Seaway shippers say conditions are good, but business is bad

The ice is clear and the water is high, but business is slow and there are too many ships for the existing cargo flow

A Canadian Steamship Lines lake freighter entering Duluth Ship Canal at Duluth, Minnesota.

As the 2016 St. Lawrence Seaway season is set to open, shipping conditions are promising but business conditions are worrisome.

Unlike other season openers, no thick ice blocks the Great Lakes and water levels are high enough to make mariners smile.

Economic headwinds, however, threaten to limit the volume of traffic.

Bruce Hodgson, director of market development for the Canadian Seaway Management Corp., said in an interview he’ll be pleased if this season’s final results manage to match the 36.1 million tonnes of freight the seaway carried last year, never mind reaching the 39.9 million tonnes transported in 2014. His expectation is for a slight decrease.

Without significant ice on the lakes as in the past two winters, Hodgson expects ocean-going vessels will enter the seaway-Great Lakes as early as possible to deliver loads and take on grain cargoes.

“That should help us get off to a better start,” he said.

There are still significant grain stocks in Western Canada.

“It will be a challenging year,” he said. “While the economy is struggling, the lower value of the dollar could boost exports.”

Hodgson added the organization would be watching the situation closely, something he admits everyone in the maritime business will be saying this year because of global conditions. Overall it’s a bad news scenario of excess capacity and slack demand, something that can be seen in the moribund Baltic Dry Index that reflects prices for transported bulk commodity cargoes like grain, coal and iron ore. Its peak on May 20, 2008 was 11,793 points, but most recently it’s been anchored below 400, with a March 14 reading of 393 points.

“We don’t expect any iron ore or coal exports out of the system because of slow conditions in China.”

Kirk Jones, the interim president of the Canadian Shipowners Association, expects the year will be a difficult one. What’s he predicting?

“A downturn of biblical proportions,” Jones said. “All of our customers are suffering.”

His members are shedding vessels while the U.S. carriers plan to leave four of their major iron ore carriers tied to the wharf this year.

Michael Broad, president of the Shipping Federation of Canada, said it’s not all doom and gloom.

“The health of the seaway depends on the U.S. economy and it’s fairly strong,” he said. “That should bring in steel shipments although not as strong as last year.”

Export grain is the one commodity that has the potential for a consistent performance, Hodgson said.

The 2015 grain shipments of 10.8 million tonnes were well above their five-year average and marked a return to a more normal harvest after the record Prairie crop in 2013, he said.

“The Port of Thunder Bay, one of the main east-bound shipping points for Prairie grain, had its second-best season in 15 years,” he said.

Leading the traffic decline last year were coal shipments with a 40 per cent tumble to 2.5 million tonnes. Iron ore was the one positive category rising 3.8 per cent to 7.1 million tonnes, as the long-struggling North American steel industry showed signs of life.

In 2015, the U.S. Great Lakes freighters moved 87.2 million tons of cargo, a decrease of three per cent compared to 2014. The iron ore trade was down more than 10 per cent because of record levels of foreign steel being dumped into the U.S. market, says the Lake Carriers Association.

The group noted that legislation recently signed by President Obama promises to rein in tariff evasion and other unfair trade practices, adding restoration of fair trade in steel would be key to the future of Great Lakes shipping.

While comparable Canadian numbers aren’t available, publicly traded Algoma Central noted in its end-of-year earnings report that softer business conditions in the second half of 2015 contributed to revenues in the fourth quarter of just $119 million, compared to $141.6 million in the same period a year earlier.

For the domestic shipping lines, 2016 will be a year of matching its operational capacity with the traffic demand, Jones adds.

“Our fleet is built for boom-year capacity,” he said. “Right now it looks like it could be three or four years before there is a rebound. So the companies will be focusing on cost control and being ready for the upturn.”

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