2 TRANSPORTATION AND THE ECONOMY

AREAS OF IMPORTANCE TO TRANSPORTATION

In 2006, overall international travel to and from Canada was just about unchanged from 2005, as the number of people visiting Canada fell while the number of Canadians travelling internationally rose. Americans took 28.9 million trips to Canada in 2006, 8.8 per cent fewer than in 2005. This was the second year of such a decline. Same-day automobile trips by Americans fell 12.5 per cent to 13.7 million trips, the lowest number on record for the second year in a row. Overseas travellers made 4.5 million trips to Canada in 2006, about the same numberas in 2005. There were large increases in visitors from China, Mexico, France and South Korea and large drops in visitors from Japan, the United Kingdom and Germany. Overall, non-resident trips to Canada fell 7.7 per cent in 2006. Canadians made 46.9 million international trips, 6.5 per cent more than in 2005. Trips to the United States rose 6.3 per cent while trips abroad rose 8.0 per cent.

Table 2-3 shows international travel in 2006.

Source: Statistics Canada cat. No. 66-001

In 2005, Canadians made an estimated total of 207.0 million trips within Canada.⁶ Of these trips, 58.3 per cent were same-day, while 41.7 per cent were overnight. Most trips (92.0 per cent) were made intraprovincially. The automobile or truck was the mode of transportation for 92.8 per cent of the trips, while commercial aircraft and bus accounted for just over two per cent each. Visiting friends and relatives was the purpose of 44.0 per cent of the trips, while the purpose was pleasure for 42.6 per cent and business for 5.0 per cent.

Tourism expenditures in Canada increased 6.7 percent in 2006 to $66.9 million, following a 7.2 per cent increase in 2005. Tourism spending by Canadians was once again stronger than spending by foreigners. In 2006, spending by Canadians increased 10.0 per cent, just below the 10.9 per cent increase in 2005. For the second year in a row, foreigners visiting Canada spent less on tourism, 1.8 per cent less in 2006 and 1.3 per cent less in 2005. Tourism spending on transportation increased 8.3 in 2006, based on increased spending on air travel of 10.8 per cent and on motor vehicle travel of 5.6 per cent. This followed a 12.7 per cent increase in tourism transportation spending in 2005. (Detailed tables on tourism are included in the Addendum.)

EMPLOYMENT

In 2006, there were approximately 881,000⁷ people employed in the transportation sector full-time and parttime. By mode, the trucking and bus transport industries accounted for the greatest numbers of employees, with an estimated 363,000 employees (41 per cent) and 95,000 employees (10 per cent), respectively. Employment in air transportation services has recovered in recent years from its low of 76,600 employees in 2002 to reach 80,100 employees in 2006, close to the 2001 level but still below the 86,000 employees reported in 2000. Since the mid-1990s, the overall level of employment has increased in the bus industry, trucking services,⁸ taxi and limousine services, marine transportation and pipeline transportation. The 2006 estimate of 34,700 employees working in rail services reflects that industry’s continuing trend of declining employment. Rail services employed 67,000 in 1990.

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

In 2004, the price of crude oil had increased by 33 per cent, moving from a 2003 average of US$42 per barrel to US$57 (price on the New York Mercantile Exchange (NYMEX)). This increase was fueled by world demand –– especially unrelenting demand for motor gasoline in North America –– coupled with uneasiness on the markets about future supply of cheap crude oil. In particular, reports started circulating 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 NYMEX over US$59 per barrel in July (29 per cent over the 2004 average). Hurricane Katrina and the damages it caused to oil rigs and refineries in the American southeast pushed the price to a then record peak of US$66.12 per barrel in September 2005. After that, following the usual seasonal pattern, the price per barrel fell to US$58.77 in November 2005.

The price of crude oil started to increase again in December 2005 with the arrival of winter and the consequent high demand for heating oil, reaching US$63.44 in March 2006. Oil price increases were observed in the spring and summer, due to high travel demand. In 2006, this seasonal pattern was accentuated by the fear of new devastations to oil installations during the hurricane season.

As a result, the price of West Texas Intermediate (WTI) on the NYMEX reached an all-time monthly high of US$74.88 in July 2006. After that peak, the lack of significant hurricanes reassured the markets and the price per barrel fell by over US$15 to US$59.65 in October. The milder first portion of the winter in the eastern part of North America also helped accelerate this decline. Minor increases have been registered in the last two months of the year.

The annual average price per barrel rose by 16.9 per cent in 2006, from US$57.04 in 2005 to US$66.60 for 2006. By comparison, the average annual price per barrel in 2005 was 57 per cent above that of 2004.

Canadian oil prices have followed a similar pattern, as shown in Figure 2.7.

FIGURE 2-7: PRICE OF CRUDE OIL IN NEW YORK AND EDMONTON, 2004 – 2006

Source: M.J. Ervin & Associates

Source: Adapted from M.J. Ervin & Associates, the U.S. Department of Energy and Transport Canada’s databases

Figure 2.8 shows the evolution of retail gasoline and diesel prices in Canada, as well as the price of kerosenebased jet fuel to end-users (net of all taxes) converted to Canadian cents per litre, as compared with the price of domestic crude oil in Edmonton. It indicates that the price of transportation fuels has followed a similar pattern to that of crude oil over the last three years. The only exception was the post-Katrina period in 2005 when the United States experienced a shortage of refined products due to the damages incurred at some refineries.

As Table 2.4 shows, the retail prices of road gasoline and diesel rose in 2006 by 5.8 and 4.5 per cent, respectively. This was much less than the respective increases of 13.5 and 22.2 per cent in 2005. The increase in the price of diesel for rail carriers was estimated at about eight per cent in 2006, based on the growth of the retail price of diesel with federal and provincial sales taxes removed.

The 2006 cost of fuel to airlines is estimated on the basis of the U.S. price to end-users as provided by the U.S. Department of Energy. Although the price increases are lower than in 2005, they are still substantial:

FIGURE 2-8: RETAIL FUEL PRICES COMPARED WITH DOMESTIC CRUDE PRICES, 2004 – 2006

Source: M.J. Ervin & Associates

15.9 per cent for jet fuel and 11.4 per cent for aviation gasoline (used only in piston-engine propeller-driven aircraft). These greater increases in the aviation sector are probably due to a vigorous demand for air travel, as described in other parts of this report, which leads to a strong demand for aviation fuels.

Table 2.5 demonstrates that increases in the price of fuel affect carriers’ operating costs and the price of transportation services. In this table, the 2005 cost and revenue structures of key transportation industries have been used to estimate the impact of the fuel price increases on total operating costs of transportation services.

Note: Totals may not add up due to rounding. Table 2-5 shows that an increase in the price of fuels increases the operating expenses of a transportation industry, which in turn decreases its net revenues (assuming that operating revenues remain the same). This direct correlation between increased fuel costs and decreased revenues is made evident by subtracting 2006 net revenues from 2005 net revenues –– the difference equals exactly the figures in the row “Increase in Fuel Costs.”
¹ Based on financial data for firms with $1 million or more in revenues.

Source: Estimated by Transport Canada based on Transport Canada’s databases on fuel prices and on carriers’ revenues and expenditures

• In 2005, fuel costs represented 6.4 per cent of trucking operating expenses (carriers with $1 million or more in revenues). A 4.5 per cent increase in fuel prices would increase operating costs by 0.29 per cent, thus decreasing net revenues from just over $1.2 billion to just over $1.1 billion.
• Fuel costs represented 15.8 per cent of operating expenses incurred by Canadian National and Canadian Pacific Railway. A 7.9 per cent increase in the price of diesel would increase their freight operating costs by 1.2 per cent and decrease net revenues by $80 million. For rail passenger services, the higher fuel costs would increase operating costs by 0.6 per cent and reduce net revenues by $3 million.
• Fuel costs represented 7.7 per cent of operating expenses of urban transit service providers in 2005. The estimated 4.5 per cent increase in the price of energy they faced in 2006 would increase their operating costs by 0.3 per cent and reduce revenues by $17 million.
• The air transport industry, an energy-intensive transportation sector, had fuel costs representing 24.3 per cent of the operating expenses for Class I–III carriers. Based on the price increases of jet fuel, this industry would have faced a 15.9 per cent increase in its fuel costs, translating into a 3.9 per cent increase in its total operating expenses in 2006 and a $511 million decrease in net revenues.

According to Statistics Canada,⁹ total domestic energy consumption decreased by 0.4 per cent in 2005, from 7,673 to 7,638 petajoules. “One petajoule equals roughly the amount of energy required to operate the Montréal subway system for one year.”¹⁰

In 2005, transportation represented 35 per cent of total energy consumption in the Canadian economy, which is slightly above the average ratio registered since 1997. Preliminary data indicate that total energy use by the transportation sector increased by 2.6 per cent in 2005, explaining this increase in the relative importance of the sector.

Consumption of gasoline for road use fell by 0.5 per cent; on the other hand, consumption of road diesel increased by 5.2 per cent for a net increase of 1.2 per cent in road energy consumption.¹¹ After declines in 2003 and 2004, energy use by the pipeline industry rebounded by 18.6 per cent in 2005, no doubt fueled by the increased demand for Canadian petroleum products on the U.S. markets following the shortages caused by hurricane Katrina.

Fuel consumption increased by 5.1 per cent in the rail industry and by 3.9 per cent in the aviation sector. The marine industry was the only sector — apart from road gasoline sales — to incur a decline in energy use (2.6 per cent). See Addendum tables A2-49 to A2-56 for more on transportation energy consumption.

⁶ Since the beginning of 2005, the Travel Survey of Residents of Canada (TSRC) has been conducted to measure domestic travel in Canada. It replaces the Canadian Travel Survey (CTS). Featuring several definitional changes and a new questionnaire, this survey provides estimates of domestic travel that are more in line with the international guidelines recommended by the World Tourism Organization and the United Nations Statistical Commission. The new survey captures out-of-town trips regardless of distance and same-day trips of at least 40 kilometres from home. Return

⁷ This estimate excludes private trucking employment. Return

⁸ 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

⁹ Statistics Canada, The Daily / Le Quotidien, March 16, 2007. Return

¹⁰ Idem, page 1. Return

¹¹ See the Addendum to this report for more details. 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