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CPR expanding in Western Canada
Calgary—Canadian Pacific Railway (CPR) is spending $160 million to expand its track network from the Prairies to the Port of Vancouver.
When completed this fall, the project should increase the railway’s capacity in western Canada by 12 per cent, or more than 400 freight cars per day, according to CPR. The decision to expand followed favorable amendments to Canadian transportation law.
“Bill C-44... would provide a sufficiently stable regulatory environment to give CPR the confidence to invest in more capacity,” said Rob Ritchie, president and CEO of CPR. The railway was also encouraged by a five-year deal with its largest customer, Elk Valley Coal Corp., for an increase in coal volumes and rates through 2009. Three of CPR’s potash customers have also announced plans to increase production.
The additional freight capacity will feed Asian markets hungry for Canada’s resources, according to CPR. It will also support expansion plans under way at the Port of Vancouver.
“Canadian shippers and ports want to participate in growing global markets. They want us to expand track capacity and we are encouraged enough to take the initial step,” Ritchie said.
Bill C-44 will not allow “forced access,” to the railways’ tracks. Forced access would have given other parties access to railways’ assets at prices that aren’t commercially-driven, according to CPR.
Union urges Canada Post to clean up procurement
Ottawa—The Canadian Union of Postal Workers (CUPW) is calling on Canada Post to deal with “past problems” in procurement. It’s also asking for new investment in workers and services, after Canada Post recently announced $147 million in profit for 2004.
“Our public post office is providing decent service but it could be doing better,” said Deborah Bourque, national president of CUPW. “We all deserve better after a decade of profits.”
CUPW is hoping Canada Post’s new president, Moya Greene, will deal with an audit report prepared by Deloitte & Touche. The audit—released in July, 2004— found Canada Post failed to comply with policy on 355 out of 599 transactions.
The audit showed in one case, the winning supplier submitted its bid two months after the competition had closed. In other instances, staff entered into written contracts ranging between $15,000 and $90,000 without authority to do so.
The audit also found evidence that Canada Post’s shareholder (the federal government) may have given orders that contracts go to specific consultants.
Andre Ouellet, president of Canada Post at the time of the audit, retired from the corporation in August 2004.
Resources driving economy
Ottawa—Canada’s economic growth in 2004 was increasingly driven by its resource base, according to Statistics Canada
Energy is Canada’s leading resource export. It more than doubled from 7.3 per cent of exports to 16.1 per cent between 1998 and 2004. Most of this growth came at the expense of autos and machinery and equipment, which posted losses of over three per cent each.
The review also showed exports to China increased 39 per cent in 2004, more than twice the gain in 2003.
Exports of manufactured goods to the US also rose in the first half of the year, before the rising dollar slowed them in the second half, the agency reported.
No collusion on gas prices
Ottawa—The Federal Competition Bureau has found no evidence of unusual pricing behavior in the Canadian gasoline industry.
The high price of gas in the spring and summer of 2004 was the result of low inventories, and worldwide increases in the price of crude oil, according to a report released by the Bureau in March.
“We found no evidence to suggest a national conspiracy by gasoline companies to coordinate price increases,” said Sheridan Scott, commissioner of competition, in a press release.
Before taxes, retail gasoline prices in Canada continued to be lower than prices in most industrialized countries and were slightly lower than prices in the US in May 2004, the Bureau reported.
The findings were welcome news to Canada’s petroleum industry. “Commodity markets can be unpredictable and we understand why consumers may be confused and at times frustrated when prices rise. This report shows that Canadian petroleum prices are affected by international crude oil and North American wholesale prices,” said Alain Perez, president of the Canadian Petroleum Products Institute.
Intricate RFP process for clean energy
Toronto—The Ontario government is receiving both applause and criticism over its request for proposals (RFP) for clean energy.
The first RFP was released last year. The government intends to faze out coal-fired energy. It also hopes to generate five per cent (1,350 megawatts) of Ontario’s total energy capacity from renewable sources by 2007. Successful proponents from the first competition were announced last month.
“The entire RFP process was overseen by an independent fairness commissioner to ensure the process was fair and transparent,” said Energy Minister Dwight Duncan. “The process is also designed to ensure all winning proposals meet rigorous mandatory technical and financial requirements…”
Bidders on the projects—for 2,500 megawatts of clean energy—agree the process was fair, but wish it could have been more efficient. The Association of Power Producers of Ontario (APPrO), which represents more than 100 companies involved in electricity generation, was pleased to see the successful proponents included a cogeneration facility and new high-efficiency gas-fired generating plants.
“However the complexity and length of time is has taken to get to this stage clearly points to the opportunity for significant improvements to the procurement process,” said David Butters, president of the APPrO.
While the competitive process was arduous, Butters noted the government went to “great lengths” to ensure the process was fair. “The RFP process also provided for direct comparison of proposals for new supply with those for demand management and conservation measures and we commend the government for this.”
Unions protest decision
Meanwhile, the government was at loggerheads with unions over its decision to replace Lambton Generating Station—which burns coal—with privately-owned gas-fired stations. The Power Workers Union called the decision “a clear indication that money is no object when it comes to keeping this government’s coal shut-down policy.”
According to the union, the Lambton facility is one of the cleanest coal plants in North America, thanks to air quality control equipment installed in the 1990s. The provincial government recently set the price of electricity from Lambton at half of the price of gas-fired generation, the union reported.
“Shutting down Lambton means that the government will be throwing away the investment already made, only to purchase the station’s generation capability from the private sector at twice the price,” said union president Don MacKinnon.
Also upset with the government’s plans is the Canadian Union of Public Employees (CUPE) Ontario. “The announcement…of new private power generation facilities was the first step in the piecemeal privatization of this vital public service,” said Sid Ryan, CUPE Ontario president. “They are pulling the wool over the public’s eyes in the name of cleaner air…The inevitable result of privatization is higher electricity prices for consumers.”
The Ministry said it received an “overwhelming” response from the RFP, and has since issued a second RFP for up to 1,000 megawatts of clean energy.
Business Front
Belt tightening time
By Michael Hlinka
February’s international trade numbers for Canada and the US were just released and there was reason for celebration on this side of the border. Canada continues to run a significant surplus, selling approximately $5 billion dollars more to the rest of the world than we buy from it.
For the US, it’s far different. Americans shattered their own record for profligacy in February (remember: the month only has twenty-eight days!) by purchasing a whopping $61,000,000,000 more from Canada, China, Japan and Europe than those nations did from the US. That works out to an almost unbelievable $217 for every American man, woman and child.
Imagine a typical American household—let’s call it the Bushes. Its annual income is $140,000. So far so good. But this family of four lives beyond its means, spending $150,000 per year on things like oil, cars, pharmaceuticals, and electronic equipment. To make up the shortfall, it borrows ten grand. The problem is next year, if it wants to maintain the same standard of living, it will have to similarly over-spend plus contend with interest payments on the borrowed $10,000. This is what’s facing the American people. An astonishingly rich nation is maintaining an illusory standard of living by going into hock up to its eyeballs.
This can’t go on forever. Let’s return to the hypothetical Bush family. As the years go by and its debts mount, banks will be less inclined to loan them money. If the Bushes do get credit, it will be at higher interest rates. There will eventually be a day of reckoning, a time when the family stops beating around the bushes and tightens its belt, reducing consumption. Then they will actually have to live below their means as they dig themselves out of the trap that they themselves created.
And at that time, its business partners, that is, the neighbourhood businesses that are supplying the Bushes their oil, cars, pharmaceuticals, and electronic equipment, will also feel the pinch. Not only Canada’s good times, but to a great extent the world’s current prosperity, has been built on a foundation of sand—American over-spending. This isn’t to say we shouldn’t enjoy the benefits of trade surpluses while they’re here. But it’s incumbent upon us to recognize the hard economic reality that they can’t go on forever. b2b
Michael Hlinka provides daily business commentary to CBC Radio One and a bi-weekly column that is syndicated across the CBC network. In addition, he conducts financial planning courses.
World View
CN to capitalize on China trade
By Manoj Aravindakshan
Singapore—Canadian National Railway Co. (CN) is pursuing a bigger share of freight traffic between China and North America. In the latter half of 2004, CN set up offices in Beijing, Shanghai and Hong Kong.
China’s economy is growing, and the country has strong demand for natural resources and commodities. Many of these natural resources are shipped on CN’s network, which spans all the principal cities in Canada and mid-America. CN is predicting more opportunity to handle two-way trade with China.
“Our China team’s goals this year are to become a value-added tool for CN customers that do not have a presence in China, as well as work with CN customers that already have China operations,” said Paul Tonsager, managing director, Asia and chief representative, China, in an interview with Purchasing b2b. “We also want to sell the growth potential of the Port of Prince Rupert, which could become an important gateway for shipments coming from and destined for China because of its sailing time advantage between Asia and North America.”
CN will be marketing all of its major ports—Vancouver, Montreal, Halifax and Mobile, Alabama, as entry and exits points for trade with China. “CN hopes to use our expertise to help customers understand the marketplace,” Tonsager said. “We can also work on developing possible leads for our customers, many of whom do not have a presence in or expertise on China.”
Since it’s a long-term initiative, the company says it’s too early to tell how much of China’s exports CN expects to divert through its routes.
In a related development, Dow Jones Newswires recently reported Canadian Pacific Railway (CPR) has also set up offices in China. At press time, CPR could not be reached for comment.
Manoj Aravindakshan is founder of On Target Media, a Singapore-based news & content provider.
Driver shortage plagues EU
Commentary by Sam Tulip
The European rules on working hours for truck drivers were implemented in the UK in April. Similar rules are in place, or about to be, throughout the European Union.
The rules restrict drivers’ hours, and are expected to cause a shortfall of 11 per cent in the number of heavy goods truck drivers required. The current shortfall is four per cent.
It is, of course, fashionable to blame ‘European over-regulation’, but there are deeper forces at work. Twenty-three per cent of current licence-holders are over 55. The UK alone needs around 46,000 new heavy truck drivers by this time next year. We aren’t going to get them.
Almost all the Euro countries have populations skewed towards the old—in spite of immigration, we just aren’t reproducing enough. And driving a truck is a much less attractive career than it once was, due to traffic congestion and more stringent training requirements.
Many potential drivers think ‘why bother?’ for relatively low pay, endless nights away from home and with the new hours of service regulations, fewer chances for overtime pay.
The rest of Europe has the same problem, only it doesn’t know it. Poor or zero economic growth is disguising the shortage. In contrast to France or Germany, large parts of the UK are in what passes for ‘full employment’ at present. The UK has also allowed in workers from other countries such as Poland.
But the EU will face a shortage. Truck proprietors are selling their depots and yards to make way for development. They figure they should provide for old age as it becomes evident that state provision of pensions is a busted flush.
In the short term, this will drive labour rates up in the industry, which doesn’t bode well for shippers, especially when combined with higher fuel prices. Over the longer term, the driver shortage will challenge the whole strategic approach to a ‘single European market’.
Firms have quite reasonably concentrated manufacturing and distribution in key hubs that should be able to serve multiple states. If you’re in consumer goods for example, you may serve all Europe’s toothpaste requirements from Holland, all the mayo and condiments from Germany, etc.
This approach has maximized production efficiency, stripped out layers of country-based (and often mutually antagonistic) management, and so on.
But if the drivers aren’t there to shift the merchandise, the model will fail. Local supply serving local demand may have to be the new paradigm, however inefficient it looks. This could change the industrial and purchasing landscape of Europe, and curiously, may achieve some of the green goals, like lower “food miles” that currently seem out of reach.
Sam Tulip is a UK-based business writer.
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