Canada-Europe FTA Will Benefit Montreal Throughput

The signing of a free trade agreement (FTA) between Canada and the European Union will have a positive impact on transatlantic trade between the two, with the port of Montreal on the country's eastern coast well positioned to benefit from the deal. The UK and Europe together make up the largest share of cargo traffic at Montreal; we believe that tariff-free access between importers and exporters from both offers upside risk to Montreal's throughput over the medium to longer term.

Canada's new free trade deal with the European Union, which was agreed in October 2013, will be a positive step for both parties, with the North American nation's second-largest container port, Montreal, most likely to benefit from a potential rise in transatlantic trade. Montreal Port Authority CEO Sylvie Vachon has said that the agreement will be a 'door opener' and encourage trade between North America's industrial heartland and Northern Europe.

The free trade agreement will allow Canadian exporters tariff-free access to the EU's market of 500mn consumers. Importers will also benefit from reduced prices for European products. The agreement is expected to take two years to ratify and will be phased-in over seven years.

Back Into Positive Territory
Port Of Montreal Container Throughput, 2008-2017 (TEUs & % chg y-o-y)

Canada-Europe FTA Will Benefit Montreal Throughput

The signing of a free trade agreement (FTA) between Canada and the European Union will have a positive impact on transatlantic trade between the two, with the port of Montreal on the country's eastern coast well positioned to benefit from the deal. The UK and Europe together make up the largest share of cargo traffic at Montreal; we believe that tariff-free access between importers and exporters from both offers upside risk to Montreal's throughput over the medium to longer term.

Canada's new free trade deal with the European Union, which was agreed in October 2013, will be a positive step for both parties, with the North American nation's second-largest container port, Montreal, most likely to benefit from a potential rise in transatlantic trade. Montreal Port Authority CEO Sylvie Vachon has said that the agreement will be a 'door opener' and encourage trade between North America's industrial heartland and Northern Europe.

The free trade agreement will allow Canadian exporters tariff-free access to the EU's market of 500mn consumers. Importers will also benefit from reduced prices for European products. The agreement is expected to take two years to ratify and will be phased-in over seven years.

According to data from the Montreal Port Authority, the UK and Europe combined made up the largest percentage cargo handled at the port, accounting for a 29.7% share in 2012. The breakdown of cargo throughput at Montreal is spread among containerised goods, liquids and dry bulk. We see this new trade deal as having a positive impact on throughput traffic at the Canadian port, as tariff-free trade will entice importers and exporters from both parties into doing business with one another.

The new trade deal comes at a difficult time for Montreal as Canada's second-largest box port experienced a tough 2012. In 2012 Montreal's box throughput declined by 28.6% year-on-year (y-o-y) reaching 1.38mn twenty-foot equivalent units (TEUs). We are forecasting a continued decline, albeit much slower, in 2013 of 1.0% y-o-y to reach 1.36mn TEUs by the end of the year.

Over the medium term (2013-2018) BMI is projecting a more promising outlook for container throughput at the port, with box volumes projected to expand by 14.8%, an annual average increase of 2.6% to reach a throughput level of 1.56mn TEUs in 2017. As the effects of the new trade deal begin to be felt by Canada's economy in the years ahead, we believe the deal will offer upside risk to our current forecasts over the medium to longer term.

Back Into Positive Territory
Port Of Montreal Container Throughput, 2008-2017 (TEUs & % chg y-o-y)

Canada's liner connectivity has also suffered over the past year. This is not so much to do with Canada becoming less connected, as with its peers overtaking it. The country holds a respectable position within UNCTADstat's Liner Connectivity Index, ranking 34th out of 157 countries globally in 2013. However, in comparison with its developed state peers Canada's liner connectivity position has dropped from 10th place out of 21 in 2004 to 15th place in 2013.

In a North American Free Trade Agreement (NAFTA) comparison - of which Mexico, the US and Canada are signatories - the US' liner connectivity is understandably the outperformer of the three members. Canada had always previously been ranked second; however, this changed in 2012, with Mexico overtaking Canada in terms of liner connectivity. As Canada's latest free trade agreement with the EU comes into effect, we believe that there is potential for Canada to become better connected and even retake its second-place position. In addition to this, as of May 2013 the Canadian Coast Guard has given authorisation to the passage of vessels that are 44m wide, meaning ships of a larger size will be able to pass through the St Lawrence Waterway, which will enable the port of Montreal to be able to handle larger vessels and so greater volumes of cargo.

Developments in Canada's ports could also increase container lines' interest in the country. The Montreal Port Authority has set a target of increasing capacity to 3.6mn TEUs by 2020. A four-phase development plan has been outlined by the port authority. The project is expected to cost in the region of CAD2.5bn (US$2.4bn), of which between CAD450mn (US$430mn) and CAD650mn (US$620mn) will come from state funding and the rest from private investors. Phases I and II are seeing unused land at the port converted into additional container terminal space between 2009 and 2013. Phase III will see a new container terminal built at either the eastern zone of Montreal or at the Contrecoeur area of the city between 2011 and 2015. Phase IV will see a second container terminal built in Contrecoeur between 2017 and 2020.

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