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CYBERSECURITY THREATS THE RISK OF MASSIVE SUPPLY CHAIN DISRUPTIONS TRADE DIVERSIFICATION A BROADER, VALUES-BASED PLAN FOR BRITISH COLUMBIA GREENER SUPPLY CHAINS THE PROSPECT OF LOCAL, GLOBAL DECARBONIZATION
ISSUE
British Columbia’s Waterfront
Keeps Canada Moving.
• $500M in cargo handled every day by BCMEA member terminals and carriers • 16% of Canada’s total traded goods are moved through BCMEA members’ operations • 9,400 well-paying, familysupporting jobs located in coastal communities • 2,200 net new waterfront jobs created over the past decade • $37M budgeted in worker training and upskilling in 2022 • $950M invested in gateway infrastructure and expansion projects by BCMEA members in 2020
Safety. Training. Technology. BC’s maritime employers are Canada’s vital trade link to the world.
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BIV MAGAZINE: THE GATEWAY ISSUE 2022 PUBLISHED BY BUSINESS IN VANCOUVER
CONTENTS
BIV MAGAZINE
GATEWAY THE
AUGUST 2022
ISSUE
CYBERSECURITY THREATS THE RISK OF MASSIVE SUPPLY CHAIN DISRUPTIONS TRADE DIVERSIFICATION A BROADER, VALUES-BASED PLAN FOR BRITISH COLUMBIA
GREENER SUPPLY CHAINS THE PROSPECT OF LOCAL, GLOBAL DECARBONIZATION
PRESIDENT: Alvin Brouwer PUBLISHER AND EDITOR-IN-CHIEF, BUSINESS IN VANCOUVER; VICE-PRESIDENT, GLACIER MEDIA: Kirk LaPointe EXECUTIVE EDITOR: Hayley Woodin DESIGN: Petra Kaksonen PRODUCTION: Rob Benac CONTRIBUTORS: Nelson Bennett, Chuck Chiang, Timothy Renshaw, Albert Van Santvoort RESEARCHERS: Anna Liczmanska DIRECTOR, SALES AND SALES MANAGER: Laura Torrance ADVERTISING SALES: Blair Johnston, Corinne Tkachuk, Chris Wilson ADMINISTRATOR: Katherine Butler
6 FEATURES
14
6 DECARBONIZATION DRIVE Climate policies open new export markets 10 CONTAINER SPACE The push to expand B.C.'s northern port 12 TRADE BY THE TEU Infographic with annual port data 14 TRADE DIVERSIFICATION Province eyeing broader, values-based plan 18 CYBERSECURITY THREATS Attacks risk massive supply chain disruptions 22 GREENER SUPPLY CHAINS Local, global opportunities to decarbonize
BIV Magazine: The Gateway Issue is published by BIV Magazines, a division of BIV Media Group, 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6, 604-688-2398, fax 604-688-1963, biv.com. Copyright 2022 Business in Vancouver Magazines. All rights reserved. No part of this book may be reproduced in any form or incorporated into any information retrieval system without permission of BIV Magazines. The publishers are not responsible in whole or in part for any errors or omissions in this publication. ISSN 1205-5662 Publications Mail Agreement No.: 40069240. Registration No.: 8876. Return undeliverable Canadian addresses to Circulation Department: 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6 Email: subscribe@biv.com Cover: Getty Images/kokouu
COLUMNS 9 B.C.'S TRADE INFRASTRUCTURE Minister Rob Fleming on resiliency 17 ENHANCING COMPETITIVENESS Pros of a North American infrastructure bank
11 PRODUCED BY
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MESSAGE FROM THE EDITOR
CHALLENGES AND OPPORTUNITIES FOR B.C. TRADE As B.C. corporate leaders know well, business is hardly back to normal. Though the worst of the pandemic appears to have passed, ever present is the risk of a new COVID surge that brings with it additional restrictions and regulations. Ongoing supply chain disruptions, exacerbated by the conflict in Ukraine, along with acute labour challenges, and inflation and efforts to curb it, have brought new forms of business uncertainty. Though some challenges may be temporary, other issues will leave an indellible mark on B.C.'s trade landscape. The severe weather events that stopped the smooth flow of goods across the province last year cannot be viewed as anomalies, and must prompt practical discussions about how we will get goods to local and global markets in a less predictable and less stable climate. Cyberattacks – which have already cost the shipping sector hundreds of millions of dollars – are another serious threat to supply chain stability. Their rise in intensity and scope globally necessitates innovation and investment to protect supply chain security. Our features and columns in this issue of Gateway
explore some of the most pressing trade challenges and promising trade opportunities for British Columbia. Two articles look at decarbonizing trade: one looks at the prospect of greener supply chains (p. 22), and the other reviews how climate change policies are creating new export markets for B.C. products (p. 6). We cover the threat posed by cyberattacks (p. 18), and what an escalation in attacks means for the shipping sector. This edition also examines the push to expand Prince Rupert port capacity (p. 10) and the evolution of B.C.'s trade diversification mandate (p. 14). Our infographic, Trade by the TEU (p. 12), captures how two of the country's largest ports performed last year. Our columnists in this issue argue why now is the time for a North American infrastructure bank (p. 17), and discuss B.C.'s strategy for strengthening its transportation and trade infrastructure. Welcome back to Gateway. Hayley Woodin Executive editor, BIV Editor, BIV Magazine
Canada’s voice of ocean shipping since 1903 222ʏ.#$+! ʏ ʰ $)!*ʻ.#$+! ʏ ʰ ʻ.#$+! ʰ ˈˈˈʏ˄ˀˁʏˀ˅ˀ˂
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DECARBONIZATION DRIVES NEW EXPORT MARKETS LNG, wood pellets, critical minerals, ammonia exports driven by climate change policies
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NELSON BENNETT
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limate change policies aimed at decarbonizing industrialized nations may not be moving as fast as many would like, but they are already having an impact – mostly positive – on B.C.’s economy in the form of new or increased commodity exports and markets.
The most obvious new export industry being developed in B.C. as a direct consequence of decarbonization is liquefied natural gas (LNG). New LNG terminals are being built in B.C., in Kitimat and Squamish. It’s an industry that would likely not have developed here were it not for the demand for natural gas, particularly in Asia, to replace coal, as well as other higher-carbon fuels like diesel. Another export that has grown as a direct result of decarbonization efforts on the part of power producers is wood pellets. When the Westview Wood Pellet Terminal opened in 2014 in Prince Rupert, it shipped 512,000 tonnes to Asia and Europe, where they are burned as a carbon-neutral alternative to coal to produce power. By 2021, export volumes of wood pellets through the Port of Prince Rupert had nearly tripled to 1.4 million tonnes, and wood pellet exports through the Port of Vancouver doubled from 1.2 million tonnes in 2011 to 2.5 million tonnes in 2021. Wood pellet producers in B.C. use mostly wood waste and pest- and fire-damaged timber as a feedstock. “We see a phase-out of thermal coal,” says Prince Rupert Port Authority CEO Shaun Stevenson. “We see thermal coal being replaced by LNG, being replaced by wood pellets.” Despite the imperative to decrease the use of fossil fuels, global demand for crude oil is not expected to begin peaking until the end of this decade, and an expansion of the Trans Mountain pipeline and Westridge Marine Terminal in Burnaby will result in increased crude oil tanker shipments through B.C. by as much as 500,000 barrels per day. Meanwhile, the energy transition can be expected to drive increased exports through B.C. ports of alternative fuels, like wood pellets and ammonia (a carrier for hydrogen), and critical minerals, like copper, nickel, aluminum and lithium. “For some time, we will benefit from a boom in both areas, as the world population is still growing and demand for fossil fuels isn’t going down that quickly,” says Werner Antweiler, an economist specializing in environmental and energy economics at the University of British Columbia’s Sauder School of Business. “We’ll still be exporting a fair bit of oil and gas over the next number of years.”
OPPOSITE PAGE:
Werner Antweiler is an economist specializing in environmental and energy economics at the University of British Columbia’s Sauder School of Business • SUBMITTED
But at some point, Antweiler says critical minerals could eventually rival oil as Western Canada’s most valuable export. “I think there’s a very strong case to be made that Canada will play an important role by shifting from an oil exporter, primarily, to one where we will find new resources, like nickel and other minerals, that will be powering the electrification that will take place more and more around the world,” Antweiler says. The top four commodities produced in B.C. for export, in terms of value, are wood products (such as lumber, logs and pulp), metallurgical coal, minerals and natural gas, in that order.
The Westview Wood Pellet Terminal in Prince
Rupert has seen exports nearly triple since opening in 2014 • COPPERSKY
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DECARBONIZATION
Currently, almost all natural gas exports from Western Canada are to the U.S. by pipeline, but that will change as new LNG terminals come online, and Asia becomes a new market for Western Canadian natural gas. Of the $6.6 billion worth of minerals and metals exported from B.C. in 2021, copper accounted for $4.2 billion and zinc, $1 billion. Those kinds of exports can be expected to only grow, as new mines are built or expanded across Canada to meet the demand for energy transition minerals and metals. B.C. might also expect to see increased exports of wood pellets. The demand for wood pellets as an alternative to coal has grown significantly in recent years, prompting Drax Group PLC to buy seven wood pellet plants in B.C., two in Alberta and five in the U.S. The British power company eliminated coal altogether for power generation. Its thermal power plant in the UK now uses biomass, and plans to add carbon capture and storage, which would result in 8 million tonnes of negative carbon dioxide emissions annually. “The wood pellet biomass market is inextricably linked to the world cottoning on, and desire to do something about climate change. Biomass is Europe’s largest single source of renewable energy,” says Ross McKenzie, director of international affairs for Drax Group. Many other coal power plants in Asia and Europe will also likely increase their use of biomass. “We know that biomass from Western Canada can play a significant role in being able to transform those power stations to generate that renewable, reliable power instead of coal,” McKenzie says. “We see a bright future for biomass from Western Canada, and I think we need to see it certainly as a market that can grow.” The one commodity that could disappear entirely from B.C. ports is thermal coal, the export of which the Trudeau government has pledged to ban by 2030. Thermal coal accounts for roughly half of the coal exports though Prince Rupert and about a third of coal exports through the Port of Vancouver. Thermal coal shipped through B.C. ports comes from Alberta or the U.S. All of the metallurgical coal shipped through B.C. ports, however, is mined here in B.C. It is used to make steel. Wood Mackenzie projects strong demand for seaborne metallurgical coal from B.C. for decades to come, with much of the future demand driven by India. But the new owners of the former Ridley coal terminal in Prince Rupert, Trigon Pacific Terminals Ltd., thinks that even metallurgical coal exports from B.C. could decline, not for a lack of demand, but because as existing mines become exhausted, companies may find it harder to get new ones permitted in B.C. and Alberta. “I think in that 10-year window, there will be little change in the volumes,” says Trigon CEO Rob Booker. “I think after 10 years, I would be loathe to guess at what the permitting conditions are, what the market demand is. I think there’s a lot of volatility at the end of that 10-year piece.” Facing the loss of thermal coal, and the possible decline in metallurgical coal exports, Trigon is now looking to develop an ammonia export terminal – something that could take an investment of $700 million to $1 billion. To meet emissions reduction targets, global hydrogen use will need to more than double by 2030, according to S&P Global. Alberta is poised to
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become Canada’s biggest producer of hydrogen, though B.C. also has the potential to produce it. Since it seems unlikely that a dedicated hydrogen pipeline would ever be built between Alberta and the B.C. coast, any hydrogen exported through B.C. ports will likely move by rail in the form of ammonia, as it does now. Ammonia’s primary use is in making fertilizer. But since it is one-part nitrogen to three-parts hydrogen, ammonia is also a “carrier” for hydrogen. Once ammonia arrives at a destination, it can be “decomposed” into hydrogen and nitrogen. Prince Rupert Port Authority Booker and Stevenson say Prince CEO Shaun Stevenson says Prince Rupert is well positioned to become Rupert is well positioned to a major ammonia export hub. “Certainly Prince Rupert will play become a major ammonia export a future role in Canada’s hydrogen hub • SUBMITTED ambitions, in particular as it looks at key markets like Japan,” Stevenson says. Trigon has a permitted second berth ready to develop, and is at the terminus of “an under-utilized rail corridor” between Alberta and Prince Rupert. Both the federal and provincial governments are actively supporting and promoting the development of a hydrogen production industry, and a significant new market for hydrogen is developing in Japan. “They’re asking for 500,000 tonnes per year starting in 2027 for a 20-year contract,” Booker says. “There’s a real market developing.” The challenge, Booker says, will be for Western Canada to develop hydrogen and ammonia production capacity quickly enough to gain market share. Nationally, Canada needs to move fast on developing a hydrogen industry. “Otherwise, we really are going to end up like LNG,” Booker says. “We’re going to be the last guy producing something in an energy transition world.” É
CERTAINLY PRINCE RUPERT WILL PLAY A FUTURE ROLE IN CANADA’S HYDROGEN AMBITIONS, IN PARTICULAR AS IT LOOKS AT KEY MARKETS LIKE JAPAN j Shaun Stevenson CEO Prince Rupert Port Authority
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STRENGTHENING B.C.’S TRANSPORTATION AND TRADE INFRASTRUCTURE Climate change and supply chain resiliency guide key infrastructure investments
ROB FLEMING
T he at mo s pher ic r iver t h at devastated our highways last November was an eye-opening reminder of the critical importa nce ou r tra nsportation networks play in our economy and in our daily lives. O u r a l l-i mp or t a nt s up ply chain – including major highways, railways and the ports – was significantly disrupted, leading to serious challenges for people and businesses across the province. I can’t say enough about the highway crews and contractors who worked around the clock for weeks to restore access through extreme weather, even paving through winter conditions to reopen the Coquihalla. But rebuilding our damaged roads and bridges back better is just one way we’re working to shore up our province’s supply chain. To ensure our transportation networks remain strong, and our communities safe, it’s critical that climate resiliency be at the forefront of our decision-making process. It’s now a requirement for the ministry’s design engineers to consider how future changes to weather will affect highway infrastructure work. This approach means appropriate climate adaptation is considered over the entire design life of our infrastructure. As part of our longer-term response, we know we must strengthen and maintain people’s access to goods to build a resilient economy. Through our StrongerBC Recovery Plan, we’ve been making investments to strengthen our supply chains in B.C. This includes expanding our manufacturing capacity to produce more goods, and strengthening manufacturing supply chains to help make the province more secure in the face of global supply interruptions.
Our recent $40 million investment to support improvements at the Port of Prince Rupert and Duke Point Terminal in Nanaimo is another example of the work we’re doing to increase capacity at our ports, and we continue to work collaboratively with the federal government to invest in strategies aimed at reducing bottlenecks at port facilities. And as part of B.C.’s economic plan, we’re developing a goods movement strategy to provide leadership and achieve greater co-ordination and efficiency within the transportation trade network, strengthening our supply chains and supporting good value-added jobs. Capital investments like the Kicking Horse Canyon project are making major transportation corridors like the Trans-Canada Highway safer and more reliable for decades to come. Projects like the Highway 91 upgrades and the Massey tunnel replacement will help people and goods move more efficiently and support economic growth. Major investments in the Broadway Subway, Surrey Langley Skytrain and rapid bus lines also support efficient commuting in our transportation networks. Following the floods, a supply chain recovery working group involving both the provincial and federal governments was formed to ensure the efficient flow of goods throughout the province. The group works with stakeholders across the supply chain, including ports, airports, railways, terminal operators, the trucking industry and others. This high degree of co-operation was critical to our recovery efforts and will be just as critical as we move forward during this era of climate change. We will continue to work with all levels of government and the private sector to build up our supply chains so they’re reliable, strong and more resilient. É Rob Fleming is the B.C. minister responsible for transportation and infrastructure.
TO ENSURE OUR TRANSPORTATION NETWORKS REMAIN STRONG, AND OUR COMMUNITIES SAFE, IT’S CRITICAL THAT CLIMATE RESILIENCY BE AT THE FOREFRONT OF OUR DECISION-MAKING PROCESS
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CONTAINER SPACE The push to expand Prince Rupert port capacity
Officials say the first stage of Fairview Terminal’s latest Phase 2B expansion is on schedule for completion this summer • SUBMITTED
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he Port of Prince Rupert – currently expanding its existing container terminal to make it the second-largest in Canada – is now looking at building another such facility that would more than double the port’s overall container capacity.
The Prince Rupert Port Authority and operator DP World Canada Inc. announced earlier this year that they have signed a two-year agreement “to assess the feasibility of an innovative new container terminal project in Prince Rupert.” The new container terminal – which would be completely separate from the existing Fairview Terminal operated by DP World Canada – could add as much as two million 20-foot equivalent units (TEUs) of annual capacity to Prince Rupert. Officials say such a move would greatly boost Canada’s trade capacity within the Asia-Pacific region, particularly as the country’s top port – the Port of Vancouver – faces increasing challenges with congestion. DP World Canada CEO and general manager Maksim Mihic said in a statement that the move shows that his company is committed and confident that Prince Rupert can support a second container terminal facility. “Our vision for this proposed project will ensure the Canadian trade and supply chain landscapes are future-proofed,” Mihic said in the statement. “The feasibility studies will employ a pragmatic approach, exploring the use of advanced technologies and ideas to position the new terminal as an industry leader within Canada and the world.” Earlier this year, officials said the first stage of Fairview Terminal’s latest Phase 2B expansion – which would eventually push the facility’s capacity to 1.8 million TEUs when the whole project is completed in 2024 – is on schedule for completion this summer. That first stage of the Phase 2B expansion will push the annual capacity at Fairview to 1.6 million TEUs, from 1.35 million TEUs. Though Prince Rupert saw a surprising 23% drop in cargo movements in 2021 versus 2020, officials remain bullish, as the infrastructure issues near Vancouver – such as the rail and road washouts late last year due to flooding – have brought renewed attention and interest in the northern trade corridor as a backup or alternative for access to the Pacific. Prince Rupert Port Authority president and CEO Shaun Stevenson says that the new terminal – which is part of the port’s master plan published in 2019 – would be located to the south of Fairview and would add to the port’s status as Canada’s third-largest port, behind only Vancouver and Montreal. “A second container terminal will help consumers, exporters and industries across the country while
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continuing to contribute significant economic benefit for local communities, the broader region and our Indigenous partners,” Stevenson said in a statement. Meanwhile, the Port of Vancouver continues to push its massive but controversial Roberts Bank Terminal 2 project for its own container capacity expansion. Ottawa put the proMaksim Mihic is CEO and ject’s environmental apgeneral manager of DP World proval process on ice for about a year after strong Canada, which operates local opposition pushed the Port of Prince Rupert’s the federal government to ask the Vancouver existing Fairview Terminal • Fraser Port Authority to SUBMITTED address questions raised by opponents in the previous panel reviews. The most recent public comment period was extended and ended mid-March. Late last year, the Vancouver Fraser Port Authority offered an updated Terminal 2 application, although opponents – which include environmentalists, First Nations communities, local residents and GCT Global Container Terminals (the operator of the existing Deltaport terminal at Roberts Bank) – have remained unconvinced about the project’s scale, cost and environmental impact.É
OUR VISION FOR THIS PROPOSED PROJECT WILL ENSURE THE CANADIAN TRADE AND SUPPLY CHAIN LANDSCAPES ARE FUTURE-PROOFED j Maksim Mihic CEO and general manager DP World Canada
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TRADE BY THE TEU PORT OF VANCOUVER Canada’s largest port showed continued resiliency last year in the face of the ongoing pandemic, global supply chain challenges and extreme weather events that disrupted the flow of goods throughout B.C. Cargo passing through the Port of Vancouver increased by 1% in 2021, growing to 146 million metric tonnes from 145 million metric tonnes in 2020. Record container and foreign bulk volumes in the first half of the year helped maintain annual cargo volumes during a complex and uncertain trade landscape. After eight consecutive years of record activity, grain volumes fell 13% year over year, due to the impact of drought conditions on grain production. Cruise activity remained non-existent under federal order.
CARGO VOLUMES AUTOMOBILES
+3%
BREAKBULK
BULK
EBITDA
CAPITAL INVESTMENT
+18%
0%
CONTAINERS
+6%
GRAIN
-13%
FINANCIALS REVENUE
+0.2% -14.7% -34.2%
SOURCE: Financial Report 2021, Vancouver Fraser Port Authority (2022)
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PORT OF PRINCE RUPERT After a record year in 2020, the Port of Prince Rupert saw a contraction in cargo volumes last year, with port-wide volume falling 23% to a little over 25 million tonnes. By comparison, the northern port managed 32.4 million tonnes of cargo the year before.
“The Port of Prince Rupert was not immune to the headwinds that the entire supply chain industry faced,” notes the port’s executive leadership in their end-of-year-report. Overall, the port facilitated more than $50 billion in international trade and $1.5 billion in economic activity in northern B.C. last year.
CARGO VOLUMES CONTAINERS
-8
%
LOGS
+26
%
LP GAS
+61
%
METALLURGICAL COAL
-22
%
THERMAL COAL
-77
%
WHEAT
-42
%
WOOD PELLETS
-2%
SOURCE: 2021 Annual Report, Prince Rupert Port Authority (2022)
ONE HUNDRED PORTS 2021 Where U.S. and Canadian ports sit on Lloyd’s List’s ranking of the world’s largest container ports The Port of Vancouver – Canada’s largest container port – is the only Canadian port to make Lloyd’s List’s ranking of the world’s largest ports. “[The Port of Vancouver] was spared the intense peak-season congestion and delays that blighted transpacific services serving busier U.S. ports further south at Los Angeles and Long Beach in 2020’s final half,” reads the report.
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“Throughput remained steady for a second consecutive year despite the tumultuous events that impacted global supply chains. This suggests that threatened diversions to the Canadian port to alleviate congestion elsewhere failed to materialize.” The port rose two places in the ranking, year over year. In 2020, Montreal was listed as the 95th largest port in the world, based on container throughput.
38
62
19
50
68
21
63
LOS ANGELES, U.S.
SAVANNAH, U.S.
LONG BEACH, U.S.
VANCOUVER*, CANADA
NEW YORK/
SEATTLE/TACOMA, U.S.
NEW JERSEY, U.S.
HOUSTON, U.S.
VIRGINIA, U.S.
75
OAKLAND, U.S.
80
CHARLESTON, U.S. SOURCE: One Hundred Ports 2021, Lloyd’s List (2021)
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TRADE DIVERSIFICATION B.C.’s new trade diversification plan heading toward geographic, values-based strategy
Photos (pages 14-16) from the North Shore’s trade area, a major infrastructure project to facilitate trade and transportation access to key terminals in North Vancouver • CHUNG CHOW
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s the country’s Asia-Pacific gateway, B.C. has been a leader in chasing trade opportunities between Canada and the Far East.
But as the province looks to kick-start its economic rebound post-pandemic, the plan to diversify B.C. trade appears to have shifted course. Since the start earlier this year of an earnest easing of COVID-19 restrictions, the provincial minister responsible for trade and economic recovery has made two trips abroad – but neither has been to a traditional East Asian trade partner. Provincial Minister of Jobs, Economic Recovery and Innovation Ravi Kahlon recently concluded a two-week trade mission to Europe, where he met with partners in the U.K., Germany, the Netherlands, Ireland and Finland to promote B.C.’s new environmental, social and governance (ESG) standards. This comes after Kahlon visited the United States in April – specifically, the west coast cities of San Francisco and Portland – to push B.C.’s timber, agritech, cleantech and innovation sectors. The decision to go to these markets first, provincial officials say, was not based on geography; rather, they went where values – not just in economic matters, but in areas like the environmental and social issues – are aligned with where B.C. is heading. “The U.K. and the European Union (EU) are really prioritizing the need to address climate change and have the ESG veins in the economic growth of their jurisdictions,” Kahlon said from London during his visit to the EU in late May. “What we’ve heard clearly here and in the meetings that we’ve had is not only do they really respect and appreciate our efforts that we are making... but they also really respect and appreciate the ‘S’ in the ESG – and our work when it comes to working with Indigenous communities and advancing reconciliation.” The shift towards a heavier consideration of social, environmental and governance values matches when pursuing new trade partners was hinted at within the province’s StrongerBC Economic Plan – where trade diversification was emphasized as a result of current situations around the globe. “A distinct shift is underway in the world affected by geopolitical circumstances, the COVID pandemic and new international trade agreements,” reads the plan document. “We will continue to take full advantage of our competitive edge as a trade and investment jurisdiction renowned for our [ESG] values. Opportunities to cultivate the participation of more diverse and under-represented groups in international trade will be a priority.” Despite previous diversification efforts, and a more diversified trade mix than other parts of Canada, B.C. is still – like other Canadian jurisdictions – heavily reliant on a select few trade markets, namely the United States,
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China and Japan. Canada’s relationship with its top two trade partners has been particularly problematic in recent years. Despite being two years past the controversial administration of former president Donald Trump, Washington, D.C. continues to pursue trade policies with an increasing protectionist slant. Meanwhile, relations with China – despite an increase in bilateral trade numbers to new highs in 2022 – has been rocky given Beijing’s harsh zero-COVID policies, a concerning human rights record and ideological friction with Western countries.
WE HAVE TO TAKE RISKS. THAT’S WHAT WE DID DURING COVID. WE HAVE TO TAKE CALCULATED RISKS AND BE WILLING TO MAKE MISTAKES j Omar Allam Managing director, Global Trade & Investment Deloitte Canada
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TRADE DIVERSIFICATION
THIS STRATEGY ISN’T ABOUT DOING LESS BUSINESS WITH OUR KEY PARTNERS – IT’S ABOUT FINDING MORE PARTNERS IN NEW, EMERGING JURISDICTIONS j Ravi Kahlon Minister of jobs, economic recovery and innovation Province of BC
“There is the ongoing uncertainty about where our trade with China is going to take us because of the way the Chinese are weaponizing trade, particularly with the Australians,” says Hugh Stephens, principal of Trans-Pacific Connections and a distinguished fellow at the Asia Pacific Foundation of Canada. “And now they are unhappy with us over 5G and [banning] Huawei. So it’s a question of spreading your risk. “The Chinese market is important and will continue to be important,” Stephens adds. “But it is very sensible to ensure we don’t have all our eggs in that basket, particularly in a basket where the bottom could fall out.” He added B.C.’s decision to look towards the U.K. is particularly smart timing, given that London is in the process of forging new trade ties after severing its union with the EU. Stephens also notes that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) pact offers a number of markets where B.C. could see more opportunities, although he did add that Canada has its own protectionism (in the form of supply management in dairy and chicken) that could be challenging to overcome in growing new relationships. The province, for its part, is already looking in that direction. During the same month Kahlon visited the U.S., his office announced that B.C. was opening a new forestry innovation investment office in Vietnam – a fellow CPTPP member and a fast-rising star in terms of new Asian destinations for Canadian trade and investment dollars.
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Kahlon says the goal is to have the new office facilitate B.C. being “the preferred supplier of sustainable and certified softwood lumber products” in Vietnam. He says the optics of officials shifting away from Asia is a coincidence. “We are working on a trade diversification strategy right now, and we hope to have it launch this fall,” Kahlon says. “We of course have historic relationships with the U.S., China, Japan and South Korea.... We really appreciate and respect those relationships. But this strategy isn’t about doing less business with our key partners – it’s about finding more partners in new, emerging jurisdictions.” Omar Allam, a former Canadian diplomat who now heads Deloitte Canada’s Global Trade & Investment advisory group, says there is interest even beyond those aforementioned regions. He notes that markets like the Middle East, India and even sub-Saharan Africa have seen some very strong growth, and the appetite to do more business (through either investment or trade) appears to be present. The key issue, Allam says, has always been the actual implementation of a concrete plan from the Canadian side. The tendency is to fall back on well-established partnerships, such as those between Canada and the U.S., Europe and East Asia, without putting pen to paper on what is possible with other emerging markets, and how Ottawa and Victoria can facilitate those links. “I think we need to do a better job to showcase to the world what we can offer,” Allam says. “We are lacking in [understanding] where Canada can actually play a role; what capabilities we have to facilitate both trade and investment opportunities. “An economic partnership arrangement will facilitate trade. But then you need resources there in the markets [we are growing] to actually provide market access and opportunities, and then engage in the supply and demand,” he says. “We have to take risks. That’s what we did during COVID. We have to take calculated risks and be willing to make mistakes... for longer-term robustness.” É
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IT’S TIME FOR A NORTH AMERICAN INFRASTRUCTURE BANK Canada can enhance its competitiveness through joint infrastructure improvements with its largest trade partner
CARLO DADE
Preventing flooding in Sumas Prairie, laying high-speed cable in the Cascadia Corridor, building customs and border clearance facilities in Vancouver harbour and, of course, southbound highspeed rail from Vancouver are all specific, anecdotal arguments for the creation of a North American Infrastructure bank. In each case, a bi- or tri-national body would provide missing, objective, independent, long-term data on trade flows, on integrated production and supply chains, on environmental impacts and on other factors to identify needed investments. And, yes, the bank could also provide financing. These types of projects tend to fall outside the mandate of the Canadian Infrastructure Bank, so there really is no mechanism to collect the data and advise – let alone fund – critical projects. This is not just an irritant to enhancing integration between two economies – where US$2 billion a day crosses the border – and within a trade bloc that accounts for nearly 75% of Canada’s exports, 45% of its imports and 42% of the country’s gross domestic product. It is a competitive disadvantage for Canada’s global trade. The North American trade bloc is one of the only ones without a dedicated, independent, third-party entity that collects data on the flow of goods, people and services throughout its integrated supply and production chains. We make things together in North America. Companies and some government agencies have limited window into the movement of goods and people within their sector, but no one has a complete picture, and very few have long-term data. No one has expertise in how to invest to make integrated supply and production chains more efficient and productive. It’s a process of re-learning and reinventing the wheel from one project to the next. This is not (or is less) the case in other trade blocs. The countries of the Pacific Alliance – Mexico, Colombia, Ecuador, Peru and Chile – use the resources, expertise and data of the Inter-American Development Bank to
make their trade bloc more competitive. Likewise, the Association of Southeast Asian Nations has the Asian Development Bank and, more recently, the Asian Infrastructure Bank. This repeats in Africa, in the Caribbean and in Europe. But not in North America, despite the fact that Canada and the U.S. fund (and in some cases are the largest shareholders in) regional banks that help other trade blocs enhance their competitiveness through trade infrastructure improvements. Thirty years ago, a deliberate decision was taken to not build robust tri-lateral institutions. After 25 years of trade integration, the three national governments barely exchange information on critical infrastructure plans, let alone work together to ensure cross-border infrastructure development meets the needs of producers, shippers and travellers. It’s time to revisit this. The U.S. is moving massive amounts to fund infrastructure and Canada has the Canadian Infrastructure Bank, which will have $19 billion unspent at the end of its mandate, according to the Parliamentary Budget Office. Work by the George W. Bush Institute and the Canada West Foundation show that a North American Infrastructure Bank would need to be capitalized with US$4.5 billion. Assuming that the bond markets and rating agencies would accept a paid-in capital of 15%, then only US$675 million would be paid in cash, with half (US$335.5 million) coming from the U.S. and the rest from Mexico and Canada. Around US$168.75 is an amount that Canada can easily afford – less than 1% of projected unspent Canada Infrastructure Bank funds. This is a minuscule price to resolve all of the problems along the Cascadia and Detroit-Windsor corridors, and to seize all of the potential along the Canada-U.S. border. In a world where trade has become difficult and downright hostile, and where competitors like China are spending to make their trade blocs more competitive, physically strengthening our North American trade bloc is an idea whose time has finally come. And fixing Sumas Prairie is a good place to start. É Carlo Dade is director of the Canada West Foundation’s Trade & Investment Centre.
THE NORTH AMERICAN TRADE BLOC IS ONE OF THE ONLY ONES WITHOUT A DEDICATED, INDEPENDENT, THIRD-PARTY ENTITY THAT COLLECTS DATA ON THE FLOW OF GOODS, PEOPLE AND SERVICES THROUGHOUT ITS INTEGRATED SUPPLY AND PRODUCTION CHAINS
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CYBERSECURITY THREAT LOOMS LARGE Escalation of cyberattacks threatens to cause massive supply chain disruptions
PHOTO: KOKOUU/GETTY IMAGES
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TIMOTHY RENSHAW
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ive years ago, the largest maritime container shipping company in the world was hit with a cyberattack that crippled its booking system, stalled tracking of its containers and disrupted operations at container terminals all over the world operated by its APM Terminals subsidiary. The financial cost to A.P. Møller-Mærsk was later estimated at US$300 million. The cost to its reputation is harder to distill into dollars and cents. Suffice it to say that it was significant. It was also a four-alarm cybersecurity wakeup call for Maersk. But, five years later, that alarm has yet to prompt widespread co-ordinated cybersecurity initiatives in the global shipping sector. As Lloyd’s List editor Richard Meade noted in introductory remarks for the U.K.-based shipping journal’s 2022 webinar on shipping sector cyber threats, industry surveys show now that cyberattacks and data theft “are routinely in the top three risks perceived by maritime businesses, but those same surveys routinely report that the industry is not fully prepared to tackle that risk.” It’s a risk that is escalating up and down the global supply chain. BlueVoyant’s second annual survey of cyber risk management in sectors ranging from financial services and health care to utilities and energy found “a fractured landscape, with different industries and regions responding differently to the challenges posed by another year of damaging, costly cyber events.” Those 2021 events included the SolarWinds cyberattack, which cost an estimated US$100 billion, according to the global cybersecurity company. BlueVoyant’s survey of 1,200 senior executives in Canada, the U.S., Germany, the Netherlands, the U.K. and Singapore found that 93% had suffered a cybersecurity breach and that the number of those breaches had increased 37% in the past 12 months. Meanwhile, PwC’s Canada Cyber Threat Intelligence report estimates that the average cost of a data breach in Canada is now $6.35 million, and that supply-chain-related cyberattacks are becoming more frequent and more complex. Globally, the annual cost of cyber crime to the world economy ranges anywhere from US$1 trillion
to US$3 trillion. “The prospect of a major cyberattack has loomed large over the [shipping] industry for many years,” Meade said, “but right now, the risk rates are flashing red.” Cyberattacks on major shipping lines and within the maritime goods movement supply chain have cost the sector hundreds of millions of dollars thus far. But that bill pales in comparison to the costs of a catastrophic physical loss of ships or environmental disasters from oil or chemical spills or supply chain chokepoints snarled as the result of a cybersecurity breach on a major shipping line. Shipping lines are especially vulnerable to cyberattacks because of the wide range of entry points to their navigation technologies and cargo handling, communications and management systems. This is in part because of the complexity of global goods movement and the number of different connections needed to co-ordinate that movement, and the regular crew changes and human resources ebb and flow it requires. But also, because, as Meade pointed out, the industry continues to be unwilling to “go public and share data, and partly because this remains steadfastly a reactive industry where safety improvements are only ever borne out of casualties.” Russia’s invasion of Ukraine accelerated the danger of cyberattacks for major shipping companies and infrastructure. And not necessarily as prime targets, but as collateral damage, says Bill Egerton, chief cyber officer with cyber insurance and risk management company Astaara.
THE PROSPECT OF A MAJOR CYBERATTACK HAS LOOMED LARGE OVER THE [SHIPPING] INDUSTRY FOR MANY YEARS, BUT RIGHT NOW, THE RISK RATES ARE FLASHING RED j Richard Meade Editor, Lloyd’s List
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CYBERSECURITY
Egerton says the war in Ukraine is providing cover for other groups to ramp up spam and hacking attacks “to make hay while the sun shines under cover of something else.” He estimates that those attacks have increased by 25% since the Russian invasion began. Egerton adds that the danger to shipping is more on the office side of the equation than on the vessel side, and points out that the attack on Maersk five years ago resulted from a 2017 Russian cyberattack on Ukraine. So, the problem for shipping is growing, Egerton says, “because [the] sheer volume of attacks is growing as well.” “We’re not just talking about the occasional ransomware attack.… What I’m saying is that the attacks that have happened and have come into the public domain have either been through nation states or their proxies or groups that have worked for these people in the past.” He adds that sharing data and experiences about cyberattacks and ransomware threats is a vital first line of defence for the shipping industry. Without that mutual cooperation in an industry that is extremely competitive and therefore notoriously averse to sharing data, it will lose “the ability to be able to learn from those areas and strengthen collectively.” Developing a mutual understanding of terms and language when it comes to managing cybersecurity risks and threats is fundamental to reducing those risks for major ports and shipping lines. As the International Association of Ports and Harbors (IAPH) notes in its Port Community Cyber Security report, “we take what is by nature a hard problem – that of understanding and managing organizational cyber risk – and make it more difficult and problematic when people neither perceive of, nor speak about, cyber risk management in the same way.” But sharing data and a common communication language is only one initiative needed to fill the many holes in shipping lines’ cybersecurity. Julian Clark, global senior partner at Ince, an international law and professional services company, told the Lloyd’s List webinar that educating and training ship crews, shipping company staff and management is critical. And that means providing much more than instruction in basic cybersecurity hygiene. He says there needs to be a game plan and training for what happens when a ship or a shipping line is hit with a cybersecurity breach or ransomware demand. Ships’ crews and shipping lines know immediately what to do if there is a collision or other shipping disaster. But when it comes to a cyberattack, Clark said, all bets are off. “Another thing that came out of the Lloyd’s List survey [of its shipping industry readers] was you’ve still got this issue of … what would happen if the company got hit by a major cyberattack this afternoon?” The answer, Clark added, would be confusion and uncertainty. Investing in cybersecurity safety training in the shipping sector is a fundamental first line of defence, and, to be effective, that investment cannot be a piecemeal nickel-and-dime approach.
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“The important thing is you need to recognize that this is an ongoing cost of doing business,” Egerton says. “It’s not about a oneoff hit and everything will be fine.” He adds that much of the training material being used by shipping lines today is ineffective because it is dated and generic. “It talks about stuff in the abstract rather than relevant to the vessel somebody is on or a company Bill Egerton is the chief cyber somebody’s working for. I officer with cyber insurance and think that sheep-dipping people for half an hour dorisk management company Astaara ing ‘mandatory training’ • SUBMITTED doesn’t help them do their jobs better. And you need much more role-specific training to make sure people understand how an attack can hurt their bit of the business.” Shipping also shares a fundamental human resources challenge faced by other industries: recruiting and retaining cybersecurity talent. The World Economic Forum’s 2021 Cyber Outlook Survey of 120 top executives from private and public companies in 20 countries found that 59% of respondents “would find it challenging to respond to a cybersecurity incident due to the shortage of skills within their team.” Again, data for different ships and different shipping operations is vital for any cybersecurity defence investment to be effective. “Understand what you need,” Egerton says, “and do this proportionately. Because … if you go and spend a lot of money, you may end up with a product that you can’t use, because it’s producing too much data in the form you can’t cognitively understand. So, I think it’s proportionality. It has got to be people and leadership focused. If the board don’t take this seriously it is not going to work.” He adds that there needs to be a clear line of sight and communication “from the board to the shop floor, so that everybody understands their role and their place in this, should [a cybersecurity breach] happen. “Cybersecurity is a risk that won’t go away. You cannot just do it once and then forget it.” Many major Vancouver-based shipping companies agree that there is a rising concern about the seriousness of cybersecurity threats in their industry, but declined comment for this article, citing an “abundance of caution” over concerns about raising their profiles and the potential for their businesses to become targets for international cybercriminals. É
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GREENER SUPPLY CHAINS
Talk, some action and a lot of opportunity to decarbonize local and global supply chains
ALBERT VAN SANTVOORT
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onsumer demands for cleaner, greener products and processes are making an impact throughout the supply chain. Businesses that do not directly sell to consumers, like the shipping giant A.P. Møller-Mærsk, are facing pressure to go green from customer-facing companies, like Walmart and other large retailers.
Investors are also looking for sustainable businesses, and many institutional investors are increasing their asset allocations in environmentally conscious companies. This shift in customer and investment sentiment has led to a barrage of press releases from companies and institutions that promote net-zero initiatives and commitments. But what does net zero really mean, and will net-zero commitments lead to a more environmentally friendly supply chain? The Sierra Club has argued that many corporate net-zero plans are merely public relations-driven pledges that rely on the purchase of carbon credits, and focus less on directly reducing emissions. Jane Lister, a research associate at the University of British Columbia (UBC) and the associate director for the Centre for Transportation Studies, says that focusing on offsets instead of making emissions reductions affects the overall feasibility of achieving the Paris Agreement’s goal of limiting global warming to 1.5 degrees Celsius. Pressure from investors and consumers is moving things forward, says Lister, but it is also safeguarding the status quo. She emphasizes the need for transformational change to truly make supply chains more
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environmentally friendly. “They’re definitely moving in the right direction and they’re addressing things, but they could be more transformative. They’re incremental steps that aren’t meant to change their business at all; actually, they are meant to increase their business,” Lister explains. “We can’t grow and shop our way out of this crisis.” Globalization and just-in-time inventory systems have made supply chains incredibly complex. A single product can be sourced, manufactured and eventually sold in completely separate regions. Your cellphone most likely contains raw materials mined in Africa, then shipped to Asia to be manufactured into phone parts, then sent to North America to be assembled and eventually sold to people around the world. Each one of these steps often requires carbon-intensive extraction or manufacturing processes, as well as energy required for transportation. Just-in-time inventory systems add another layer of energy consumption because these systems rely on continuous activity. For some, supply chain complexity makes the attainment of net-zero supply chains wishful thinking. “It’s very aspirational,” says Werner Antweiler, associate professor at UBC’s Sauder School of Business.
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Antweiler says it will be easier for short, regionally contained supply chains to become net-zero. For example, BC Ferries has taken on the initiative to electrify its fleet. But many products require inputs from multiple continents, and net-zero solutions for trans-boundary supply chains are more complex. The first hurdle, according to Antweiler, is transparency. Many supply chains involve so many players and processes that it becomes difficult to track each stage of a product’s creation and monitor where each producer sources its materials – let alone assess the environmental impacts of international production and extraction processes. In addition to this lack of supply chain transparency, Antweiler says that many aspects of decarbonizing a supply chain lie outside of a company’s control. This includes how the electricity and energy used by a corporation is produced. Despite challenges, greenwashing concerns and an overreliance on carbon offsets, Bentley Allan, a research fellow for green industrial policy with the Transition Accelerator, says there have been some concrete first steps to truly decarbonize parts of supply chains. In a recent press release, Maersk announced its plans to operate the first carbon-neutral liner vessel by 2023. The Port of Vancouver has also joined with Seattle and Alaska to explore the feasibility of a “green corridor,” which would encourage the use of zero-emission cruise ships. “There has definitely been some watering down of that term [net zero] across the economy,” says Allan. “But the way these things are currently getting operationalized, they’re really going to mean something and I think that’s
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BC Ferries has
committed to electrifying its fleet of vessels; Bentley Allan is a research fellow on green industrial policy with the Transition Accelerator ʰ SUBMITTED
going to be the case with green corridors, too.” British Columbia has an important role to play in decarbonizing global supply chains, and players within the province have already started taking initiative. Not only are B.C.’s ports working to decarbonize, but the province’s large and influential mining industry could help procure critical minerals needed to functionally shift parts of the economy to less carbon-intensive products. Allan says he has been in conversation with a big group of junior minors about developing large deposits with metals needed for batteries, such as nickel and copper. “The firms are really eager and there’s real opportunity for the Government of British Columbia to take some leadership here and really develop a strategy to be seen as provider of critical minerals the country and the world need as we transition to net zero,” says Allan. “We have a great talent pool and a real lead in different sectors of the net-zero economy here in Canada, but we could get blown out because we’re just sitting on our hands.” É
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