To address the threat of interrupted operations at the Port of Montreal, the Acronyme team examined the economic impacts of a possible temporary closure of port facilities.
In the wake of the August 21, 2020 truce between the Maritime Employers Association (MEA) and the dockworkers’ union at the Port of Montreal (CUPE 375), negotiations are still underway to renew the collective agreement for the next few years.
The Port of Montreal is Canada’s second largest port. It welcomes close to 2,000 cargo ships per year carrying over 40 million metric tons (tonnes) of cargo. As such, it is a critical component for the whole economy of the city, the province and the rest of the country, and any prolonged interruption of its operations has significant economic consequences.
We set out to measure the economic impact of a prolonged cessation of activities at the Port of Montreal, and concluded that the economic impact of a ten-day shutdown would range from $10 million to $25 million per day.
To achieve this, we selected three methods that substantiate this order of magnitude:
1. The first method consists of deducing loss of earnings as well as losses and penalties from the operational shutdowns by using the public data in the study conducted in 2017 by E&B Data, and on the basis of container volumes and the contribution of the various factors of production arising from the cessation of activities. This method yielded a range of between $4.9 million and $6.2 million.
2. The second method consists of inducing a cumulative cost, using market data gathered from various supply chain players. These data include the compensation of the Port’s direct and indirect employees, the costs of diverting containers, the operating costs of laid-up vessels, as well as penalties and other costs associated with the storage of goods. This method yielded a range of $4.2 million to $6.3 million per day in the short term (1-5 days), $18 million to $24 million per day in the medium term (5-10 days), and $23 million to $28.9 million per day if the persists (10 days or more).
3. Lastly, we collected documented analyses of work stoppages at other North American ports, including Los Angeles and Vancouver. Based on the data obtained in these situations, and recognizing the considerable differences in volume and integration with the respective economic systems of California and British Columbia, the aim was to establish a cost per day per container, which was then applied to current container traffic at the Port of Montreal (1,750 million twenty-foot equivalent units [TEUs] per year, or 4,795 containers per day on average). This method yielded actual impacts of an extended strike in the range of $9.6 million to $53.6 million.
These three approaches made it possible for us to confirm that the economic impact of a prolonged interruption of port operations is between $10 million and $25 million per day.Francis Gosselin, Co-founding Partner at Acronyme
The second part of our analysis was to analyze the consequences of a longer interruption, and the additional costs generated by specific shortages of goods and materials resulting, first, in an increase in the price of inputs and, second, in operational disruptions and supply problems for products such as electrical machinery and appliances, foodstuffs, textiles and textile products.
These secondary impacts are difficult to quantify as they affect industries as diverse as construction, automotive and agriculture. We briefly looked at these three industries to estimate the subsequent impacts that could occur in the event of a disruption to normal activity.
In the construction industry, work-site closures due to material shortages will have an economic impact on the ability of operators to maintain work sites. We estimate that the effect on labour may amount to $2 million per day of disruption. Similarly, the shortage will have an inflationary effect on the value of materials. In total, it is conservative to expect the secondary effect on the construction industry of a Port shutdown will be a minimum of $4 million per day from the tenth day onwards.
In the automotive industry, we examined the impact on manufacturing and assembly. Retail sales are not likely to be permanently affected despite the delays; households will postpone their buying decisions. We estimate that a 5%-15% disruption to these activities could result in an economic impact of $1.19 million to $3.6 million per day.
In the agricultural sector, a major contributor to the GDP in Quebec and Canada, a shortage of fertilizers and other inputs could have fairly serious economic impacts. For example, a 2% decrease in agricultural production in Quebec would have an impact of over $1 million per day of disruption.
Lastly, a longitudinal study would make it possible to analyze the long-term impacts of the breakdown in trust between shipowners and the Port of Montreal, which could lead to a permanent rerouting of certain routes to logistics hubs that they see as more reliable. Bloomberg reports that Hapag-Lloyd has notified its clients by email to divert from Montreal in anticipation of a possible strike. The message sent to businesses could damage the reputation of and confidence in not only the Port of Montreal, but also the entire supply chain in Canada.
This lasting impact is not immediate, but could result in several hundred million dollars in cumulative losses over the coming decades.