2 TRANSPORTATION AND THE ECONOMY

AREAS OF IMPORTANCE TO TRANSPORTATION

TRAVEL AND TOURISM

International travel to and from Canada fell 0.5 per cent in 2005, reversing the 3.2 per cent rise in 2004. Americans took 31.7 million trips to Canada in 2005, down 8.6 per cent. This included a drop in same-day automobile trips by Americans of 12.0 per cent over 2004 to 15.7 million, the lowest number on record. Overseas travellers made 4.5 million trips to Canada, an increase of 6.8 per cent and the highest number since 2000. Among the countries that contributed most to this number was China with the greatest increase, at 14.8 per cent. Overall non-resident trips to Canada fell 6.9 per cent in 2005. In 2005, Canadians made 44 million international trips, up 5.4 per cent overall with trips to the U.S. rising to 4.8 per cent and trips abroad to 8.7 per cent.

Table 2-3 shows international travel in 2005.

Domestic travel⁴ increased 1.6 per cent in 2004 (latest data) to 175.1 million trips, reversing the 8.3 per cent decline in 2003. Interprovincial trips, which account for 12 per cent of total trips, grew by 2.9 per cent, while intraprovincial trips grew by 1.5 per cent. Same-day trips grew by 0.6 per cent, and overnight trips grew by 2.7 per cent. The total number of trips was split fairly equally between same-day and overnight trips. Trips by automobile, which accounted for 92 per cent of trips, increased 1.6 per cent. Trips by rail had the largest increase at 17.3 per cent.

Tourism expenditures in Canada increased 6.8 per cent in 2005 to $61.4 million, following a 6.4 per cent increase in 2004. Tourism spending by Canadians was stronger than spending by foreigners, increasing 9.4 per cent. This was up substantially from the 3.7 per cent increase in 2004. Foreigners visiting Canada spent only 1.0 per cent more in 2005 on tourism than in 2004, when their spending had increased 12.9 per cent. Tourism spending on transportation increased 12.0 per cent in 2005 up from the 9.5 per cent in 2004. This included spending on air travel, up 13.5 per cent, and spending on motor vehicle fuel, up 15.1 per cent. Tables A2-12 to A2-22 in the Addendum provide more details on tourism.

TABLE 2-3: INTERNATIONAL TRAVEL, 2005

	2005	Percentage change from 2004
Trips by Canadians	44,030,945	5.4
To United States	37,793,994	4.8
Automobile	30,874,097	4.1
Same-day	22,278,101	3.5
Overnight	8,595,996	5.7
Airplane	5,189,358	11.8
To all other countries	6,236,951	8.7
Trips by non-residents	36,160,106	(6.9)
by U.S. residents	31,655,012	(8.6)
Automobile	24,486,323	(10.2)
Same-day	15,712,087	(12.0)
Overnight	8,774,236	(6.7)
Airplane	4,279,389	(1.1)
Trips by all other non-residents	4,505,094	6.8
Total international trips	80,191,051	(0.5)

Source: Statistics Canada cat. No. 66-001

EMPLOYMENT

The number of people employed in the transportation sector during 2005 was estimated to be approximately 860,200.⁵ This includes full- and part-time employees. By mode, the trucking and bus transport industries accounted for the greatest numbers of employees within the transport sector, with an estimated 356,000 employees (41.4 per cent) and 94,600 employees (11.0 per cent), respectively. Employment in air transportation services has recovered in recent years from its low of 76,900 employees in 2002, to reach 79,700 employees in 2005 — close to the 1998 level but still below the 86,000 thousand employees reported in 2000. Since the mid-1990s, the overall level of employment has increased in the bus industry, in trucking services,⁶ in taxi and limousine services, in marine transportation and in pipeline transportation. The 2005 estimate of 35,600 employees working in rail services reflects that industry's ongoing declining employment trend. That mode employed 67,000 employees in 1990. Employment in highway construction and maintenance, estimated at 56,900 in 2005, has remained relatively stable since 2000, fluctuating within the range of 1,000 employees.

For detailed information on employment and salaries in the transportation sector see tables A2-23 to A2-48 in the Addendum.

ENERGY CONSUMPTION

Overall, total domestic energy use increased by 1.1 per cent in 2004. Energy consumption grew in the forestry and construction sectors by 21.2 per cent and 5.6 per cent, respectively, by 3.5 per cent in the transportation sector and 2.5 per cent in public administration. The manufacturing sector (minus its transportation component) also increased its energy use by 2.1 per cent.

In other sectors, energy consumption decreased between 2003 and 2004. Those include the residential sector, which was down 2.6 per cent, and the agriculture sector, down 1.5 per cent. Mining and the commercial sector also reduced their overall energy consumption by 0.9 per cent in 2004.

In 2004, transportation represented 34 per cent of total energy consumption in the Canadian economy, which is the average ratio registered since 1997. The pipeline industry was the only sector where energy consumption decreased in 2004 (by 6.5 per cent). This follows a 15.2 per cent decline in the previous year. The greatest increases were registered in the marine and aviation sectors at 10.9 per cent and 9.7 per cent, respectively. After a decline in 2003, energy use by the rail industry grew by 1.7 per cent. Road energy use increased by 3.5 per cent, which is similar to the 3.2 per cent registered in 2003. Road transportation, including private vehicles, still represents 77 per cent of total transportation in terms of energy use. See tables A2-49 to A2-56 in the Addendum for more on transportation energy consumption.

The tremendous increase in fuel costs in the year 2005 affected not only all sectors of the Canadian economy but also the world as a whole. Already in 2004, the price of crude oil had increased by 33 per cent, moving from an average of US$42 per barrel in 2003 to an average of US$57 in 2004 (the price on the New York Mercantile Exchange). This increase was fueled by world demand — especially the demand for motor gasoline in North America — coupled with uneasiness on the markets about future supply of cheap crude oil. In particular, reports circulated suggesting that Saudi Arabian reserves of sweet crude oil were not as extensive as previously assumed, and that future production would have to come from heavier oil, which is more expensive to extract and refine.

These factors remained in place in the first half of 2005, pushing the price on the New York Mercantile Exchange (NYMEX) over US$59 per barrel in July (29 per cent over the 2004 average).

While Hurricane Katrina and the damage it caused to oil rigs and refineries in the American southeast is generally blamed for the high price of crude oil in August and September 2005, the hurricane had only started to form over the Bahamas on August 23. It hit New Orleans and the Central Gulf Coast on August 29. However, the NYMEX price had already reached US$67.33 per barrel on August 12, following the established trend. Katrina only pushed the price to a record peak of US$70.28 per barrel on August 30 while the damage was assessed.

The price did not get any higher, in large part due to the U.S. Strategic Petroleum Reserve. As early as August 29, the U.S. Secretary of Energy approved six emergency requests for loans of crude oil to a few refiners whose deliveries had been interrupted. And, on September 2, President Bush formally authorized the release of 30 million barrels of oil from the Reserve. Deliveries began the following day and continued until mid-November, reaching a total of 19.2 million barrels. Those loans, combined with offers of assistance from several countries, including Canada, helped calm the markets and prevent further increases in oil prices. The NYMEX reference price never went over the US$70.28 per barrel quoted above. It started to decline immediately, averaging US$59.87 in December 2005.

The price of crude oil is not the only variable putting pressure on the price of refined petroleum products. There have been no new refineries built in North America for over 25 years. Before Katrina, U.S. refineries were operating at 95 per cent capacity and the fear of a disruption in production and supply was already putting upward pressure on fuel prices. Between January and July 2005, the pre-tax price of refined products (as represented by motor gasoline, diesel # 2 and kerosene-type jet fuel) rose by 32 per cent against 25 per cent for the NYMEX price. This phenomenon was aggravated by the heavy damage sustained by a number of refineries in the American Southeast as a result of Katrina. At one point, a full 25 per cent of American refining capacity was out of commission. This put additional pressure on fuel prices.

From July to September, the price of crude oil increased by 11 per cent while U.S. gasoline rose by 32 per cent, diesel by 24 per cent and jet fuel by 22 per cent. From September to November, diesel and jet fuel prices fell at about the same rate as crude oil (11 per cent). On the other hand, possibly in response to consumers' outrage, the price of gasoline dropped by 25 per cent over the same period.

Due to integrated North American markets, Canadian fuel prices followed a similar pattern. The average price of gasoline (regular, self-service) in Canada rose from 78.9¢ per litre in January to 93.5¢ in July. In the first week of August, gasoline prices broke the psychological barrier of $1.00 per litre in many parts of Canada, averaging $1.05 countrywide. After Katrina, prices shot up, averaging $1.26 for the week of September 6. Canadians had to wait until the end of October to see the national average fall below one dollar per litre. The year closed with the price of gasoline averaging 90.7¢ per litre across the country.

The retail price of diesel fuel followed a similar pattern, moving from 81.6¢ per litre in January to 94.5¢ in August. After Katrina, it moved to $1.02 in September and $1.07 in October, before starting a slow decline and ending the year at 95.6¢ per litre.

At the time of publication of this report, only partial data on fuel sales were available for 2005. The data seems to indicate that those price hikes had an impact on fuel consumption in Canada. For example, from January to August inclusively, retail sales of motor gasoline were 1.6 per cent above the average level for the same period in 2004. And, while September always brings a decline in consumption, this decline was more pronounced than usual in 2005. Retail sales fell by 13 per cent from August and were 1.6 per cent below their September 2004 level. Furthermore, total sales of gasoline in September were a full 3.5 per cent below the 2004 level. The impact on other fuels and modes is less obvious with sales of diesel and jet fuel remaining slightly above their 2004 levels in September.

The price increases have an impact on carriers' operating costs and in the price of transportation services. Overall, average energy costs in 2005 for all modes were about 34 per cent above their 2003 levels. Depending on their cost structures, the increases in the costs of energy since 2003 would have required increases of 5.3 per cent in air fares, 3.6 per cent in both trucking charges and urban transit fares (or subsidy), 3.3 per cent in rail freight charges and 2.1 per cent in VIA fares to maintain the same operating margin in each transportation sector.

⁴ Domestic travel refers to trips of at least 80 kilometres from a traveller's usual place of residence, excluding trips to or from work or school. Return

⁵ This estimate excludes private trucking employment. Return

⁶ A large increase identified in truck industry employment in 2004 (See Table A2-25 in Addendum), and reflected in that industry's estimated level of employment for 2005, is due to a 12 per cent increase in medium/large for-hire carriers (those earning annual revenues over $1 million) in 2004 over the carriers counted in 2003. Return

Canadian Economic Performance

International Trade and Trade Flows

Areas of Importance to Transportation

Productivity and Price Performance of Transport

Importance of Transportation to the Canadian Economy