Let’s Talk About the Melford Terminal

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In my story last week on Sydney’s potential as a transshipment hub, I treated the Port of Sydney container terminal project and the Melford container terminal project in the Strait of Canso as though they were interchangeable.

Richie Mann, the former provincial cabinet minister and Richmond MLA who now serves as vice-president of marketing and government relations with Melford International Terminal Inc, begged to differ. Mann contacted me to say the Melford proposal is very different from the Port of Sydney project:

The Melford project is significantly different than the Sydney project we read about (we do not pretend to fully understand their business case). To start with, we have never suggested Melford will be a Transshipment Hub. [emphasis his]. If there are transshipment opportunities, so be it, we will look at those, but that is not our business model.

Anyone who has taken the time to meet with us and look at our proposal, will know that Melford has been and is intended to be a PRT (pure rail terminal) with as much as 95% of the cargo moving inland by rail.

Rendering of Melford container terminal.

Rendering of Melford container terminal.

 

Readers of the Spectator may wonder why I don’t write as much about Melford as I do about the Port of Sydney. By way of answer, I would simply ask you a question: When is the last time the mayor of Port Hawkesbury flew to China (or anywhere else in the world) in support of the Melford project?

Melford bills itself as a private development and for the most part, I accept that designation, although government has certainly played a role in the project: the terminal site is part of the Melford Industrial Reserve, which is owned by the province of Nova Scotia, and the Municipality of the District of Guysborough expropriated land from a number of residents to facilitate the project. That’s a not inconsiderable degree of government involvement, as I’m sure anyone who had their land expropriated would be the first to tell you. (And Mann’s title does include “government relations,” after all.)

Still, Melford — whose partners include terminal operator SSA Marine and Cyprus Capital Partners LP — seems to have a much better claim to the title of “private” development than does the Port of Sydney (which, nevertheless, still claims it). And Mann understands the distinction between companies you hire to perform services for you and “partners,” a concept the Port of Sydney promoters do not seem to have fully grasped (hence their earlier insistence that Bechtel, a company they paid to do a preliminary feasibility study, was a “partner.”) The Melford group estimates its expenditures to date as “in excess of” of $50 million.

I spoke to Mann by phone on Tuesday and here are the highlights of that conversation.

 

On Melford’s Business Case

Where the Port of Sydney is advocating a $1.5 billion transshipment hub that it predicts will handle 5.2 million TEUs (twenty-foot-equivalent units) annually, Melford’s proposition is to construct a pure rail terminal (PRT), like the one in Prince Rupert, British Columbia. The project carries a more modest $350 million price tag and Mann says the completed terminal is expected to handle 1.5 million TEUs annually.

As to where those 1.5 million TEUs will come from, Mann said that in 2008, when they registered the project with the province for environmental assessment:

[W]e looked at the container cargo that was moving…at that time. We looked [in] particular [at] the East Coast. We looked at the forecasts of congestion and other things and we [asked]: What cargo would reasonably move through or logically move through the East Coast and…possibly be attracted to Melford? We discounted any cargo that was moving through Halifax because we said…there’s no point in trying to build a container terminal to compete with Halifax, we need new cargo, we need incremental cargo.

[W]e’d be looking at mostly cargo that would be coming in through US East Coast ports that would be going into the hinterland, if you will, into the Midwest…[N]o one is going to compete with cargo that’s going into New York that’s bound for the New York area…But if you’re putting cargo into Chicago or into the Ohio Valley or places like that, then there are maybe better places than New York and Norfolk to put that cargo inland, because there is such congestion…and the pricing is much higher at those ports…

Mann says the cargo they are targeting would not go to Halifax or Montreal because of the size of the ships involved. But he also agreed with Drewry analyst Neil Davidson that the biggest of the ultra-large vessels — the over-14,000 TEU ships — will not be plying the east coast of North America. Mann says the “workhorse” of the east coast North America routes will be the 10,000 TEU and 11,000 TEU vessels along with the occasional 14,000 TEU vessel — and Melford could easily handle such vessels.

 

What cargo will leave Melford?

In my discussions with Dr. Brian Slack, an emeritus Concordia professor who specializes in marine transport, the question of what goods would be shipped out of either Sydney or Melford arose.

Mann, as you might imagine, is quite optimistic about the matter:

[L]ook to Prince Rupert, look at the wood product, the forest fibre products, a lot of materials made of wood or wood itself. You look at your agriculture your aquaculture, you look at any number of things, in particular with the comprehensive European trade agreement recently signed. We’ve just opened up markets of 800 million people with much better rates and duty free and such.

There’s an entire catchment area which may include even parts of New Brunswick and even product that currently is being shipped from New Brunswick or transported from New Brunswick and shipped from elsewhere.

So, just what are we producing and exporting here in Nova Scotia? Out of curiosity, I looked up export statistics for Nova Scotia using Industry Canada’s handy tables. In 2016 (the year for which the most recent data is available), Nova Scotia exported goods worth $5.3 billion.

Its top five trading partners were: the United States ($3.7 billion); China ($495 million); the United Kingdom ($91 million); France ($91 million); and Japan ($89 million).

Its top five products were: rubber tires for buses and trucks ($695 million); lobsters, not frozen ($683 million); rubber tires for cars ($374 million); chemical woodpulp ($224 million); and crabs, frozen ($222 million).

Sadly, the tables do not allow you to calculate how many twenty-foot equivalent containers those products would fill. Nor do they show you how those products are currently finding their way to market, which would be another valuable piece of information in this equation.

 

What is Melford doing right now?

Said Mann:

We’ve gone out with essentially the request for qualifications for engineering firms and that’s really an important…next step in what we’re doing. Right from the beginning, as I said, we’ve commissioned a lot of engineering firms, we’ve done costing, we’ve done design over the years to different levels, different degrees, different types and we’re to the point now where we’ve got to go to the next step. We’re looking to confirmation of pricing, we’re looking at, “Is this the proper design for the terminal we want to build?” Are all our prices in check? Is our engineering done enough to start calling tenders to build the terminal?

One of the things…that we’ve discovered over the years is that if you’re going to attract a carrier to your terminal…[if] you’re looking for a commitment from them to move their cargo through your terminal, the terminal’s going to take a period of time to construct, but that carrier needs to have assurances of the pricing they’re going to be subject to if they’re making the commitment. So you have to have final pricing, you have to know exactly what your terminal costs [are], you have to know what your labor costs are over an extended period of time, you have to know what your rail costs are over a certain period of time and you’re able to say to a carrier, “Here’s your cost of moving cargo through Melford. Here’s how much money per year we can save you based on the volumes you’re putting through other terminals and what the costs of those other terminals are.” So these aren’t numbers that you have the luxury of picking out the air. Because everybody you’re dealing with will do due diligence.

Mann also noted that this is an area in which the Melford plan diverges sharply from the Prince Rupert model:

Prince Rupert had the luxury of being built using the Pacific Gateway funds that had been created by the government of Canada in conjunction with money from the government of BC and commitment from CN to do some upgrades and put some equipment in. They built the terminal without having a customer, which, you know, I guess, governments can do that. Private sector, not so much.

So the answer to “What is Melford doing right now?” is “Looking for a customer.”

Melford, like Sydney, makes much of its position as the first North American port of call for vessels traveling from Suez. It’s a claim to fame critics (I’m looking at you Tim Bousquet) find eye-crossing. As Mann himself admitted during our discussions, the cheapest way to move goods is almost always by water — so being the first port where cargo must be unloaded and placed on trains or trucks is clearly not necessarily an advantage.

Are east coast US ports so congested that unloading cargo in Melford and sending it by train to Chicago could actually be cheaper than unloading it and shipping it from New York or New Jersey? That’s the question. Luckily, it’s not a question for me (I send all my goods via Canada Post), it’s a question for the world’s shipping lines and I’m sure they’re crunching the numbers even as we speak.

 

 

 

 

 

 

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