Port of Sydney consultant and CBNS Railway explore partnership

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Posted this 2015-11-19 1:02 PM AST (updated 2015-12-10 5:19 PM AST)

News release
For immediate distribution

Harbor Port Development Partners and Cape Breton & Central Nova Scotia Railway to work together on the port of Sydney development project.

Cape Breton, Nova Scotia, November 19, 2015 — Cape Breton Regional Municipality has recently officially granted Harbor-Port Development Partners (HPDP) the exclusive right to market the port of Sydney for development, including building the financial and operating consortium to construct a state of the art container terminal and logistic park able to accommodate the latest generation of ultra large container vessels.

Cape Breton & Central Nova Scotia Railway Limited (CBNS) is in discussions with HPDP regarding the possibility of providing future rail service on the line from Truro to Sydney, Nova Scotia, as part of the deep water port development project in Sydney.

“We look forward to working with CBNS in building out our gateway and transshipment plans. This paves the way for HPDP and the Port of Sydney to move forward with additional feasibility studies and negotiations with other strategic partners,” said Albert Barbusci, Chief Executive Officer, Harbor-Port Development Partners.

Although the railway has received approval from the Nova Scotia Utility and Review Board to discontinue rail service on the portion of its rail line between St. Peter’s Junction and Sydney, Cape Breton & Central Nova Scotia Railway Limited executives have instead decided to work cooperatively with HPDP to further common goals, including the promotion of the container terminal and the re-commencement of rail service from the terminal lands in the future.

“We look forward to explore the feasibility of this project from a potential transportation partner prospective. CBNS is an important employer in the province and if this project materializes it may constitute an important step to secure the future of the Cape Breton line,” said Louis Gravel, President of CBNS.

Cape Breton Regional Municipality Mayor Cecil Clarke also welcomed the announcement. “Harbor-Port Development Partners are driving a private-sector led development that is gaining momentum. The involvement of CBNS allows all partners to work towards a long term opportunity,” he stated.

About Harbor Port Development Partners
Harbor Port Development Partners was established specifically to develop and market Sydney's new deep water container port and adjacent logistics park. HPDP is charged with assembling a consortium of marine and financial service partners to realize this important project. HPDP is in discussion with port operators, investment houses, banks, developers, port technology providers, marine engineering specialists and shipping lines in Asia, Europe, North America and the Middle East. Recently, HPDP played a role in attracting McKeil Marine and their partner Heddle Marine to the Sydney Harbour.
For more information, visit hpdp.ca.

About CBNS
CBNS runs 245 miles of track from Truro to Sydney, Nova Scotia and interchanges with CN and SCR. Primary commodities moving on the CBNS are paper, coal, lumber, petroleum product and chemicals.
For more information, visit
https://www.gwrr.com/operations/railroads/north_america/cape_breton_central_nova_scotia_railway

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Harbor Port Development Partners and Cape Breton & Central Nova Scotia Railway to work together on the port of Sydney development project.

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Joe Ward Follow Me 2015-11-19 3:01 PM AST Reply 0 0 For search engines, tagging this article with "Barry Sheehy".
Joe Ward Follow Me 2015-11-19 3:25 PM AST Reply 0 0 Some related reference material: "The current tariff to haul goods and supplies is $1,700 per freight car. On Nov. 15, companies that depend on the rail line between Point Tupper and Sydney will pay $7,200 per car. The increase is due to the railway’s decision to forgo the $2-million a year provincial operating subsidy for that section of the line, which expired on Sept. 30." Re: http://www.capebretonpost.com/News/Local/2014-10-15/article-3904222/Freight-rates-to-triple-for-rail-customers-in-Cape-Breton/1 "It would cost more than $30 million over five years to bring the Sydney subdivision of the Cape Breton and Central Nova Scotia Railway up to standard" "Break-even volume for the Sydney subdivision is 10,000 return carloads per year. By last year, the track was seeing fewer than 500 carloads per year." RE: http://www.capebretonpost.com/News/Local/2015-09-25/article-4290129/Is-Cape-Breton-railway-nearing-end-of-line%3F/1 "Investment in infrastructure is spent in phases over the long-term, which Sheehy expresses in a span of 80 to 100 years." RE: http://www.capebretonpost.com/Business/2015-07-07/article-4206134/Consultants-ready-to-talk-Sydney-port-development-in-China/1 "Mayor Cecil Clarke welcomed the contribution that MacNeil Management Consultants and CBCL will make to the commercialization of the port. “Our key next steps are to ensure our port has every competitive advantage,” Clarke said. “Our negotiators will work closely with our team here in Sydney to ensure our port is open for business and ready for the demands of the marketplace.”" http://www.capebretonpost.com/News/Local/2013-07-18/article-3320502/Port-consultant-contract-awarded/1 Joe Ward Follow Me 2015-11-19 3:25 PM AST Reply 1 0 "Last week witnessed the Cape Breton Regional Municipality council officially reject the report on the Port of Sydney's future prepared by MacNeil Management Consultants." Re: http://www.capebretonpost.com/Opinion/Columnists/2015-03-04/article-4064346/Mayor,-council-should-explain-where-port-report-is-wrong/1 Joe Ward Follow Me 2015-11-19 3:26 PM AST Reply 1 0 And here is the MacNeil consultant report (rejected by council vote of 10-2): http://www.cbrm.ns.ca/images/users/112/ConsultantsSubmission.pdf
Joe Ward Follow Me 2015-11-19 3:42 PM AST Reply 1 0 I'm going to give some brief context to all the resources I linked to from various CB Post coverage of this topic. Firstly, as much as we want the port, we must think objectively and rationally. And we need to see beyond the headlines and public relations strategies. Reason: If it's not viable, we need to ensure (at minimum) that we're looking at other alternatives. Various time frames indicated within the articles range from a few years to 10-20, to 80 to 100 (infrastructure investment). Cross reference that with our annual population loss data and ask yourself: > Can we afford to invest only in this strategy? > What if it doesn't work? Or as the mayor recently is quoted as saying at a budget consultation meeting: "If not the port, then what?" So, the real question that must be asked is: Is there a viable business model here? Can this be done realistically. > MacNeil report did not think so; it was kept undisclosed by the CBRM exec, and then rejected once it became public knowledge. > The railway line we are calling CBNS is (apparently?) owned by, and has been referred to in all the articles about them abandoning the line as: Genesee & Wyoming. The reference to that company is not in this release. Please post a correction if this is not the case. > References indicate they increased cost per cargo by over 4 times. Does that make a stronger business case? > References indicate they need to do 10,000 cars to break even, and that they were only doing 500 cars. They need a 20X increase. Without the railway, they say they can't get the port. Without the port, there is no business case for the railway. So they have a couple options: Figure out how to get the gov to pay for it on a gamble, or give a big chunk of the port action to Genesee & Wyoming (and the HPDP partners). If it happens, is it going to deliver enough economic impact with an automated port in a fast enough turnaround time to rescue the region?
Joe Ward Follow Me 2015-11-19 4:29 PM AST Reply 0 0 Port presentation by HPDP: http://www.cbrm.ns.ca/images/PDF/AtlanticGatewayandSilkRoad_June_16Compressed.pdf
Randy Pointkoski Follow Me 2015-11-22 9:02 AM AST Reply 1 0 It would be nice to see CBNS acknowledge this press release on the corporate website to demonstrate the corporate commitment to the railroad and the port. G & W is a big player and can contribute to the over all well being of the Port initiative. Joe Ward Follow Me 2015-11-22 12:55 PM AST Reply 0 0 From a G&W perspective, it's probably best to play along. If the port initiative can secure Federal money to upgrade the line, it would reduce their holding costs and develop an asset for them with Fed money - just in case the port strategy moved forward with enough success to meet their target of a minimum of 10,000 cars along the line. Keep in mind that the HPDP articles or interviews have frequently referenced and discouraged "negative" commentary from the public, how partners such as those in Asia could be turned off by it, and even made a request for getting community groups to rally behind them. Given that modus operandi, it's not much of a leap that in negotiations they asked G&W to allow them to put out a press release indicating that they are open to the port strategy. It's definitely a good thing that pulling out those lines for scrap metal isn't going forward immediately. But it certainly puts G&W in a very good negotiation position. Maybe even a good enough position for some equity in the proposed super port.
Darrin McLean Follow Me 2015-11-22 1:58 PM AST Reply 1 0 A big part of the problem is that a private sector corporation has direct control over infrastructure that is clearly a public asset, namely the railbed corridor. What needs to happen is for the provincial and federal governments to get control of that asset and to leverage it for the betterment of Cape Breton economy. The problem is that the government is going to resist injecting public money into fixing the problem unless they can see a "viable business case" for having the railbed in the first place. Unfortunately, it's difficult to quantify the impact that public infrastructure has on economic activity in a particular region. For example, if there were no public roads, no electric utilities, or no communications networks in a particular region, would there be any significant level of economic activity? Probably not. The railbed is a vital transportation connection for Cape Breton to link with the global market and it should be treated as such. Joe Ward Follow Me 2015-11-22 2:34 PM AST Reply 0 0 I think I can add a little additional perspective on your points here. Private sector involvement isn't always a bad thing, though there are certainly situations where it becomes problematic. When there is a business case and an opportunity, these big players can often be the ones to make it happen. However, the Federal and Provincial government could certainly acquire these assets. The question then becomes: With that level of taxpayer investment, is there going to be a reasonable expectation of a return? Would it be a net loss or net again? https://capebreton.lokol.me/the-rebuffed-macneil-report-is-the-sydney-port-strategy-viable The government should absolutely resist investment in any project that doesn't have a strong business case. In order to get them to buy in, there is a fairly simple pathway: ►Let the government fully commit all required funds to restore the rail line, conditional upon the CBRM securing investors to move forward with the port. They don't have to sink $30-50 Million into a rail line project right now. But they can say that they guarantee the funds are committed when investors sign on for the port buildout. We have to get rid of the field of dreams mentality here. If this port isn't happening, the amount of money already invested (including the dredging costs) could have been invested into the startup ecosystem (focus on investment). E.g. Protocase employs over 100 people here with great potential for growth - and it didn't take $500-$600 Million to make a business like that happen. Roads, electric utilities, and communications all have strong and stable demand here. That railway line did only 500 cars out of the 10,000 it needs to break even. It's already in place and hasn't been utilized. So unless there is a plan that demonstrates demand for the line outside of the container port project, asking whether or not it continues to be essential infrastructure is a valid question. #opportunitycost Darrin McLean Follow Me 2015-11-22 7:38 PM AST Reply 2 0 I don't necessarily disagree with your comments, Joe and I happen to agree that governments should do more to invest in small and medium size business start-up and growth. However, in this case, I feel that the railbed infrastructure needs to be preserved and should not be owned and maintained by private sector interests. I was trying to point out that the rail line should be seen as a public asset and it's sometimes difficult to assess the benefit of public infrastructure using the standard business-driven models that determine the usefulness of a particular asset. Also, based on consultant reviews of the condition of the railbed, it's known that it's not in bad shape and the level of investment required for capital upgrades to bring the rail infrastructure to a respectable standard of operation is peanuts in comparison to the investments that governments make in the upgrade of other public infrastructure such as roads. And rail transportation of heavy goods is known to be safer, more environmentally friendly and cheaper than road transportation. It's also a basic tenant of macroeconomics that government spending increases economic activity, provided that the spending is directed toward projects that increase the capacity for economic development. There would be not better investment of tax-payers' dollars than the upgrade of the railbed infrastructure. All that aside, I think how this is going to play out is that if there is success in attracting a shipping line that would justify the development of a state-of-the-art container terminal in Sydney, there would be major investment in public funds in all aspects of the port development, including the railbed, which would be an integral part of the overall port business model. One way or the other, I have the feeling we're going to find out soon, within the next 1 to 2 years. I think G&W knows that and they can easily wait that long to find out. Joe Ward Follow Me 2015-11-22 8:29 PM AST Reply 2 0 Upgrading the rail infrastructure only makes sense if we have or will have something to transport on it. Is the container port the only source of demand for that line? If there were viable alternatives, that would definitely be great. It's certainly better to have the infrastructure in place, versus not having it in very general principle. But we shouldn't just hand over a multi-million dollar project to some contractors and a little percentage take for HPDP on speculation. That'll have a definitive opportunity cost when we go looking for more provincial and federal funds. When thinking of Neil MacNeil's comments, knowing that he's actually a shipping port authority with some credibility, I lean towards a very bearish outlook regarding the port. Why is the port expert's (MacNeil) input discredited, and the historian's (Sheehy) word held in such high regard? When you look at HPDP, what experience do either of them have with a project of this scope or pitching that kind of investment ($500 Million+) to investors? Listen to what happened when Information Morning asked them how the reported million+ of their own investment was spent (Go to 4:10): http://www.cbc.ca/informationmorningcb/2015/06/04/port-partners/ Granted, the fact that we all want this project to happen if it could happen is assured. But it's so easy to float big ideas as headlines. I recall the mayor making the big announcement of planning to move NSCC to downtown Sydney followed by a media report where the NSCC President hadn't had a recent conversation with him about it. Source: http://www.cbc.ca/informationmorningcb/2015/06/04/nscc-downtown/ Fred Tilley acknowledges that they were given a heads up prior to the announcement... Whether or not there is an actual business case apparent to those who are experts in the industry remains to be seen. It seems like a big long shot, and one that is so many years out, we need other alternatives in the works, asap. Darrin McLean Follow Me 2015-11-22 9:08 PM AST Reply 0 0 First of all, in reality, I don't think you'll see the government throw $30M to $50M at infrastructure upgrades for the rail line unless they see a large user like the port materialize and make use of it. Making a large investment like that without a clearly defined outcome requires a lot of vision and I don't have much faith that governments have that kind of vision or are willing to take large risks such as that. There were a number of other users of the rail for import and export purposes, but now that service is gone and those users' transportation costs have gone up because of that loss of service. Also, there may potentially be other viable users of rail service that have not been fully explored such as passenger or tourist trains, coal transport, and others. This might be a "build it and they will come" scenario for which the end result is difficult to see. Without the public asset in place to support that sort of business activity, exploring the possibilities is a useless exercise. I guess I see a significant focus on spending of taxpayers' dollars on road transportation, probably orders of magnitude more than is spent on rail transportation. I don't hear anyone complaining about that or questioning the viability of the businesses that use roads. So, what's the difference? Joe Ward Follow Me 2015-11-22 9:46 PM AST Reply 1 0 There are orders of magnitude differences in utilization of roadways versus railways. Regular commuters and our essential transport traffic need our roadways. Side note: Though I'm referring primarily to road maintenance and acknowledge their may be spending in suspect areas (i.e. expanded capacity of traffic that isn't likely). When had a period of time when we could have done export industries. I think perhaps that's why we have railway lines at all. But those industries are retracting, not growing. That's where the port comes in. We don't have anything to ship, so we need to divert some ships from the Atlantic to let us transport some of theirs. IMO, we can't build or heavily invest in it first, and then hope that there will be interest. In a region like ours, it's really not guesswork. We know our challenges of lack of industry and lack of ability to attract it. But the suggestion I made earlier seems to be a best of both world's fit. The government doesn't have to spend until the port promoters actually come up with partners with cash to actually go ahead with the build out of the port. They just have to legally commit to putting in the money at the time the port deal is actually confirmed. That way, their investment is secured by outcome. Darrin McLean Follow Me 2015-11-22 9:50 PM AST Reply 1 0 Works for me. Mark Rushton Follow Me 2015-11-30 8:45 PM AST Reply 1 0 Jay, "...Listen to what happened when Information Morning asked them how the reported million+ of their own investment was spent..." Very interesting. My BS meter began ticking into the red.... Joe Ward Follow Me 2015-11-30 9:19 PM AST Reply 0 0 Absolutely. I think there is very little chance that a full audit would reveal anything close to a million dollars spent; nor would it likely have been spent on stuff related to the Sydney port. And I'm doubtful a list of actual materials created could be provided either. But that is just speculation that they will allow to arise by not providing an itemized list of expenditures. As a result, why would they think that those in the public who pay attention would put their confidence in such stakeholders?
Mathew Georghiou Follow Me 2015-11-23 12:34 AM AST Reply 1 0 One of BIG problems with politicians and bureaucrats attempting to do business development is that they don't have sufficient experience doing real world business deals. So, when someone agrees to dance with them, they think they are getting married and start buying the biggest ring they can afford (with our money) and telling everyone the big news. Regarding this latest announcement, here is another way to look at it: US > "Hey G&Y Company, we know that you are leaving because you can't find enough customers here, but if we bring you a bunch of new customers and a lot of new revenue and profit, will you agree to offer your service to us again in the future?" THEM > "Well, duh, yes of course, that's what we do. We ARE a rail company." US > "Great! Can we issue a news release announcing that you will agree to make a bunch of money here?" THEM > "Seriously? Ahhh, yeah, ok, fill your boots." ....and scene! Now, if the news release had something tangible regarding G&Y making a RISK-BASED investment, then that would be meaningful news worth sharing.
Joe Ward Follow Me 2015-11-23 7:25 PM AST Reply 1 0 Essential listening. Follow up interviews with Information Morning. Company still intends to pursue abandonment of line. They are simply in agreement to change directions if the port promoters can realistically secure them enough business to make it worthwhile to continue. http://www.cbc.ca/informationmorningcb/2015/11/20/rail-line-optimism/
Mark Rushton Follow Me 2015-11-24 8:55 PM AST Reply 2 0 Sorry to arrive late to the discussion - I read an interesting summary of the challenges facing a Sydney container terminal in the June 8th edition of the Halifax Examiner (former Coast reporter Tim Bousquet's online news site). I'd be interested in reactions to it - See item #5 here: http://www.halifaxexaminer.ca/featured/morning-file-tuesday-october-21-2014/ Joe Ward Follow Me 2015-11-24 9:20 PM AST Reply 0 0 Seems like a reasonable argument to me. I would like to see the video of Sheehy presenting to council, but they lost the video feed that day. Specifically, I'd like to listen to the parts that detail why the location is proposed as advantageous, and how the cost assessment of truck or rail transport is broken down comparably. There was also a suggestion of simply returning empty containers, and I'm not sure how that plays into the master strategy. Sometimes I wonder if everyone is just playing along in order to boost the chances of landing a Federal investment in infrastructure. If they get $30-50 Million to create jobs by upgrading the rail line, or dredging a harbour, all of that bring some money to the region and makes for great press releases. I say some, because contractors quickly eat up much of the economic benefit.
Jason Morrison Follow Me 2015-11-30 8:22 PM AST Reply 0 0 The rail line to Sydney hasn't been marketed for years, a closer look at the situation it would be safe to say the line has been de-marketed by the CBNS since its initial takeover from Railtex by Rail America and now Genesee and Wyoming. This is common within the rail industry when a railway wants to abandon a rail line. They make the service slower and unreliable pushing shippers to the trucking sector (which in many cases are owned by the railways). The net payoff for the railway is they get the payout from scrapping the lesser used lines and selling off rail property but continue to keep their customers at a higher profit by utilizing trucks on public roads and not having to pay for railway maintenance. Canadian National takes thousands of trucks of the rails in Moncton and sends those trucks to North Sydney on public roads and highways. Until 1996 this truck traffic was railed to North Sydney and would count as a major traffic source for the rail line. If the line was upgraded to reasonable speeds a business case can be made, the line could then be marketed to regain the NFLD bound traffic it lost when the line speeds fell to the point where inbound NFLD traffic couldn't make the ferry sailing times. This is one of the factors why CN pulled NFLD bound traffic from the Sydney line. The rail line is a public asset, several companies such as COPAL, East Coast Ropes and Atlantic Pre-Forms succeeded and grew because they had rail transport available to them, loosing the rail line could greatly effect there ability to compete with the higher rates charged by trucking. As much as I would love to see a container terminal in Sydney, it would probably be at least 10 years away. I feel the greater issue in the meantime would be to secure, maintain and upgrade the rail line for the current users (before the shutdown), past users and potential future users so the line will be available and healthy when and if a container terminal arrives. Mark Rushton Follow Me 2015-11-30 8:33 PM AST Reply 1 0 Essential infrastructure (like rail lines and highways) and essential services (like electricity and water) should never, ever be privatized. Shareholders with no local "skin in the game" care only about profits. Local development needs are far down on the list of priorities. Without control over these assets and services, governments are hamstrung in their efforts to enact development plans and policy. As for the container terminal, Neil MacNeil (former president and CEO of the Canada Ports Corp. and former executive director of Transport Canada’s harbours and ports division - see my link above) has made a solid case for why it will never happen. And without any local product to ship somewhere, well, what other options are there? I hate to see the proliferation of 18-wheelers on the highways as much as anyone, and would prefer to see our rail infrastructure reconstituted and reasonably healthy. I'd even advocate significant subsidies to keep it going, for freight and passenger service. But finding a convincing case for that kind of investment with the service in the hands of private business is a challenge. Joe Ward Follow Me 2015-11-30 8:53 PM AST Reply 0 0 Great post. It would be cool to know which companies shipped the estimated 500 units of volume, and how many shipping via truck would have used the rail if it was not for the rates. Your comment on de-marketing was interesting. I saw a note in the media where they had increased the cost by (if I recall moderately accurate) 3-4 times. That would certainly seem, at first glance, to be a strategy that would discourage business. If that is the case, and they do intend only to abandon the line, then the press release is even worse. What are they holding out for? An acquisition offer exceeding its scrap value?