This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HALIFAX 000077 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EWWT ETRD PGOV ASEC CA
SUBJECT: PORT OF HALIFAX GRAPPLES WITH COMPETITION 
 
REF: 04 HALIFAX 004 
 
¶1.  SUMMARY:  Following Danish-owned Maersk Sealand's February 
decision to eliminate Halifax as a port of call on its last 
remaining shipping line, the continued viability of the Port of 
Halifax in relation to its U.S. competitors is again being 
called into question.  While Halifax Port Authority officials 
continue to tout growth in cruise line stops and container cargo 
as signs of positive change, it is unclear whether this growth 
is a result of changing external circumstances or a result of 
improved competitiveness.  Observers suggest that the Maersk 
Sealand pullout may indicate that the former is perhaps more 
accurate, leading some to question the future economic success 
of the Port of Halifax.  END SUMMARY. 
 
¶2.  Fingers are pointing every which way in Halifax following 
the news that shipper Maersk Sealand has decided to eliminate 
Halifax from its Med-Gulf line's port calls, having previously 
discontinued the North Atlantic line in April 2003.  Local 269 
of the International Longshoreman's Association blames Canadian 
National (CN), the only rail service provider at the port, for 
inefficient shipping of containers, but CN officials counter 
that high labor costs and low productivity are to blame for the 
pull-out.  Maersk Sealand, on the other hand, is staying mum on 
the exact reasons for the departure, citing higher operating 
costs and vessel charter rates as an explanation.  Maersk 
Sealand represented 17% of Halterm's (one of the two container 
piers in Halifax) annual container volume and 5% of all Halifax 
container volume. 
 
¶3.  This pull out may be yet another signal that the Port of 
Halifax is facing serious challenges to its position as a major 
contender on the Eastern seaboard, yet the Halifax Port 
Authority continues to emphasize growth and expansion in the 
amount of traffic coming through Halifax.  Containerized cargo 
saw a record year in 2003 with a total of 4.6 million metric 
tons (MT) of containerized cargo moving through Halifax, and 
2004 saw only a minor decrease at 4.5 million MT. A record 122 
cruise vessels stopped in Halifax in 2004 with over 210,000 
passengers spending between C$14 and $16 million in the city. 
These cruise vessels included two of the world's largest, 
Cunard's Queen Mary 2 and Royal Caribbean's Voyager of the Seas. 
 
 
¶4.  With the concern over the port's future, local port 
authorities are studying the impact of several global trends. 
They cite major up swells in Chinese exports to North America 
that have put severe pressure on West Coast ports like Vancouver 
and Long Beach, leading to significant backlog of container 
ships.  This has led certain shipping companies to consider 
Halifax as an alternative port.  Although it adds two weeks to 
the shipping time and increases costs by an estimated 35%, the 
alternative is a three-week wait in Vancouver.  Similarly, the 
New York-New Jersey port is currently in the midst of a massive 
dredging project designed to give the port post-panamax (ships 
with capacity of over 4000 20-foot container equivalent units, 
or TEUs) capacity.  This construction is not slated for 
completion until 2009-2011.  In the meantime, Halifax is the 
only post-panamax capable port north of Virginia.  However, as 
both Vancouver and New York-New Jersey expand their capacities 
and complete their construction projects, they will be able to 
recapture most, if not all, of this shipping traffic leaving 
Halifax in the cold. 
 
¶5.  Halifax's existing post-panamax capacity gives it the 
potential to participate in the "hub and spoke" trend in 
international shipping, where the increasing size of ships makes 
it more economical to make fewer stops at "hub" ports and ship 
cargo via rail, road, or regional shipping lines to their 
destination markets.  Post-panamax ships are also making it 
cheaper to run up the Suez Canal from Asia, through the 
Mediterranean, and across the Atlantic, where Halifax is the 
first potential port of call.  Since it is approximately two 
days faster to off-load cargo in Halifax and ship it via rail to 
the U.S. Midwest than it is to take the cargo via sea to a 
closer port, Halifax is an attractive first port of call for 
time-sensitive shipping.  However, it is also six to seven times 
more expensive to ship via rail.  Given the fact that most 
containerized cargo is price -- not time -- sensitive Halifax's 
attractiveness is heavily reliant on the cost and efficiency of 
onward transport from Halifax.  Although CN has made efforts to 
keep its prices down, the restructuring it implemented in 2003 
reduced the number of train departures per day from four to two 
and resulted in a backlog of off-loaded containers.  The irony 
is evident: in order to keep down its prices and attract more 
price-sensitive cargo, it has decreased its efficiency and 
jeopardized its existing time-sensitive market.  At the same 
time, however, CN counters that port workers are inefficient, an 
allegation, observers note, that has some substance.  Halifax 
sits well back compared to other North American ports in terms 
of the number of TEUs off-loaded per crane per hour, although it 
is more efficient in its dockyard organization.  Thus, analysts 
suggest that there are improvements to be made in both the 
off-loading and rail-shipping aspects of the Port of Halifax. 
¶6.  Not only is Halifax challenged for its spot in the 
international hub and spoke network, it is fighting to hold its 
own in the competition for national shipping as well.  Canada's 
second largest port, Montreal, saw growth of 11.2% in 
containerized traffic in 2004, an increase of 1.1 million MT, 
despite the fact that Montreal is not post-panamax capable; the 
large ships are incapable of navigating the St. Lawrence River. 
Halifax claims that Montreal is able to maintain this growth in 
large measure due to subsidized federal government services such 
as river ice breaking, unnecessary in coastal ports.  Officials 
from the Halifax Port Authority have also expressed dismay at 
how little of the federal money for security improvements came 
to them and are lobbying the federal government to receive equal 
levels of funding, which Halifax could then put toward port 
development and improvement. 
 
¶7. Another factor in assessing the long-term competitive 
position of the port of Halifax is in its corporate structure. 
Some local analysts suggest that the character of the ownership, 
operation and control of port operations stymies the port's 
ability to adequately attract more business.  Halifax has two 
container terminals each leased by separate, privately-owned 
corporations.  The first is Halterm, which is owned by the 
Halterm Income Fund and jointly managed by CN and a private 
Canadian shipping company, Clarke Transport; the second is 
CERESCORP, which is owned by Kristos Kritikos of Chicago.  These 
two corporations lease the facilities that are owned by the 
locally managed Halifax Port Authority, which also provides 
leadership to stakeholders, and has a mandate to develop new 
business. 
 
¶8.  The situation is further complicated by the existence of 
four different labor unions: the International Longshoreman's 
Association (local 269), the Checkers Union, the Maintenance and 
Gear Men's Union, and the Watchmen's Union.  Cooperation with CN 
is also important both for the continued viability of existing 
terminals as well as the construction of a third terminal 
sometime in the future.  The Halifax Port Authority has 
spearheaded the Smart Terminal Initiative to provide for more 
consistent service and increased cooperation between the 
different levels of government.  However, local analysts note 
that there are still many obstacles to overcome in this area. 
 
¶9.  An addition factor influencing growth of the port is the 
fact that neither Halterm nor CERESCORP can use their land and 
facilities as collateral on credit for capital and investment 
projects.  These companies also pay charges on gross revenue (5% 
on the first $60 million) to the federal government and must 
have their business plans approved by the federal government. 
The local argument is that this requirement prevents a long-term 
commercial vision, limits profitability while maximizing the 
return to Ottawa, and discourages regional reinvestment for the 
future. 
 
¶10.  COMMENT:  Port stakeholders and industry analysts conclude 
that the Port of Halifax is at a crossroads in that it has a 
limited window of opportunity to capitalize on changing trends 
in international shipping.  It can either establish itself as a 
less-profitable regional port, or make significant investments 
to present itself as a "hub" port in the new hub and spoke 
system.  The recent pull-out of Maersk Sealand has local 
analysts suggesting that Halifax is slipping behind its U.S. 
eastern seaboard competitors in terms of marketing itself, and 
that any gains in container traffic can be attributed more to 
external circumstances (backlog and construction in other ports, 
for example) and not an increase in efficiency or 
competitiveness in the port itself.  While the Port of Halifax 
is making important steps towards the goal of establishing 
itself as a hub port of call, most observers agree that the 
competition will be fierce.  END COMMENT. 
 
HILL