BC Business
Giant ships packed with containers loom on the Pacific horizon as hungry consumers clamour for goods. Tiny Prince Rupert plans to bring those freighters to shore to become one of the continent’s key ports.
Early next month, a ship carrying three huge cranes will dock at Prince Rupert, setting the stage for an economic boom in Northwest B.C. Weighing 1,800 tonnes apiece and standing 30 storeys high, these red-and-white behemoths will dominate the harbour. They’re part of a $175-million government and private-sector gamble that could turn Prince Rupert into a vast container port rivalling Vancouver and Seattle-Tacoma. Fulfilling this dream won’t be easy, but the cranes’ arrival signals a dramatic turnaround from the mid-1990s, when the rain-shrouded port was sliding into redundancy. “We were looking death in the eyes,” recalls Prince Rupert Port Authority president and CEO Don Krusel of those dark days.
Because it couldn’t handle shipping containers, Prince Rupert had fallen behind the times. Its traditional bulk exports – pulp, paper and lumber – were deserting it for container ports such as Vancouver. As a result, the Fairview Terminal, which had moved about 800,000 tonnes of forest products in 1988, shifted just 20,000 tonnes in 2005, its last year of operation. To make matters worse, Prince Rupert’s two other main commodity exports were also in trouble, thanks to a worldwide slump in demand for coal and Vancouver’s popularity with grain producers. “It got to the point where our auditors were telling us we may have to talk about whether or not this is a going concern,” Krusel remembers.
Well, if containers are killing you, then start moving containers.
Today, in a dramatic change in fortune, Prince Rupert’s port expansion is looking like the most important piece of infrastructure in northern B.C. since the railway came through almost a century ago. The first phase is scheduled to open in October. Boosters say it will transform the region, forging trade links with Alberta, Manitoba and nearby Alaska.
The expansion will also thrust Prince Rupert into the global spotlight by connecting it with Toronto, Chicago and Memphis by rail, and with Asian ports by sea. Under the old rules of international trade, this isn’t supposed to happen to an isolated coastal town with almost no local population. “Here’s a port no one has ever heard of talking about getting into containers and doing it with a brand-new, untried business model,” Krusel says.
Like other West Coast ports, Prince Rupert is ramping up capacity in response to China’s emergence as the world’s manufacturing juggernaut. China needs to keep feeding consumer goods to the hungry North American market, and Prince Rupert owes its rise from obscurity to several geographic accidents. Ice-free year-round, it’s this continent’s nearest deep-water port to Asia, closer than Vancouver by one or two sailing days. Still, some critics wonder if Prince Rupert has what it takes to beat the competition. October’s opening of the revamped port is a pilot project that will test its seaworthiness.
Getting this far is vindication – or at least the beginning of it – for Krusel. He’s spent the past decade stumping for the port expansion, enduring ridicule from skeptics along the way. Fortunately for Krusel, he’s had the ear of the federal and provincial governments. Both Ottawa and Victoria regard Prince Rupert as vital to the Asia-Pacific Gateway and Corridor Initiative, a bid to establish transportation networks that will open up trade between North America and Asia.
In April 2005, federal Industry Minister David Emerson and B.C. Premier Gordon Campbell each announced $30 million in funding for the plan. For its part, the port authority is contributing $25 million in borrowed cash. On the industry side, the Canadian National Railway Co. (CN) is investing $30 million in railroad upgrades and new equipment, while New Jersey-based Maher Terminals LLC will sink $60 million into the container-loading facilities.
The port also recently scored its first big ocean-going customer.
In May Shanghai-based China Ocean Shipping Group Co., one of the world’s largest shipping lines, inked a deal with CN and Maher to begin a once-a-week container service to Prince Rupert in the fourth quarter of 2007. When it opens this fall, the new Fairview Container Terminal will have a capacity of 500,000 TEUs, or 20-foot-equivalent units, the standard measure for shipping containers. Phase two is expected to quadruple the port’s size to two million TEUs by 2011. If it reaches its projected four-million-TEU capacity in 2020, Prince Rupert will rival the Port of Vancouver’s planned container capacity of five million TEUs for that year. (In 2006 Vancouver container traffic hit 2.2 million TEUs.)
George Stalk, Jr. is senior VP and director of the Boston Consulting Group, a Boston-based firm that specializes in business strategy. He compares the Prince Rupert expansion to the construction of the St. Lawrence Seaway during the 1950s. “This Northern Gateway notion is probably the single most important thing that Canadian provincial and federal governments can do to boost the economy,” Stalk said from the group’s Toronto office.
In May Stalk and his Warsaw, Poland-based colleague Kevin Waddell published an analysis of global container-traffic growth called Surviving the China Rip Tide: How to Profit from the Supply Chain Bottleneck. In their report, the consultants predict that China will build more than 100 new container berths within the next decade to handle its growing export trade, while only five are currently planned for the West Coast of North America. Stalk and Waddell point out that North American expansion efforts fall well short of what is needed, and they think the congestion at West Coast ports will get worse before it gets better.
B.C. Economic Development Minister Colin Hansen says the growth potential for the area around Prince Rupert is staggering. “It’s going to put Northwest B.C. on the map,” he enthuses. “Investors around the world are looking for access to deep-sea ports, and they are looking for access to industrial lands.” In Hansen’s opinion, the Northwest has the right ingredients to support the port expansion. Unemployment is high compared to other parts of Western Canada, and population declines have left available classroom spaces and affordable housing.
But Hansen cautions that region-wide change won’t happen overnight. He sees the Kitimat-Terrace corridor as the most promising spot for a manufacturing sector – most likely auto parts – tied to the Alcan aluminum-smelter upgrade and abundant electricity.
In the short term, though, Prince George stands to gain from the new port. In late March, CN announced that it would proceed with a $20-million container-loading facility in the Interior city. Scheduled to open with the port expansion, this new yard will take products from a wide area around Prince George, stuff them into containers and send them off to Prince Rupert.
Kathie Scouten is manager of corporate affairs for Initiatives Prince George, a city-owned corporation dedicated to local economic development. When her group looked at the number of 40-foot containers filled with lumber and pulp that currently head for Asia from Prince George via Vancouver each year, they counted some 61,000. “You need about 25,000 to make an inland port economic,” Scouten says.
According to transportation consultant Mike Tretheway, executive VP of Vancouver-based InterVistas Consulting Inc., roughly one-third of the shipping containers that travel east from Prince Rupert to U.S. markets will come back empty to Prince George. For shippers it’s better to stuff those containers with something, making the back-haul rates to Asia very attractive.
As the local infrastructure grows, Tretheway says, these rates will create an opportunity to make furniture and other products for Asian and Latin American markets. “In a five-year-plus time frame, we’ll see more and more value-added taking place.”
As a bonus, there’s a chance to get into the lucrative international air-cargo business. Prince George Airport is extending its main runway to accommodate wide-body cargo jets that are expected to drop in for refuelling. Tretheway explains that cargo flights from Shanghai to North America can’t make it all the way to U.S. cities directly and usually make a technical stop in Anchorage, Alaska, for fuel. “Prince George is in range for Asia technical stops,” he says. “You can gather cargo from the western part of North America by truck and top off the westbound flights.”
All roads lead to Memphis As bullish as its B.C. neighbour is, Prince Rupert has a far more influential champion on the other side of the continent. Billing itself as the logistics capital of the world, Memphis, Tennessee, is America’s third-largest rail centre, its fourth-largest inland port and home to the world’s biggest cargo airport.
And Memphis is wild about Prince Rupert – so much so that its port authority and CN recently produced a DVD about the new container port. This summer thousands of copies will go to Wal-Mart Stores Inc. and other U.S. import-export corporations. “I’d never heard of Prince Rupert two years ago,” says Dexter Muller, senior VP of community development with the Memphis Regional Chamber. “Today it’s a household word in Memphis.”
In early March, the Memphis World Trade Club held a local conference to highlight an anticipated surge in container transportation through the city’s new inland train-and-truck port. The focus of the event was Prince Rupert. Once the container terminal opens, CN plans to run a train a day to Memphis, accounting for about one-third of Prince Rupert’s capacity.
According to Muller, CN introduced Prince Rupert to Memphis. He explains that the big draw for the Tennessee city was diversification. About 60 per cent of the container traffic headed for Memphis currently goes through Long Beach, California. Prince Rupert offers the opportunity to not only avoid paralyzing congestion at Long Beach, Los Angeles and other West Coast ports, but to beat traditional shipping timelines by a couple of days.
Shippers in the southeastern U.S. are already looking at filling containers headed for Prince Rupert with cotton, hardwood and recycled paper. The new container port is top-of-mind on the Prairies too. Edmonton held its own Prince Rupert conference in late March, signing a memorandum of co-operation with Prince Rupert and Prince George. “We’re positioned incredibly well if we take advantage of it,” says Mayor Stephen Mandel, pitching his city as a loading point for Asia-bound containers. “This is the second-largest manufacturing centre in Canada, and we ship a lot to the Orient.”
Farther east, Manitoba beef and pork producers are talking to Prince Rupert about shipping fresh meat to Asia. Right now they send only frozen products through Vancouver because delays can stretch out shipping times. And to the northwest, Alaska is eyeing Prince Rupert as its export port of choice. As it stands, seafood, forest products and other Alaskan goods get barged down to Seattle, where they’re packed into containers destined for Asia and eastern North America. But by using Prince Rupert, Alaskan shippers could shave days off the time it takes their products to cross the Pacific, while gaining better access to domestic markets.
Mike Round is assistant GM of Alaska’s Southern Southeast Regional Aquaculture Association and a member of the Greater Ketchikan Chamber of Commerce’s economic-development committee. “It’s a tremendous opportunity,” he says, explaining that his far-flung state will be able to deliver fresh seafood to U.S. cities such as Chicago and Atlanta. Round sees other benefits for southeast Alaska, including wood- and metal-based manufacturing sectors aimed at Asian customers.
Dream come true This improvement in Prince Rupert’s fortunes is a 100-year-old dream finally coming true. In the early 1900s, American entrepreneur Charles Melville Hays had a grandiose vision for the place as Canada’s premier West Coast port, complete with a town of 50,000, fancy hotels and the western terminus of the Grand Trunk Pacific Railway.
His big idea was to capitalize on the silk trade between Asia and North America. Unfortunately for both Hays and Prince Rupert, he booked a return passage on the Titanic after a 1912 financing expedition to England and did not survive the sinking. The Grand Trunk Pacific Railway was the only part of Hays’s Prince Rupert plan that saw daylight, and it went bankrupt before being acquired by Canadian National Railways, which later became CN.
When Don Krusel picked up where Hays left off, he faced a PR challenge. An isolated port with almost no local market, Prince Rupert was virtually unknown in global shipping circles. Krusel concedes that his fellow Canadians also needed educating. He has fond memories of having to remind even B.C. politicians that there is more than one large port on Canada’s West Coast.
Krusel and his colleagues began their sales effort by talking up Prince Rupert’s natural assets, but its sparse population proved to be a stumbling block. Big North American container ports such as those in Los Angeles and Seattle are in large metropolitan centres that soak up much of their goods. The conventional wisdom is that you can’t survive without that local market, and Prince Rupert’s population of less than 15,000 doesn’t even come close.
“People literally laughed at us,” Krusel says. “They thought we were on something.” To show that it was serious, the port authority hired New York transportation consultant Charles Cushing, who quickly grasped the concept and opened doors to the executive offices of the world’s major shipping lines. In honour of Charles Hays’s original goal, the expansion plan was christened Project Silk.
The container port wouldn’t have been green-lighted without support from the federal and provincial governments. Likewise, Krusel had to win over Maher Terminals and two CN presidents, Paul Tellier and his successor Hunter Harrison. But it was the explosion of container goods from China starting in 2001 – and the resulting congestion up and down the West Coast of North America – that tipped the balance, making Project Silk much less of a gamble.
The question now is whether Prince Rupert can reach its full potential – and there is at least one high-profile skeptic.
George Stalk, who calls himself a believer in the Prince Rupert dream, is also a self-confessed cynic regarding governments’ willingness to seize an advantage before someone else does. For starters Stalk points to unresolved disputes with First Nations. In April the Lax Kw’alaams and Metlakatla bands asked Ottawa to stop phase two of the container project, arguing that they hadn’t been properly consulted. Stalk also cites the lack of a one-stop customs process for U.S.-bound containers arriving through Canada, although port spokesperson Barry Bartlett expects that will be fixed before the first containers arrive.
Then there’s the fact that, under the Canada Marine Act, the Prince Rupert Port Authority can’t borrow any more money for further expansion until the first $25 million is paid back. Meanwhile, building out the wharf may raise environmental concerns that slow down development. “It all takes time,” Stalk says, adding that Prince Rupert could top five million TEUs if it moves fast. He calls for this to happen by 2015, five years earlier than the current government goal of four million TEUs in 2020.
As well there’s the spectre of competition from Mexico, whose domineering government can get things done faster than Ottawa, according to Stalk. Yes, Prince Rupert already has a port and rail lines, but that head start will mean nothing if the Mexicans build their own facilities from scratch. Stalk worries that the uncertainty surrounding Prince Rupert’s larger expansion plans will give Mexico the upper hand. “Although it’s more expensive to develop than Prince Rupert, a new Mexican port is a very realistic possibility, if only because something must be done and because Canada is unlikely to get organized to pick up its Prince Rupert option,” he says.
When asked if Memphis’s enthusiasm for Prince Rupert might make a difference, Stalk turns cynical again. “If there’s a flame in Memphis, will it ignite the hearts and passions of Canada? I doubt it.” Bartlett agrees that Mexico could divert some traffic but says it won’t be enough to thwart Prince Rupert. “About 75 per cent of the container traffic that lands in Mexico will end up in Mexico City,” Bartlett says, arguing that all West Coast container ports will get enough business to keep them happy.
Prince Rupert went down the road to containerization because Don Krusel thought the alternative was a slow death. If George Stalk is right, only swiftness will keep the cargo flowing east and west after the first ships start arriving come October.