Contextual Narrative January 2011

Transcription

1 Contextual Narrative January 2011 Commercial Navigation Technical Working Group International Upper Lakes Study Frank Millerd Table of Contents 1. The Great Lakes St. Lawrence Seaway navigation system Description of the system Seasonality Seaway management Dredging Cargo traffic in the Great Lakes St. Lawrence Seaway system American and Canadian vessels active in the system Ocean-going vessels Cruises Economic significance of Great Lakes-St. Lawrence River commercial navigation Overview Significance for the U.S Significance for Canada Other advantages of the Great Lakes St. Lawrence Seaway system The Great Lakes and the Illinois Waterway Environmental benefits of shipping Statutory, regulatory, and policy restrictions Fees and taxes Possible future impacts on commercial navigation Short Sea Shipping Phasing out of coal-fired electricity generation plants in Ontario Need to renew the Seaway infrastructure Reduction in ice cover due to climate change Environmental concerns Cargo sweeping Ballast water management Engine exhaust emissions Navigation in ice Other environmental issues Green Marine Initiative Climate change and commercial navigation Impact of climate change Future shipping patterns with cost increases Adaptation to changes in water levels and flows Transportation cost as a performance indicator Appendix References... 55

2 2 Introduction This contextual narrative has been prepared to aid the Commercial Navigation Technical Working Group of the International Upper Great Lakes Study, sponsored by the International Joint Commission. A major goal of the study is the examination of the impacts of alternative plans for the regulation of water outflows from Lake Superior. Changes in Lake Superior outflows will affect water depths in all areas of the upper lakes which, in turn, will affect commercial navigation in these areas. Vessels loads often depend on water levels and depths, with restricted depths limiting vessels cargo capacities and raising the cost to move a given amount of cargo. Increased water depths may allow vessels to carry larger amounts of cargo. Background information is provided here to assist in analyses of the impacts on commercial navigation of changes in Lake Superior outflows. This contextual narrative includes a description of the present situation or baseline conditions for commercial navigation in the Great Lakes St. Lawrence River system, possible future conditions that may affect commercial navigation in the system independent of any water flow or level changes, the impacts of climate change on commercial navigation, potential methods for commercial navigation to adapt to changing water levels and flows either due to climate change or due to modifications to Lake Superior outflows, and a discussion of the use of transportation costs as a performance indicator. 1. The Great Lakes St. Lawrence Seaway navigation system 1.1 Description of the system The Great Lakes - St. Lawrence Seaway system for commercial navigation, stretching 3,700 kilometres (2,342 statute miles) from the Atlantic Ocean to the head of Lake Superior, provides a strategically located, low cost, and environmentally sound means of transporting commodities in an economically significant and heavily populated region of North America and to and from overseas markets. The region s eight states and two provinces have a population of 110 million, one-quarter of North America s population. The region is responsible for 29 percent of the U.S. gross domestic product (GDP) and 60 percent of Canada s GDP. The region includes 55 percent of North American manufacturing and service industries and extensive areas of intensive agriculture. (St. Lawrence Seaway Development Corporation) Navigation has been facilitated by construction of the St. Lawrence Seaway, the Welland Canal, and the locks at Sault St. Marie and by dredging and other improvements to navigation. Ships entering the system from the Gulf of St. Lawrence are in naturally deep water until Pointe d Alliance, just downriver from Quebec City, when they enter the St. Lawrence Ship Channel. Sections of this channel have been dredged, providing a minimum depth of 12.5 metres (41.0 feet) to Quebec City and minimum depths of 10.7 metres (35.1 feet) and 11.3 metres (37.1 feet) from Quebec City to Montreal. At Montreal ships enter the Montreal-Lake Ontario section of the St. Lawrence Seaway with seven locks, five Canadian and two American, lifting ships an average of 68.9 metres (226.0 feet) to Lake Ontario. The maximum ship dimensions posted for the Seaway are metres

3 3 (730 feet) in length and 23.2 metres (76 feet) wide but vessels up to metres (740 feet) in length and 23.8 metres (78 feet) wide can be accommodated upon special application. The maximum draft for vessels using this section of the Seaway is 8.08 metres (26.5 feet); the draft is usually restricted to 8.0 metres (26.25 feet) early in the navigation season. Seaway channels are maintained at a minimum depth of 8.2 m (27 ft.). Ships are subject to speed restrictions. After crossing Lake Ontario vessels enter the Welland Canal where eight locks, all in Canadian territory, raise ships an average of 99.3 metres (325.8 feet) to Lake Erie. Three of the Welland Canal locks are twinned. The Welland Canal is part of the Seaway and the same vessel length and width restrictions apply as between Montreal and Lake Ontario. The maximum vessel draft is also 8.08 metres (26.5 feet) with normally no early season restrictions. Speed restrictions also apply in the Welland Canal. Maximum vessel drafts of 8.15 metres (26.75 feet) were being tested in 2010 for possible adoption. After a voyage across Lake Erie vessels transit the natural, but dredged, channels of the Detroit River, Lake St. Clair, and the St. Clair River. In this section the minimum water depth is 27.1 feet (8.2 metres) but with higher lake levels depths are often greater. Vessel speeds are limited in the Detroit and St. Clair Rivers by regulation. After leaving the St. Clair River vessels may proceed to Lakes Huron and Michigan. The Straits of Mackinac, connecting Lakes Huron and Michigan with a minimum depth of 30 feet (9.1 metres), is another constraint on vessel drafts. The Great Lakes St. Lawrence River System

4 4 At the northern end of Lake Huron vessels may enter the St. Marys River where again vessel speeds are limited. At Sault St. Marie a St. Marys Falls lock (Soo lock) lifts ships an average of 7.2 metres (23.6 feet) to the channel leading to Lake Superior. There are four parallel locks here, only two of which are currently used. The MacArthur lock can accommodate vessels 730 feet (222.5 metres) by 75 feet (22.9 metres), although vessels up to 767 feet (233.8 metres) in length can be accommodated with special handling. The Poe lock takes vessels up to 1100 feet (335.3 metres) by 105 feet (32.0 metres). Sill depths are 31 feet (9.45 metres) for the MacArthur lock and 32 feet (9.75 metres) for the Poe lock, allowing drafts of 30 feet (9.14 metres) and 31 feet (9.45 metres) respectively. Vessel drafts, however, are usually limited by the depths of channels above and below the locks, where the minimum project depth is 27 feet (8.23 metres). After the Soo locks ships can proceed directly to ports on Lake Superior. (Fisheries and Oceans Canada 1986, 1993, 2007, Great Lakes St. Lawrence Seaway System, USACE Detroit district) 1.2 Seasonality Commercial navigation is affected by the change of seasons in a number of ways. Currently the Seaway and Soo locks are closed for over two months every winter. Ice conditions make use of the locks difficult, time is required for lock maintenance, and winter navigation in restricted icecovered channels presents environmental problems. The closing of the locks and ice cover on the lakes and channels restricts most traffic in the system but limited traffic not requiring the use of a lock continues in the winter. The opening and closing dates for the St. Lawrence Seaway, both the Montreal - Lake Ontario section and the Welland Canal, are somewhat flexible. The dates are set taking into account ice conditions, the demand for service, and maintenance requirements. The opening also depends on the availability of ice breaking services as ice breaking is usually needed immediately before the opening and for a short period afterwards. Opening and closing dates are announced by the Seaway five to six weeks in advance although vessel operators and shippers know the approximate dates from past practice. In 2009 the Montreal-Lake Ontario section of the Seaway opened on March 31 and closed on December 29, after being open 274 days. The Welland Canal opened on March 31 and closed on December 30, after being open 275 days. Although the 2009 openings were shorter than immediately previous year s, season lengths have been on an upward trend. For the Montreal- Lake Ontario the navigation season was an average of 272 days from 1984 to 1988; from 2004 to 2008 the average was 282 days. Since the opening of the Seaway in 1959 the navigation season has been lengthened by up to 25 days with the adoption of technologies to prevent ice formation in the locks and canals. (Great Lakes St. Lawrence Seaway System) The Soo locks, between Lake Superior and the Lakes Huron and Michigan, have set opening and closing dates, opening on March 25 and closing on January 15, dates which are published in the U.S. Federal Register. The setting of fixed dates arose because of difficulties when the season was extended in the past. From 1974 to 1979 the Soo Locks were open year-round but, because of environmental concerns, a fixed closed period was adopted. In 2010, however, the Soo locks opened on March 21 due to favourable ice conditions and an improved economy with the need to replenish iron ore and coal supplies at steel mills.

5 5 In 2010 the Montreal-Lake Ontario section of the Seaway and the Welland Canal opened on March 25. Neither the Seaway nor the Soo Locks have plans to extend the season, but season extension could evolve if permitted by ice conditions. Water levels vary seasonally with the highest levels occurring in the summer and the lowest in the winter, due to variations in snowfall, rain, runoff, and evaporation. Seasonal highs usually occur in June on Lakes Ontario and Erie, July in Lakes Huron and Michigan, and September on Lake Superior. Similarly, lows are earlier on the southern lakes: January for Ontario, February for Erie, Huron, and Michigan, and March for Superior. (U.S. Coast Pilot) Weather can make navigating the Great Lakes a pleasure, a challenge, or a terror. (U.S. Coast Pilot, p. 165) Winter navigation is restricted by ice and storms. Ice usually begins to form in November, starting at the shore. Much of this ice breaks off forming floes and fields which, with wind action, can develop into windrows and pressure ridges which greatly impede navigation. Winter storms are frequent and often severe, and can cause superstructure icing on a vessel which adversely affects its stability. Spring and fall storms can also be dangerous. Storms often cause vessels to seek shelter, thus prolonging voyages. For safety reasons allowable vessel drafts vary by season, with the most restrictive in the winter. A typical Seaway size self-unloader s winter draft is 1.4 feet (0.43 metres) less than its midsummer draft. Comparing capacities at maximum seasonal drafts, cargo capacity is reduced by 2,330 tons (2114 metric tons) in the winter. There may also be seasonal variations in the demand for shipping. Typically, after the late summer harvest, there is a late-season increase in grain shipping. 1.3 Seaway management The St. Lawrence Seaway consists of the locks and channels between Montreal and Lake Ontario and the Welland Canal. Between Montreal and Lake Ontario five locks are in Canadian territory and two in American territory. The Welland Canal is all in Canadian territory. The Seaway is jointly managed and operated by the Canadian St. Lawrence Seaway Management Corporation (SLSMC) and the American Saint Lawrence Seaway Development Corporation. The SLSMC, a not-for-profit corporation, assumed responsibility for the operations and maintenance of the navigational aspects of the Canadian portion of the Seaway in The Corporation operates the five locks in Canadian territory in the Montreal-Lake Ontario section of the Seaway and the Welland Canal. The Corporation also sets toll policy and toll levels. The federal government owns the fixed assets of the Seaway and, if revenues from operations are not sufficient to cover operating and asset renewal costs, is responsible for covering the resulting deficits. The American Saint Lawrence Seaway Development Corporation is a wholly owned government corporation created by statute in 1954, before the 1959 opening of the Seaway, to construct, operate and maintain that part of the St. Lawrence Seaway within the territory of the United

6 6 States. The corporation owns and operates the two locks in U.S. territory in the Montreal-Lake Ontario section of the Seaway. Management activities, including setting and enforcing rules and regulations, daily operations, traffic management, navigation aids, safety, environmental programs, operating and closing dates, and trade development programs, are coordinated by Canadian and American management authorities. (Great Lakes St. Lawrence Seaway System) The Soo locks are all in American territory and are owned and operated by the U.S. Army Corps of Engineers. 1.4 Dredging Dredging is required on a regular basis in some locations in the system to maintain minimum channel depths. The mouths of rivers and harbours are the areas most likely to require dredging. Canada In recent years the Canadian Coast Guard has carried out dredging on the Southeast Bend Cutoff Channel at the mouth of the St. Clair River, at Stokes Point on the St. Clair River, and on the Lower Detroit River. Details on the amount of material removed and the costs involved are given below. The costs shown below are those incurred by the Canadian Coast Guard. Southeast Bend Cut-off Channel of the St. Clair River Date Volume dredged, cubic metres Cost, $Canadian ,765 1,800, ,735 1,900, ,000 1,900, ,000 1,900, , ,000 Stokes Point, St Clair River Date Volume dredged, cubic metres Cost, $Canadian , ,000 Source: Volume and cost data for the above two tables supplied by Canadian Coast Guard. Note: The dredged material from Stokes Point was not removed from the waterway but placed 400 metres downstream from the dredge site on the recommendation of the Department of Fisheries and Oceans.

7 7 Lower Detroit River Date Volume dredged, cubic metres Cost, $Canadian ,563 1,511, ,146 1,613, ,000 1,571, ,688 1,197, , , , , ,200 1,070, ,970 1,653, ,200 2,350,043 Source: Volume and cost data from Public Works and Government Services Canada (2009). In the Canadian Coast Guard and Transport Canada dredged the approach to Sarnia harbour but the volume of material removed and the cost are not available. Canadian dredging of the St. Clair River, Lake St. Clair channels, and the South-East Bend Cutoff Channel of the St. Clair River is a requirement of a 1959 agreement between the United States and Canada. The agreement is a special agreement under the Boundary Waters Treaty of Canada has also dredged the lower Detroit and St. Marys Rivers although there is no agreement which specifically covers these areas. Canadian dredging requirements in the St Marys River are minimal. In the mid 1990s the Canadian government decided that the private sector and ports benefiting from dredging were to assume financial responsibility for the dredging of ports and their approaches. The Canadian Coast Guard terminated its dredging program in 1998 with the exception, as discussed above, of the navigation channels in Canadian territory which connect the Great Lakes. The Canadian Coast Guard also dredges the St. Lawrence Ship Channel below Montreal on a cost recovery basis. The St. Lawrence Ship Channel maintenance dredging fee is discussed below. (Canadian Coast Guard) United States The dredging data presented here is for dredging undertaken by or contracted by the United States Army Corps of Engineers for the maintenance of Federal navigation channels, harbours and harbour approaches to in the Great Lakes. The Corps funded dredging constitutes a large part of dredging done in the US, but dredging is also performed by port authorities outside of federal navigation channels (such as the berths in a port) and by private boat yards and marinas. It

8 8 should be noted that Federal funding for annual maintenance dredging has been constrained since around 1999 resulting in an estimated million cubic meters backlog in sediment that would have to be removed before the system would be back to authorized project dimensions that would allow vessels to maximize loading for available water depths. U.S. Great Lakes Fiscal Year Volume dredged, cubic metres Cost, $US ,273,572 $11,252, ,232,275 $15,711, ,097,786 $11,561, ,122,787 $11,333, ,689,896 $10,386, ,470,889 $13,247, ,451,928 $18,994, ,828,280 $13,013, ,175,951 $17,912, ,862,456 $13,027, ,140,640 $9,781, ,381,551 $9,261, ,229,022 $10,595, ,461,867 $14,177, ,962,613 $21,279, ,561,106 $29,796, ,605,676 $34,065,928 Source: US Army Corps of Engineers (2010), Navigation Data Center, Dredging Information System, modified by Gene Clark, University of Wisconsin Sea Grant Institute. Notes: 1. Fiscal year: October 1 to September Cost data based on total amount of winning bid 3. Data do not include recreational harbour dredging. 1.5 Cargo traffic in the Great Lakes St. Lawrence Seaway system Table 1 below presents a summary of cargo movements involving at least one Great Lakes port for The large tonnage moved between U.S. Great Lakes ports is due to sizeable shipments of iron ore, coal, and limestone. The Canadian domestic shipments to and from Canadian ports outside the Great Lakes are mostly between the Great Lakes and the St. Lawrence region, primarily moving grain out of the Great Lakes and iron ore into the Great Lakes. Coal and iron ore are the two dominant commodities in shipments from American to Canadian Great Lakes ports.

9 9 Table 1 Shipment Summary, Great Lakes, 2006 Shipment route, Country of origin for shipments involving Canada U.S. at least one Great Lakes port Thousand metric tons Domestic Within Great Lakes 9,418 90,363 Other 13, Canada to U.S. Within Great Lakes 13,907 Other 67 U.S. to Canada Within Great Lakes 29,144 Other 163 Overseas Outbound 1,510 3,495 Inbound 2,507 3,270 Sources: Statistics Canada and the Institute for Water Resources, U.S. Army Corps of Engineers. Note: Some Canadian domestic shipments and some U.S. to Canada shipments are shipments of grain to St. Lawrence River and Gulf of St. Lawrence ports for transshipment to oceangoing vessels bound for overseas destinations. Table 2 below summarizes commodities and routes for 2001, a typical year for whish detailed cargo flows have been compiled. A number of distinct routes, such as the movement of iron ore from Lake Superior ports to steel mills further south on the Great Lakes and grain from the upper lakes to St. Lawrence River and Gulf of St. Lawrence ports can be identified. Other commodities, such as sand, gravel, stone and other non-metallic minerals are shipped over a variety of routes. The major commodity flows shown in table 2 are those of iron ore; coal; sand, gravel, and stone; and grain, together accounting for over 83 percent of the total tonnage shipped. Iron ore accounts for over 30 percent of total tonnage; coal for 23 percent, sand, gravel and stone for 22 percent, and grain for 7.5 percent. The tonnages in both tables are the amounts shipped without any consideration of distance. Route lengths vary greatly from, for example, short trips across Lake Erie with coal to long trips from the western end of Lake Superior to ports in the Gulf of St. Lawrence and Halifax with grain. The tonnages are for all trips, those using one of more sets of locks and those not passing through any locks. Appendix tables A1 to A6 present information on Soo and Seaway locks traffic. Details are given for 2007, a year not subject to the recent recession. Traffic at the Soo locks, averaging 81.7 million tons (74.1 million metric tons) over the last 20 years, is relatively steady, with the exception of the recession year Soo traffic is dominated by the downbound shipment of iron ore, over half of the total tonnage. Almost one-quarter of the tonnage shipped is coal and coke; one-eighth is agricultural products. American self-propelled vessels carry two-thirds of the tonnage.

10 10 Table 2 Commodities and Routes, Great Lakes and St. Lawrence Seaway, 2001 Commodity and Route Thousand Percent metric tons of total Grains, upper lakes to St. L. River/Gulf & Halifax; primarily for export 5, Grains, other routes; some for export 1, Grains exported directly overseas 4, Sand, gravel, stone, non-metallic minerals; upper lakes 35, Sand, gravel, stone, non-metallic minerals; other routes 2, Cement 6, Salt 6, Iron ore, St. Lawrence River to Great Lakes 7, Iron ore, from Lake Superior ports 42, Iron ore, other routes 2, Coal, from U.S. Lake Erie ports 20, Coal, from Lake Superior port 16, Coal, other routes 2, Imports of base metals and articles of base metal 3, Petroleum products 5, Slag, scrap, and residue 1, Other: including coke, potash, sugar 2, Great Lakes to/from Atlantic and Gulf ports Other exports, including petroleum prod., forest prod., base metals Other imports, including sugar, petroleum prod., forest prod., ores 1, TOTAL 173, Sources: Statistics Canada and the Institute for Water Resources, U.S. Army Corps of Engineers. Over the twenty year period, 1988 to 2007, Seaway traffic averaged 34.7 million metric tons (38.3 million tons) for the Montreal-Lake Ontario section and 36.9 million metric tons (40.7 million tons) for the Welland Canal. For , however, average tonnages were lower with 31.8 million metric tons (35.0 million tons) for the Montreal-Lake Ontario section and 34.2 million metric tons (37.7 million tons) for the Welland Canal. Mine products, predominantly iron ore, is the major cargo for both Montreal-Lake Ontario and the Welland Canal, accounting for almost half the Welland Canal tonnage. Agricultural products, mainly wheat, are the second greatest cargo group. Ocean-going vessels are a significant component of Seaway traffic, accounting for 40.6 percent of self-propelled cargo vessel passages in the Montreal-Lake Ontario section. Seaway tonnages were significantly lower in 2009, a recession year. For the combined Montreal- Lake Ontario and Welland Canal sections of the Seaway the total tonnage in 2009 was 31.2 percent below the ten year average. However, cargo volumes increased in the early part of In June 2010 the Seaway reported that cargo volumes were 20 percent ahead of the same period in This increase is due to the recovery of the American and Canadian steel industries. (St. Lawrence Seaway)

11 11 Grain Grain is shipped from American and Canadian ports, primarily for export. One route for export grain is shipment by laker to a St Lawrence River or Gulf of St. Lawrence port for later transshipment to an ocean-going vessel. Halifax, Nova Scotia is also a transshipment port. After discharging inbound cargo ocean-going vessels may also load grain in the Great Lakes and carry the grain directly to an overseas port. Due to water depth restrictions ocean-going vessels are not always able to take on a full load at an inland port and may complete their load at a lower St. Lawrence River or Gulf port. About 60 percent of grain traffic originates in Canada. The majority of Canadian export grain is produced in the prairie provinces with that using Great Lakes water transport shipped by rail to Thunder Bay. Some shipments, from grain grown in Ontario, are loaded in Hamilton, Sarnia, Windsor, and Goderich. In recent years rail shipment of grain directly to Quebec City, bypassing Thunder Bay, has been facilitated by the use of unit trains, improvements in railroad efficiencies, and the installation of grain cleaning facilities at Quebec City. The Canadian Wheat Board has a winter rail program of shipping grain directly to year-round ports on the lower St. Lawrence River. (Fuller et al 2009) Ghonima (2004) forecasts moderate increases in Canadian grain traffic in the system up to 2020, with predicted annual increases of 1.7 percent in the Montreal-Lake Ontario section of the Seaway and annual increases of 2.0 percent in the Welland Canal. U.S. grain shipments originate primarily at Duluth-Superior with significant shipments out of Toledo and small shipments out of Milwaukee, Chicago, and Burns Harbor. U.S. grain traffic through the Montreal-Lake Ontario section of the Seaway is forecast to increase by 2.9 percent per year up to 2020 and by 2.8 percent per year in the Welland Canal. (Ghonima 2004) Seaway grain traffic reached a peak in 1980 but has generally declined since then, with both changes in markets and changes in government policies having an impact. The primary reason for this decline is changes in the regions of the world importing grain from the U.S. and Canada. The demand from Europe, serviced partly by the Seaway, has declined while the demand from Asia, serviced from west coast ports, has increased. Grain production in Europe and the former Soviet Union has increased, reducing the need for imported grain and permitting their grain exports to compete with U.S. and Canadian grain in the Mediterranean area. Transport to Pacific and Atlantic coast ports, substitutes for Great Lakes ports, was facilitated by deregulation of the U.S. railroad industry under the Staggers Rail Act of 1980, resulting in increases in productivity through such innovations as unit trains and lower freight rates. Other determinants of U.S. Seaway grain traffic are the extent to which other routes for U.S. grain exports are operating at capacity, as the Seaway has handled overflows when other routes are operating at capacity, and the quantity of steel imported through the Seaway, as ocean-going vessels bringing in steel usually look for a backhaul of export grain. In Canada the elimination of rail transport subsidies for grain (primarily through the Budget Implementation Act of 1995), changes in the calculation of transport costs which raised costs charged to producers, and a free trade agreement with the

12 12 U.S. depressed overseas export shipments and encouraged the use of grains for feed in the prairie provinces. (Fuller et al 2009) Iron Ore The iron ore shipped by water for steel mills of the Great Lakes has two distinct origins: Gulf of St. Lawrence ports, loading ore mined in Quebec and Labrador, and Lake Superior ports and one port on northern Lake Michigan, loading ore mined around or near Lake Superior. The routes overlap with some Quebec and Labrador ore moving as far west as Chicago and some Lake Superior ore moving east to southern Ontario mills. The demand for iron ore is derived from the demand for steel which, in turn, is derived from the demand for those products using steel in their manufacture, such as automobiles. Thus the demand for iron ore depends on the competitiveness of both the North American iron and steel industry and those industries using steel as a major input. Over the last two decades restructuring and consolidation of the North American iron and steel industry has financially strengthened the industry. Technological improvements and increases in efficiency have also improved the competitiveness of the industry. In the long run, according to Ghonima (2004), iron ore traffic on the Montreal-Lake Ontario section of the Seaway is expected to increase by 1.2 percent per year but Welland Canal iron traffic is forecast to decrease by 0.2 percent per year up to Shipments of metallurgical coal, coke, and limestone, inputs to the steel industry, are also dependent on the demand for steel. The multinational company Essar Steel recently purchased Algoma Steel Inc. and Minnesota Steel Industries and has plans to expand production at the Algoma plant with a projected tripling of iron ore shipments from Minnesota. A new port facility, dredging, and provision of ice breaking on Lake Superior are required. (Essar Steel 2009) The relationship between the economic health of steel-using industries and Great Lakes shipping is graphically illustrated in With a world-wide recession and the automobile and other steel-using industries suffering from decreased sales some lake vessels did not sail during the 2009 navigation season. Steel mills were operating at less than 50 percent of capacity reducing the demand for iron ore and other inputs, consequently reducing the demand for shipping. In May 2009 shipments of iron ore by the U.S. fleet were 62 percent lower than a year earlier; 49 U.S. vessels were in service on the Great Lakes in May 2009, compared to 75 a year earlier. (Great Lakes and Seaway Shipping, 17 March 2009, 12 June 2009) Coal The coal shipped on the Great Lakes is primarily used by electric power generating plants with some used to produce coke for the steel industry. Coal shipments also have two distinct areas of origin. The coal loaded at American Lake Erie ports arrives there by rail from Appalachian and midwestern states. Most of the coal cargo from these ports goes to Nanticoke and Courtright, Ontario for thermal electric generating plants. The coal shown as loaded at a Lake Superior port is loaded in Duluth-Superior. It is low sulphur coal mined in the western United States, shipped

13 13 by rail to Duluth-Superior, and then shipped by water to electric generating plants throughout the Great Lakes. With the need to reduce emissions from coal-burning power plants the demand for the low sulphur coal shipped from Duluth-Superior on Lake Superior has steadily increased. While improvements in railway efficiency have made the rail movement of coal more competitive the ability of self-unloading vessels to deliver coal without the need to develop train unloading facilities has helped keep the water movement of coal competitive. The future demand for coal transport depends to a large extent on the use of coal in power generation. As discussed elsewhere Ontario is committed to closing coal-fired generating plants, a move which will significantly decrease the demand for coal transport, although much of the coal used in Ontario generating plants makes only a short trip across Lake Erie. (Transport Canada et al 2007, Ghonima 2004) Other commodities A considerable tonnage of sand, gravel, and stone is extracted at several Great Lakes sites for delivery to a wide variety of locations. Most of these shipments are on the upper lakes with practically all originating on Lake Huron. Since much of this material is used in building and infrastructure construction its demand and the derived demand for its transport will depend on the rate of economic growth. The limestone shipped is used in the steel, cement, and construction industries as well as in reducing emissions when coal is burned. (Transport Canada et al 2007) Salt movement is dominated by shipments from mines at Windsor and Goderich. Petroleum product shipments are predominantly movements from refineries to consuming centers. Other commodities moved within the system include chemicals, potash, aluminum ingots, and cement. Traffic in these commodities is stable. (Transport Canada et al 2007) Steel products are a major imported commodity, from overseas ports to U.S. and Canadian Great Lakes ports. This traffic depends on the demand for iron and steel products in North America which, in turn, depends on the rate of economic growth and relative prices in North America and elsewhere. An increase in this traffic is forecast in the long run. (Ghonima 2004) Common determinants of traffic Besides the determinants of traffic specific to each commodity, there are a number of factors which influence all traffic. The winter closures of the Seaway limit the development of some trades and provide opportunities for competitive modes. Container traffic, in particular, would be facilitated by the availability of year-round service. Winter closures also provide an opening for railways to ship grain to ocean-accessible ports open year round. The ability of ship operators and owners to take advantage of two-way traffic will make certain trades attractive. Ship operators and owners wish to minimize empty and positioning voyages and thus will offer attractive rates for on-going and backhaul cargoes. The movement of grain out of the Seaway and iron ore back in facilitates the development of both trades. Similarly, the importing of steel products on ocean-going vessels facilitates the exporting of grain by these vessels.

14 14 Another set of forecasts focus on use of the Seaway and Soo locks. Steady, but modest, growth is forecast up to Under the most likely scenarios, Montreal-Lake Ontario traffic is forecast to increase by 0.7 percent a year, Welland Canal traffic by 0.5 percent a year, and Soo lock traffic by 0.7 percent a year. Detailed information is presented in table 3. (Transport Canada et al 2007) Table 3 Forecast by commodity Million metric tons Montreal-Lake Ontario Grain Iron ore Coal Steel All other TOTAL Welland Canal Grain Iron ore Coal Steel All other TOTAL Soo Locks Grain Iron ore Coal Stone All other TOTAL Source: Transport Canada et al (2007)

15 The Great Lakes shipping industry American and Canadian vessels active in the system Table 4 below presents an overview of the American and Canadian vessels currently in service moving cargo between American and Canadian ports on the Great Lakes St. Lawrence River system. All vessels moving cargo between American locations, between Canadian locations, or across the border between the two countries are American or Canadian registered. Foreignflagged vessels enter the system bringing cargo from and taking cargo to overseas ports. A wide variety of domestically registered vessels move cargo in the system. Overall there are 116 ships, 22 coupled tugs and barges, 14 tankers, and 37 large tugs. Twenty-five vessels are too large for the Seaway locks but can pass through the large lock, the Poe lock, between Lakes Superior and Huron. These vessels are confined to the upper lakes, never able to proceed further east than Lake Erie. All these vessels are self-unloaders and American registered. Overall 96 of the 125 dry cargo carrying vessels (76.8 percent) over 278 feet (84.7 metres) in length are selfunloaders. The largest group of vessels without self-unloading capability is in the maximum Seaway size category (700 to 740 feet, to metres). Of these 22 are Canadian registered and one American registered, reflecting the extensive use of Canadian vessels in moving grain from the lakes to St. Lawrence River and Gulf of St. Lawrence ports. The coupled tugs and barges are vessels where a notch is constructed in the stern of the barge and the tug fitted into the notch, often with a pinning arrangement to help hold the tug in place. The tug then pushes the barge. Some of the larger barges coupled to tugs are former lake vessels with their engines removed and sterns rebuilt. Other tugs may tow smaller barges or push them without a notch in the stern of the barge. Among the advantages of a coupled tug-barge unit, compared with a self-propelled vessel of the same capacity, are the lower crew requirements, the smaller accommodation space necessary, the lower building cost, and less stringent regulation. (Marinelog.com) The coupled tug and barge units, however, may have more restrictions due to adverse weather and lower fuel efficiency. All of the larger coupled tugs and barges are American registered. Overall, 16 of 22 coupled tugs and barges (72.7 percent) are American registered. In comparison, all self-propelled tankers are Canadian registered. One striking feature of the compilation of Great Lakes vessels is the advanced age of many of the vessels. For the most numerous category, maximum Seaway size, the average age is 36.5 years. The youngest vessel in this group is 24 years old. Only the tankers have a relatively low age. The longevity of the vessels is due to operating in a fresh water environment with much less corrosion and stress on hulls and machinery then a salt water environment, the closed winter period allowing vessel maintenance, and the high cost of building new vessels.

16 16 Type No. Flag 1000 footer 12 US Coupled tug-barge Over Seaway size laker Coupled tug-barge Maximum Seaway size Coupled tug-barge Below maximum Seaway size Coupled tug-barge Smaller size laker Table 4 American and Canadian vessels active in the Great Lakes St. Lawrence Seaway system, March 2009 Length (feet) Selfunloading Avg. length (feet) Avg. capacity (tons) Age (years) Avg. age (years) ,421 Yes US ,500 Yes US ,237 Yes US ,500 Yes Can: 48 US: ,085 Yes: 30 No: US ,400 Yes Can:17 US: 15 Can: 1 US: ,306 Yes: 27 No: ,323 Yes 8 Can ,831 Tanker 14 Can Smaller coupled tugbarge Tug, >1,000 b.h.p Barge 25 Can: 5 US: 8 Can: 27 US: 10 Can:15 US: [12,283 barrels] [7 tanker barges] [2,346 b.h.p.] [1 tanker barge] Yes: 7 No: Yes Sources: Greenwood, Great Lakes and Seaway Shipping, company web sites Note: The age is based on the vessel s first service. Many vessels have been extensively re-built over the years, as discussed below. Generally, American vessels are longer-lived than Canadian vessels. Many U.S. ships have been built to a higher standard as they are more expensive to replace under the Jones Act (discussed below); fewer U.S. ships carry salt; Canadian ships go through the Seaway and Welland Canal locks more often; and Canadian ships are more likely to operate in the more harmful salt water environment of the lower St. Lawrence River and Gulf of St. Lawrence where, in addition to being in salt water, salt water ballast is used.

17 17 Although marine transportation is more fuel efficient than other transportation modes, the age of the Great Lakes fleet means that the fuel efficiency of many of these vessels is low compared to the fuel efficiency that could be achieved with newer vessels. Many of the currently operating Great Lakes vessels were built when fuel costs as a component of total costs and exhaust emissions were of less significance than now. For example, some of the Great Lakes fleet is steam powered, a less fuel-efficient propulsion method than diesel engines. Any vessels built now would install the more efficient current generation of diesel engines and fuel efficiency would be a major consideration in the design of the vessel. The most modern diesel engines are estimated to use 20 to 25 percent less fuel for a given output than the diesel engines currently in use in the Canadian Great Lakes fleet. (Mariport Group 2006) Vessel life is also prolonged by major modifications of the vessels. Many ships have been considerably renewed over the years, even to the extent of completely replacing their forebody, the cargo-carrying section of the ship forward of the engine space. By taking advantage of increased Seaway draft and beam allowances the new forebodies usually result in an increase in cargo capacity For example, the Algobay, a Canadian self-unloader built in 1978 for the Algoma Central Corporation, was towed to China for removal of its forebody, the attachment of a maximum Seaway-sized forebody with self-unloading capability, replacement of engines, and other upgrades. The Algobay returned to Great Lakes service in Her sistership, the Algoport, unfortunately sank while being towed to China in 2009 for the same procedure. With the replacement forebody already under construction, a complete new vessel was built in China and is expected to be in the Great Lakes for the 2011 navigation season. (Seaway Marine Transport) The Interlake Steamship Company provides another example of life extension for lake vessels. The Charles M. Beeghly was built in 1959, lengthened in 1972, converted to a self-unloader in 1981, and converted from steam to diesel power during the winter lay-up. (Interlake Steamship Company) It has been suggested that the lack of building of new lake vessels appears to be due to government requirements that American vessels are built in the United States and, up to recently, that Canadian vessels are either built in Canada or, if built elsewhere, may only be imported on the payment of a 25 percent duty. The Canadian duty, discussed below, has recently been removed. However, a major contraction in cargo volumes is also a major factor in the largely static size of the U.S.-flag Great Lakes fleet. These domestic construction requirements considerably increase the cost of a new vessel. American construction costs appear to be at least twice the cost of an overseas shipyard. The magnitude of the cost differential is reflected in the production of a series of product tankers at two major American shipyards. Thirteen product and shuttle tankers (46,000 DWT) are being built at the Aker Philadelphia shipyard for around $US100 million each and nine product tankers (49,000 DWT) are being built at the NASSCO shipyard in San Diego for $US111 million each. (Aker Philadelphia, NAASCO) In contrast, international new-building prices for a 47,000-51,000 DWT product tanker have recently ranged from $40 million in 2004 to a high of $52.3 million in 2007, before declining to $44 million in March (Clarkson) The fall in prices reflects the slump in ocean shipping with the 2009 recession.

18 18 A maximum Seaway size laker could be built internationally for $US 28 million in February 2009 but would have cost $US 40 million in August (Clarksons) Canadian ship operators, having to add a 25 percent import duty to register and operate a foreign constructed ship in Canada, faced a minimum cost of $US 35 million for a maximum Seaway size laker in Ship operators are eager to start fleet renewal. Canada Steamship Lines has placed orders with a Chinese shipyard for four Seaway vessels (two firm orders, two options), as well as larger vessels for use and registry off-shore. At the time of the order the company announced that the Seaway ships will not be used in the Seaway and Great Lakes unless the 25 percent import duty was ended. Now, with the recent removal of the import duty, the construction of these ships should proceed. Foreign construction is necessary as Canadian shipyards did not even bid on the order. (Montreal Gazette 19 August 2010) Algoma Central Corporation, another major Canadian ship operator, has announced that plans, both for self-unloaders and straight deck lakers, have been developed for new construction and the specifications shown to international shipyards. With the lifting of the import duty they hope to see new vessels in Canada by (Algoma Central Corporation) Recently limited lake fleet renewal has taken place by Canadian companies purchasing foreignbuilt maximum Seaway size ocean-going vessels (with a 10:1 length to breadth ratio), previously operated under a foreign flag, and transferring them to Canadian registry. These vessels were built to enter the Great Lakes and had operated between the Great Lakes and overseas ports. In 2008 Canada Steamship Lines (CSL) purchased four of these vessels from Fednav Limited, all of which have now been delivered to CSL and transferred to Canadian registry. Also in 2008, Algoma Central Corporation announced the purchase of three maximum Seaway size bulk carriers from Viken Shipping of Norway. These vessels initially continued on a long-term foreign flag charter but in 2010 were refurbished in China and are being registered in Canada for use on the Great Lakes and St. Lawrence River. (Canada NewsWire, March 17, 2008, Great Lakes and Seaway shipping, Canada Steamship Lines, Algoma Central Corporation) Tug-barge units, having taken on some Great Lakes and Seaway cargo, may become more common in the Great Lakes and Seaway. American Great Lakes operators have indicated that they prefer replacing self-propelled vessels with tug-barge units. In August 2008, the second of four articulated tank-barge units (capacity around 146,000 bbl or 19,700 DWT) was delivered for $US66.6 million from a U.S. shipyard in Sturgeon Bay, Wisconsin on the Great Lakes, making the Seaway-transit capable vessel eligible for carrying cargo between U.S. ports. (U.S. Shipping Partners, istockanalyst 25 August 2008) Ocean-going vessels A number of ocean-going vessels (salties), all registered in countries other than the United States or Canada, bring cargoes into the Great Lakes from overseas destinations and load cargoes for delivery overseas. In recent years 200 to 300 separate ocean-going vessels, registered in more than 30 countries, have entered the Seaway during the navigation season. Most of these vessels were built to be able to enter the Seaway and the Great Lakes and operate on regular runs into

19 19 the Great Lakes. Others are tramp vessels making single trips into the Great Lakes or multiple trips if chartered to one of the regular operators. Three types of ocean-going vessels enter the Seaway, large bulk carriers typically bringing in steel products and taking out grain; smaller bulk carriers bringing in manufactured products, such as wind turbine parts, which will not fit into containers; and chemical tankers with a variety of liquid cargoes. With the restrictions of the Seaway locks and the increased size of many ocean-gong vessels a limited number of all oceangoing vessels are able to enter the Great Lakes. (National Research Council of the National Academies 2008) Because of problems associated with the introduction of nonindigenous species through their ballast water discharges a moratorium on ocean-going ships entering the Great Lakes has been proposed by the environmental group Great Lakes United if effective federal regulations are not in place. ( During the moratorium cargos would have to be transported to and from coastal ports by laker, barge, rail, or truck. Taylor and Roach (2009) estimated the transportation cost savings of allowing ocean vessels access to the Great Lakes or, conversely, the cost to shippers of banning ocean vessels. The total cost saving for exported grain, imported steel, and other shipments was estimated to be $US 54.9 million per year, 5.9 percent of total transportation costs for the amounts shipped by ocean vessel, using 2002 tonnage data. The greatest cost saving is in the importing of steel products. Starting in the early 1980s a number of ocean-going bulk carriers were built to maximize the tonnage they could carry in the Seaway. They were built to the maximum allowable Seaway dimensions, a 10:1 length to breadth ratio, the same ratio as maximum Seaway size lake vessels. More recently built ocean-going vessels have a lower length to breadth ratio as these vessels are better able to handle the stresses of ocean voyages. (National Research Council of the National Academies 2008) Cruises Small scale cruising, with varying numbers of vessels involved, has occurred in recent years. Some of the vessels are specifically built for voyages on the Great Lakes and adjoining waterways; others are small cruise ships used elsewhere in the off-season. From June to September 2010 the Clelia II, a small cruise ship with a 100 passenger capacity, made eight-day trips between Toronto and Duluth with a number of stops on the way. Other vessels made trips which included the Erie Canal, Lake Ontario and sections of the St. Lawrence River. The Canadian Empress, carrying up to 64 passengers, made voyages on the St. Lawrence River starting from Kingston, Ontario. (Great Lakes and Seaway Shipping) Planned cruises for 2011 include a round trip from Toronto to Chicago, voyages on Georgian Bay and Lake Michigan, and trips on the Erie Canal, Lake Ontario, and the St. Lawrence River.

20 Economic significance of Great Lakes-St. Lawrence River commercial navigation Overview The economic significance of the Great Lakes St. Lawrence Seaway system may be viewed in several ways. One view is based on the cargo moved in the system and its impact on the industries in the region. The system s Canadian ports handle large proportions of Canada s trade: 50 percent of Canada s total trade with the U.S., by volume, and 40 percent of Canada s domestic marine trade, by volume. Ten of Canada s twenty largest ports are on the system. The system s U.S. ports handle 10 percent of U.S. marine domestic trade. (Transport Canada et al 2007, p. 36) The availability of this network of low cost water transportation is a determinant of the location for many firms; the transport provided by the system is now essential for industries located on the system. Located in North America s industrial and manufacturing heartland, inputs for the iron and steel industry, the cement industry, electric energy generation, and construction are moved on the system at low cost. Agricultural products are also inexpensively moved to export markets. In the United States the system is estimated to save $US 3.6 billion a year when compared with the most competitive alternative transport modes. (USACE 2009) Another estimate is that total transportation cost savings for the U.S. and Canada due to the system are $US 2.7 billion a year. This is the conclusion of a comprehensive analysis done by the Navigation and Hydraulic Engineering section of The Tennessee Valley Authority of the savings to shippers through using the Great Lakes and St. Lawrence River water transportation system compared to the next-best all-land route. For 857 origin-destination-commodity movements with an annual flow exceeding 18,000 tons water route costs were compared to the best land route costs. Movement data is as of The freight rates compared were based on a full accounting of the complete transportation costs for each movement, including the costs of any movements by rail or truck from the origin of a shipment to a port and/or the transportation costs from a port to the final destination. The results are based on the rates and fees in effect in December (Transport Canada et al 2007, p. 4, Tennessee Valley Authority 2005) Summary results are presented in table 5. An overview of the employment impact of the system is that it is responsible for approximately 36,000 direct and indirect jobs in Canada and 150,000 in the United States. Directly related jobs are those arising from transport and handling of cargo; indirectly related jobs come from supporting those involved in transport and handling. (Great Lakes St. Lawrence Seaway System)