The owner of Canada’s biggest domestic fleet on the St. Lawrence/Great Lakes network will broker a deal for the Canadian Wheat Board to enter the shipping business.
The CWB on Tuesday announced a $65 million deal to buy two new “laker” class vessels now being built in China for completion in 2013, as part of a larger purchase of lakers by Algoma Central Corp. and Upper Lakes Group.
“Through the CWB, farmers will share in the control and the profits of Great Lakes grain shipping,” CWB chairman Allen Oberg said in a release Tuesday. “This is a value-added investment with significant net benefits for Prairie producers.”
The two new “state-of-the-art” Equinox class gearless bulk carriers are to be operated and managed for the board by Seaway Marine Transport, a partnership of Algoma and the Upper Lakes Group.
“This exciting initiative will modernize the Great Lakes fleet with larger, faster ships that consume less fuel and meet future environmental standards,” Algoma CEO Greg Wight said in the same release.
The CWB said its cost for the ships is equal to about $1 per tonne to be paid over the next four crop years.
Great Lakes freight is a “key element” of the CWB’s supply chain, costing Prairie farmers $70 to $75 million each year. The distance to eastern Canadian ports from Saskatoon is about 3,400 miles, the board notes, making it the longest distance in the world between growing region and port and “an immense logistical challenge” for Prairie farmers to compete in export markets.
The CWB “conservatively” estimates the contribution to its pools from owning its own lake vessels at $10 million per year after operation and maintenance costs.
Upper Lakes CEO Pat Loduca described the timing as “excellent” for the partnership with the CWB, given the need to replace an aging fleet on the Great Lakes. Also, he said, the current strength of the Canadian dollar helps keep new-vessel costs down.
On top of that, Oberg said, the deal wouldn’t have been possible without the federal government’s move last fall to lift its 25 per cent tariff on imported vessels, thus making the purchase “economically feasible.”
The new Equinox lakers will be able to carry “significantly” more cargo and move faster than conventional vessels now running on the Great Lakes, the CWB said.
Newer engine technology will translate to reduced fuel consumption and 60 per cent fewer emissions than the oldest steamships still transporting grain on the Great Lakes, or about 40 per cent lower than on existing motor vessels, the board added.
The new ships will be built to accommodate engine-exhaust gas scrubbers and ballast-water treatment solutions. Neither of those technologies is yet fully developed but would be added to the ships at a later date to meet “pending and anticipated” environmental standards, the board said.
Algoma announced in December that it would buy a gearless bulk freighter and three self-unloading bulk freighters, while Upper Lakes would buy a new gearless bulk carrier, as part of the same order that includes the CWB’s ships.
These ships will be produced by Nantong Mingde Heavy Industries in China’s Yangtze Delta area. The first is expected to enter service in 2013, with the rest to follow through mid-2014, Algoma said in a separate release Tuesday.
The move to buy bulk grain-handling assets is unusual for the CWB, which has previously said on several occasions that if its current single-desk marketing system for Prairie wheat and barley were to be deregulated, putting it in direct competition with grain handlers who own their own elevators and port terminals, the board would not survive.
It wouldn’t be economically feasible, the CWB has said, for it to build new elevators or port terminals of its own, and no other handler is likely to give the CWB a cut-rate deal to buy such assets from them.
“Needless to say there is only merit to asset ownership if the assets can be purchased at a value that allows a competitive return,” the CWB has said on its website.