Cablegate: Halifax Struggles to Keep Up with U.S. Competitors in Asian

DE RUEHHA #0055/01 2042011
R 232011Z JUL 07





E.O. 12958: N/A

REF: (A) 06 VANCOUVER 1366; (B) 06 VANCOUVER 1225

1. The port of Halifax and the province of Nova Scotia are
looking for C$400 million from Ottawa so they can go
head-to-head with U.S. ports in handling rapidly increasing
volumes of container traffic from China and India. Without
federal support for marketing and infrastructure expansion,
local industry analysts fear Halifax will continue to see
decreased activity and eventually lose all chance to cash in on
this new global shipping trend. End Summary.

2. Officials with the Port of Halifax are in the midst of a
tough competition to capture a share of the booming Asian
container business. Shipments from China and the Indian
sub-continent to North America are growing at a rapid pace and
west coast ports are facing a capacity crisis as they try
catch-up by expanding their facilities. For example, Prince
Rupert, British Columbia is embarking on a multi-million dollar
expansion program (reftels). But, ports along the east coast of
North America also see opportunities to handle a part of the
Asia business. Halifax is one such port, but it faces stiff
competition from ports in New York/New Jersey, Baltimore,
southern Virginia and Savannah, which are already moving forward
with expansion and improvement programs. Port officials, and
government and business leaders in Halifax fear their city is
lagging behind, hindered by the absence of a strategic growth
plan and the funds to boost the port's competitive status.

Halifax's current competitive status
3. In its promotional material, Halifax presents itself as a top
notch, uncongested port, blessed with a naturally deep, ice-free
harbor and the closest North American port in travel time to
Europe and the Suez Canal. Its other advantages include an
existing network of transportation links to Central Canada and
the United States, which local officials boast is the most
efficient in Eastern North America. Not so evident are the
disadvantages. One of the more significant is its rail service
provided by Canadian National (CN), the only rail company
serving the port. Port marketing officials contend that
potential customers are turned off by what they regard as the
non-competitive nature of that relationship, but of more concern
is CN's equipment schedules. Port stakeholders complain that CN
unilaterally sets the schedules and port users are expected to
align their schedules with CN's. The result - containers are
left on the dock, waiting for a train.

Addressing Stagnant Growth
4. Overall, officials readily acknowledge that the most
pressing problem for the port is that few Asian shippers are
aware of Halifax's potential as a gateway into the North
American market. This identity problem has resulted in Halifax
lagging behind its competitors as evidenced by five years of
stagnant container activity. In 2006 the port's two container
piers handled approximately 530,000 TEUs (twenty-foot equivalent
units), about half of the port's capacity. For the first
quarter this year, container volume has slipped three percent
compared with the same period last year. So what to do to
counter the slide? As an early measure, officials have taken
their marketing campaign directly to China and also to India
where last year they contracted with a company in New Delhi to
carry out a promotional program within the country. The port
also recently touted its Suez link by entering into an agreement
with the Suez Canal Authority, aimed at promoting Asian trade
through the canal.

Enter the Gateway Concept
5. While analysts applaud these marketing initiatives, the
bigger concern is that Halifax must move quickly to upgrade its
facilities if it expects to go head-to-head with its U.S. rivals
in the North American gateway competition. A primary concern is
room to expand. The port has an opportunity to double its size
by developing lands adjacent to one of its container piers.
However, the "chicken and egg" question comes into play -
improve and build now and use the new facilities as a drawing
card, or try to improve after attracting the new Asian business.
Not surprising money is a prime consideration, especially since
any large-scale improvement to container facilities would also
require corresponding upgrades to the existing transportation
network. Recognizing that these expansion issues extend beyond
their jurisdiction, port officials pushed for the creation of a
coordinating, consultative body called the Halifax Gateway
Council. Formed in 2004, the Council has a varied membership, a
reflection of the anticipated far-reaching effects of the future

HALIFAX 00000055 002.2 OF 002

growth of the port. On the council are representatives of other
ports in Nova Scotia, the cruise ship industry, shipping
companies, the Halifax International Airport Authority,
airlines, local business organizations and the three levels of

Developing the Strategy: the role of the Provincial Government
--------------------------------------------- ------------------
6. Given the significant impact that the port of Halifax has on
the economic wellbeing of the entire province, the Nova Scotia
government has made development of the Asian-North American
gateway concept one of its top priorities. Provincial
politicians see their role as working with the Gateway Council
in crafting a strategy for further developing the port of
Halifax. Later, the focus would expand to include all
provincial ports such as Sydney and possibly a new container
port on the Strait of Canso, as proposed by SA Marine of
Seattle. One regional scenario would be to form a partnership
with the port of Saint John in the neighboring province of New

Finding the money: Looking to Ottawa
7. Another anticipated role for the provincial government is
coordinating the requests for federal funds to support the
gateway initiative. The figure economists and business leaders
predict the province would need comes in at approximately C$400
million. This would include money for marketing initiatives and
port upgrades, but also for roads and highways, especially
upgrading the Nova Scotia portion of the TransCanada highway.
Local and provincial officials are hoping to tap into the
federal government's Gateways and Border Crossings program,
seeing federal assistance for the expansion of Prince Rupert and
the Pacific Gateway as a precedent. However, at present the
province has not formally applied for funding as officials are
still consulting with industry analysts, port stakeholders,
economists and business leaders on developing the province's

8. All port stakeholders agree that Halifax is at a significant
decision point. Without a major marketing push, improvements to
its facilities, and support from Ottawa, the port is going to
miss what industry analysts see as the chance of a lifetime and
the port will very likely never play in the big leagues with its
U.S. competitors. Just how the federal funding issue will
unfold is unclear. So for now, the port is pushing ahead with
its own initiatives - things like hosting a trade mission from
India and investing in two more super-size cranes. But as one
industry consultant told us these measures aren't what the port
needs most - it's lots of cash, an increased profile and a
string of new shipping lines. End Comment

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