The concept of ongoing change is a characteristic of a free market, as entrepreneurs seek more efficient methods of producing and delivering products. Over the past 200 years, ships have grown progressively larger as competing ship owners seek to earn profit by reducing the cost of transporting goods. In 1867, the privately built Suez Canal opened and allowed ships to save several weeks in transit time carrying goods between Asia and Europe. A duplicate section of that canal recently opened to increase the number of large ships that sail through that waterway.

In the middle of 2016, the reconstructed Panama Canal will open to larger ships voyaging between the Atlantic and Pacific Oceans, including ships carrying containers between Asian and East Coast American ports as well as Eastern Canadian Ports. The earlier generation of ships would sail to Halifax to partly offload containers that trains carried inland, while the partly laden ship sailed on to Montreal. By late 2016, larger ships that are too high, too wide and too deep to sail up the Lower St. Lawrence River will begin to sail through the Suez Canal, carrying 2.5 times as many containers as current ships.

The same size of crew will operate the larger ships that will burn 40% more fuel, but in terms of transportation cost per container, the labour component will decline by up to 60% while the fuel component will decline by over 40%. A study by Sea Point of New Orleans revealed that an older ship carrying containers via the Panama Canal between Long Beach and Memphis would cover 3 times the distance of a train and offer lower transportation cost per container. The railway distance between Montreal and Halifax is 2.5 times the distance between Montreal and Newark, NJ.

The railway distance between Montreal and Newark is 25% of the distance between Long Beach and Newark. The lower transportation cost per container on the larger ship between Asia and Newark followed by a rail journey to Montreal will be less than the older, smaller ship sailing between Asia and Montreal. Containers destined for Southern Ontario and Toronto will also likely arrive at Newark and be carried by rail to their destinations. The federal government of Canada recently invested heavily to expand the container terminals at the Port of Montreal, in anticipation of increased trade between Europe and Eastern Canada.
 

“Canada’s cabotage regulations were intended to protect the domestic ship transportation industry that sails along the Pacific Coast and also across the Great lakes from competition from outside carriers. But at present, the domestic-service east coast maritime transportation industry is comparatively miniscule compared to its glory days of decades ago.”

While the Government of Panama allocated substantial investment to redevelop the Panama Canal to transit larger ships, the maritime industry developed ships that are too large to transit the expanded Panama Canal. These vessels sail the Asia-Europe service via the expanded Suez Canal, carrying 50% to 60% more containers than the largest ship that can sail the Panama Canal. While these ships could sail via the Suez Canal to North America, they are too large for any port along the east coast. Private companies have proposed to build a super terminal for such ships in Eastern Nova Scotia.

Cranes and related equipment would transfer the entire load of containers from the mega-ship to a fleet of smaller ships that will sail to ports along the Atlantic coast as well as along inland waterways. Canadian cabotage regulations, however, involve a high cost of a Canadian flag for a ship that will carry containers from an Atlantic port to an inland port such as Montreal. The transportation cost per container would be less on board ships that sail between Montreal and the French islands of St. Pierre and Miquelon, than via a transshipment port in Eastern Nova Scotia.

Canada’s cabotage regulations were intended to protect the domestic ship transportation industry that sails along the Pacific Coast and also across the Great lakes from competition from outside carriers. But at present, the domestic-service east coast maritime transportation industry is comparatively miniscule compared to its glory days of decades ago. The government’s regulations, originally intended to protect that industry from competition from foreign flagged vessels, could impose higher transportation costs for businesses in the Greater Montreal area that import or export goods in containers that pass through the Port of Montreal.

The cabotage regulations actually enhance the business case for developing a maritime-to-maritime transshipment port at St. Pierre and Miquelon, where containers would transfer between mega-size oceanic ships and locals ships. This is a case of a government policy achieving, over the long term, the exact opposite of its original political and economic objectives. Continued long-term enforcement of the cabotage regulations could not only invite a foreign developer to build a transshipment port at St. Pierre and Miquelon; those regulations would create a market for that port to serve ports along the Canadian inland waterway and protect that market.

A powerful and well-connected investor from China has announced plans to build a canal across Nicaragua to transit the world’s largest container ships between the Pacific and Atlantic Oceans. Following that announcement, a private American developer proposed to build a transshipment port for such ships near New Orleans, to connect both railway and coastal maritime services to carry containers to central and east coast American destinations, possibly extending into Eastern Canada. There may only be enough business to sustain the viability of two Atlantic ports for super ships: one at New Orleans and one located near Cabot Strait.

Harry Valentine is a free-marketeer living in Eastern Ontario.

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