THE ST. LAWRENCE SEAWAY:
CAUSES OF ITS DECLINEAND FUTURE PERSPECTIVE

Paper Presented at the Annual Conference of The Canadian Transportation Research Forum: CTRF,
May 28-31, 1991, Québec City, Québec

by

Hazem Ghonima
President
TAF Consultantsä
Ottawa, Canada
E. mail: HazemGhonima@tafis.com


INTRODUCTION

The opening in 1959 of the North American hinterland to world shipping, following the construction of the St. Lawrence Seaway, has been of major importance to the economy of Canada and the U.S., particularly to the Great Lakes - St. Lawrence Seaway region. During the last decade traffic through the St. Lawrence Seaway has substantially declined from the records achieved in the late seventies. Grain, iron ore and coal movements, the major cargoes using the waterway, have all shrunk. This phenomena was accentuated in the second half of the eighties when the traffic was almost equivalent to that of the early sixties. As a result, the viability of the system has come under scrutiny, and uncertainty as to whether Seaway traffic can return to the record level of 1979 might be justified. A pessimistic scenario goes so far as to question the waterway's ability to maintain present traffic levels.

This paper will examine the major factors that influence the fluctuations of Seaway traffic in order to determine the causes of its decline and perspective for the future. Markets for major commodities using the Seaway will be described and alternative routes identified. Two scenarios of events likely to affect future traffic on the St. Lawrence Seaway will also be discussed.


BACKGROUND

The St. Lawrence Seaway is a system of fifteen locks and connecting canals and channels that are an essential part of the Great Lakes - Seaway Transportation System. It extends from Montreal to lake Erie and includes two sections: The Montreal - Lake Ontario Section (MLO), consisting of five Canadian and two U.S. locks, and the all Canadian Welland Canal with its eight locks. The waterway is administered by the Canadian St. Lawrence Seaway Authority (SLSA) and its U.S. counter - part, the Saint Lawrence Seaway Development Corporation (SLSDC).

The Seaway is used for the overseas and domestic shipments of bulk commodities as well as general cargo that is composed mainly of iron and steel products. This cargo traffic can be grouped under five major categories: grains (including wheat, coarse grains and oilseeds), iron ore, coal, other bulk (including coke, stone, salt, petroleum products, and all other bulk cargo) and general cargo (including iron and steel products).

In the first navigation season of the St. Lawrence Seaway, cargo traffic was about 19 Mt on the MLO section and 25 Mt on the Welland Canal. With periodic fluctuations, cargo movements grew steadily until they reached the all time record of 57.5 Mt on the MLO in 1977 and 66 Mt on the Welland canal in 1979. Since then, the Seaway has experienced a steady decline in its traffic. Iron ore movements were the first to show a substantial decline, followed by U.S.grain and then Canadian grain. By 1982, cargo shipments on the Welland canal and the MLO section had fallen to 49 Mt and 43 Mt respectively. The economic recovery that started in mid-1983 contributed to a slight rebound of the traffic in 1984, but this short recovery was followed, again, by a drastic decrease in the 1985 traffic. Despite a slight recovery during the three years that followed, the traffic dropped in 1990 to the lowest level since the early sixties, recording 39.4 Mt and 36.7 Mt on the Welland Canal and MLO section respectively. This is almost 5% lower than the average of the last five years on both sections of the Seaway and 25% and 20% less than the average for the last 20 years on the Welland and MLO respectively (Please see Chart 1).

Chart 1
CARGO TRAFFIC THROUGH THE SEAWAY
1959 - 1990

Red line = Welland traffic, Blue doted line = MLO traffic

 

CAUSES OF THE DECLINE OF SEAWAY TRAFFIC

The economic problem the Seaway is facing stems from the dynamic environment in which the waterway competes. As an integral part of the North American transportation system, the Seaway is competing with several alternative routes and modes for the movements of various commodities that flow between various North American and overseas supply and demand centres. The amount and direction of commodities flowing through this network is influenced by a multitude of economic, political and institutional factors, at domestic and global levels. Hence, the Seaway competes for its share of commodity flows within this global transportation marketplace and consequently fluctuation in its traffic reflects the dynamic of this environment. It is therefore imprudent to assess the behavior of the Seaway traffic on one factor or based on traffic fluctuations at a specific period. Consequently, the causes of the decline of Seaway traffic should be examined within the context of the global commercial transportation network over a wide period of time.

 

To determine the causes of the decline, cargo movements that contributed to the shrinkage of Seaway traffic will be first identified and their markets described. Analysis of Seaway cargo traffic from 1959 to 1990 indicates that iron ore, U.S. grain and Canadian grain were the major components of Seaway traffic that contributed to the decline of Seaway traffic. For example, the decreases of U.S. grain on the MLO section from an average of 8.1 Mt, during the last twenty years, to an average 4.9 Mt during the last five years, contributed 42.4% of the total decline in MLO traffic. Similarly, the decreases of iron ore on the Welland canal from an average of 11.6 Mt during the last twenty years to an average of 6.8 Mt, during the last five years, contributed 26.5% of the total decline in Welland traffic. Table 1 shows the contribution, in percentage terms and by order of importance, of major cargo in the decline of traffic on both sections of the Seaway during the last two decades (Please see Table 1). In the pages that follows we will examine the reasons behind the decline of those major cargo movements.

 

Table 1
MAJOR CARGO MOVEMENTS THAT CONTRIBUTED
TO SEAWAY TRAFFIC DECLINE

Cargo

MLO

Welland

U.S. Grain

-42.4%

-29.9%

Iron Ore

-26.5%

-42.5%

Canadian Grain

-24.8%

-18.2%

General Cargo

-03.2%

-04.0%

Other

-04.3%

-03.1%

Coal

+00.4%

-04.8%

Other Bulk Cargo

+00.8%

+02.5%

Note: negative (-) sign indicates declining impacts

 

Iron Ore Traffic

As shown on Table 1, iron ore movements were responsible for 26.5% of the MLO traffic decline and 42.5% of the Welland traffic decline during the last twenty years. Shipments of iron ore on the Seaway originate primarily from the Quebec-Labrador region. The ore is then brought south by rail to lower St. Lawrence ports and then moved by vessels to Canadian steel mills on Lake Ontario and to U.S. steel mills on Lake Erie. Part of the ore continues by rail to the Pittsburgh - Johnstown - Youngstown region. Substantial tonnage is also carried down through the Welland to the Hamilton area from U.S. mines in the Lake Superior region. Ore from Picton and Lake Ontario that once moved through the Welland Canal to the Buffalo area has disappeared in recent years.

Iron ore flows through the Seaway to the U.S. face direct competition from three major alternative systems: Quebec-Labrador ore transported by ocean vessel to U.S. Atlantic ports and then by rail to Johnstown-Youngstown-Pittsburgh region; U.S. Mesabi ore moved by vessel from Duluth-Superior to U.S. Lake Erie, and South American ore shipped by ocean vessel to U.S. Gulf and Atlantic ports. Similarly the flow of iron ore to Canadian steel mills competes with at least two alternative routes: shipments from Canadian Great Lakes and shipments from U.S. Mesabi range.

The size of the iron ore movements through the Seaway has been second only to grain traffic in importance. It increased from 5.6 Mt in 1959 to a record peak in 1977 when 20.2 Mt passed through the MLO section. In the following years, the traffic gradually declined and by 1982 it was only 7.4 Mt on the MLO. This, the lowest level since 1963, was caused by the prolonged economic recession that severely depressed the automotive and steel industries in North America that year. Despite a modest recovery in 1984, when the traffic reached 11.4 Mt, it was evident that a new situation - post 1977 - had developed. In 1986, the iron ore traffic on the MLO was 8 Mt; on the Welland, it dropped to the lowest level ever at 5.8 Mt. However, during the last three years, this traffic has slightly recovered and by 1990 it reached 11.5 Mt and 7.5 Mt on MLO and Welland canal sections respectively (Please see Chart 2).

Several factors determine the size of the iron ore traffic through the Seaway. Most important is the demand for finished iron and steel products in the U.S. and Canada. This, in turn, depends upon the general economic conditions and the steel usage factor in end markets. Other major factors include the share of domestic and imported steel in the total North American steel supply; steel-making technology; material uses as well as the performance of steel mills located within the Seaway region. For example, in 1978 when U.S.steel consumption was almost 99 Mt, the MLO iron traffic reached the record 20 Mt. But when the U.S. steel consumption dropped to only 69 Mt in 1982, iron ore traffic shrank to 7.4 Mt. Beside these demand factors, the size of the iron ore movements via the waterway depends on supply conditions as well as the ability of the Seaway to compete with alternative routes and modes. The latter factor will depend upon the efficiency of the waterway and is reflected in the total transportation charges. For example the 1977 Labour disputes in U.S. mines of Lake Superior reinforced the competitive position of the Seaway in that year. Nevertheless, the impact of this transportation cost is usually diluted by the vertical integration in the production, distribution and consumption of iron ore, which is a characteristic of this industry.

Chart 2
IRON ORE TRAFFIC THROUGH THE SEAWAY
1959 - 1990

 

Grains

 

Grain traffic through the St. Lawrence Seaway is composed mainly of Canadian and U.S. export movements that originate at the Great Lakes terminals and are destined to overseas markets. The greater part of this traffic is carried by Canadian lakers to lower St. Lawrence ports, such as, Quebec City, Baie Comeau, Port Cartier for transshipment to ocean vessels, while a smaller portion is dropped off for domestic use at Hamilton, Prescott, Toronto, Montreal and other river ports. An important portion of the U.S. grain flow is exported directly to overseas destinations in ocean vessels.

 

 

U.S. Grain Traffic

In terms of impact on the decline of Seaway traffic, U.S. movements were responsible for 42.4% of the MLO traffic decline and 29.9% of the Welland traffic decline over the last twenty years (Please see Table 1). U.S. grain exports move to overseas destinations from four major U.S. coastal areas: the Great Lakes - St. Lawrence Seaway, the U.S. Atlantic, the Gulf and the U.S. Pacific. Exports through the Seaway system originates at the U.S. Great Lakes terminals and are destined to overseas markets. When the Seaway opened in 1959, U.S grain traffic, on the Welland canal, amounted to 3.1 Mt. This movement reached the record level of 14.5 Mt in 1978. During this period, two major cycles occurred in which the traffic fluctuated sharply. A third major cycle started after 1979 and reached bottom in 1986 when U.S. grain traffic through the Welland canal dropped to 4.8 Mt. A short recovery brought this traffic to 6.0 Mt in 1989 before it declined once again to 4.2 Mt in 1990 (Please see Chart 3).

Chart 3
U.S.GRAIN TRAFFIC TROUGH THE SEAWAY
1959 - 1990

The level of U.S. grain traffic through the Seaway depends mainly on the amount of U.S. grain exported during the months of April to December of a specific year and on the demand from traditional Seaway grain markets in Western Europe and, to a lesser degree, in North Africa and the Middle East. The causes of the decline of this traffic can therefore be explained by examining the patterns of total U.S. grain exports. For example it is a fact that the decline in demand from the European market in the last few years has had a drastic impact on the amount of U.S. grain exported via the Seaway. During the 1983-87 period, Western Europe was the biggest market for U.S. grain exported via the Seaway, representing an average of 43% of total U.S. grain exports through this outlet. North Africa - Middle East were second in importance, accounting for 29%, followed by the Soviet Union (7%), Eastern Europe (4.4%), Latin America and Asia with each (4%). Because of the diminishing share of Western Europe of the total U.S. grain exports in recent years, the Seaway share for moving U.S. grain gradually declined to only 4.5 percent in 1988. Meanwhile, the U.S. Gulf and the U.S. Pacific outlets both increased their share to 66% and 24 % respectively as their traditional markets, particularly in Asia, gained in importance.

 

The capacity of the U.S. grain transportation system also has an important impact on the level of U.S. grain exported through the Seaway. For example, in years when world grain demand was high and the U.S. economic situation was robust, the flow of various commodities through the U.S. transportation system flourished and the U.S. transportation system tended to experience capacity limitations. Therefore, the Great Lakes - Seaway system, which acted as a safety valve, by handling the grain overflow, experienced a sharp increase in its U.S. grain traffic. But with depressed economic situation in the U.S., commodity movements through the overall U.S. transportation system declined. Therefore, the available capacity of this system artificially increased and transportation rates, particularly that of the Mississippi barge, somewhat fell and consequently the competitive advantage of the Seaway diminished.

 

The U.S. Staggers Act, which became law in October, 1980, brought several changes in rail rate regulation that contributed to reducing the cost of moving U.S. grain by rail. Nevertheless, this factor by itself did not influence significantly the decline of U.S. grain exports via the Seaway. In fact, grain exported through the Atlantic has been higher in absolute terms and in percentage share than U.S. grain shipped through the Seaway since 1974, six years before the Staggers Act. Also, since 1986, the Seaway share of total U.S. grain exports has surpassed that of the Atlantic outlet. An important factor regarding the higher grain exports via this eastern terminal is the timing of grain shipments. When shipments are strong during the first three months of the calendar year, the U.S. Atlantic outlet seems to gain the upper hand in cumulative grain exports for the year. But in a year when U.S. grain exports are soft during the first three months, the cumulative traffic advantage tends to shift to the Seaway since the waterway usually moves more U.S. grain exports than the U.S. Atlantic outlet during the remainder of the season.

 

Canadian Grain Traffic

In terms of impact on the decline of Seaway traffic, Canadian grain movements were responsible for 24.8% of the MLO traffic decline and 18.2% of the Welland traffic decline over the last two decades (Please see Table 1). Canadian grain is transported to markets via four Canadian alternative routes: the Great Lakes - St. Lawrence Seaway system, including Thunder Bay direct and transshipment in the lower St. Lawrence, the all-rail route to the Canadian Pacific seaboard, the Atlantic seaboard and Churchill. While all grain shipped to the Pacific is for export, grain moving eastward by water is for export and domestic use, both of which contribute to the Seaway traffic.

Since the opening of the Seaway in 1959, Canadian grain traffic through the waterway increased steadily from about 4 Mt to the record level of 17 Mt in 1983, representing 35% of the total Seaway traffic on the Welland Canal. In the following years, the softening of the world grain trade market coupled with depressed ocean rates brought about a significant reduction in this traffic. By 1989 this traffic on the Welland dropped to a record low of 5.8 Mt before it resurged back to a modest 8.2 Mt in 1990 (Please see Chart 4). The causes of decline of this traffic can be determined by examining the role the waterway plays in the Canadian grain export industry.

Chart 4
CANADIAN GRAIN TRAFFIC THROUGH THE SEAWAY
1959-1990

 

Canadian grain shipped through the Seaway depends on world grain demand and to a larger degree, on grain demand from traditional markets in Europe, the Soviet Union and North Africa - Middle East as well as on the available capacity of the Canadian Pacific outlet. During the 1983-87 period, on the average, 36% of the total Canadian grain exports went to Asia, 23% to the Soviet Union, 14% to North Africa - Middle East, 9% to each Western European and Latin American markets, 4% to each Eastern European and U.S. markets and 1.5% to Other Africa.

 

During the same period, the U.S.S.R market accounted for 40% of all Canadian grain exported through the St. Lawrence Seaway, followed by Western Europe (17%), North Africa - Middle East (16%), Latin America (13%), U.S.A. (5%), Eastern Europe (4%) and Other Africa and Asia with each 2%. In contrast, the market for Canadian grain exported through the Canadian Pacific seaboard outlet is concentrated in Asia, which during the 1983-87 period averaged 69% of total grain exported from this outlet.

In 1989, the shares of Western Europe and the Soviet Union of the total Canadian grain exports diminished to 7 % and 11.5% respectively. In contrast the Asian market - a traditional Pacific market - increased its share to a dominant 37% of the Canadian grain exports. Therefore, with increasing demand from Asia relative to the demand from Western Europe and the Soviet Union, the Seaway share of total Canadian grain exports that averaged 47% during the 1983-87 period dropped to 27% in 1989.

 

In addition, serious supply problems in Canada, caused by two consecutive years of drought, worsened the already weakened Canadian grain position. As a result, Canadian grain shipments via the Seaway in 1985 dropped by 30% Mt from the 16 Mt level of 1984 to 11.3 Mt. Moreover, since 1985, and for the first time in more than a decade, the waterway's share of total Canadian grain exports dropped below that of the Pacific outlet. This situation coincided with the implementation of the Western Grain Transportation Act (WGTA). The latter has added, in recent years, a new factor in the shaping of Canadian grain distribution pattern that may have contributed to the distortion of the true economics of Canadian grain transportation system. As a result, it appears that the competitive position of the Seaway vis-a-vis the Pacific outlet has deteriorated, particularly when world grain trade is soft and ocean rates are depressed. Reinforcing this finding is the fact that the sharp drop in the 1985 traffic was expected to be corrected once Canadian grain exports rebounded. This did not materialize. On the contrary, despite a noticeable rise in total Canadian grain exports in 1986, the Seaway share continued to drop while the Pacific share increased.

 

 

 

General Cargo

 

In terms of impact on the level of Seaway traffic, general cargo movements were responsible for 3.2% of the MLO traffic decline and 4.0% of the Welland traffic decline over the last two decades (Please see Table 1). Iron and steel products are classified, in terms of Seaway toll classification, as general cargo. Over the years these semi-finished steel products have increased consistently in importance within the general cargo category as other general cargo traffic declined, to the point where the iron and steel products currently represent 94 percent of the total general cargo traffic on the Montreal - Lake Ontario section and 93 percent on the Welland Canal.

 

General cargo traffic through the Montreal to Lake Ontario section grew from an estimated 1.8 Mt in 1959, to the record high of 7.8 Mt in 1971. During the following year, this movement experienced several sharp fluctuations and in 1990 was at 3.8 Mt level. On the Welland Canal, general cargo traffic, always somewhat lower than on the MLO section, was 1.7 Mt in 1959. This traffic peaked in 1971 to 7.0 Mt and similarly, after several sharp fluctuations, it settled at 2.9 Mt level in 1990 (Please see Chart 5).

 

The levels of the iron ore and steel shipments through the Seaway are the function of highly complex forces, including world iron and steel supply and demand, the U.S. steel industry situation, the trade policy concerning steel imports to the U.S and the technological development of the U.S. and Canadian steel industry. Almost 90% of the iron and steel products are imports from Western Europe destined for upper U.S. Great Lakes' ports. The principal countries of origin are: Belgium, the Netherlands, the United Kingdom, West Germany and Japan. To a much lesser degree, U.S. exports abroad and Canadian imports from overseas (transiting only the Montreal to Lake Ontario section) have utilized Seaway facilities. Only very small amounts of the U.S. - Canada trade, Canadian and U.S. domestic shipments, or Canadian steel exports abroad, travel via the Seaway.

 

The principal U.S. ports of destination on the Great Lakes - St. Lawrence Seaway are: Chicago, Cleveland, and Detroit. These flows are reflected in the MLO and Welland tonnages. Almost all U.S. steel imports moving via the Seaway transit both sections en route to the U.S. Great Lakes ports west of Lake Ontario. Most of the Canadian Seaway steel imports, on the other hand uses only the MLO section as these cargoes are destined to Hamilton and Toronto. Steel imports via the Seaway to U.S. destinations peaked in 1971 at 5.0 Mt, but since then, tonnage has declined substantially reflecting the deteriorating situation of the U.S. steel industry, the protectionist policy adopted by the U.S. Government and the competition of several alternative routes. In 1988, the level of this iron and steel flow was reduced to 2.5 Mt. In contrast, imports to Canada grew slowly but steadily since the opening of the waterway to reach the record level of 1.5 Mt in 1988.

Chart 5
GENERAL CARGO TRAFFIC THROUGH THE SEAWAY
1959 - 1990

Coal Traffic

 

In terms of impact on total Seaway traffic, coal movements were responsible for 0.4% of the rise in the MLO traffic but contributed 4.8% of total decline in the Welland traffic over the last twenty years (Please see Table 1). Coal transported through the Welland section represents the third largest commodity movement on the waterway. It originates primarily from mines in the U.S. Mid-West and is shipped by rail to Lake Erie ports where it is transferred to lake vessels for shipments through the Welland Canal to Ontario Hydro's thermal coal-fired stations and the steel-making plants located on Lake Ontario. Ontario Hydro operates one coal-fired station and one dual coal/gas-fired station. Of the three major steel-making industries in Ontario, only Stelco and Dofasco have metallurgical coal-consuming plants within the Seaway region. Cement plants and other users on Lake Ontario and below also generate a small amount of thermal coal traffic on the waterway.

 

 

Coal traffic on the Welland peaked from only 4.4 Mt in 1959 to the record level of 9.8 Mt during 1969 and 1970. In the years that followed, it gradually declined until it reached the bottom level of 5.5 Mt in 1983. With the strengthening of the economy, as well as for stock-piling purposes, this traffic fluctuated between 5.6 Mt and 7 Mt during the1984 - 1990 period (Please see Chart 6). During the 1981 navigation season, about 1.6 Mt of U.S. thermal coal were exported to Europe via the Seaway, contributing to a sudden surge in coal traffic through the MLO section of the Seaway. Originating from the American Mid-West, this coal was taken to the lower St. Lawrence by lakers and then transshipped to ocean-going vessels bound for the European market. The primary reason for this development was the sudden increase in coal demand as a result of the escalating price of petroleum coupled with the unstable political situation in Poland, a major coal exporter to Europe. Given the labour problems that temporarily limited the potential of the South African and Australian suppliers at that time, the U.S. coal exports were the only alternative to meet the sudden demand. This contributed to congestion problems in the U.S. coal transportation system, resulting in increased demurrage costs and, consequently, justifying exports of a portion of this U.S. coal through the Seaway. With the elimination of most of these factors in recent years, and particularly with falling oil prices, this traffic gradually diminished.

Chart 6
COAL TRAFFIC THROUGH THE SEAWAY
1959 - 1990

 

OTHER FACTORS

Despite the substantial increases in Seaway toll levels since 1977, this component of the transportation costs still represent a small portion of the total costs of moving cargo through the Great Lakes - St. Lawrence Seaway system. Therefore, their impact on the decline of Seaway traffic is still insignificant particularly when assessed in isolation from other components of the total transportation costs. Nevertheless, continued escalation of lockage fees on the Welland canal along with other costs could, in the future, have a negative impact on some components of Seaway traffic.

The U.S. Water Resources Development Act of 1986 contains revenue provisions under a separate act entitled the Harbour Maintenance Revenue Act; this was imposed on U.S. ports on April 1, 1987. The amount of the tax is 0.04% of the value of the commercial cargo involved. It is paid by the importer when cargo enters the U.S. and by the exporter when cargo is exported from the U.S. and by the shipper in any other case. Under this Act Seaway tolls are rebated to persons who paid the tolls to the extent of the American portion of the tolls (25%) levied on the MLO section of the Seaway. This toll rebate applies to both American and Canadian traffic irrespective of whether or not there has been a call at a U.S. port. Although the combined impact of the U.S port use tax and the SLSDC toll rebate may appear to benefit certain components of the Seaway traffic, particularly iron ore, in practical terms, the net effect should be insignificant. This is mainly due to the fact that major cargoes using the Seaway are more sensitive to market demand than to slight fluctuations in the differential rates existing between alternative modes and routes. Moreover, despite the modest revenue which may accrue to Seaway carriers as a result of the SLSDC toll rebate, the magnitude of this differential gain, relative to the value and total transportation cost of major cargoes, should not alter the actual traffic situation.

While it may sometimes be difficult to identify the damage a strike or accident may cause in terms of traffic lost to alternative routes or modes, it is evident that such incidents suggest instability within a system and may instill doubt and/or non-confidence in the minds of shippers. Nevertheless, no substantial evidence was found to suggest permanent damage to Seaway traffic as a result of strike or accidents.

FUTURE PERSPECTIVE

A serious challenge to the waterway's economic viability is the shape of world trade pattern in the future. Global trends indicate that the future will bring much tougher competition among trading nations resulting in a significant change in world trade patterns. Developments in demographic, political, economical, energy, technological and ecological fields will certainly contribute to strong fluctuations in world demand and supply of major commodities during the next two decades. Among the major economic and political factors contributing to this situation are: the removal, after 1992, of the remaining trade barriers among the 12 members of the European Community; Canada and U.S. freer trade and the potential Mexican trade connection; the faith of "Perestroika" i.e the restructuring of the Soviet economy; the rapid political and socio-economic changes evolving in the Soviet Union and Eastern Europe; development in other emerging trade blocs in East Asia and in the South Pacific and finally the economic and political uncertainty in the Middle East as a result of the Gulf war.

North American transportation policy is expected to evolve to cope with the new political and economic world order and consequently cargo movements through the Great Lakes - St. Lawrence Seaway will be affected. The level of traffic that will use the waterway will depend on the scenario of events prevailing at that time. Two perspective scenarios from which we can derive future lower and higher cargo levels through the Seaway are described below.

The terms optimistic and pessimistic scenarios used in this report are relative and refer to future conditions of the major factors which should contribute to a higher and lower levels of cargo traffic through the St. Lawrence Seaway respectively. The following are assumptions for the two scenarios.

OPTIMISTIC SCENARIO

In this scenario, a steady growth in the world economy, which will be accompanied by a relative increase in energy consumption and healthier oil prices, is anticipated. Globalization will be the norm for business to respond to a world market already made smaller by telecommunications and larger by a more balanced share of wealth between the U.S., Western Europe and East Asia. As a result more trans-border joint ventures and mergers should evolve as corporations seek global linkages. World trade liberalization and business internationalization are expected to substantially increase world trade particularly in an eventual new economic and political order. Consequently, North American trade will benefit and traffic through the Seaway should grow.

Removal of internal barriers in the E.E.C. should be beneficial to the trade between two major western blocs as long as the process opens the market to international trade. Increasing trade among the two major Western economies should prompt Western Europe to soften its position on agriculture subsidies. Subsequently, a solution will be found to end agriculture trade war with the U.S.. As a result, seaborne trade, particularly that of grains, between the two western markets through the Atlantic ocean, will grow .

With healthier oil prices developing countries would be able to reduce their financial debt and increase their cash trade with the North American and Western European trade blocs. Thus, U.S. and Canadian exports, particularly grain to these markets should grow.

This scenario also assumes that the restructuring of the Soviet economy will achieve some progress. As a result, rapprochement with the Western world should materialize and with it the end of the cold war. Consequently, substantial increase in trade between the two previous enemies is expected. Moreover, the rapid political and socio-economic changes in Eastern Europe will most probably make the economy of Eastern Europe less dependent on the Soviet economy and therefore its trade relationship with Western Europe and North America should substantially increase in the longer term.

The negative impact of the WGTA on Canadian grain exports through the seaway will be diluted as a result of stronger world grain markets, relatively higher ocean rates and domestic efforts to remove the distorting effect of this Act. Consequently, the Seaway share of total Canadian grain exports will improve.

Moderate success of the U.S. Bonus Incentive Commodities Export Program (BICEP) and the cessation of the agriculture trade war thereafter will allow the U.S. to regain its market share in world grain trade. Therefore, U.S. grain exports will be higher than in the 1980's and the Seaway's share of the total U.S. grain exports will rise to a healthier level.

With a freer world trade and growing economy, North American steel demand should relatively grow. This will be accompanied by a gradual increase in iron and steel imports in the U.S.. Moreover, the modernization of steel mills within the Great Lakes - Seaway Region should slightly improve their share of total U.S. steel production. As a result, iron ore shipments through the waterway will be maintained above the levels during the 1980's. Meanwhile, other bulk cargo will continue its gradual growth in the future.

PESSIMISTIC SCENARIO

In a pessimistic scenario, a slowdown in the world economy and the extension of agriculture trade war on subsidies are anticipated. Emerging world trade blocs would reduce internal barriers while raising external ones that might prompt a western hemisphere trade war and weaken international trade. World grain trade would soften as a result of partial implementation of self - sufficiency grain policy in several importing regions, continued trade war between the E.E.C. and the U.S., and the mounting debt of developing countries. Consequently, North American trade will suffer and traffic through the Seaway should further decline.

The Canadian grain industry will continue to face a competitive market as a result of the unresolved agricultural trade war, and increasing dependence of developing countries on food aid programs. Meanwhile, the Canadian Wheat Board's choice to export grain through the Pacific terminals will continue due to advantageous domestic transportation rates - a result of the WGTA. Consequently, the Seaway share of total Canadian grain exports will remain below 30% percent particularly since market in Asia should grow relatively faster than traditional Seaway markets in Europe.

In this scenario, the share of U.S. grain exports of world grain trade is expected to decline due to fierce competition in world markets. Consequently, the Seaway share of total U.S. grain exports will remain below 5%, particularly since barge rate, along the Mississippi - Gulf route, will soften as a result of slow economic conditions.

With an economic slowdown steel demand will decline prompting a reduction in U.S. raw steel production in steel mills located within the Great Lakes-Seaway region. Consequently, iron ore movements through the Seaway should diminish. The decline in the demand for steel will also reduce its imports from overseas, particularly since protectionist policy should be anticipated. As a result, iron and steel imports to the U.S. via the Seaway should decline.


CONCLUSION

As described in this paper the causes for the decline of Seaway traffic are numerous and complex. Nevertheless, two factors that occurred during the last two decades could be considered as the major causes for the decline of Seaway traffic. These are: 1) the restructuring of the U.S. steel industry that necessitated a substantial reduction in the capacity of U.S. steel mills serving the Seaway and, 2) the decreases in demand for U.S. and Canadian grains from West Europe. Almost all the other factors that caused the decline of the traffic can be downwardly or upwardly related to those two factors. Finally, future perspective for Seaway traffic will depend on the scenario created by events prevailing at the time. An optimistic scenario will necessitate a world trade liberalization in addition to a steady growth in the world economy. Consequently, North American trade will strengthen and traffic through the Seaway could grow. In a pessimistic scenario, a slowdown in the world economy, and emerging trade blocs that reduce internal barriers while raising external ones will prevail. That might prompt a western hemisphere trade war and weaken international trade. Consequently, U.S. and Canadian overseas trade will soften and Seaway traffic decline (Please see Table 2).

Table 2
THE SEAWAY TRAFFIC: CAUSES OF ITS DECLINE AND FUTURE PERSPECTIVE

Cargo

Major Flows

Traffic Situation

Causes

Perspect.

       

Mt

Can. Grain

Welland

Strong fluctuation/ Supply - Demand

Ps 8.0

  Canada to Canada (Tras.) Recently sharp decline below trend Market pattern

Op 11.6

  Canada to Over. RY 83/ 17.1 Mt - LY 89/5.8 Mt WGTA  
         
U.S. Grain

Welland

Strong fluctuation/ Supply - Demand

PS 4.4

  U.S. to Over. Recently sharp decline below trend Market pattern

Op 6.9

  U.S. to Canada RY 78/ 15.6 Mt - LY 90/ 4.2 Mt Mississippi capacity  
         
Iron Ore

MLO

Strong fluctuation/ Economic situation

Ps 10.3

  Canada to Canada /Up Recently slight increase below trend Supply - Demand

Op 11.8

  Canada to U.S./Up RY 77/ 20.2 Mt- LY 82/ 7.4 Mt Trade Policy  
      Technology  
 

Welland

Strong fluctuation/  

PS 6.2

  Canada to Canada /Up Recently slight increase below trend  

Op 7.8

  Canada to Canada /Down RY 77/ 19.9 Mt- LY 86/ 5.8 Mt    
  U.S. to Canada/Down      
         
Coal

Welland

Strong fluctuation/ Supply/Demand

PS 6.2

  U.S. to Canada/Down Recently slight increase below trend Ontario Hydro

Op 7.1

  U.S. to Over./Down RY 69/9.8 Mt- LY 83/ 5.5 Mt Steel Mills  
      Alternative source  
         
 

MLO

Strong fluctuation  

PS 0.4

  Canada to Canada/Up Recently slight increase above trend  

Op 0.7

  U.S. to Canada/Down RY 81/1.7 Mt- LY 74/0 .18 Mt    
  U.S. to Over./Down      
         
Other Bulk

Welland

Strong fluctuation Economic situation

PS 10.0

  All directions Upward trend since 1984 Supply/Demand

Op 11.2

    RY 79/13.4 Mt- LY 82/7.6 Mt Trade Policy  
      Oil Pice  
 

MLO

Strong fluctuation  

PS 8.5

  All directions Upward trend since 1984  

Op 10.0

    RY 79/11.4 Mt- LY 82/6.7 Mt    
         
General Cargo

MLO

Strong cyclical fluctuation Economic situation

PS 3.6

  Over. to U.S./Up Declining trend Supply/Demand

Op 4.7

  Over. to Canada/Up RY71/7.8 Mt - LY 80/2.5 Mt Trade Policy  
  Canada to Overs./Down   Technology  
  U.S. to Over./Down      
         
 

Welland

Strong fluctuation  

PS 2.8

  Over. to U.S./Up Declining Trend  

Op 3.8

  U.S. to Over./Down RY71/7.0 Mt - LY 80/1.6 Mt    
         
NOTE: RY = Record Year LY = Last Year    
  Over. = Overseas    

BIBLIOGRAPHY

Agriculture Canada, Market Commentary, 1989.
American Iron and Steel Institute, Annual Statistical Report, 1986.
American Iron Ore Association, Iron Ore, 1987.
Canada Grains Council, The St. Lawrence Seaway: A Critical Transportation Route, 1987
Canadian Grain Commission, Canadian Grain Exports, 1987-88.
Canadian Wheat Board, Annual Report, 1987-88.
Dept. of Army Corps of Engineers, Waterborne Commerce of The United States, 1985.
Gennifer Sussman, The St. Lawrence Seaway: History and Analysis of A Joint Water Highway, C.D. Howe Research Institute, National Planning Association, 1978.
Ghonima, H., Transportation Rates and Seaway Competitiveness for Moving Canadian Grain, Presentation to CTRF, 1988.
Ghonima, H., Transportation Rates and Seaway Competitiveness for Exporting U.S. Grain, Presentation to CTRF,1989.
Ghonima, H., An Overview of the Great Lakes - St. Lawrence Seaway Traffic and Trends. A report prepared for the Economic Analysis and Marine Policy and Programs, Transport Canada, 1990.
Projet Saint-Laurent, Le Saint -Laurent: ressource nationale prioritaire, 1985.
St. Lawrence Seaway Authority, (The), and Saint Lawrence Seaway Development Corporation, (The), The St. Lawrence Seaway Traffic Report, 1960 to 1989.
TAF Consultants, Commodity Flow Information System (COMFIS).
TAF Consultants, Commodity Flow Reports: Canadian Grain, 1990.
TAF Consultants, Commodity Flow Reports: U.S. Grain, 1990.
The Research and Traffic Group, The Great Lakes and St. Lawrence Seaway System Commercial Attractiveness and Priorities for Policy Development. A report prepared for Ontario Ministry of Transportation, 1990.
U.S. Dept. of Commerce, International Trade Administration, 1990 U.S. Industrial Outlook, 1990.
U.S. Dept. of Transportation, St. Lawrence Seaway Lock Expansion Study: Report of the Secretary of Transportation to the United States Congress, 1987.


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Revised: January 09, 2005