CN: Laurentia to Shake Up East Coast Container Patterns

AUTOMATED, RAIL-ORIENTED QUEBEC CITY TERMINAL WILL SIPHON 1.6 MILLION TEU FROM PANYNJ, MONTREAL, NORFOLK, HALIFAX.

According to the highly-detailed May.2020 report, Laurentia project: An Analysis of Economic Issues, the proposed container terminal within the Port of Quebec  will draw its projected 1.6 million TEU throughput objective primarily from U.S. East Coast ports, with only relatively small negative effect on Montreal and Halifax. It will also substantially increase rail intermodal traffic between Quebec and the Midwest. Canadian National Railways (CN), Hutchison Ports, and the Quebec Port Authority (QPA) will build and operate the terminal, envisioned as a highly automated facility capable of serving 14,000 TEU vessels,  and loading ~90% of landed TEUs onto trains as long 3.65 km (12,000 ft) bound for major midwestern markets.

Rail routing from Laurentia
The Quebec – Chicago rail route includes rich intermediate terminals in Montreal, Toronto, and Detroit.

The report was commissioned to evaluate Laurentia’s regional economic impact. It concludes that, the terminal will integrate Quebec and the St. Lawrence River region into the modern global trade system, an imperative that the Port of Montreal is unable to achieve due to draft restrictions that exclude larger container ships.

Citing a QPA-commissioned advisory study by Mercator International, the report states that, “[It costs] US$3,435 to ship a 40-foot container from Vietnam to Chicago via Montréal, including the cost of transshipment and continuation on a smaller ship, compared to US$2,940 via New York {Lp, 14}. Laurentia would mitigate that disadvantage by combining operating efficiency and POQ’s geographical advantage over U.S. ports, being as much as a day closer by sea to major European ports:

Genoa Rotterdam
POQ 7200 km 5232 km
PNYNJ 7524 km 5830 km

 

Laurentia’s anticipated efficiency advantage would translate to POQ handling costs about 7% lower than for Norfolk VA, and 15% lower than for PANYNJ. While that seems like a plausible assumption, the report also awkwardly implies that the rail segment will be less costly and quicker, claiming that Quebec is “about 176 kilometres closer than New York City to Chicago.” That doesn’t square with any maps in common use (In fact, the opposite is true – Ed.), but it’s likely that CN will make sure pricing and delivery schedules will be competitive.

Rail key to automation efficiency, CN strategy

“ [The] terminal … would be much more efficient than average for a North American container port … the modern facility design and choice of equipment allow for higher efficiency than in existing average container port [built in] the 1960s and 1970s; and the predominant use of rail logistics implies relatively less labor-intensive container handling activities at the terminal.

“[… To] reflect a high level of automation and generate conservative estimates of direct jobs created, a ratio of 0.40 jobs per container (TEU) was used for jobs at the terminal. This ratio is significantly lower than the lower end of the Le-Griffin and Murphy range, corresponding to 1,500 containers (TEUs) handled per person-year, or 0.67 person-year per 1,000 TEUs.”

“[Laurentia’s 90% rail takeaway] will … allow CN to make better use of its infrastructure capacity, [… and] solve a strategic problem CN currently faces: the lack of direct access to the U.S. east coast.”

 

Phased plan

“Laurentia will develop volume according to a two-step plan. First, LUTU (lighten up–top up), a two-stop system allowing maritime carriers to bring in more cargo on incoming ships and offload part of it at the Beauport terminal in Québec City before continuing on to Montréal with a lighter load (and thus, a shallower draft – Ed.). And the opposite on the way back. Second, in the medium term, accommodate big 14,000-TEU ships that would go no further than Québec City. These two phases will have different effects.

“[The Mercator study] estimates that, in the LUTU phase, Laurentia will be able to secure contracts for 370,000 TEUs, about half of its capacity, and that this volume will steadily grow. The study estimates that 16% of the volume that Québec City attracts will come from Norfolk, Virginia, 6% from Halifax, 43% from New York, and 35% from Montréal. It should be noted that, according to this study, nearly 60% of the volume will come from Québec City’s ability to capture market share currently held by U.S. ports, mainly for containers destined for Canada and the Midwest.”

 

Effects on other Canadian ports

“For the Port of Halifax, there is no evidence it will have a significant impact. This smaller port handles 546,691 TEUs and boasts two key natural advantages: its deep water and its proximity to European ports. Its role as a port of call for ships travelling along the east coast generates much of its business, [whereas the Laurentia] strategy is aimed more at serving the Midwest, putting it in much more direct competition with New York.

“Mercator … estimates that Laurentia would capture 10% of the containers currently handled in Montréal and destined for Quebec and Ontario. When Québec City begins accommodating larger ships (8,000 TEUs and perhaps up to 14,000 TEUs) directly from Asia with containers bound for the Midwest and Ontario, the LUTU system will not be used because these ships are too big to continue on to Montréal, even with a lighter load. However, there would be no impact on Montréal because these routes are currently served by U.S. ports and Montréal does not occupy this niche. No Asian shippers use Montréal as a gateway to the Midwest. In this case, Québec City would build on its advantages over New York to supply the U.S. economic heartland at lower cost.

“[The] Port of Québec and the Port of Montreal will compete for a [small volume] portion of the container handling business. After a few years, the projections indicate that the Port of Québec could attract 190,000 TEUs that would otherwise have gone to Montréal.”

{Laurentia project: An Analysis of Economic IssuesAlain Dubuc, May.2020}