the worldwide travel and leisure industry. In 1980, approximately 1.4 million individuals embarked on a conventional cruise operated by a North American cruise line, a level that climbed to over 9.3 million by 2004. Nearly 3.9 million international passengers were carried on European and Asian marketed vessels in 2004, elevating the worldwide cruise industry passenger total to nearly 13.2 million (Figure 3-22).

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Figure 3-22 – Cruise Passenger Growth Worldwide 1990-2004 g

14,000 12,000

Passengers

10,000 8,000 6,000 4,000 2,000 0 '90

'91

'92

'93

'94

'95

North America

'96

'97

'98

'99

Europe

'00

'01

'02

'03

'04

Asia

Since 1990, total passenger levels have tripled. Source – Cruise Line International Association, GP Wild, and Bermello, Ajamil & Partners Inc.

The industry’s success over this period is primarily a result of the following: ƒ

Cruise lines created products that work to convert land-based resort guests into cruise passengers. Cruise lines were able to package and mass market an all-inclusive resort package-at-sea that is highly price competitive when compared to similar land-based resort vacations. These all-inclusive packages were marketed through a variety of distribution channels inclusive of travel agents, internet-based retailers, charter operations and cruise line-based phone and internet networks.

ƒ

Cruise lines were highly successful in introducing new vessel inventory and developing onboard products that generated sustained interest in cruising. Lines continually worked to improve the quality and quantity of on-board experiences with more diverse food and beverage venues, entertainment and deck activities, meeting and conference facilities, and recreation areas. Discarding smaller ships and older capacity, larger and more lavish vessels furnished with veranda-style outside cabins, grand central atriums, health spas, and other amenities found in the best land-based resorts became the norm in the mid-1990s. Consumers generally met each new vessel launch with enthusiasm, and ultimately, increased passenger bookings. In fact, due to the strong correlation observed between vessel supply expansion and increased passenger carryings over the past twenty years, many industry experts concluded the industry exhibits tendencies of being supply led. Review of future vessel deliveries remains the primary tool used to project future industry passenger growth.

Industry Consolidation Today, three major cruise operators dominate the cruise industry worldwide. The ‘big three’ were formed through merger and consolidation to provide each with better economies of scale, progressive marketing options, and increased channels of distribution. In spring 2003, the Carnival Corporation and Princess Cruises merger was officially accepted by shareholders of P&O Princess, plc, thus forming the nucleus of a cruise company with more than 41% of total berth capacity worldwide. This merger continues to reshape the industry, creating one large super cruise consortium with widespread influence on cruise marketing, operations and deployments. RCCL (22%) and Star Cruises (9%) are the other major industry participants. November 2005

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The remaining 28% of industry capacity is controlled by over 50 cruise lines, ranging from medium-sized lines typically operating between two and five vessels, to small cruise line operators with one ship. We summarise several attributes of each of the major cruise lines as well as several smaller operators in the following section. Cruise line information is summarised in Figure 3-23. Figure 3-23 – Cruise Capacity by Cruise Group

Carnival 41%

Other 28%

Royal Caribbean 22%

Star Cruises 9%

Source – GP Wilds and Bermello, Ajamil & Partners Inc.

ƒ

Carnival Corporation – publicly held and traded, Carnival Corporation controls over 130,000 lower berths on 78 vessels. Carnival Corporation presently has an additional 12 vessels on order. Carnival Corporation’s portfolio of 12 brands is remarkable and includes many of the gold standard cruise companies – Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn Cruise Line and Windstar Cruises in North America; P&O Cruises, Cunard Line, Ocean Village and Swan Hellenic in the United Kingdom; AIDA in Germany; Costa Cruises in Southern Europe; and P&O Cruises Australia. These brands combine to offer a range of vacation products to consumers with varied tastes, income levels, and national origin. Combined, more than 5.4-million people sail with Carnival brands annually.

ƒ

Royal Caribbean Cruises, Ltd. – under its two brands Royal Caribbean International (RCI) and Celebrity Cruises, RCCL operates a fleet of 30 ships with three additional vessels set for delivery. Current fleet capacity is slightly over 60,500 lower berths. In 2004, RCCL’s two brands combined to host approximately 3.1-million cruise passengers. They also hold interests in Celebrity Xpeditions (sailing in the Galapagos Islands) and the U.K. based Island Cruises. RCCL is also a publicly held corporation.

ƒ

Star Cruises – Star Cruises is the leading cruise line in Asia, and with acquisition of NCL Holdings in 2000, is the third largest cruise line operator in the world. Star Cruises’ combined fleet consists of 15 ships and over 23,000 lower berths. The Star Cruises brand is focused on tapping into Asia-Pacific consumers found in China, Hong Kong, Malaysia, India, Chinese Taipei, and Japan. Star’s NCL and Orient brands are marketed primarily to consumers from North America, Europe and Australia. The

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NCL brand currently has four vessels on order for delivery within the next two years. It is upgrading its fleet to larger new ships with most of the smaller ships going to the Star Cruises brand. Star Cruises is a publicly held company listed on the Hong Kong Stock Exchange. ƒ

While lines in the ‘other’ category are far smaller in terms of fleet size than the ‘big three’ the remaining 28% of industry includes a number of important and unique brands that provide increased diversity within the industry overall. Representative lines include: –

Disney Cruise Lines – is the leading family entertainment cruise provider with 3-, 4-, and 7-night itineraries to the Bahamas and Caribbean offered on two cruise ships (Disney Wonder and Disney Magic). While linking cruise offerings to upland facilities is not unique in the industry, Disney’s combination of family brand and upland theme parks creates inherent interest in their cruise product. In 2005, Disney Cruise Lines will take their formula to Los Angeles with 7-night Mexican Riviera cruises during the peak summer season. No new cruise ship orders have been placed by Disney; many industry experts anticipate this could change in late 2005.



Crystal Cruises – offers ultra-luxury cruises to destinations worldwide and is a sizeable cruise line contributor to the Asia-Pacific marketplace. Crystal Cruises is wholly-owned by Nippon Yusen Kaisha (NYK). Crystal Cruises has a fleet of three ships, with the newest recently delivered in the fall 2003.



MSC Cruises – offers mid-class cruises to destinations throughout Europe and the Caribbean. MSC North America is currently under start-up operations and is intended to cater to a more upscale niche market with its newbuild ships. There are currently two on order. This is a privately held Italian company backed by MSC Cargo – Aponte family ownership. While they have strong financial backing some industry analysts are hesitant as to what their level of success will be in the North American market due to brand placement, and other competitive factors.



Radisson Seven Seas Cruises and Silversea Cruise Line – are luxury-class cruise lines offering itineraries throughout the world to a mainly North American clientele. Both lines are privately held companies by the Carlson and Vlasov Groups respectively. At present, neither line is currently planning to expand its fleet through purchase of new vessel capacity.

Similar in composition to the hospitality industry, each major cruise group is comprised of several cruise line brands with ships positioned to appeal to different geographic markets and consumer tastes. The majority of cruise brands generally fall into one of the following four segments: ƒ

Luxury – the luxury segment offers cruises of greater than seven days on high quality, small and medium-sized ships. Luxury vessels tend to sail worldwide and offer superior food and service.

ƒ

Premium – the premium segment is geared toward more experienced cruisers, often older and more affluent with time to vacation. Service and food quality are emphasized under the premium segment.

ƒ

Contemporary – ships found in the contemporary segment appeal to passengers of all ages and income categories with a focus on middle income levels. While this segment has a healthy rate of pastpassenger participation (estimated between 30 to 50% of the industry), this segment is highly dependent on the continued introduction of new cruise passengers to the marketplace.

ƒ

Budget – the budget segment tends to be a less expensive version of the contemporary market, with ships generally older, smaller and offering fewer amenities. There are many of these operations

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existing in Europe. However, it is unclear with the implementation of the SOLAS regulations by 2010, whether this segment will be one that will be able to continue its growth. Several other secondary market segments exist, including exploration and soft adventure cruises, niche cruisers, river cruises, and coastal operations. In addition, several tour operators have chartered vessels for their niche market segments. Cruise Vessel Evolution The evolution of the cruise ship has been one of the principal mechanisms propelling industry growth. It has also required that cruise destinations—both the maritime port facilities handling homeport and port-of-call operations as well as the destinations themselves—evolve to meet the challenges presented by these ships if they wish to participate in the large-scale segment of the cruise industry. Cruise ships have advanced through a number of developmental phases, from the small, 500-passenger vessels of the 1970s to the rise of the Post-Panamax, 3,600-passenger ships of the late 1990s (Figure 3-24). Beyond 2005 the evolution continues with a focus on the largest ships afloat in the Ultra-Voyager Freedom class and Carnival’s entry into the arena with their larger Princess vessels. Figure 3-24 – Evolution of the Modern Cruise Ship Period

Length

Draft

Passengers

Characteristics of the Period

1960

155 m

11 m

500

Vessels acquired & refurbished.

1970

215 m

10 m

650

Standard business model used with profitable results until the fuel crisis.

1980

245 m

9m

1,500

Change in business model; experimentation with larger ships and operating itineraries.

1990

275 m

8m

2,600

Larger ships becoming the destination. Shallower drafts.

1996

295 m

8m

3,600

Mega-ships that are floating cities. Focus on maximizing passenger capacity. One-region vessels not capable of Panama Canal Transit.

2000

310 m

9m

2,500

Reached possible peak of passenger capacity; concentrating on creating efficiencies with ship design, outside cabin development, and flexible deployment.

2005+

320 m – 340 m

9 - 10 m

3,600+

Ultra-Voyager, 160,000-GT. Allows for increased onboard revenue areas, largest ship in the world status (ego boost).

Source – Bermello, Ajamil, and Partners Inc.

Analysis of the current international cruise fleet indicates that the average cruise ship is approximately 200 meters long, carries 1,090 passengers at 100% occupancy and is 17 years old. With the average length of cruise vessels delivered each year continuing to increase, combined with the retirement of older, smaller vessels, it is very likely that within the next decade cruise ships with lengths of 300 meters will become the operational norm. The prospect of orders for even larger cruise ships – possibly for vessels approaching 5,000 passengers – remain as the major operators continue to look to further exploit economies of scale and reduce unit costs as well as to generate excitement around the development of the world’s largest vessel(s). Certainly the operational areas that are suitable for such large vessels will be relatively limited in comparison to smaller cruise ships in the mid-term.

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In the past five years, the newest and most popular generation of ships is smaller in passenger capacity but continues to have greater lengths and drafts to accommodate the height needed for large scale outside cabin development. These vessels range in length from 290 to 320 meters and have passenger complements of between 2,200 and 2,600. Cruise lines are focusing on improved operational cost savings by ordering standardized hulls for multiple brands. By example, Carnival Corporation uses its Spirit-class ship hull for new Carnival, Holland America, P&O and Costa vessels. Grand-, Destiny-, and Voyager-class vessel orders, however, are not expected to disappear; several orders for each of these type vessels are still outstanding and it is likely that more will continue to be issued over the next decade, with Costa being the first European operator to order a ship of this type. Carnival Corporation’s Queen Mary 2 and RCCL’s order for the Ultra-Voyager-class vessel suggests that the quest for the largest cruise vessel may not be over (Figure 3-25). Figure 3-25 – Growth in Cruise Ships Delivered to 2012 350

2011

300

Average length (m)

257 250

259

251 237

219 201

200 189

172

163

150 149 100

175 149 169

167

282

290

233 231

196

194 183

270

231 230

174

107

50 0 1980

1985

1990

1995

2000

2005

Source – GP Wild and Bermello, Ajamil and Partners Inc.

Future cruise ships will likely continue the trend begun in the past decade of incorporating environmentally friendly waste systems into the design of their ships. Some examples of improvements in the past include: Technological changes in vessel engines that have significantly reduced emissions (e.g., gas turbines); superior wastewater handling systems which allow ships to hold and treat their wastewater in more environmentally friendly ways; and, garbage and recycling handling improvements that minimise impacts to the environment. As technological changes in the environmental systems continue their advance, cruise vessel design will continue to incorporate these ‘green’ technologies. Some lines are beginning to adapt a no-discharge policy and the trend may continue in the future. Cruise Vacationers Although the cruise industry continues to strive toward globalisation, the majority of cruise passengers are still sourced from two significant locations – North America and the United Kingdom. In 2003, these source markets accounted for more than 75% of total worldwide cruise bookings. Other countries in continental Europe and Asia also represent important source markets (Figure 3-26).

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9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Ze al an d A m er O ic th a er So ur ce s

A

us tr

La tin

ew

Ja pa n

sia

Eu ro pe

A

al ia /N

K

on t. C

m A U

ni te d

h or t N

in gd om

2003 2002 2001 2000 1999

er ic a

Passengers

Figure 3-26 – Worldwide Cruise Passenger Source Markets (1999 to 2003)

Sources: CLIA, Seatrade Communications, and B&A, 2004

Source – Cruise Line International Association and Bermello, Ajamil and Partners Inc.

The U.K. market produced over a million passengers in 2003 for the first time, and increased an additional 8% in 2004 to 1.14-million passengers. Record cruise bookings were achieved worldwide despite the Iraq War and other security concerns, proving the resiliency and ability of the cruise industry to perform within the overall vacation market. Germany’s provisional 2004 cruise figures show a 4% increase in cruise sales over 2003 (537,000) with 551,000 passengers, and on track to achieve more than 1-million passengers by 2012. This growth is the result of the emergence of a new German brand targeting younger consumers (AIDA Cruises), pan-European cruising and the deployment of International brands specifically for the German domestic market.13 The Passenger Services Association (PSA), the U.K. based cruise marketing group and Cruise Lines International Association (CLIA), North America’s cruise marketing body released studies that provide some indication as to the consumer trends of the industry and more importantly the potential cruiser profile that is critical to the long-term success of the industry within the vacation market. Much of the detail provided below is gleaned from these survey reports and other market sources as indicated. North American Consumers Consumer trends continue to be supportive of further industry growth worldwide. Several of these are highlighted below: ƒ

Almost 45-million people have cruised at least once; and of these, nearly 23-million (51%) have cruised within the past three years.

13

November 2005

Annual Cruise Review 2003 (U.K. and Europe) PSA.

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ƒ

In the 2004 Market Profile Summary from CLIA, the projected total number of cruisers over the next three years is 29-million; and a high potential of 48-million.

ƒ

Cruise passengers spent approximately US$1,651 per person on a typical cruise vacation inclusive of cruise fare and onboard expenses. Cruisers spend nearly 50% more than non-cruising visitors.

ƒ

The average cruiser has taken 3.3 cruises. Destination driven cruise passengers sail more with 8.1 cruises, followed by luxury (6.3), premium (5.0) and contemporary (3.5).

ƒ

The average age of actual and potential cruise consumers continues to increase (age 48.3 in 1992 vs. 50 in 2004). Household incomes for cruise passengers are high, averaging US$99,000 in 2004 for North Americans, increasing from US$58,400 in 1992 and US$79,000 in 2000. As products continue to diversify, however, cruising (as evidenced by cruise prospects) continues to be considered by individuals with lower household incomes.

ƒ

Cruisers plan their vacations further in advance (4.3 months on average) than non-cruisers (3.4 months).

ƒ

50% of travellers used cruise line sites to conduct research, but only 5% actually book online. Hotel and airline sites are the most popular source for research and booking.

ƒ

Cruising is seen by a large majority of passengers as a good way to sample a geographical area/destination for future vacations. After sampling the geographical areas/destinations on their recent cruise, more than 75% say they will return for another type of vacation.

Figure 3-27 – Demographic Profile of North American Cruise Passengers Category

Representative Sample

Cruise Vacationers

Non-Cruise Vacationers

Average Age

Mean

48

50

46

Average Income (000s)

(000s)

US$90

US$99

$86

Male

49%

50%

50%

Female

51%

50%

50%

Married

82%

83%

81%

Divorced/Separated

9%

8%

10%

Single

9%

9%

9%

Full-time

63%

58%

67%

Retired

13%

19%

9%

College Graduate or Higher

58%

66%

41%

Post Graduate

18%

24%

12%

Metric

Gender

Marital Status

Employment Status

Education

Source – Bermello, Ajamil, and Partners Inc.

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European and Asian Consumers European interest in cruising continues to increase. Passenger growth continues, with the U.K. market providing the largest share of this total. U.K. cruise tourists exceeded one million again in 2004. Spain is the fastest growing cruise market in Europe at present and Germany is expected to grow more rapidly as the capacity targeted at this market expands. Europeans also continue to approach similar population, income levels, and vacation patterns as their North American counterparts. Critical to success in the European marketplace are tailored products that meet divergent market tastes of the consumer. Expansion of the EU to 25 member states in May 2004 means that the European market has been enlarged by over 75 million people. The other market that is drawing great attention over the past year is China. For all cruise lines, the longterm prospect of tapping into the anticipated growth of tourism by Chinese consumers has created long-term interest in the Asia-Pacific region. Domestic tourism in China expanded steadily over the past five years, growing from 524,000 to 784,000 between 1994 and 2001. Reports by the World Tourism Organisation (WTO) suggest that China could yield up to 100 million outbound tourists by 2020, a level that would move the country into fourth position in terms of the world’s top outbound countries.14 Beyond China, demographic and economic indicators in India, Malaysia, Japan, and other Asia-Pacific nations are expected to bring greater prospects for domestic and outbound tourism. Other Cruise Trends ƒ

Homeland market – homeports along the Atlantic Coast, from Boston to Jacksonville have opened key drive markets that are playing off potential consumers’ fear of flying due to terrorism, airline service, and cost. New regional airlines, such as JetBlue, Southwest and others may modify this approach over time.

ƒ

8-day cruise product – the ability of new ships to reach the Caribbean and Bahamas due to engine technology has changed deployments. The determining factor as to the extent to which the industry will continue to expand these deployments will be driven by weather, cost and guest satisfaction.

ƒ

Seasonality of U.S. east coast region – not until 2003 were northern U.S. coastal ports considered for year-round cruising. This new cruise itinerary philosophy essentially uncaps the potential opportunities for future cruise deployments allowing for consumer tastes and preference.

ƒ

Airlift – while airline has been removed as a primary factor for cruising in the region, many regional cruise deployments, such as Bermuda, Canada/New England, transatlantic, and world, rely upon adequate and cost effective airlift to/from all U.S. east coast ports.

14

November 2005

Chinese Outbound Tourism, WTO, 2003, and the 2003 Edition Tourism Market Trends: World Overview and Tourism Topics, WTO, 2004. The fundamentals behind anticipated growth in Chinese outbound tourists include: Anticipated increases in disposable income of Chinese residents (much of this tied to anticipated annual growth of per capita GDP of between 5 to 8%); expansion of the ‘holiday economy’ beyond the three golden weeks resulting from China’s introduction of the practice of holidays with pay for working people over the next five years; and, continued liberalization of outbound travel through expansion of the number of countries with Approved Destination Status (ADS).

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Vessel size/capacity – larger cruise vessels are replacing older smaller ships in all U.S. markets. As a result, possessing adequate infrastructure and having the ability to service these larger vessels are critical factors which will influence the long-term success of any region.

Implications for the Halifax Gateway ƒ

Carnival and Royal Caribbean currently account for 63% of global cruise capacity. Future acquisitions by either of these cruise lines will result in further domination by the industry’s two key players. To maintain some independence and flexibility, the Halifax Gateway should encourage greater market participation by cruise lines not affiliated with the top two cruise groups.

ƒ

As the number of mega-ships in the world fleet increases, the Halifax Gateway will need to plan accordingly. Beyond the physical needs of these ships (e.g., pier capacity), the Gateway will need to ensure its support infrastructure is sufficient to accommodate the influx of up to 3,500 passengers per day. This means that there must be adequate capacity of tours, efficient ground transportation, and an ample supply of attractions to satisfy the diverse interests of passengers. Furthermore, dockside facilities and procedures must ensure a seamless embarkation and disembarkation process. Customer service levels in Halifax must also meet, or exceed, those onboard the ships.

ƒ

With its rich history, dramatic coastline, white sand beaches history, cultural attractions, Halifax has the ability to position itself as something different than the other cruise ports on the east coast.

3.6

Ground Transportation Trends

One of the key drivers of ground transportation trends will be growth in international freight to North America. The demand at major U.S. ports such as Los Angeles, Long Beach, and New York, is growing at such a rate that inland transportation infrastructure could soon be insufficient and is expected to lag behind for some time. All levels of government are promoting more efficient inland transportation modes such as rail and short sea shipping. Both are more environmentally friendly and short sea is heavily underutilized at least in part because of government regulations.

Road ƒ

Many trucking companies have started to acquire 53 domestic pallet wide containers and chassis rather than traditional 53-ft. high cube vans. The container and chassis choice is 10-20% more expensive and has slightly less weight capacity; however, the ability to use rail and short-sea more effectively can be well worth it.

ƒ

The Trans-Canada Highway continues to be upgraded to a limited access two lane divided highway. Once complete (planned two years from now), this could open the door to truck-trains to/from Montreal and Toronto. Truck haulage costs could be reduced by as much as 35-40% and the economic range of trucking extended to about 500-600 miles.

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ƒ

Synergies between domestic and international shipping are being exploited. ISO containers are frequently used to move domestic freight while the container is repositioned and international freight can be transferred to 53-ft high cube equipment.

ƒ

There continues to be a shortage of long haul drivers in the industry and nearly all major trucking companies use owner-operators.

ƒ

A growing number of trucking companies are offering warehousing and 3PL services to their customers.

Rail ƒ

Railways continue to seek gains in efficiently through longer trains, better car utilisation track-sharing agreements, and improved labour efficiently.

ƒ

CN has been a trendsetter in running a scheduled railway, introducing an appointment system for its terminals, and implementing a reservation policy for train space.

ƒ

53-ft high cube containers are now the norm for domestic intermodal freight and are expected to continue to displace piggyback traffic on rail.

Short Sea ƒ

Short sea shipping is in a very dynamic development stage. Governments and private entrepreneurs are looking for ways to make it work. There are significant barriers to entry into this mode of inland transportation and new ideas are being developed and tested to make short sea shipping viable.

ƒ

The high cost of ship charters and the need for efficiency is driving the industry to build ships that are specially designed for the trade into which they will be used. Flexible layouts to allow mix of domestic and international containers are seen as a way to ensure high utilisation levels and minimise handling costs.

ƒ

New technology is being sought to overcome the high handling costs associated with ship work in most North American ports. They include various schemes to automate or simplify the handling of containers, innovative barge systems, and new types of handling equipment.

Implications for the Halifax Gateway ƒ

Halifax is well positioned to take advantage of the potential inland transportation infrastructure shortfall in the U.S. Halifax has significant reserve rail capacity and increased use of the Halifax mainline will further improve CN’s cost efficiency.

ƒ

Further synergies between the domestic and International markets could be developed.

ƒ

As capacity issues arise, secondary distribution hubs will be developed to move some transportation activity away from the largest centres. Halifax has the largest population within a large geographical area and its existing inland services make it a natural secondary hub location.

ƒ

Existing legislation, including the so-called Jones Act allows intercoastal or short sea shipping from Halifax to anywhere in the U.S. using foreign-flag ships. As such, a virtual short sea transportation system could be developed by using ships that presently call on Halifax and by developing new services with feeder and roll-on/roll-off vessels.

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4.0 Strategic Assessment 4.1

SWOT Analysis

Strengths and Weaknesses The Halifax Gateway has many strengths and weaknesses. The key to the Gateway’s future success is to capitalise on these strengths while simultaneously working to mitigate its weaknesses. Strengths

Weaknesses

ƒ

Strategic location

ƒ

Low population density

ƒ

Proximity to large market (U.S. east coast)

ƒ

Local economy

ƒ

Well developed infrastructure

ƒ

Distance to inland markets

ƒ

Land availability for development

ƒ

Low market awareness

ƒ

Skilled labour pool

ƒ

U.S.-Canada border

ƒ

Technology (Smart City)

ƒ

Lack of air capacity to key markets

ƒ

Natural attractions

ƒ

Limited hotel room inventory in high season

ƒ

Marine access and conditions

ƒ

Less efficient than east coast port competitors

ƒ

Jones Act exemption

ƒ

Canadian dollar exchange rate

ƒ

Unrestricted airport operations

ƒ

Regulatory/bureaucratic processes

ƒ

Surplus capacity

ƒ

Some infrastructure deficiencies

ƒ

Strong stakeholder alignment

ƒ

Lack of rail competition

ƒ

Limited funding capacity by all levels of government

ƒ

Lack of political influence

Strengths ƒ

Strategic location – Halifax benefits from its location astride the great circle route and its position at the crossroads of two powerful trade relationships (e.g. NAFTA and EU-NAFTA).

ƒ

Proximity to large market (U.S. east coast) – although the population of Atlantic Canada is only 2.5 million, the Gateway is well positioned to serve the economically powerful and highly populated U.S. east coast and mid-west markets.

ƒ

Well-developed infrastructure – the Gateway possesses relatively well-developed facilities with regards to airport, port, and ground transportation infrastructure.

ƒ

Land available for development – with ample land available in the region for development, expansion of passenger and cargo operations through the Gateway in the future should not be hindered.

ƒ

Skilled labour pool – Greater Halifax’s working age population has the highest proportion of graduates from trade schools, colleges and universities in Canada.

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ƒ

Natural attractions – Halifax and the surrounding area have a generous assortment of interesting and well run attractions.

ƒ

Marine access and conditions – the Port of Halifax offers the deepest waters on the east coast of North America with minimal tides and no currents.

ƒ

Unrestricted airport operations – Halifax International Airport’s 24-hour operational capability provides the Gateway with another key strength. With flight operations permitted around the clock, Halifax International Airport provides carriers with the flexibility they require to maximise their business opportunities and equipment utilisation.

ƒ

Strong stakeholder alignment – the Gateway is viewed as an integral part of the economic fabric of Atlantic Canada, and as a result, benefits from strong stakeholder support.

ƒ

Surplus capacity – at present, the existing infrastructure provides capacity that exceeds the Gateway’s operational requirements.

Weaknesses ƒ

Low population density – with a population of 2.5 million distributed over a large geographic area, the region’s low population density stands as a weakness for the Gateway.

ƒ

Local economy – the region’s small economy limits business opportunities through the Gateway.

ƒ

Distance to inland markets – while Halifax is North America’s closest port to Europe and within close proximity to international shipping lanes, its location also means that it is located farther away from key inland markets than its competitors.

ƒ

Low market awareness – overall awareness of the Halifax Gateway is low. Effective communication of the advantages of using the Halifax Gateway over competing gateways will be essential in attracting additional business to the region.

ƒ

U.S.-Canada border – the mere presence of a border between the world’s two largest trading partners impedes the movement of goods to/from inland U.S. markets and places the Halifax Gateway at a disadvantage relative to its U.S. competitors.

ƒ

Lack of air capacity to key markets – a lack of direct flights to key destinations reduces the Halifax Gateway’s connectivity and acts as a disincentive to visit and conduct business in the region.

ƒ

Limited hotel room inventory in high season – there is recognition by tourism stakeholders that the number of hotel rooms available during peak season, particularly those to required to support homeport cruise operations, are limited.

ƒ

Less efficient than east coast port competitors – gateway stakeholders noted that, on average, Halifax tends to be less efficient that most of its east coast port competitors. This will act as a disadvantage when approaching shipping lines to implement new or incremental services.

ƒ

Regulatory/bureaucratic processes – the time and cost of dealing with regulatory and bureaucratic processes has been identified as a weakness by those having to do business in the Halifax region.

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ƒ

Some infrastructure deficiencies – overall, the Gateway possesses very good infrastructure. However, some deficiencies to exist, particularly those associated with cruise operations (e.g. queuing/staging areas at the airport, service areas at the port)

ƒ

Lack of rail competition – unlike some of its competitors, the Port of Halifax is only served by one railway. Some stakeholders perceived this to be a weakness.

ƒ

Limited funding capacity by all levels of government – governments at all levels are challenged with infrastructure investment needs that extend well beyond transportation infrastructure. To rectify this, dedicated sources of infrastructure financing must be created.

ƒ

Lack of political influence – the Atlantic Region lacks the political influence possessed by other regions of Canada.

Opportunities and Threats The Halifax Gateway also has some exciting opportunities to pursue and some threats to address. Opportunities

Threats

ƒ

Diversion from U.S. west coast ports

ƒ

Increased competition from other gateways

ƒ

Diversion from U.S. east coast ports

ƒ

Limited rail competition

ƒ

Increasing vessel size/Suez Express routing

ƒ

U.S.-Canada border barriers

ƒ

Development of feeder services

ƒ

New security measures

ƒ

Value added/distribution centre activity

ƒ

Introduction of airport operating restrictions

ƒ

Regional cooperation/coalitions

ƒ

Terrorism

ƒ

Improved air services

ƒ

Government policies

ƒ

Growth in cruise homeport activity

ƒ

Diversion to other gateways

ƒ

Regional tourism

ƒ

Technology

ƒ

Green port initiative

ƒ

Offshore oil and gas

ƒ

Military assets

ƒ

Maritime export/aviation import centre

Opportunities ƒ

Diversion from U.S. west coast ports – with congestion at west coast ports and the inability of new generation large container vessels to transit the Panama Canal, an opportunity exists for the Halifax Gateway traffic to divert traffic to Halifax.

ƒ

Diversion from U.S. east coast ports – by increasing its competitiveness and enhancing its value proposition, Halifax may be able to capture traffic currently being shipped through competing U.S. east coast ports.

ƒ

Increasing vessel size/Suez Express routing – the introduction of post-Panamax vessels.

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ƒ

Value added/distribution centre activity – the presence of a world-class port and intermodal linkages provide the region with an opportunity to attract value added activity/distribution firms to the region.

ƒ

Regional cooperation/coalitions – an opportunity exists to take joint action to improve the region’s development prospects, strengthen its ability to address complex goals, and increase political presence.

ƒ

Improved air services – with the advent of U.S. pre-clearance, the Halifax Gateway has an opportunity to develop new passenger air services, particularly to U.S. markets.

ƒ

Growth in cruise homeport activity – given its inherent attributes, Halifax is well positioned to attract homeport cruise operations in the future.

ƒ

Regional tourism – tourism is an important growth sector in the Atlantic Region. The growth of this industry could increase traffic to/from the region.

ƒ

Military assets – Halifax has been a military city since its founding in 1749. The military assets found in and around Halifax present an opportunity for the region, particularly in the logistics sector.

ƒ

Maritime export/aviation import centre – directional imbalances in cargo movements have led to very attractive cargo rates (outbound on the maritime side and inbound on the aviation side). Given this development, an opportunity exists to establish the Gateway as an export or import centre (mode dependent).

Threats ƒ

Increased competition from other gateways – gateways operate in a highly competitive environment. As the Gateway continues to grow and prosper, it will undoubtedly compete with other regions, particularly as it attempts to recapture traffic that originates or is destined to its market area.

ƒ

Limited rail competition – as noted earlier, the Halifax Gateway is served by a single rail carrier. As a result, it is vulnerable to CN Rail’s market actions and powerful bargaining position. Therefore, maintaining a positive working relationship with CN Rail will be vitally important.

ƒ

Canada-U.S. border barriers – the presence of the Canada-U.S. border impedes cargo movements and increases the costs associated with moving goods between the Gateway and inland U.S. markets relative to ports on the U.S. east coast.

ƒ

New security measures – the terrorist attacks in the U.S. prompted the government to introduce new security procedures. These new procedures have increased transportation costs and negatively influenced overall customer satisfaction. Moreover, the possibility exists that additional security measures could be introduced in the future, particularly for air cargo, which could further intensify these effects.

ƒ

Introduction of airport operating restrictions – one of Halifax International Airport's advantages is its ability to accommodate air traffic activity 24-hours per day. Should operating restrictions be introduced at Halifax International Airport, particularly those restricting or prohibiting night operations, it would have a significant impact on air cargo traffic and could decrease the airport's attractiveness to potential air cargo carriers.

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ƒ

Terrorism – despite economic progress in many parts of the world, real or perceived political injustices continue to occur, resulting in outright wars or acts of terrorism. The recent wars in Afghanistan and Iraq, and the events of September 11, 2001, illustrate the dramatic impacts that these events can have on the transportation industry.

ƒ

Diversion to other gateways – a sizeable amount of the Halifax region’s air passenger and cargo traffic either departs or arrives via other ports or airports in the region because of their larger networks, lower rates/fares and higher service frequencies. Halifax International Airport must monitor traffic diversion to neighbouring facilities, as it ultimately affects the future potential of the Gateway.

4.2

Halifax Gateway Potential

The SWOT analysis presented in the previous section illustrates the Halifax Gateway’s key strengths and strategic opportunities, as well as its weaknesses and strategic threats. By following a targeted action plan, the Halifax Gateway has the potential to realise significant growth in the years ahead. The following sections estimate the growth potential of the Halifax Gateway across key industry sectors in an environment of focused and targeted strategic intervention by all Gateway stakeholders. The projections identified below are assumed to be unconstrained by Gateway infrastructure.

Container Traffic The Port of Halifax handled about 525,000 TEUs in 2004. Because long-term forecasts are not available for the port, the project team developed potential growth scenarios based upon annual growth rates of 3% and 5% per annum. It is felt that under the existing environment, the Port of Halifax could achieve annual growth of roughly 3%, which would represent 882,300 TEUs by 2020. With a proactive and focused approach by Gateway stakeholders, the project team estimates that a 5% growth rate is achievable. The latter scenario would produce TEU traffic levels of roughly 1.1 million by 2020, as displayed in the figure below. Figure 4-1 – Projected Container Traffic Growth 1,200

TEUs (thousands)

900

5% 1,092,000 TEUs 3% 882,000 TEUs

600

300

20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 15 20 16 20 17 20 18 20 19 20 20

0

Source – InterVISTAS Consulting Inc.

The port’s sustainable container handling capacity is around 900,000 TEUs, which it could reach in 2010, 2012, 2016 or 2021, depending upon how fast it grows. The port should commence development of either November 2005

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an inland terminal or a new container terminal when it approaches 800,000 TEUs per annum, which could come as soon as 2009, if growth takes off. As explained in previous sections, there are a number of factors which will impact the rate of growth experienced by Halifax. These include growth in world trade, growth of trade in particular regions (e.g. China, India), vessel size, new route/itinerary development, congestion at other North American gateways (e.g. west coast), efficiency/effectiveness of inland connections, and the development of short sea feeder services.

Air Traffic Halifax International Airport handled approximately 3.2 million passengers in 2004. According to Halifax International Airport’s most recent forecast, traffic at the airport is projected to grow by roughly 3.0% per year between 2005 and 2020. Based on this forecast growth rate, traffic at Halifax International Airport will total approximately 4.8 million passengers in 2020. With targeted and proactive intervention by Halifax International Airport and its partners, the project team estimates that Halifax International Airport could realise additional incremental traffic growth of about 11% by 2020, equivalent to an additional 546,500 passengers per year (to about 5.4 million passengers annually). The key drivers behind this additional traffic are: ƒ

Recapture of diverted traffic and stimulation of Atlantic Canada air travel markets as a result of the introduction of U.S. preclearance operations at Halifax International Airport; and

ƒ

Additional demand attributable to new cruise ship homeport operations.

Figure 4-2 – Projected Air Passenger Traffic Growth

Passengers (thousands)

6,000

4,000

2,000

20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20

0

Source – InterVISTAS Consulting Inc.

November 2005

Target 5.4 million Forecast 4.8 million

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Air Cargo Halifax International Airport handled approximately 32,000 metric tonnes of air cargo in 2004. According to Halifax International Airport’s most recent forecast, air cargo traffic at the airport is projected to grow by about 3.5% per year between 2005 and 2020. Based on this forecast growth rate, traffic at Halifax International Airport will total approximately 51,800 metric tonnes in 2020. With targeted intervention by Halifax International Airport and its partners, the project team estimates that Halifax International Airport could realise additional incremental traffic growth of roughly 25% by 2020, equivalent to an additional 13,000 metric tonnes per year (or roughly 64,800 metric tonnes annually). The key drivers behind this additional traffic are: ƒ

Recapture diverted cargo presently moving via other gateways; and

ƒ

Stimulation of Atlantic Canada air cargo markets.

Figure 4-3 – Projected Air Cargo Traffic Growth

Passengers (thousands)

80

Target 64,800 tonnes

60

Forecast 51,800 tonnes 40

20

20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20

0

Source – InterVISTAS Consulting Inc.

Cruise In 2004, the Port of Halifax handled approximately 213,000 cruise passengers. Based on cruise passenger forecasts developed earlier this year for the Port of Halifax, Halifax stands to handle about 265,500 cruise passengers in 2020, which represents an increase of 2.9% per year under the status quo. With proactive intervention, however, cruise traffic volumes at Halifax could reach 501,000 passengers per year by 2020, an increase of 88%. The key drivers to generate this additional traffic for the Gateway would be: ƒ

An aggressive marketing and promotion campaign to stimulate demand for the Canada/New England cruise product. While this may sound simple, it will require a comprehensive and dedicated effort, as Halifax is competing globally for cruise capacity.

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Development of a modest amount of homeport operations.

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Figure 4-4 – Projected Cruise Passenger Growth 600,000

Target 501,000

Passengers (thousands)

500,000 400,000 300,000

Forecast 265,500

200,000 100,000

20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20

0

Source – InterVISTAS Consulting Inc.

4.3

Vision

On the basis of the Halifax Gateway’s unique characteristics and strengths, its competitive advantages, current market position and market trends, the following vision is recommended to guide the strategic development of the Gateway:

To become North America’s preferred eastern gateway for the economic and social benefit of Atlantic Canada This vision will be achieved by: ƒ

Improving and expanding the Gateway’s services to fill new market opportunities;

ƒ

Providing modern, effective and efficient infrastructure and equipment;

ƒ

Maintaining a competitive cost environment; and

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Developing and fostering the use of a common marketing/promotional strategy for the Gateway.

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Success in achieving the vision in 2020 is defined in Figure 4-5. Figure 4-5 – 2020 Gateway Performance Targets Performance Target

Metric Container Traffic (TEUs)

1.1 million

Air Passengers

5.4 million

Air Cargo (metric tonnes)

64,800

Cruise Passengers

501,000

Source – InterVISTAS Consulting Inc.

4.4

Regional Economic Impact

The projected economic impact associated with achieving the Halifax Gateway’s vision in 2020 is presented below. Figure 4-6 – Projected Economic Impact of Achieving Gateway Vision Component

Jobs

Person Years

Wages (millions)

GDP (millions)

Output (millions)

Current Direct Economic Impact

11,930

11,200

$477

$602

$1,482

2020 Direct Economic Impact

18,400

17,270

$736

$928

$2,286

Increase

6,470

6,070

$259

$326

$804

% Change

54%

54%

54%

54%

54%

Source – InterVISTAS Consulting Inc.

4.5

Key Strategic Issues

In order to identify the key strategic issues that must be addressed for the Halifax Gateway to achieve its vision, the project team relied upon the extensive research and analysis undertaken during the course of the assignment, as well as on feedback obtained during consultation sessions with over 20 industry organisations and government agencies (Feburary 2004, May 2005 and June 2005). Several key issues were identified during the February 2004 consultation session and are presented in the figure below.

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Halifax Gateway Council Strategic Plan Issue Shared Gateway Vision Perimeter Clearance Federal Fiscal Policies Coordinated Land Use & Transportation Planning US Preclearance Air Policy liberalization Halifax Transportation Authority Competitive Rail Access Air Cargo Liberalization Infrastructure Funding and Development Cruise Development Strategy

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13 12 11 10 10 7 8 5 4 1 1

0 0 2 3 3 6 4 7 9 12 6

0 1 0 0 0 0 1 1 0 0 6

Votes 13 13 13 13 13 13 13 13 13 13 13

Total 130 120 120 115 115 100 100 85 85 70 40

Subsequent discussion identified the following major issues/priorities for the Gateway to address: ƒ

Market development;

ƒ

Infrastructure development and funding;

ƒ

Economic and industrial development; and

ƒ

Government policy.

Market Development Marketing and business development activities will play a critical role in the continued development of the Halifax Gateway. These functions encompass a broad range of activities from generating Gateway awareness/interest to specific business development activities. ƒ

Marketing – stakeholders identified marketing as a critical issue for the Gateway. Competition amongst regions for gateway activity is intense and strong efforts need to be taken to better position Halifax in the transportation marketplace. Discussions addressed a variety of marketing topics, including market positioning, market awareness, and the need for the development of a strong Gateway brand identity. In particular, stakeholders expressed strong feelings that a major commitment was needed by the federal government to increase marketing and financial support of the Gateway. Stakeholders also discussed the need for incentives and support packages to help attract activity to the region. Lastly, cooperation between Gateway partners was cited as a way to leverage the region’s sales and marketing resources for the greatest gain to Halifax and Atlantic Canada.

ƒ

Identify key market opportunities – a general consensus exists that many opportunities exist to significantly increase business through the Gateway. Before the region and it partners begin to actively pursue business opportunity leads, work must be undertaken to identify all potential business opportunities, quantify the potential, and then prioritise these opportunities so that opportunities can be pursued in a systematic and strategic way. Some of the potential market opportunities identified by stakeholders included: –

Cruise homeport operations/strategy



Suez shipping route

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Distribution/value-added businesses



Export centres (to take advantage of very low outbound cargo rates)



Import centre at the airport



Short sea shipping

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Competitiveness/value-proposition – the transportation industry is very capital intensive. In Canada, capital investment charges and various forms of taxation account for more than half of the Gateway transportation industry cost structure. This cost framework is significantly more than at competing U.S. gateways and undermines the Gateway’s ability to modernise infrastructure and equipment, reduces productivity, and reduces the potential to develop effective public/private investment partnerships. To foster the growth of the Halifax Gateway, actions must be taken to improve the cost competitiveness and expand the value-proposition of the region. Areas cited by stakeholders for improvement are: –

Property taxes – because municipal governments have limited sources of revenue, they rely heavily on property taxes for income. This heavy reliance on property taxes has resulted in an imbalance between the taxpayers and recipients of municipal-delivered services. Transportation providers in particular note unreasonably high property taxes when considering the level of investment in transportation infrastructure.



Fuel taxes – federal and provincial tax policies represent an enormous weakness and significantly undermine the competitiveness of Canada’s marine, aviation and ground (rail and trucking) transportation industries. On a comparative basis, Canada’s fuel taxes are much higher than those in neighbouring jurisdictions, and excessive when compared against other industrial sectors of the economy. While recent reductions in some fuel tax policies have made a positive contribution, continued efforts are required by transportation industry partners to persuade the federal and provincial governments to further reduce or eliminate remaining transportation fuel taxes. Such reform is supported by the Canadian Transportation Agency, which has voiced its support for fuel tax restructuring, particularly with respect to the federal excise tax on motor fuels. The agency recommends that the subsequent lost tax revenue be recovered through the application of taxes on other polluting energy sources such as coal and industrial oil.



Government service levels and cost-recovery policy (Canada Customs, Immigration and Agriculture) – due to fiscal constraints and government restructuring, several programs and services previously funded by the federal government are now being passed on to service users in the form of cost-recovery programs. The federal government introduced cost recovery policy in 1997 under the principle that the general public should not bear all the costs of government services where private parties derive a benefit from a service. Unfortunately, in some cases the private sector benefit is limited, especially when there is a large disconnect between the amount paid and the value of service provided. Moving forward, a review of the cost recovery policy is needed. The continued downloading of services has the potential to increase transport costs without improving services or efficiency.

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Goal #1 – Market Development Use a coordinated approach to pursue sustainable market opportunities Objectives Develop a strong and consistent Gateway brand identity Develop and implement a Gateway marketing strategy to increase market awareness and demand to/from/through the region Obtain federal government commitment to increase marketing and financial support of the Halifax Gateway Identify and prioritise potential Gateway market opportunities Develop marketing/financial incentive packages to assist in attracting business to the Gateway Aggressively pursue initiatives to reduce Gateway taxation (e.g. fuel taxes, property taxes) Promote a review of Canadian agency cost recovery policies

Infrastructure Development and Funding In order for the Halifax Gateway to successfully develop and grow, it must provide infrastructure that operates effectively as a total system, and meets the needs of users. With this in mind, feedback was received from stakeholders indicating that Gateway infrastructure must be expanded and improved to better serve the logistics industries. In particular, stakeholders identified a need to alleviate bottlenecks at terminals and for coordinated land use planning and development. ƒ

Coordinated land use planning and development (protection of trade and transportation corridors) – when governments and regional planning boards consider land use policies, there must be strong consideration for both current and future transportation needs. Unfortunately, land use zoning and transportation planning often occur in isolation of each other; in some cases, this is dictated by where regulatory jurisdiction lies. For example, railway rights-of-way and railway crossings are under federal jurisdiction; however, land use planning along rail corridors is done at the municipal level. At the same time, airports are federally regulated, while municipal bodies administer land in the vicinity of airports. Transportation requires a significant amount of land and thus, land use polices should guide and promote transportation infrastructure growth, not limit expansion of the system. Gateway stakeholders noted that improved land use planning and the protection of trade and transportation corridors were necessary priorities. In particular, they identified a need for:

ƒ



Conversion of the existing rail cut for truck/commuter traffic use and/or building an inland terminal to reduce truck traffic from the downtown core;



Improved truck access to the South End container terminal;



Protection of airport buffer lands;



Protection of industrial lands; and



A Capital District Transportation Authority.

Improved rail services – rail access is a major issue for shippers in the Halifax region. CN Rail handles a large percentage of the region’s inland trade, and as a result, facility and service inefficiencies have

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significant adverse impacts on the regional and national economies. While stakeholders did not feel that capacity was an issue, they did indicate a need for some facility improvements, and more importantly, improvements in rail service levels. ƒ

Congestion/bottlenecks at port terminals (e.g. truck gates) – while the project’s findings suggest that the Halifax Gateway possesses surplus capacity in several key areas, one area of concern is the congestion experienced at the port’s terminals. Steps will need to be taken to ensure that this congestion does not constrain the Gateway’s growth. Required improvements include upgrading infrastructure at the port’s container terminals to allow for faster truck turnaround times, and widening apron areas and improving access at Piers 20-22 to support cruise homeport operations. To ensure that adequate land is available for future expansion, it was also highly recommended that land adjacent to the Fairview Cove container terminal (the former City of Halifax landfill site) be acquired and remediated.

ƒ

Airport infrastructure improvements – the Halifax regions benefits from having one of the most efficient and modern airports in the nation. To support additional gateway growth, however, several infrastructure deficiencies must be addressed. Specifically, the airport is in need of a common use cargo building to provide additional capacity for shippers and their customers. The airport also does not possess any dedicated facilities to handle groups and/or cruise ship operations. The latter is particularly important if Halifax is to attract homeport cruise operations.

ƒ

Infrastructure funding – the cost of transportation infrastructure is high. Municipalities in Atlantic Canada, and throughout Canada, have limited fiscal resources and are unable to fund transportation to the extent that they would like. Municipalities are challenged with infrastructure investment needs that extend well beyond transportation infrastructure. To rectify this, dedicated sources of infrastructure financing must be created, such as the state infrastructure banks in the U.S. Goal #2 – Infrastructure Development and Funding Ensure integrated infrastructure planning and aligned priorities Objectives Develop a master plan for the Port of Halifax Acquire and remediate land adjacent to Fairview Cove container terminal Build a common use air cargo facility at Halifax International Airport Convert the existing rail cut for truck/commuter traffic use and/or build an inland terminal to reduce truck traffic in the downtown core Upgrade the infrastructure at the port’s container terminals to allow for faster truck turnaround times Build group staging areas at Halifax International Airport to support cruise homeport operations Improve access and widen apron areas at Piers 20-22 to support cruise homeport operations Upgrade rail facilities and services Complete construction of limited access highways Obtain community support for the Gateway’s long-term growth objectives Ensure the protection of airport buffer lands Work with business partners to protect strategic industrial locations Work with business partners to pursue changes to allow new sources of long-term investment capital (e.g. tax exempt bond financing)

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Economic and Industrial Development Significant feedback was received from stakeholders indicating that for the Halifax Gateway to prosper, additional economic growth was required in the region. In particular, it was felt that increasing the standard of living by attracting and retaining quality jobs, increasing investment, assisting firms in locating or relocating commercial operations in the region, and attracting visitors should be areas of focus. In particular, stakeholders identified two key opportunities/priorities for the region – building a distripark/transload logistics facility and working with the Department of National Defence to develop a logistics hub. To realize these objectives, the Gateway will need to ensure: ƒ

Alignment of existing plans and resources – the efficient movement of goods and people requires a well-designed network of transportation infrastructure and services. Transportation planning, however, cannot happen in a vacuum. The geographic expanse called Atlantic Canada includes distinct regions, counties and cities, all with separate transportation planning bodies. On top of this, the provincial and federal governments have their own planners and policy advisors providing input on transportation in Atlantic Canada. When also considering the transportation authorities and industry associations active in the region, it is easy to see that transportation planning can happen in a disjointed manner. There is a clear need for existing plans and other resources to be aligned and for transportation planning in Atlantic Canada to occur in an integrated manner. This means that all groups must work together to share information, identify issues and develop solutions. The long-term success of the gateway is reliant on a transportation system that allows for the unencumbered flow of goods and people throughout the gateway and the streamlined flow of goods and people from one mode to another.

ƒ

Regional cooperation – a general feeling exists that Atlantic Canada has been neglected by the Canadian government. This neglect is due to the perennial economic difficulties of the region as well as a decline in the region’s national political influence. It was noted that if the region is to achieve its potential, a concerted effort must be made to increase regional cooperation. By taking joint action, the region can improve their development prospects, strengthen their ability to address many complex goals, and increase political presence. Stakeholders stressed that this regional cooperation need not be confined to provinces, regions, and cities in Atlantic Canada. In fact, it was suggested that, where appropriate, this regional cooperation include southern Quebec and even cross border jurisdictions such as upstate New York and a portion of the U.S. north east, such as the Atlantica initiative.

Workshop participants identified the expansion and development of logistics businesses as an area of particular interest and opportunity for the Gateway.

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Goal #3 – Economic and Industrial Development Grow the economy of Atlantic Canada by expanding transportation-related businesses Objectives Develop a master plan for distribution centre activity Build a distripark/transload logistics facility Work with the Department of National Defence to develop a logistics hub Promote expansion and development of logistics businesses in Atlantic Canada Ensure existing plans and resources in Atlantic Canada are aligned to optimise transportation planning and development Work with industry partners to promote a common voice for the Gateway and the Atlantic Canada region Promote the development of inter-organisation and inter-agency cooperation, particularly between Gateway Council members Promote regional cooperation (domestic and cross border) to improve development prospects, improve ability to address complex goals, and strengthen political presence

Government Policy Gateway stakeholders identified government policy as one of the key areas to address in order to expand business through the Gateway. Specifically, stakeholders asked the Gateway to address the following issues: ƒ

International air policy – While the recent liberalisation of the Canada-U.S. air agreement will improve the flow of people, goods, and services between Canada and the U.S., Canada’s competitive position in air transportation vis à vis the U.S. continues to deteriorate as the latter enters into new bilateral air agreements with countries throughout the world. Since 1992, the U.S. has aggressively pursued Open Skies agreements with other nations to expand air services and enable its carriers to fully participate in global aviation alliances. To date, the U.S. has over 70 such agreements, which permit unrestricted international air service between participating countries. By comparison, Canada has signed Open Skies agreements with just three countries (the U.S., the United Kingdom, and Germany).

ƒ

Canada-U.S. border facilitation (southbound) – since September 11, 2001, new security and customs requirements have increased the amount of time it takes for trucks and cars to cross the Canada-U.S. border. The cost of border delays to the Canadian economy is estimated to be in excess of $8.4 billion annually. In fact, the Ontario Chamber of Commerce estimates that Border delays cost the automotive industry CAD$1 million per day. The Montreal-based Institute for Research on Public Policy (IRPP) concluded in a recent study that border delays add as much as 10 to 15 percent to truck transportation costs. Despite initiatives under the Smart Border Declaration and Action Plan, Canada’s Border Infrastructure Fund, and other programs, delays and congestion continue to be a significant issue, and one that negatively impacts the Halifax Gateway. The Free and Secure Trade (FAST) program, which allows pre-approval of truck shipments from registered shippers, is considered to be a step in the right direction. However, the availability of dedicated FAST lanes at crossings is limited, negating the timesaving potential of the program.

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In addition to new border infrastructure and staffing requirements, there is a need to explore new policy initiatives to enable preclearance of trucks at inland facilities (much like what is done for rail shipments), to reduce administrative requirements, harmonise entry requirements with an emphasis on security regulations, promoting the adoption of new technologies and promoting Perimeter Clearance. Goal #4 – Government Policy Establish policies to support the development of Halifax as North America’s preferred east coast gateway Objectives Promote liberalisation of Canada’s international air policy Aggressively pursue full U.S. preclearance Actively promote development of 24-hour customs operations at Halifax International Airport Pursue initiatives to streamline airport-port transfers Work to harmonise different provincial trucking regulations Ensure adequate staffing levels for border agencies Champion the development of harmonised border entry requirements and processes Promote adoption of new technologies to facilitate border crossings Promote development of the Perimeter Clearance concept

4.6

Best Practices

The previous section identified the key strategic issues that need to be addressed in order for the Halifax Gateway to realise its vision. The following sections examine what other gateways around the world, and their partners, are doing to both address and excel in these specific areas.

Gateway Marketing/Business Development Vancouver, Montreal, and New York are all formidable gateways. Some of the exemplar activities being undertaken by these gateways to increase market awareness, better position themselves relative to their competitors, and attract additional business, include: ƒ

Special marketing relationships/programs – during the past two years, New York has partnered with the Panama Canal Commission to promote all water services from Asia to the U.S. east coast. This concept has proved to be very successful, particularly in light of the other factors/conditions affecting west coast gateways. It has been suggested that a similar initiative between Halifax, New York, and selected U.S. east coast ports with respect to Suez-type services could be beneficial.

ƒ

Attractive incentives/support packages – Vancouver has emerged as a successful west coast rival to Seattle and Tacoma. It has accomplished this through imaginative and far-sighted leadership and by successfully positioning itself as a leading port for west coast first in, last out (FILO) business. A key step to achieving the latter involved the development and introduction of incentives for vessels making it the first inbound port of call across the Pacific.

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ƒ

Strong relationships with key partners – Another key to Vancouver’s success involved seeking, and obtaining, the cooperation of both Canadian transcontinental railways which rose to the occasion by offering very attractive rates from Vancouver to Chicago and Toronto. This stimulated the development of several new services which resulted in Vancouver becoming the first port in Canada to register over 1 million TEUs. Another port that has benefited substantially from strong relationships between key partners is Montreal. Much of the port’s success is attributable to the strong symbiotic relationship that exists between CP Ships and CP Rail. The two organisations have spent the last 25 years collectively building the Montreal gateway.

ƒ

Expanded facilities/capacity – Adequate facilities/capacity is a key consideration for transportation service providers. Gateways that have reached their capacity will inhibit carriers from maximising business opportunities and be incapable of meeting future customer demands. To ensure that it provided its key gateway partners with sufficient capacity to increase and grow operations, the Port of Vancouver made a bold decision to not only construct DeltaPort, but to construct the facility in advance of demand when there was not yet sufficient justification for it.

ƒ

New services – The Port of Gothenburg is a gateway to Sweden, Scandinavia, and the Baltic region. In 2004, Gothenburg handled roughly 736,000 TEUs and 553,000 roll-on/roll-off units. Part of the port’s success is attributable to its very dynamic feeder and short sea services. The port is also a leader in the development of new short sea and roll-on/roll-off cargo loading methods, including the development of StoraEnso’s cassette handling system. One of Halifax’s key customers, ACL, has been a fixture in Gothenburg since the introduction of containerised shipping.

Airline Incentive Programs Over the past several years, airports, governments, tourism development groups, and other stakeholders have become increasingly aggressive in pursuing new air services, and have frequently turned to incentive/support packages to induce airlines to serve their community. Some of the key incentive approaches being used by airports include (independently or in combination with each other): ƒ

Airport fee discounts – an airport fee discount program involves reducing landing, terminal, parking, and/or other airport fees for a pre-determined period of time. This approach is used by dozens of airports globally, including Fort Lauderdale, Denver, Amsterdam Schiphol, and Kuala Lumpur.

ƒ

Joint marketing support/assistance – joint marketing support/assistance is intended to generate/promote awareness of a new service thereby increasing demand for the flight. The program involves providing airlines with funds/allowances to promote new services. Promotional activities may be carried out independently or on a co-operative basis. These programs are very flexible and allow for a wide variety of promotional activities, including advertising, direct mail, sales calls and press releases, participation in trade functions and focus groups, and involvement in integrated promotions. This approach is also utilised by dozens of airports globally, including Denver, San Juan, and Portland (Oregon).

ƒ

Revenue guarantees – revenue guarantees are intended to prevent an airline from suffering major financial losses during route start-up. The program involves providing an airline with a guarantee that a new service will achieve a specific revenue target over a pre-determined period of time. If the target is not achieved, an airport/community makes up the revenue shortfall to the airline subject to a predetermined maximum amount (the revenue guarantee cap). If the revenue target is reached or exceeded, the airport/community is not required to make any type of payment. This approach has been utilised by several airports, including Denver, Kalispell, Wichita, San Juan, and Grand Bahama Island.

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Denver, in particular, has used revenue guarantees to strategically develop new international routes to France and Mexico. ƒ

Community ticket trusts (also called travel banks) – A prepaid travel program involves securing money from local travellers in advance of an airline’s arrival into a market for a travel bank. Money from this travel bank is used by travellers to purchase tickets on credit from the specific airline. The purpose of the travel bank is to get travellers on the specific airline a few times, get them used to the service, and break their traditional travel habits. Once this happens, it is the airline’s job to keep them as customers. Airports/regions that have used this approach include Eugene (Oregon), Pensacola, Wichita, and Portland (Oregon). The latter recently used a community ticket trust to attract new scheduled air service to/from Germany.

It should be noted that while incentives such as these can be beneficial, care must be taken to ensure that they are used strategically and judiciously, and that limited community resources are used in the most effective way possible. Airline incentives are not appropriate in every circumstance. They should be designed to reduce the risk to an airline during the start-up phase of a new service, and to build awareness and demand for a new air service as it becomes established. Incentives should not be used to ‘buy’ air services that would not be self-sustaining in the long-term (such services are often discontinued the moment the support is suspended).

Cruise Incentive Programs In an effort capture, retain and grow cruise passenger volumes, several jurisdictions in the Caribbean have entered into long-term agreements with the cruise lines, or more commonly, with the Florida-Caribbean Cruise Association which represents the collective interests of the cruise lines. In exchange for agreeing to serve a destination for a specific period of time (e.g. 5, 10, or 15 years) with escalating traffic volumes, the ports and destinations offer cruise lines cash incentives, protection from tariff increases, or other considerations. For the ports and destinations, these agreements provide revenue stability, allowing them to raise capital and build needed facilities. The practice of establishing long-term agreements has become commonplace to the inland destinations in the Caribbean. The U.S. Virgin Islands, Cayman Islands, Bahamas, Puerto Rico and Jamaica all signed agreements with individual cruise lines and the Florida-Caribbean Cruise Association. While initially limited to port-of-call destinations in the Caribbean, the concept of establishing long-term agreements has expanded to other cruise regions and to homeports as well. The Port of Miami, Port Everglades, and Port Canaveral all benefit from having long-term commitments with major cruise lines. In these cases, the cruise lines essentially sign a long-term terminal lease. In New York, however, the Carnival Corp. and Norwegian Cruise Lines jointly agreed to bring 13 million passengers through New York over the next 15-years. This agreement is not structured on the basis of a terminal lease. Instead, this agreement gave the City of New York the financial security to upgrade its Manhattan terminal and construct a new Brooklyn pier.

Infrastructure Investment and Financing With its current CAD$25 million borrowing limit, it is anticipated that the Port of Halifax will face some challenges with respect to financing new infrastructure when it is required. Depending upon future rates of growth, the need for additional container handling capacity could come as early as 2009 or as late as 2016. When new facilities are required, e a number of options available to the port, including expanding existing facilities, building an inland container terminal, and building a third container terminal. A new Canada Marine Act could address some concerns regarding port finance. Early indications are that the Minister of Transport will now have the ability to increase a port’s borrowing limits without going to November 2005

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Governor-in-Council. The recent deal announced for Prince Rupert suggests the prohibition of federal funding for ports contained in the previous 1998 Act is now obsolete. It also suggests there may be new ways to fund port development, with participation from multiple partners and levels of government. What is not clear is how Canadian ports can attract private capital and global terminal operators, other than through a traditional lease. Vancouver has shown, however, that leases can be extended well beyond the 20-year mark, and that with this type of time frame, a terminal operator has substantial incentive to invest and upgrade. To build new facilities, most U.S. ports rely on tax free bonds issued by state or local government entities. ‘Access to low cost capital and land has contributed to overcapacity at U.S. ports’, according to a leading U.S. port consultant. Although many ports receive subsidies, they also generate much of their financing through fees and investments. Many state ports can issue tax-free bonds, and back them with revenue from operations. Most important from Nova Scotia’s perspective, is ‘the North Atlantic range of ports lags the rest of the U.S. port industry in terms of financial self-sufficiency’. As Booz Allen have pointed out, ‘the maritime operations of the PANYNJ receive substantial funding outside of their own operationally generated cash flows’. Subsidisation comes in the form of direct federal support (e.g. U.S. Army Corps of Engineers dredging at an estimated cost of USD$871 million), tax exempt port revenue bonds, and cross-subsidisation by other operations (e.g. tunnels and airports). It actually operates at an annual deficit of US$30 million, generating some US$102 million of the Authority’s USD$2 billion in revenue. Another advantage the PANYNY enjoys is access to short and long-term capital markets at very competitive interest rates, just because of the sheer financial heft of the Authority. Like New York, the Virginia Port Authority receives substantial funding outside its own cash flow. It obtains federal and state funding, as well as outright grants. It can issue tax exempt port revenue bonds, state transportation funds and general appropriation funds. It also makes payments in lieu of taxes and gives grants to local communities. The Commonwealth of Virginia subsidises its ports at between US$30-$40 million per year. Since 1997, there has been a general move on the part of the Commonwealth towards encouraging more self-sufficiency. Nonetheless, the VPA continues to receive funding from the Commonwealth Port Fund, ‘which is essentially the Port’s share of revenues collected by the Commonwealth from motor vehicle fuel taxes’. The port receives a significant percentage of the state’s transportation fund. The state also serves as guarantor of tax free Commonwealth Port Fund Bonds issued by the VPA. In Gothenburg, the port is owned by the City of Gothenborg and earned 94 MSEK (CAD $14 million) in 2003, with earnings on equity of 14.4%. In New Zealand, all ports were privatised in the 1980s. Ports of Auckland Limited is 80% owned by the regional government and is profitable.

Distribution Centre Development The two best North American examples of ports which have leveraged the location of distribution activities into additional container throughput are Savannah and Norfolk. The Port of Savannah has experienced consistent, strong volume growth for each of the past five years. This volume growth has been driven by a number of factors – notably, an emphasis on all-water services from Asia and a strong push by the Georgia Ports Authority in concert with the Savannah Economic Development Authority (SEDA) to attract new logistics/import distribution centres to the southeastern Georgia area. In 1995 Home Depot was one of the first of the major retailers to locate a distribution facility near the port of Savannah. The following table identifies the major retail companies that have located distribution facilities in November 2005

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and around Savannah, to handle imported containerised shipments. The table also shows the total size of these companies’ existing facilities. The bulk of the facilities cited above are located in the Crossroads Business Center, which is a 2,000 acre site being developed by private real estate firms. Savannah’s geographic position as the first major port north of the Panama Canal on the east coast with uncongested access to major highways and Class 1 railroads is a major advantage. The Port’s location allows carriers to maintain highly competitive transit times versus other East Coast alternatives. Like Savannah, the Virginia Port Authority has spent considerable energy attracting over 30 distribution centres to locate within the state and within relatively close proximity to the port. Their reasoning is that if a carrier desires to carry a certain shipper or retailer’s cargo, this will lock them into a Norfolk port of call. Likewise, the port’s inland terminal, called Virginia Inland Port, serves these distribution centres and offers speedier access to cargo.

Multimodal Efficiency Several best practices have emerged in the area of multimodal efficiency (terminals, rail, and trucking operations). These are discussed in the sections below. Terminals The best practices in multimodal terminal efficiency involve using all the available information to make the thousands of decisions required at a terminal daily. Information such as the designated ship, container size, type, destination and dangerous commodity classification will obviously impact the decision of where to stage an export container and can be dealt with even in a manual fashion through space allocation on the terminal. However, much more information is available at that point in time that could optimise the decision as to ‘ where to put the container’. This information could include: ƒ

Container weight

ƒ

Yard layout (live inventory)

ƒ

Status of clearance for export (customs and security)

ƒ

Location of the terminal equipment at the time

ƒ

Truck queue at time of arrival

ƒ

Vessel stow plan

ƒ

Ship schedules of both designated ship and prior vessels

Advanced terminal management systems take all or most of the relevant information into account to make the decision and assign the task to the most appropriate piece of equipment. Yard layouts, volumes, handling equipment, customers and cargo mix vary from terminal to terminal and as such there is no ‘best’ system; however, a couple deserve mention.

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As a semi-automated terminal system, using automatically guided vehicles and Automated Stacking cranes can be seen at the ECT Delta terminal in Rotterdam. It was originally built for Sea Land in 1993 is still a good example of terminal automation. Maher Terminals in the Port of New York/New Jersey owns and operates an advanced truck-gate system that incorporates automatic character recognition to read the container number and digitally recorded and stored transaction records. Ever larger ships are driving the terminals towards bigger-faster-more powerful handling equipment ZPMC recently announced the construction of a massive crane capable of lifting four TEU’s at a time (two 40 foot containers wide) with a reach of 25 containers wide for the United Arab Emirates. Containers are now routinely being stacked five high for full containers and seven high for empties. Terminals are generally constrained by two factors: storage space and handling equipment. Direct moves from one mode to another when they can be coordinated make the most efficient use of the terminal’s assets. Grounding is avoided and the container is handled once (in one cycle). Eastern Canadian terminals (Cast, Ceres, Halterm and Racine) are proficient at doing this on the import cycle from ship to rail (although a much smaller proportion of the containers are handled this way today). Having a single rail provider makes this easier and CN generally goes directly from truck to rail at their inland terminals (HIT operates this way). Rail North American railways are much more efficient at intermodal freight handling than most railways worldwide. The double stacking of containers on rail nearly halves the cost per mile of hauling containers by rail. Large volumes of containers move by rail daily and point to point container trains are operated between major ports and large population centres. CN operates regularly scheduled intermodal trains between Halifax and inland markets. The company is seen as the leader among North American railways in running a scheduled railway. They have also instituted a reservation system for space on trains. Container trains running point to point often in a fixed consist were first introduced in Europe by Cast Containerline to compensate for their single port of call in Europe. Cast operated con-bulkers; ships that carried a mix of containers and bulk cargoes which could only call at one container port in Europe and maintain their schedule. P&O in partnership with Nedlloyd and Sealand established a similar unit-train service, European Rail Shuttle (ERS). This service has grown from 22,000 TEUs in 1994 to 494,000 TEUs in 2004. ERS’ shuttle trains are scheduled trains with fixed capacities, departures and arrival times. ERS has become a freight oriented railway within Europe using the infrastructure of the various (national) railways throughout Europe. The onus to fill the train and provide the appropriate service levels rests with ERS whose only focus is intermodal transportation. European railways simply hook and haul on schedule. Trucking Trucks are involved in nearly every intermodal transportation move. Trucking companies are the first and last transportation service providers in the chain and are often closest to the shippers and receivers who rely on them to provide just-in-time service. Many trucking companies such as Armour Transport and Consolidated Fastfrate also offer warehousing, distribution, and logistic services. The migration towards the use of containers on chassis rather than trailers has enabled these trucking companies to use other modes of transportation (rail and short-sea) when service requirements can be met. November 2005

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Clarke Transport, among others, regularly use international containers (that need to be repositioned) to move domestic freight by rail. Express services such as Concord use driving teams to ensure speed of transit and have found that team runs are more attractive to truck drivers as they are away from home for shorter periods. As a consequence, the driver cost per mile can be slightly less, the equipment utilisation is nearly doubled, and the fleet is kept much younger. The Australian Road-Train has 3 or more trailers and is 53 metres long and can haul up to 115 tons. They are not allowed near cities and can only be run from terminal to terminal but can greatly reduce the haulage costs of freight.

Land Use Planning Halifax bears some striking resemblances with other traditional Canadian gateway cities such as Montreal and Vancouver, with the growth of all three regions closely tied to the strengths of their respective multimodal transportation networks. While the growth of these regions has fluctuated with the economic cycles that have prevailed over the past century, their current strengths and future economic prosperity lies in the foresight given to the management of each region’s development. Key to this process is the ability of governments, regional bodies, politicians, residents and businesses to work towards a common vision for the region through integrated regional planning. Given the political and economic diversity that exists with each urban centre, this approach enables the development of sustainable land use patterns that are supported by an efficient transportation infrastructure. Vancouver’s Liveable Region Strategic Plan (LRSP), adopted in 1996, is a prime example of effective integrated regional planning. The LRSP is the Greater Vancouver Regional District’s regional growth strategy adopted with the formal support of all municipalities in the region in 1996, and recognised in British Columbia’s Growth Strategies Act. The primary goal of the plan is to help maintain regional liveability and protect the environment in the face of anticipated growth. The plan is used by all levels of government as the framework for making regional land use and transportation decisions. As the region moves towards becoming an even stronger Asia-Pacific gateway and prepares to welcome the 2010 Winter Olympics, the LRSP provides a vital framework for the prioritisation of transportation investments in the region. These aim to enable the efficient movement of people and goods through the region while maintaining and enhancing the region’s already recognised high quality of life. In Montreal, the amalgamation of most municipalities in the Island of Montreal into one municipal entity, coupled with similar processes in surrounding municipalities, has considerably reduced the number of political entities in the region, and is helping create a common vision for the region that is driving a number of major integrated planning initiatives. Recently advanced key initiatives in the region include a Strategic Plan for the expanded City of Montreal, a new Regional Plan for the expanded Montreal Metropolitan Community, and the current development of an integrated Regional Transportation Plan for the region.

Border Facilitation The Halifax region is already at the forefront of the latest measures implemented by U.S. Customs and Border Protection. As one of the initial sites for U.S. CBP officers stationed at the Port of Halifax, the area served as a model for the new global standards for the Container Security Initiative. Moreover, it is poised to become the first new Pre-clearance site for passenger traffic to the United States – an emerging model that will see processing of goods and passengers well away from physical borders. November 2005

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To achieve the full potential for the Halifax Gateway, however, additional process re-engineering is needed to draw upon best and emerging practices from across North American and around the world. ƒ

Cruiseship process re-engineering – identification of low-risk categories of passengers, such as cruiseship travellers, has enabled cities like Vancouver and Ft. Lauderdale to successfully reduce barriers for cruise-air transfers. Halifax's growing market for cruise travellers provides opportunities to explore similar gains in efficiency.

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Low-risk passenger programs – CANPASS-Air is currently available at Halifax International Airport as one of seven sites in Canada. Future development of NEXUS-Air and associated programs in transportation security will serve as models of facilitating frequent travellers. Business markets, for example, may even respond greater to the integration of these programs with land border crossings cards such as NEXUS-Highway.

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Perimeter clearance – significant gains in cohesion for Europe resulted from the Schengen agreement. This allowed 15 countries to become ‘domestic’ markets for travel. As North America becomes increasingly integrated, a Perimeter Clearance approach will be needed to deal effectively with U.S. and Canadian clearance of passengers and goods at first point of arrival. Clearance in Halifax, for example, could signify clearance into the whole of North America. Similarly, a significant reduction in border delays could bring markets for Halifax closer in access time.

These and other border practices can help to reduce the barriers to legitimate trade and travel, and ensure full competitiveness of the Halifax Gateway vis-à-vis competing regions.

Air Policy Canada requires excellent air transportation to support the export of Canadian goods to global markets and enhance tourism. In many ways, Canada’s economic prosperity depends on effective and efficient air service links. The following sections examine the approaches being used by other jurisdictions to liberalize their air policies and promote expansion of their air services. ƒ

Domestic air policy – Perhaps the best practice in domestic airline policy is Australia. Australia deregulated its airline industry, privatised Qantas, and unilaterally introduced right of establishment, thereby permitting foreign investors (including a foreign airline) to establish a domestic Australian air carrier. Under this policy, the Virgin Group established Virgin Blue, a U.K. owned and controlled domestic Australian airline. Further, Australia and New Zealand have established a common aviation market which allows unlimited cabotage and trans-Tasman air services. Thus, Qantas is able to (and does) operate domestic New Zealand flights. Air New Zealand is able to operate domestic Australian flights, but chooses to not do so. There was a period of shakeout in the Australian industry, when a four way race between Qantas, Virgin Blue, Ansett, and Impulse was ultimately settled, with Qantas acquiring Impulse (and converting it to a low cost subsidiary, JetStar) and Ansett exiting the industry via bankruptcy. Today, each of Qantas, Virgin Blue, and JetStar are profitable, offering lower prices than prevailed before, and serving much higher levels of traffic. It should also be pointed out that under its right of establishment policy, Australia now has foreign-owned regional airlines, providing important direct and feeder service to, from, and between low traffic points. Australia now has a stable, profitable low fare airline industry.

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International air policy – Perhaps the emerging best practice in international air policy will be the European Union (EU). Traditionally, individual European nations negotiated their own bilateral

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agreements with non-European foreign states, and many of these were quite restrictive. During the past two years, the European Commission (EC) has been given a number of mandates to negotiate agreements on behalf of all EU member states with non-European foreign powers. The EC approach is one which seeks to achieve two liberal objectives. First, it seeks treaties which allow the designation of any European carrier to serve a route from any nation in the EU. Thus, in the first such treaty, Brunei would accept the designation of British Airways to fly from Germany to Brunei. The second objective of the EC is to seek treaties which allow European investors to invest in and control airlines of other nations (e.g. the EC is seeking right of establishment). It should also be pointed out that the International Civil Aviation Organisation (ICAO), the United Nations’ affiliated international agency responsible for commercial aviation, has recommended that nations replace provisions in air service treaties which require domestic ownership and control of an international airline with a provision which merely requires that designated airlines have their principle place of business in the nation making the designation. Thus, an airline based in Country A, but owned and controlled by citizens of Country B, could be designated for service from A to B (or A to C). Effectively, ICAO is recommending all air service agreements grant right of establishment to all other nations.

Rail Policy The issue of competitive rail access, which would permit trains of one railway company to run on tracks owned by another railway, has been raised in Canada and elsewhere in the world. Shippers are strong supporters of open access, while track owners are generally strongly opposed. Government responses to requests to impose open access on track vary by country. Some countries (e.g. Canada) do not legislate access, and thus train operators must voluntarily reach agreements on running rights with track owners (e.g. Rocky Mountaineer has a voluntary agreement with CP Rail). The U.S. generally does not impose open access on carriers, although voluntary agreements have been reached on some track involved in mergers between railways. Other countries legislate access by separating railways into separate companies for track ownership and running trains (e.g. Sweden, U.K., and Australia). In these cases a track access rate may need to be imposed by a regulator if a rate cannot be agreed to by the parties. Separating a railway into separate track and train operation companies is referred to as vertical separation. Fundamental changes to rail policy have been made in the past several years in a number of countries. The European Union has been leading the way in an attempt to revive the ailing European rail freight industry by providing for open access. While the EU has agreed on general policy directions, the member states are at different stages. Sweden and the United Kingdom are the most advanced, both having created separate companies for the provision of rail track services versus the operation of trains. Australia has also pursued this approach in New South Wales and on the national network, although NSW appears to be reintegrating track and train operation except for the heavy haul coal railways. The concept of separating infrastructure from operations has been endorsed by the World Bank, which argues that this can lead to lower costs, create competition, improve the focus on service, and clarify public policy. There are, however, fundamental differences between Canada’s rail system and those in the U.K., Sweden, and Australia: ƒ

Performance – the U.K., Swedish, and Australian railway industries were in much weaker financial position than Canada’s is, requiring government subsidies to survive while still losing much of their traffic to trucks. Moreover, their productivity was a fraction of that of the Canadian railways.

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Ownership – the railways in these countries were government-owned, whereas Canada’s railways are privately held. The view of CN Rail and CP Rail is that allowing access would amount to expropriation of capital.

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Traffic base – the U.K. and Sweden (with limited exceptions) carry primarily passenger traffic, whereas in Canada, freight transport dwarfs passenger volumes. Australia is more similar to Canada, though its system is far more fragmented than Canada’s.

There is some evidence that these policy changes have had some success and resulted in the emergence of greater competition in transportation services. This, in turn, led to improved services and lower rates, which drove increased rail market share. However, the results to date have not been conclusively positive, and problems have been cited in the U.K. (provision of track services), Australia (excessive complexity), and Sweden (limited competition and continued reliance on subsidies). There are also questions about the impact of vertical separation if Canada pursued the strategy and the U.S. did not. The track characteristics and operating procedures of CN Rail and CP Rail also differ in important respects. The evidence at this time does not make the case for a dramatic change in Canadian rail policy. Indeed, the CTA Review Panel rejected vertical separation and recommended that some increased competitive access with solicitation be allowed by enhancing running rights, but only as ‘an extraordinary step where there is clear evidence that the railway providing the service is not acting in the public interest.’ In the revisions to the Canada Transportation Act currently before Parliament, such provisions were not incorporated. One potential model for consideration should rail access to the Halifax Gateway become restrictive is the U.S. provision for access by other carriers to rail line serving terminals. The U.S. code states that if the Surface Transport Board (STB) finds such access ‘to be practicable and in the public interest without substantially impairing the ability of the rail carrier owning the facilities to handle its own business’ such access could be granted. There are provisions for the STB to establish conditions and compensation for required access should the parties be unable to reach agreement.

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5.0 Action Plan

Objectives □

Develop a strong and consistent Gateway brand identity



Develop and implement a Gateway marketing strategy to increase market awareness and demand to/from/through the region



Obtain federal government commitment to increase marketing and financial support of the Halifax Gateway



Identify and prioritise potential Gateway market opportunities



Develop marketing/financial incentive packages to assist in attracting business to the Gateway



Aggressively pursue initiatives to reduce Gateway taxation (e.g. fuel taxes, property taxes)



Promote a review of Canadian agency cost recovery policies

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2010

2009

2008

Use a coordinated approach to pursue sustainable market opportunities

2007

Goal #1 – Market Development

2006

The goals and objectives for the Halifax Gateway are presented below in the format of a 5-year action plan. Success will only be achieved if industry and government mount a collaborative and sustained effort to move ahead.

Objectives □

Develop a master plan for the Port of Halifax



Acquire and remediate land adjacent to Fairview Cove container terminal



Build a common use air cargo facility at Halifax International Airport



Convert the existing rail cut for truck/commuter traffic use and/or build an inland terminal to reduce truck traffic in the downtown core



Upgrade the infrastructure at the port’s container terminals to allow for faster truck turnaround times



Build group staging areas at Halifax International Airport to support cruise homeport operations



Improve access and widen apron areas at Piers 20-22 to support cruise homeport operations



Upgrade rail facilities and services



Complete construction of limited access highways



Obtain community support for the Gateway’s long-term growth objectives



Ensure the protection of airport buffer lands



Work with business partners to protect strategic industrial locations



Work with business partners to pursue changes to allow new sources of long-term investment capital (e.g. tax exempt bond financing)

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2010

2009

2008

Ensure integrated infrastructure planning and aligned priorities

2007

Goal #2 – Infrastructure Development and Funding

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2006

2007

2008

2009

2010

2007

2008

2009

2010

Grow the economy of Atlantic Canada by expanding transportationrelated businesses

2006

Goal #3 – Economic and Industrial Development

Objectives □

Develop a master plan for distribution centre activity



Build a distripark/transload logistics facility



Work with the Department of National Defence to develop a logistics hub



Promote expansion and development of logistics businesses in Atlantic Canada



Ensure existing plans and resources in Atlantic Canada are aligned to optimise transportation planning and development Work with industry partners to promote a common voice for the Gateway and the Atlantic Canada region Promote the development of inter-organisation and inter-agency cooperation, particularly between Gateway Council members Promote regional cooperation (domestic and cross border) to improve development prospects, improve ability to address complex goals, and strengthen political presence

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Goal #4 – Government Policy

Establish policies to support the development of Halifax as North America’s preferred east coast gateway Objectives □

Promote liberalisation of Canada’s international air policy



Aggressively pursue full U.S. preclearance



Actively promote development of 24-hour customs operations at Halifax International Airport



Pursue initiatives to streamline airport-port transfers



Work to harmonise different provincial trucking regulations



Ensure adequate staffing levels for border agencies



Champion the development of harmonized border entry requirements and processes



Promote adoption of new technologies to facilitate border crossings



Promote development of the Perimeter Clearance concept

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