GENERAL ARTICLES

CANAL VERSUS FREE

The Case for Tolls in Canada

KENNETH R. WILSON January 15 1934
GENERAL ARTICLES

CANAL VERSUS FREE

The Case for Tolls in Canada

KENNETH R. WILSON January 15 1934

CANAL VERSUS FREE

The Case for Tolls in Canada

KENNETH R. WILSON

A SLEEK SHIP laden with prairie grain steams past the Government elevator at Pcrt Colborne into the huge locks of the new Welland Ship Canal. On one side, curious motorists gape at the ease with which the cargo is handled in this $130,000,000 waterway. In the distance a C. N. R. freight train pants impatiently. Bridge up, it awaits an up-bound steamer laden with pulp, gasoline or merchandise, negotiating this newest link in the man-made chain joining Lake Superior to the sea.

The picture is worth remembering, for it contains most of the ingredients in Canada’s canal enigma. Stated simply, the enigma is: “Why should commercial shipping travel free through Canada’s multi-million dollar canals while the country’s taxpayers foot the bills?”

Nothing in modem transportation history quite parallels the anachronism of free canals. No government—no matter how fatherly its railway policydreams of carrying your merchandise free of charge on the C. N. R. freight train which awaits impatiently for a ship to pass through the Welland cut. Even our “curious motorist” pays upwards of seventy per cent of the cost of the highways he travels. Canal users pay nothing though taxpayers must dig up $12,000,000 annually to foot the bill.

The whole situation bristles with absurdities when one stops to think of it.

Take, for instance, the Government elevator at Port Colborne which our big lake freighter passed. This is considered part and parcel of our Federal canal system and offers storage facilities to grain shippers. It charges customary rates and nets a tidy fifteen per cent on a $1,800, 000 investment. Alongside the elevator is the mighty Welland channel which cost seventy times as much and yet is free to all comers. From a taxpayer’s viewpoint it is a model white elephant.

Another typical anomaly concerns wood pulp. Most of the tonnage which passes through the canals is good Canadian product, but records for 1932 show that fifty-two cargoes of wood pulp consigned from Scandinavia to the United States used our canals free of charge in that year. What does it mean? Simply that we bonused via free canals 90,000 tons of foreign product bought by the United States in competition with our own pulp. Such examples could be duplicated many times. The most glaring one, of course, is the millions of tons of United States bituminous coal which makes the free canal trip annually into Canada, bonused sixty cents a ton—that’s what we should charge to make our canals self-supporting—to compete with the Canadian product in our industrial areas.

And canal traffic is big business. Merchandise and manufactured goods are pouring through these waterways in steadily increasing volume in spite of four years of tobogganslide business. Total tonnage on all canals has jumped forty per cent since 1929, and each year sees new records achieved. Wheat is still king as far as individual commodities go— it has accounted for thirty-five per cent of total tonnage in the past five years -but traffic in industrial commodities is rapidly forging to first place. For instance, figures for 1932 show petroleum and gasoline tonnage up 130 per cent, merchandise loadings up seventy per cent, and the movement of manufactured goods forty-three per cent above 1929 levels.

The figures are almost unbelievable for the sort of business weather we have been having in the past four years. But, after all, why shouldn’t there be plenty of traffic? It’s Ottawa’s party and Canadian taxpayers are paying the bills.

Why Give Something for Nothing?

VJUrHY IS no attempt made to put Canada’s $245,000, W 000 canal system on a reasonable basis? Many of those who favor the present system think canals are justified on the grounds of national expediency whether they pay for themselves or not. Some think we owe it to Western farmers to get their grain to market as cheaply as possible; others, that Canada can do nothing unless the United States acts also. Of course there's something to be said on both sides, but let’s examine the arguments in favor of canal tolls.

One hundred and fifty years ago canals were created as much for military as for commercial purposes, and as such were considered a fair charge on the public treasury. The sums spent were comparatively small. But commercial needs soon outstripped military expediency, and after Confederation canal tolls were instituted as a natural and logical result of the demand for improved facilities on the part of interprovincial trade and commerce. Business needed railways and waterways, and naturally those who used them were asked to pay a reasonable sum toward their upkeep and maintenance. It was only in 1903 that Canada abolished canal tolls.

Since then the Dominion has brought to completion the gigantic Welland Ship Canal which alone cost $130,000,000 (if you include interest charges during construction it cost almost $200,000,000). This staggering expenditure—almost twice as much as had been spent on canals in the previous fifty years—should have been enough to make the Dominion reconsider its attitude toward free canals. It wasn’t, but other factors have combined to make the issue a live one just now.

Most significant is the avowed intention of President Roosevelt to explore the possibilities of a reasonable tonnage tax on all vessels using Federal inland waterways in the United States. If this plan materializes—and it is said to have the hearty support of the New Deal chief executive —it would remove a traditional objection to tolls on Canadian canals and would pave the way for joint international action on the part of the two countries. Another important factor is the possibility in the near future of the St. Lawrence Waterway Treaty being ratified. For reasons outlined subsequently, this project is closely related to the matter of tolls. Finally the depression with its resultant strain on fiscal and national economy has brought into relief questions of rail and waterway policy which were ignored in the heyday of the past decade.

Since wheat is of basic importance to Canada and is the biggest single customer of Canadian canals, it may be well to delve into the canal enigma from the grain grower’s viewpoint. In 1902 when Canadian Boards of Trade agitated for the removal of canal tolls, “cheap wheat” was the dominating argument. Without doubt this plea has lost much of its potency since the Panama Canal—which, incidentally. collects a toll of $1.25 a ton from Canada on

Canadian grain—unlocked, via Vancouver, a golden gateway to Europe for prairie wheat. The argument was further weakened when the Hudson Bay Railway gave Saskatchewan its long-sought access to the Atlantic. The St. Lawrence is still, of course, top dog during the navigation season, but, politically, support for free canals is no longer forthcoming from either British Columbia or Alberta and from many parts of Saskatchewan as a result of developments in the past two decades.

Foreign Canals Not Free

T) GET the picture complete let us do a little simple arithmetic to see just what it costs the Government to move Canadian and American wheat free of charge through our canals. Here are the salient figures:

Canada’s canal system is carried officially on the Federal balance sheet at $245,000,000. This is the cumulative total of all capital expenditure—without interest during construction -since earliest days and is exclusive of $80,000,000 for operation, expenses and repairs since that time. If the cost of canals now obsolete—such as the old Welland Canal— is deducted, capital cost drops to $200,000,000.

Interest on this sum at four per cent amounts to $8,000,000 annually, and if we are to follow sound accounting methods another one per cent or $2,000,000 annually should be added for amortization. This would retire capital debt in about forty-one years. Maintenance and repair charges in recent years have cost another $3,000,000 annually.

Total annual cost may therefore be computed at $13,000,000, against which must be set a credit of $1,000,000 for sale of water-power rights and elevator receipts, giving a net annual cost to Canada of $12,000,000. Itemized it looks like this:

Nominal cost of Canada’s canals on Federal

balance sheet ........................ $245,000,000

Less estimated obsolescence .............. 45,000,000

Approximate present worth ............... $200,000,000

Carrying charges (annually)

Interest at 4 per cent..................... $ 8,000,000

Amortization (1 per cent to retire investment in 41 years) .................... 2,000,000

Maintenance and repairs .................. 3,000,000

Total................................. $ 13,000,000

Receipts

Port Colborne elevator receipts ........... $ 500,000

Water-power rights, etc................... 500,000

Total ................................ $ 1,000,000

Net annual cost to taxpayers .......;.....$ 12,000,000

The equation then is simple. A $12,000,000 charge to be distributed annually among, say, 20,000,000 tons of traffic. The tonnage figure is conservative in the light of the experience of the past four years, and is exclusive of anticipated spectacular gains at the Welland Canal which will be offset by higher maintenance charges as that system grows older.

On a tonnage basis this means that the cost of operating the Canadian canals is roughly sixty cents a ton.

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Compared with other world canal systems, this is not unreasonable. At Panama —a Federally-owned United States property which returns three per cent on its investment—the average charge on foreign-borne cargo is ninety-eight cents a ton. The Suez Canalis operated, of course, on a profit basis, the average charge being $1.20 a ton. The Manchester Ship Canal rate varies with what the traffic will bear, but averages twenty-six cents a ton. When tolls were last charged on Canadian canals the rate was twenty cents a ton for cargoes, with a tax of between V/> and three cents a ton on all vessels whether freight or passenger, laden or in ballast. Even this small charge was sufficient to pay fifty per cent of out-ofpocket maintenance and repair charges during the thirty years they were enforced.

A canal toll of sixty cents a ton would mean 1.7 cents a bushel on wheat. But if a wheat cargo passed through the Sault, Welland and St. Lawrence canals it would pay three tolls or a maximum of roughly five cents a bushel. The figure is illuminating since it measures precisely what Canadian taxpayers pay annually to bonus prairie wheat down the Great Lakes waterway.

A Fair Charge

AN WHEAT bear such an impost? Lake freight charges from Fort William to Montreal have averaged 8.3 cents a bushel on grain for the last ten years. Temporarily, cut-throat competition in the past year has slashed this to the lowest point in shipping history, with cargoes going the entire distance for as little as 2 XA cents a bushel. In the light of these figures an additional charge of five cents a bushel .seems prohibitive. If it is, there is adequate precedent on every page of transportation history to adopt the principle of “what the traffic will bear” and to make an exception in the case of such a major basic commodity as wheat.

A reasonable plan might be to charge wheat a maximum toll of two cents a bushel, irrespective of how many canals were used. The corresponding flat rate would probably be one cent a bushel charged at any two canals. For instance, if wheat passing through the Sault Canal were subsequently to pass through the Welland and the St. Lawrence, no toll would be collected at the latter system. Such a plan would be a sixty per cent “cut” from the 1.7 cents per bushel needed to make canals pay their way. To achieve this and still make canals self-supporting, a slightly higher charge—about eighty cents a ton—would have to be levied on other commodities. Such a plan would put no unfair burden on either canal users or wheat growers. It demonstrates the feasibility of a sane, businesslike policy in respect of canal tolls.

It may be argued that for Canada to impose canal tolls would be short-sighted policy when the key canal at the Sault Ste. Marie bottle-neck is on the American side. There are two possibilities here.

If Canada alone imposes tolls without the United States—something she has every right to do—the advantage is ours, since United States tonnage comprised in 1932 about fifteen per cent of that passing through Canadian canals. We would receive tolls on this tonnage, while Canadian wheat and merchandise passing through the United States lock at Sault Ste. Marie would go free. In this event, Canada would obviously

impose no tolls on her lock at the Sault. as happened for the same reason in the thirtyyear period when tolls were charged by this country at our other canals. Incidentally, no objection was ever raised at that time that such action discriminated against lower lake shippers—an argument now being put forth.

If both countries co-operated in charging tolls, Canadian shippers, on the basis of available records, would pay about $2,500,000 for the privilege of shipping wheat through the United States lock at the Sault. Payments to Canada by United States shippers for the use of other canals would offset this, however, particularly with the steadily increasing use by United States vessels of the new Welland Canal.

Another argument against tolls is that maintenance of these canals at public expense is a mere bagatelle compared to the huge sums of public money which have been squandered on railways in the way of land grants, cash subsidies, bond guarantees and so forth.

Two blacks never did make a white, and if we have been profligate in our railway expenditure it is added reason for pursuing a wise policy in respect of canals, now that we have a new $130,000,000 investment at Welland to protect. The most elementary student of Canadian economics knows that most of our present-day financial trouble is due to a harebrained squandering of public funds on railway facilities that are probably adequate for five times our present population

In the early days of the Dominion good projects for improving transport facilities on land and water merited public support. During this period, a sound policy of charging freight rates on steam railways and tolls on canals was pursued.

Incidentally, during this period and in fact until 1917, Government aid to railways —exclusive of land grants—totalled but one dollar for every six dollars which have been poured out subsequently. For canals the corresponding ratio is one dollar prior to 1917 for every four dollars spent afterward.

Since 1917 a pretty $4,600,000,000, of public money has been sunk into the railway cesspool while another $190,000,000 has been poured into canal facilities, without any attempt to retrieve even the out-of-pocket expenses of maintenance or operation in respect of canals. A Royal Commission has recently attempted to find a solution to our railway problem. Fortunately, the answer to our canal problem is simple and near at hand—reasonable canal tolls.

A Reasonable Test

TS THERE any legal difficulty to the im*• position of canal tolls?

The answer is decidedly in the negative.

Early this year in the House of Commons when canal tolls were under discussion, the Hon. Dr. Manion, Minister of Railways and Canals, when asked concerning Government policy on tolls, indicated that one stumblingblock was the need of an international agreement before any tolls could be imposed.

An expert interpretation of international treaties between Canada and the United States indicates without doubt that neither country is obliged to provide free canal service on the Great Lakes, nor need either country consult the other prior to imposition of tolls. The authority under which tolls were originally imposed in Canada in 1871

is still in existence. All that is required i~ that if any tolls are imposed they must b€ levied equally on Canadian and United States shipping. The need of a sound Federal policy for canal tolls gains added significance when considered in respect of the St. Lawrence I)eep Waterway Treaty now pending be tween the United States and Canada. Strange as it may seem to clear-thinking Canadians. this treaty was signed by Canada without any proper study from an economic point of view. We signed the treaty as we built the Welland Canal not because we knew it to be a sound commercial and nat ional investment which would more than repay the money spent, but because for years it has been almost a national tradition that any public money we spend on improv ing the Great Lakes-St. Lawrence Seaway is bound to be good for Canada. Perhaps we are right. All of us hope so, though to a substantial and increasing body of citizens the gilt is off the gingerbread. They realize that canal investments are not in a class by themselves and that, like steam railways or paved highways, they should reasonably pay their way. If this principle is established in respect of existing canals it can readily be applied to the far greater expenditure anticipated in the deepening of the St. Lawrence. At present its proponents can only hope that from a navigation point of view it will prove a good investment for Canada. They do not know. Most of them are unwilling to submit it to the test of whether or not it will pay its way under a system of unreasonable canal tolls. And there, in brief, is the crux of the canal toll argument. Those who favor con tinuation of the present system believe canals are justified whether they pay their way or not. Canal toll champions see no reason why a few favored shippers in one part of Canada should travel scot-free on a $200,000,000 waterway which taxpayers in all parts of the country built and now main tam. Governments may run up deficits in railways, steamships, tramway systems, par cel post and other so-called public services. but at least they do not offer these advan

tages free of charge to those who can use them, as in the case of canals. A favorite argument is that canals in Can ada are in the same class as lighthouses and other aids to navigation now provided frec of charge by the Government. True, both are Government subsidies to water transport but with this difference; there is no reason able method by which lighthouses could be made revenue-producing, while with canals there is an easy, time-tested plan used on most canal properties in the world-namely, tolls. And because tolls on highway bridges went out of date with the motor car is no reason that canal tolls are an anachronism. The user of the highway pays for the roads he uses nowadays just as thoroughly via the gasoline tax as he did by the toll system. On highways a toll is an awkward levy and gasoline tax the easier, more reasonable way. On canals the toll is still the logical way to distribute the cost of an expensive service among those who use it. By shifting the burden from the taxpayer to those w,ho di rectly benefit, the welfare of the country as a whole is unquestionably furthered.

Why not put our canal system to a reason able test? Why not seize the opportunity afforded by the favorable situation in the United States to co-operate with that coun try in putting inland waterways on a revenue, and, if possible, a self-supporting basis? If we fail and find that a canal system on which we have spent hundreds of millions of dollars lies unused when asked to pay a reasonable tariff, then at least we will know where we stand, canal-wise. We will also be wary per haps in spending additional millions on the St. Lawrence waterway for purely navigation purposes. If, on the other hand, we find that this great natural waterway is invaluable to the trade and commerce of this country and the United States, and that shippers find it in creasingly worth while to use it day by day, then we will have done good work. We will have laid a sound basis for our enthusiasm in respect of the St. Lawrence waterway. We will have saved Canadian taxpayers at least $12,000,000 annually, and we will have removed another transportation millstone from our national neck.