Labrador North Chamber of Commerce & Baffin Regional Chamber of Commerce. North East Trade Corridors Transportation Study Final Report

Transcription

1 Prepared for Labrador North Chamber of Commerce & Baffin Regional Chamber of Commerce Consulting Services for Transportation Study Prepared by December 17, 2007

2 Table of Contents Executive Summary... iii 1 Introduction Background and Context Research Methodology Acknowledgements The Current Setting Introduction The Existing Transportation System Regulatory Setting & Government Policy Canada, Greenland and Denmark Government of Nunavut Government of Newfoundland and Labrador Consultations Summary of Key Findings Labrador Nunavut Greenland Summary of Opportunities and Barriers Assessment Of Air Options Introduction Iqaluit Goose Bay Iqaluit Greenland Existing Transportation Links Goose Bay - Iqaluit Iqaluit and Nuuk Market Demand Iqaluit-Goose Bay Iqaluit-Nuuk Assessment of Route Options A New Route Along the Labrador Corridor Route Option 1 - Goose Bay to Iqaluit via Nain Route Option 2 - Goose Bay to Iqaluit via Nain and Kuujjuaq Option 3 - Goose Bay to Iqaluit via Kuujjuaq Option 4 - Goose Bay to Iqaluit via Montreal or Ottawa Iqaluit Goose Bay Options Summary A New Route to Greenland Option 1 Nuuk to Iqaluit Option 2 - Iqaluit to Nuuk via Kangerlussuaq Option 3 Iqaluit to Nuuk to Kangerlussuaq to Iqaluit Iqaluit Greenland Options Summary St. John s and Halifax As Distribution/Entry Points Assessment of Marine Options Introduction Cargo Arctic Sealift Alternatives Expedition/Adventure Cruises i

3 4.6 Summary Food Mail Program Introduction History of Food Mail Program Food Mail Program Eligibility Evaluations of the Food Mail Program Effectiveness INAC Internal Reviews Auditor General of Canada Observations Food Mail Program Procurement Evaluation Of Goose Bay Shortest Air Distance Shortest Combined Air and Road Distance Provincial Retail Price Comparisons Ground and Air Transport Cost Comparisons Volume Transfer To Goose Bay Halifax Combined With Goose Bay Summary Recommended Action Plans Introduction The Business Case Recommended Action Plan Expand The Role of Goose Bay Food Mail Program Introduce A Short Sea Service From Goose Bay (Via Northern Coastal Labrador) To Iqaluit Expand International Marine Exports From Goose Bay to Greenland and Beyond Introduce Regular Scheduled Air Service From Iqaluit to Greenland Introduce Regular Scheduled Air Service From Goose Bay to Iqaluit Barriers To Overcome Appendix A Terms of Reference...A Appendix B Key Contacts...B Appendix C Study Area Economic Size Up and Outlook...C ii

4 List of Exhibits Exhibit 2.1 Map of Current Air Links Exhibit 2.2 Map of Current Marine Links Exhibit 2.3 Markets, Passengers and Flight Activity and Estimated Cargo Volume Exhibit 2.4 Greenland Passenger Traffic By Air Exhibit 2.5 Case Study First Air Connections To Greenland Exhibit 2.6 Assessment Of Nunavut Transportation Strategy 2001 Exhibit 3.1 Potential Labrador - Baffin Island Air Route Exhibit 3.2 Potential Greenland - Baffin Island Air Route Exhibit 3.3 Existing Transport Links Goose Bay-Iqaluit Exhibit 3.4 Existing Scheduled Air Services Iqaluit-Nuuk Exhibit 3.5 Iqaluit and Goose Bay Runway Details Exhibit 3.6 MIDT Route Analysis Passenger Demand 2005 Exhibit 3.7 MIDT Route Analysis Regional Passenger Demand Exhibit 3.8 Nuuk Airport Runway Details Exhibit 3.9 Kangerlussuaq Airport Runway Details Exhibit 3.10 MIDT Analysis Canada Greenland 2005 Exhibit 3.11 Examples of Methods Used To Boost Traffic Flows Exhibit 3.12 Alternative Route Options Exhibit 3.13 Route Option 1 Details Exhibit 3.14 Route Option 1 Exhibit 3.15 Route Option 2 Details Exhibit 3.16 Route Option 2 Exhibit 3.17 Route Option 3 Details Exhibit 3.18 Route Option 3 Exhibit 3.19 Kuujjuaq Airport Runway Details Exhibit 3.20 Option 4 Details Exhibit 3.21 Route Option 4 Exhibit 3.22 Offshore Hydrocarbon Exploration Blocks won by EnCana and Nunaoil 2005 Exhibit 3.23 Greenland Route Option 1 Details Exhibit 3.24 Greenland Route Option 2 Details Exhibit 3.25 Airport Cost Comparison Iqaluit and Greenland Exhibit 3.26 Halifax and St. John s Route Exhibit 4.1 Domestic Shipments to Iqaluit, 2004 Exhibit 4.2 M.V. Camilla Desgagnes Exhibit 4.3 M.V. Astron Exhibit 4.4 Parameters For Large Vessel (Camilla Desgagnes) Evaluation Exhibit 4.5 Parameters For (Astron) Evaluation Exhibit 4.6 Parameters For New Small Cargo and Passengers Ferry Exhibit 4.7 New Small Vessel (Freight Mode) Exhibit 4.8 New Small Vessel (Passenger and Freight Mode) Exhibit 4.9 Eimskip Route Map Exhibit 4.10 Specifications For New Greenland Expedition Vessel (Fram) Exhibit 4.11 M.Vs. Yamal and Kapitan Klebnikov Exhibit 4.12 M.V. Polar Star Exhibit 4.13 Polar Star In the Wake of the Vikings Exhibit 4.14 M. S. Explorer Exhibit 4.15 Adventure Canada, Greenland and Wild Labrador Exhibit 4.16 M.V. Akademik Loffe Exhibit 5.1 How The Food Mail Program Works Exhibit 5.2 Food Mail Program Entry Points Exhibit 5.3 Comparative Entry Point Air Distances To Iqaluit Exhibit 5.4 Comparative Road and Air Distances From Montreal To Iqaluit i

5 Exhibit 5.5 Consumer Price Index (CPI), Food Purchased From Stores (100=1992) Exhibit 5.6 Comparative Air and Road Transportation Costs to Iqaluit Exhibit 5.7 Food Mail Volumes (1000 Kgs) Nunavut Areas ii

6 Executive Summary, a member of the Hatch group of companies, in association with the International Air Transport Association (IATA), MariNova Consulting Ltd. and other partners, was retained to assess the feasibility of an Eastern Arctic Trade Corridor (also referred to as the North East Trade Corridors) from Labrador to Nunavut and onto Greenland. The evaluation focused on: 1. Air and marine links from Goose Bay, Labrador to Iqaluit, Nunavut. 2. Air and marine links from Iqaluit, Nunavut to Nuuk, Greenland. 3. Air link extensions from St. John s and Halifax to Goose Bay, Iqaluit and Nuuk. 4. The overall effectiveness of the Food Mail Program of Indian and Northern Affairs Canada. The Setting In 2007, Labrador (including Nunatsiavut) Nunavut and Greenland (the study area) are close geographically with a combined population of 115,000 but lack direct transportation links. Transportation services are dominated by legacy systems (and supporting infrastructure) with often long-established operators that can be traced to colonial ties or trade links that were established many decades ago (often with past government support). Over the past decade, land claims settlements or economic development agreements with Canada have allowed Inuit or Innu development corporations to become major participants with many established transportation operators or new ventures. For Labrador, the transportation links are to Lewisporte and onto St. John s (marine) and Deer Lake, St. John s, Halifax and Montreal (air). Newfoundland is dependent upon sea links from Montreal, Halifax and North Sydney. In the Baffin Region, sealift links are to Montreal while the dominant air links are to Ottawa and Montreal, as well as Yellowknife and onto Edmonton and Winnipeg (both via Rankin Inlet). For Greenland, all marine and air links lead into Copenhagen with Iceland playing a smaller role (mostly for transshipment or flight connections). There are also seasonal direct marine shipping links to Newfoundland, Nova Scotia and onto the U.S. East Coast. The study area s economic base is dominated by government services, natural resources extraction and distribution, and retail trade. Activities associated with natural resources represent the foundation of the commercial economies of the study area, as well as the Northwest Territories and Yukon. Mining, the fishery, hydro power generation and forestry are the mainstay of iii

7 Labrador s economy. Iron ore mining in Western Labrador, Churchill Falls hydro power and a new nickel mine at Voisey s Bay in Northern Coastal Labrador are major facilities in the international marketplace. The fishery and mining exploration dominate in Nunavut and Greenland. In Greenland, fish and fish products account for over 90% of exports (monetary value). Experience in the Canadian north reveals that growth in the mining sector can be rapid and dramatic. Mining is a capital intensive sector that is subject to market price fluctuations. In the late 1990 s, the Northwest Territories experienced a major economic upturn from the discovery of a commercially viable diamond vein 300 kilometres from Yellowknife. The resulting direct and spinoff benefits (construction, transportation, services) from two mines that opened in 1998 and 2003 was an 11.8% increase in gross domestic product per capita from 1999 to This compares to an increase of 2.4% in Yukon and 0.4% in Nunavut over the same time period. Mining and minerals exploration, and offshore oil and gas development, suggest similar clusters will be developing in the short to medium term in Nunavut and Greenland as exploration translates into major capital projects. The demand for transportation services has increased in the 6% to 8% compound annual rate in recent years. We consider this rate of growth to be a reasonable indicator of future conditions with a realistic possibility of annualized growth in the 10% range if major resource projects proceed to the development and operational stage. In addition, it is reasonable to assume that demand on an Iqaluit Greenland triangle (Nuuk and Kangerlussuaq) regular scheduled air service could be double or triple the current levels. The result would be passenger volumes that reflect conditions in 1999 and 2000 prior to the cancellation of previous service by First Air and Air Greenland. Regulatory Setting & Government Policy To maintain regularly scheduled air and marine services in the study area, the commercial needs of operators are now inter-linked (directly or indirectly) with government policy and funding support. In Greenland, public funding is directly provided to Air Greenland and Royal Arctic Lines as they compete in the open market. The Home Rule Government is reluctant to provide subsidies on possible new links into Canada as they prefer the startup risks to be shared equally between participants in both countries. The Government of Nunavut (GN) has a unique operating model as the territorial governance structure resulted from a single land claim agreement between Canada and the Inuit of the Eastern Arctic. Under this structure, co management of resources is shared with Nunavut Tunngavik Inc. (NTI), or designates, which administer the land claims benefits agreements for the Inuit of Nunavut. There are partnerships or agreements with such organizations as North West Company for the Nunavut Eastern Arctic iv

8 Shipping Inc. (NEAS); the Inuit of Northern Quebec (Makivik Corporation) for Nunavut Eastern Arctic Shipping Inc and Nunavut Umiaq Corporation while Makivik Corporation is also a shareholder in First Air; Groupe Desgagnés for Nunavut Sealink and Supply Inc.; Arctic Co-operatives Limited for Nunavut Sealink and Supply Inc.; and the Inuvialuit of the Northwest Territories (with Nunasi Corporation) for Norterra Inc., Canadian North, Northern Transportation Company Inc. and NorTran Inc. Privately held scheduled marine or air operators (charters and otherwise) that are not within the NTI structure and operate within the Baffin Region include the Woodward Group of Companies, Kenn Borek Air (Unaalik Aviation) and Kivalliq Air. While the GN does not provide direct subsidies to carriers, it indirectly provides support to air and marine carrier by following a decentralized government service model of government departments and paying for medevac/medical travel to larger southern centres. Many private companies or non-government organizations operating in the Baffin Region also provide annual vacation travel assistance that can extend to five dependents for a married employee and another person for a single employee. The Government of Newfoundland and Labrador is following a different strategic direction. The scheduled completion of the Trans Labrador Highway (TLH) from Cartwright Junction to Happy Valley - Goose Bay in 2009 will finish the rural highway link from Quebec via Western Labrador (Wabush and Labrador City) to Southern Coastal Labrador and the Labrador Straits and onto Newfoundland via the seasonal ferry service across the Labrador Straits. Government operated and subsidized ferry service into Southern Coastal Labrador has been contracted out and adjusted to reflect the completed rural highway to Cartwright while service to Northern Coastal Labrador has also been contracted out. Consultations Over 100 consultations were completed for the study. The findings revealed a consensus opinion on the preferred future for the North East Trade Corridor. It focuses on new services that encourage competition with the resulting benefits of lower prices and increased quality. In 5 to 10 years, the preferred vision includes the following elements: 1. Regular scheduled air service between Goose Bay and Iqaluit which may include an air-combi service that includes a Halifax Goose Bay Iqaluit routing. 2. Regular scheduled air service between Iqaluit, Nuuk and Kangerlussuaq (a new triangle route). v

9 3. More competition in the entry points to the Food Mail Program for the Baffin Region and Nunavik with Goose Bay designated as an alternative to Val d Or. 4. A short sea marine service from Goose Bay via Northern Coastal Labrador to Iqaluit, as ancillary to the current sealift from Montreal, for cargo and passengers (residents and tourists). 5. Increased expedition/adventure cruise activity that could possibly evolve into a Norwegian style passenger/cargo/cruise operation that is combined with a short sea service from Goose Bay to communities in Northern Coastal Labrador and onto Iqaluit. 6. Marine service from Goose Bay to Greenland and points beyond that capitalizes upon resource development in Labrador (including exporting of forest products) and the completion of the Trans Labrador Highway in All of these elements of the preferred future will involve investments by the private sector. The consultation program determined that there is no appetite by government to implement a corridor strategy that is dependent upon regular government subsidies although initial marketing assistance may be available. However, if start up assistance is required, then the preference by the Home Rule Government in Greenland, the Government of Nunavut, and the Government of Newfoundland and Labrador is to equitably share public expenditures. Key Findings A key finding of the study is that the use of larger vessels on the current sealift from Montreal is the least expensive method of round trip marine shipping to Iqaluit. As such, no major changes are recommended in this service, but rather a short sea service from Goose Bay (more frequency and the resulting higher costs) should be positioned as ancillary to the sealift. There are barriers that need to be addressed to allow operators to move forward with new investments and expanded services. These barriers include excessively high landing fees at Nuuk and Kangerlussuaq, the absence of formal agreements to facilitate new services and no formal process for Goose Bay to become an expanded entry point for the Food Mail Program. The recommended action plans are listed below. They seek to balance market realities with the Government of Nunavut s sector strategies. For example, the mining strategy supports the development of hub communities and the transportation strategy seeks to encourage more east- vi

10 west connections within Nunavut to counter the southern pull of Ottawa, Winnipeg, and Yellowknife. As the examples illustrate, the Government of Nunavut does not want a northeast trade corridor that merely transforms the southern dominance of Montreal to Happy Valley-Goose Bay, or Halifax and St. John s. It requires improved transportation links that allow the increased capacity of Nunavummiut to more fully participate in the region s economic future. Introduce Regular Scheduled Air Service From Iqaluit to Greenland The purpose of this action plan is to reintroduce regular scheduled air service between Iqaluit and Nuuk and Kangerlussuaq in Greenland. The result will be a triangle route that links into the major commercial centre at Nuuk and the gateway airport at Kangerlussuaq. The responsibility for this action plan ultimately rests will commercial carriers. Air Greenland is the preferred carrier as it is the incumbent carrier and has infrastructure and ground support services in Greenland. This action plan is a high priority as it will meet both latent (untapped) and growing demand. The research contained in this report will be treated as a pre-feasibility study by interested carriers. The role of the Baffin Regional Chamber of Commerce is to present the findings to carriers (including First Air, Canadian North, PAL and Air Greenland) and seek to obtain commitments from potential users of the service (Home Rule Government, Government of Nunavut, Canada, key commercial operators in Greenland, Aboriginal organizations, mine operations in Greenland, fishing fleet owners, exploration companies and tourism operations). A media program should also be initiated in Iqaluit and Nuuk to inform Aboriginal organizations, the business community and government of the key benefits of a renewed air link. This action plan will need strong diplomatic support from the Nunavut Government and the Home Rule Government to ensure that any air service obstacles can be overcome. There is no doubt that a new real opportunity exists to re-establish important links for the Inuit of both Greenland and Nunavut. One of the obstacles is the high cost of landing at Nuuk and Kangerlussuaq that should be address with the Home Rule Government and the Board of Directors of Air Greenland. Expand The Role of Goose Bay Food Mail Program The Food Mail Program is managed by INAC and administered by Canada Post. If air transportation costs from Goose Bay to Iqaluit are competitive with costs from Val d Or, then there is a strong business case for Goose Bay to be designated as an entry point for Nunavik and the Baffin Region. The responsibility for this entry point designation rests with these Federal entities. The opportunity for the designation of Goose Bay is a high priority vii

11 for commercial interests in Labrador and air carriers. The priority of such an expanded role for Goose Bay within the Federal Government is unknown. However, the lack of response to the Auditor General s 2002 investigation into the exclusive designation of Val d Or suggests that alternatives to this entry point are not a priority. To influence policy, a possible strategy could have the Government of Nunavut and the Government of Newfoundland and Labrador formally request that Goose Bay be given an expanded designation to its current position as the entry point for Coastal Labrador. Based upon past experiences with efforts to add new entry points for the Baffin Region and Nunavik, this action plan is high risk because of expected lobbying by Quebec interests to retain the status quo. In this government policy setting, the projected level of success is unknown. The addition of Halifax as a complementary entry point to Goose Bay may strengthen the business case to expand the number of entry points in Eastern and Atlantic Canada. Introduce Regular Scheduled Air Service From Goose Bay to Iqaluit This action plan will result in regular scheduled air service from Goose Bay to Iqaluit. Research by IATA for this study indicates that an initial link should include Kuujjuaq. The responsibility for this action plan ultimately rests with commercial carriers. PAL (Innu Mikun), Air Inuit, Air Labrador, First Air and Canadian North are carriers that should be approached by the Labrador North Chamber of Commerce and the Baffin Regional Chamber of Commerce. This action plan is a high priority as it will meet demand for a more direct link between the Baffin Region, Newfoundland and Labrador and the Maritimes. The research in this report represents a pre-feasibility study for potential carriers. The Labrador North Chamber of Commerce and the Baffin Regional Chamber of Commerce should formally present the findings to the carriers listed above and seek to obtain commitments from potential users of the service (major contractors in Nunavut, Government of Nunavut, Canada, Government of Newfoundland and Labrador, Aboriginal organizations, mining and exploration companies, fishing fleet owners and tourism operations). A media program should also be initiated in Goose Bay, St. John s and Iqaluit to inform Aboriginal organizations, the business community and government of the key benefits of a renewed air link. This action plan acknowledges that government use of air services will be determined through procurement processes and the application of relevant policies. (Past proposals that government use its purchasing power to change viii

12 transportation systems in Nunavut have been strongly opposed by the business community in general and the airlines in particular). Introduce A Short Sea Service From Goose Bay (Via Northern Coastal Labrador) To Iqaluit The intent of this action plan is to develop a short sea service from Goose Bay along Northern Coastal Labrador and into Iqaluit that will function as an ancillary service to the sealift out of Montreal. The service will strengthen the role of Goose Bay as a strategic transportation entry point into the Baffin Region. The service will focus on general cargo, vehicles and passengers (residents and tourists). It will function as an extension of the Trans Labrador Highway that will be completed in 2009 and will allow goods, services and passengers to move from any southern area to Iqaluit as an extension of the North American highway system. The service represents an extension of the current coastal service in Northern Coastal Labrador that is operated on a short-term contract by a private operator for the Government of Newfoundland and Labrador. The policy framework for the action plan will require the Government of Nunavut, the Government of Newfoundland and Labrador and the Nunatsiavut Government to support the introduction of a new commercially viable service. A private operator will then have to negotiate a long-term contract for the service and secure a vessel that is estimated to cost in the range of $30 million. The preferred vessel can be reconfigured for a changing mix of cargo, containers, vehicles and passengers (residents and visitors). This is a medium term opportunity that is dependent upon a formal agreement between the concerned governments and an operator. The success of this action plan will be dependent upon a business plan that shows the service is viable without subsidies into Nunavut. Related port upgrades in Goose Bay will be dependent upon the type of vessel while the construction of port facilities in Iqaluit is preferred. The port facilities in Goose Bay are adequate for this service as the current laydown area behind the wharf space (+/- 1,000 feet) contains over 20 acres for utilization (+/- 1,000 containers per year with peak volumes of 250 containers and storage of between 150 and 200 containers). The Government of Nunavut supports the construction of port facilities in several locations, including Iqaluit but it lacks the financial means to develop them without significant Federal contributions. Expand International Marine Exports From Goose Bay to Greenland and Beyond This action plan will build upon improved transportation links into Happy Valley - Goose Bay when the Trans Labrador Highway is completed in 2009 ix

13 and untapped opportunities to export natural resources (including forestry products) into Greenland and points beyond in Northern Europe. There is an established marine service by Iceland-based Eimskip along the East Coast of North America that extends from Richmond, Virginia through Halifax to Argentia and Reykjavik, Iceland. At Reykjavik, this service links up with a range of services to North Europe and Scandinavia. In the summer, this service calls at St. Anthony and Greenland. The responsibility for this high priority and low risk action plan rests with business interests in Labrador and the Province of Newfoundland and Labrador to craft a solid business case to secure regular or charter service (export only under Canadian cabotage regulations). x

14 1 Introduction 1.1 Background and Context Efficient Transportation Is Essential For Growth More Sustainable Investment Increased Prosperity Efficient Transportation & Logistics Systems Improved Standard of Living A key economic goal of any region is to attain and then sustain an improving standard of living for its citizens. A requirement for increasing productivity which translates into a rising standard of living is the business environment in which firms operate. Efficient transportation and logistics systems are pre-conditions for a quality regional business environment. In 2007, Labrador, Nunavut and Greenland (the study area) are close geographically with a combined population of 115,000 but lack direct transportation links. Labrador has marine, rail, air and expanding road links for internal and external movement of people, natural resources and goods. Neither Nunavut nor Greenland has roads or rail links between towns and settlements, and to outside areas as transportation is limited to marine and air. The need for direct transportation links varies by sector in any regional economy. The economies of the study area are composed of three main types of activities: local clusters, traded clusters and natural resource clusters. Local clusters provide goods and services that are needed by the local population. Government services and retail trade are examples. This cluster currently dominates the economies of the study area and is sustained by transfers from other levels of government. Federal Government transfers represent 92% of all revenues for the Government of Nunavut while twothirds of all employment in Greenland is related to public administration or companies owned by the Home Rule Government. Trade clusters contain firms that are engaged in producing goods and services in one location and then exporting value-added outputs to national and international markets. There are very few firms engaged in these activities in the study area. Natural resource clusters are located in areas where specific natural resources are abundant and market demand exists for their extraction and distribution. This cluster represents the foundation of the commercial economies of the study area, as well as the Northwest Territories and Yukon. Mining, the fishery, hydro power generation and forestry are the mainstay of Labrador s economy. Iron ore mining in Western Labrador, Churchill Falls hydro power and a new nickel mine at Voisey s Bay in Northern Coastal Labrador are major facilities in the international marketplace. The fishery and mining exploration dominate in Nunavut and Greenland. In Greenland, fish and fish products account for over 90% of exports (monetary value). 1-1

15 Experience in the Canadian north reveals that growth in the mining sector can be rapid and dramatic. Mining is a capital intensive sector that is subject to market price fluctuations. In the late 1990 s, the Northwest Territories experienced a major economic upturn from the discovery of a commercially viable diamond vein 300 kilometres from Yellowknife. The resulting direct and spinoff benefits (construction, transportation, services) from two mines that opened in 1998 and 2003 was an 11.8% increase in gross domestic product per capita from 1999 to This compares to an increase of 2.4% in Yukon and 0.4% in Nunavut over the same time period. 1 Mining and minerals exploration, and offshore oil and gas development, suggest similar clusters will be developing in the short to medium term in Nunavut and Greenland as exploration translates into major capital projects. The number of Nunavut prospecting permits has increased significantly in recent years. Exploration for nickel, platinum, iron ore, gold, diamonds, rubies, olivine, kimberlite, zinc and lead is accelerating. In Nunavut, the Jericho Mine southwest of Cambridge Bay is the first diamond mine and is projected to produce 2.6 million carats over the life of the mine. Feasibility work is also continuing on the $1.5 billion iron ore mine at Mary River by Baffinland Corporation. This proposed major project will see 10 million tonnes of high grade ore shipped year-round from a port facility at Steensby Inlet to European markets. Greenland had 45 exploration and prospecting licenses in 2005, an increase of almost 75% from UK-based Crew Gold Corporation opened the Nalunaq Gold Mine in 2004 which was Greenland s first such operation in 30 years. The processing occurs at Nugget Pond in Newfoundland under a purchase agreement with New Island Resources Inc. that was finalized in October In the offshore oil and gas sector, the growth potential is significant if conditions off Newfoundland can be replicated. The largest known fossil reserves in Nunavut are in the Sverdrup Basin with estimated reserves of 17.4 trillion cubic feet of natural gas and 334 million barrels of oil. There is also increased offshore exploration interest in the Labrador Sea as a source of major reserves while Calgary-based EnCana and Greenland s state-owned NunaOil have the license for exploratory drilling west of Nuuk in an area that may contain two billion barrels of oil, about one-third the amount in the North Sea at its peak. More exploration licenses are expected in Both the Baffin Region and Greenland are also seeking to duplicate the success of the Northwest Territories in diamond exploration and new mine development that is receiving strong investor and market support because of increasing global awareness of blood diamonds from Africa. 1 Source: Statistics Canada. 1-2

16 1.2 Research Methodology Current estimates indicate 80 Canadians working in the mining sector in Greenland on a three week cycle with travel home by charter air service. In addition, Inuit-owned vessels are fishing off Greenland with around 75 workers on a six week on/two week off cycle. There is also an estimated 1,000 trades workers from Atlantic Canada (mostly Newfoundlanders) working on contracts in the Baffin Region. Of this total, approximately 300 skilled trade workers average four trips per year from Atlantic Canada (again mostly Newfoundland) into Iqaluit. Another 1,000 to 1,250 full-time residents of Iqaluit have relocated from Atlantic Canada. These residents typically make one trip home on an annual basis. The typical southern travel scenario for these Atlantic Canadians is to purchase two segment tickets on-line (airline or third party seller) with one ticket from Iqaluit to Ottawa or Montreal, and the other ticket to Halifax, St. John s or other points in Atlantic Canada. Indian and Northern Affairs Canada estimates that a combined total of 3,869 Innu and Inuit reside in Atlantic Canada. Other southern areas with ties to the study area are Ottawa and Denmark. In the Ottawa Region, there is an estimated 500 to 1,000 Inuit from Nunavut residing while 6,500 Danes live in Greenland and 10,000 Greenlanders in Denmark. Over the past decade, an expanding relationship has developed between the business communities and government leaders of Labrador and Nunavut. In 2003, the Labrador North and Baffin Regional Chambers of Commerce signed a Memorandum of Understanding on Cooperation to facilitate joint initiatives targeted at developing a Labrador - Nunavut Trade Corridor (referred to as NorthLink). Since that time, representatives of both regions have attended each others trade events and worked towards building a more favourable environment for Labrador-Nunavut trade that could also extend to Greenland. To capitalize upon these types of opportunities, both chambers have identified barriers. They include the absence of direct scheduled air linkages between Goose Bay and Iqaluit, and Iqaluit to Greenland; as well as the Food Mail Program of Indian and Northern Affairs Canada (INAC) that does not allow Goose Bay to function as a distribution point for the Baffin Region of Nunavut or Nunavik in Quebec s Arctic Region., a member of the Hatch group of companies, in association with the International Air Transport Association (IATA), MariNova Consulting Ltd. and other partners, was retained to assess the feasibility of an Eastern Arctic Trade Corridor (also referred to as the North 1-3

17 East Trade Corridors) from Labrador to Nunavut and onto Greenland. The Terms of Reference (see Appendix A) focus the evaluation on: 1. Air and marine links from Goose Bay, Labrador to Iqaluit, Nunavut. 2. Air and marine links from Iqaluit, Nunavut to Nuuk, Greenland. 3. Air link extensions from St. John s and Halifax to Goose Bay, Iqaluit and Nuuk. 4. The overall effectiveness of the Food Mail Program. The purpose of the study is to conduct economic and logistics analyzes to ascertain the feasibility of air and marine transportation developments between Labrador, Nunavut and Greenland. The overall goal is to prepare a business case with supporting action plans to better serve the marine and air transportation needs of each region. To meet the project s requirements, SGE Acres followed a two-phase approach: Phase 1: Market Demand/Forecasts and Feasibility Phase 2: Business Case/Action Plans Preparation. This approach balanced the identification and assessment of improved transportation links, and a business case to move forward with action plans that are aligned with market conditions, operator requirements, and supportive government policies and programs. The study approach acknowledges that Inuit-owned development corporations have a minority or majority equity position in many of the air and marine operations in Nunavut. As well, the Innu Development Limited Partnership in Labrador has a joint venture with Provincial Airlines Limited and operates as Innu Mikun Airlines which provides cargo and passenger service from Goose Bay to Northern Coastal Labrador. In this setting, only those new transportation options that can provide major improvements in service or price are considered for action plans. 1-4

18 A Balanced Approach Was Used For The Study Links Links to to Greenland Market-Ready & Viable Operators Food Food Mail Mail Program Program Customer Focused Services & Infrastructure NE Trade Corridors Strategy Supportive Government Local Benefits & New Opportunities Policies Policies & Programs 1.3 Acknowledgements Over 100 private sector representatives and government officials provided input to the project. (See Appendix B for a listing of key contacts.) These contacts included business, community and government organizations in Newfoundland and Labrador, the Baffin Region and Greenland. Air carriers, airport operators and marine transport firms who operate in the study area also provided valuable inputs to the project. The Baffin Regional Chamber of Commerce and the Labrador North Chamber of Commerce provided coordination support for numerous inputs to the project. The policies of privately-owned marine and air carriers, distributors and retailers resulted in some firms sharing proprietary information with the SGE Acres Team while others took a more restrictive posture. Data has been aggregated or information generalized to respect confidentiality. 1-5

19 2 The Current Setting 2.1 Introduction 2.2 The Existing Transportation System The purpose of this section is to provide an overview of the current setting in the study area. Section 2.2 reviews the existing transportation system while Section 2.3 discusses the regulatory setting and government policy in Greenland, Nunavut, and Newfoundland and Labrador. The findings of the consultation program are outlined in Section 2.4 while Section 2.5 presents a summary of the opportunities and barriers to improve marine and air links. The current transportation networks in the study area are shown in Exhibit 2.1 (air) and Exhibit 2.2 (marine). The economies of each area are growing with local and natural resource clusters dominating. (See Appendix C for a summary. 2 ) Niche market tourism is also an important emerging sector. The study area s population is dominated by Aboriginal Peoples with relatively high fertility rates. Inter and intra regional migration is above national norms and focuses on movement to larger centres within each region or to southern cities with proportionally large Inuit populations or extensive community services (St. John s or Halifax for Labrador, Ottawa or Montreal for the Baffin Region and Copenhagen for Greenland). Transportation services are dominated by legacy systems (and supporting infrastructure) with often long-established operators that can be traced to colonial ties or trade links that were established many decades ago (often with past government support). Over the past decade, land claims settlements or economic development agreements with Canada have allowed Inuit or Innu development corporations to become major participants with many established transportation operators or new ventures. For Labrador, the transportation links are to Lewisporte and onto St. John s (marine) and Deer Lake, St. John s, Halifax and Montreal (air). Newfoundland is dependent upon sea links from Montreal, Halifax and North Sydney. In the Baffin Region, sealift links are to Montreal while the dominant air links are to Ottawa and Montreal, as well as Yellowknife and onto Edmonton and Winnipeg (both via Rankin Inlet). Flights from Cambridge Bay also connect to Yellowknife and Edmonton. 2 Appendix B includes information on location and geography, economic growth, population growth and mobility, major government capital projects, mining and minerals, offshore oil and gas, the fishery, hydro, tourism, forestry, value-added manufacturing, military activity, cottage industries, agriculture and country foods, cultural exchange, medicine, education, and local resident retail and service. 2-1

20 For Greenland, all marine and air links lead into Copenhagen with Iceland playing a smaller role (mostly for transshipment or flight connections). There are also seasonal direct marine shipping links to Newfoundland, Nova Scotia and onto the U.S. East Coast. Officials with Royal Arctic Line estimate over 400,000 cubic metres of cargo is shipped annually from Denmark to Greenland and around 4,000 cubic metres is shipped from Canada and the United States. Room-nights, by nationality, spent in Greenland is an indicator of tourism and commercial linkages. In 2004, non- Greenlandic room-nights totaled 95,245 with 68% being residents of Denmark. American room-nights totaled 7,720 (8%) and Canadians totaled 1,512 (1.6%). Assuming an average stay of five nights, these data suggest a total of 300 Canadians visited Greenland on pleasure or business. This level of Canadian activity is below levels in 2000 (1,994 room-nights) when the First Air service operated from Iqaluit. Marine Services Marine links in Eastern Canada have changed and evolved over the past decade. Service from the island of Newfoundland to the mainland is provided by Marine Atlantic and Oceanex. Marine Atlantic operates on two routes, North Sydney-Port aux Basques, and North Sydney-Argentia (seasonal). Marine Atlantic operates two superferries, a ro-pax and a pure ro-ro (roll on roll off) vessel. Oceanex operates three vessels, including the Avalon lo-lo vessel, and two ro-ro s, the Cabot and Sanderling. (During the study period, the Cicero was sold to Greek interests for US$4.1 million). Oceanex operates two services, from Montreal and Halifax to St. John s with the Halifax service also calling at Corner Brook. Eimskip, or Icelandic Shipping, operates a service which sails Reykjavik Argentia Halifax Boston/Everett, MA Richmond, VA Halifax Argentia Reykjavik. At Reykjavik, it links up with a range of services to North Europe and Scandinavia. In the summer, this service calls at St. Anthony and Greenland. Royal Arctic Line operates year-round from Denmark with calls at Reykjavik and ports in Greenland. The Woodward Group of Companies operates several northern routes under contract to the Government of Newfoundland and Labrador. These include a ferry from St. Barbe to Blanc Sablon across the Labrador Straits, and both passenger and cargo services that link the island of Newfoundland and Labrador, as far north as Nain. The coastal services were devolved from Federal to Provincial responsibility in This firm also has the contract to ship petroleum products to Nunavut. 2-2

21 Exhibit 2.1 Current Air Links 2-3

22 Exhibit 2.2 Current Marine Links 2-4

23 Several other links are provided through the annual Arctic Sealift program, which operates from ports in the St. Lawrence to Baffin Island and the Arctic. This program is now administered by the Government of Nunavut, having formerly been managed by the Canadian Coast Guard. The service is provided by several companies jointly, called the N3 Alliance, which includes Northern Transportation Co., NorTran Inc., Transport Desgagnés and Arctic Co-operatives Ltd. Fednav operates the Umiak I, a 2006-built 31,500 tonne ice breaking bulk ship between Voisey s Bay and Quebec City, where nickel ore is then railed to smelters in Sudbury, Ontario and Thompson, Manitoba. Fednav also owns Canarctic Shipping, which operates several vessels that provide seasonal shipping to the Arctic Region. Air Services Air transportation firms currently operating in the study area are mostly niche players as the typical business model of larger southern-based operators does not appear applicable or poses too many risk exposures against other growth opportunities (such as high seasonality, special needs of cold climate operations, variable load factors, threats of weather disruptions, tri-lingual staffing). The dominant air carrier in Canada is ACE Aviation Holdings Inc. which is the parent company of Air Canada and Air Canada Jazz. ACE has around 60% of the Canadian domestic market, 50% of the international market and 40% of the transborder market (Canada - US) as defined by available seat miles (ASM). Air Canada Jazz has one daily flight from Halifax into Goose Bay (regional jet with no cargo capacity) and no service from St. John s to Goose Bay or into Iqaluit from southern cities. WestJet is the other dominant Canadian carrier (around 30% of domestic ASM) and it does not fly into Goose Bay or Iqaluit. Scheduled air carriers that operate in Labrador (Air Labrador, Provincial Airlines Limited, Innu Mikun Airlines) are privately held companies with Innu equity in Innu Mikun (Innu Development Limited Partnership) under an operating agreement with Provincial Airlines Limited (PAL). In the Baffin Region, the major scheduled air carriers are First Air and Canadian North. Both have Aboriginal equity positions and are privately held. The scheduled air transportation setting in Greenland is evolving to a different competitive model as SAS and Icelandair have recently announced the introduction of seasonal services to complete with Air Greenland, which is the dominant air carrier. Air Greenland also started once a week seasonal service into Baltimore in mid 2007 which will provide the only direct link into North America. Baltimore was selected by Air Greenland because of good connections to other U.S. destinations (Southwest Airlines hub for the East Coast), competitive fees, a supportive position by local airport officials and proximity to Washington, Philadelphia and New York City. 2-5

24 Exhibit 2.3 shows the air passenger traffic into the Canadian Arctic and Greenland, and estimated cargo volumes by selective parings. As these data reveal, Yellowknife-Edmonton has the greatest origin-destination (O/D) traffic at almost 220,000. This city pairing is followed by Iqaluit-Ottawa (39,500), Halifax-Goose Bay (35,000) and Yellowknife-Calgary (31,500). Total O/D passengers from Atlantic Canada to Nunavut totaled over 2,000 or almost 5,000 when Nunavut and the Northwest Territories are combined. Passenger traffic from St. John s to Nunavut and the Northwest Territories was around 1,500. The total O/D passengers from Atlantic Canada should be viewed with caution as trips from Iqaluit can involve separate tickets with a stay in Ottawa or Montreal. Exhibit 2.4 summarizes air traffic into Greenland and shows the dominance of the Copenhagen-Kungerlussuq route. With no direct air service between Iqaluit and Greenland, charter services must be used. Air Greenland, Kenn Borek Air, Air Inuit, Air Nunavut, First Air and PAL make regular charter flights between Iqaluit and Greenland. In 2005, there were 242 one-way movements between Iqaluit and Greenland with 65% to Nuuk. On a seasonal basis, the distribution of movements was: January March: 26% April June: 23% July September: 28% October December: 23%. Data from carriers suggest a total of ±1000 passengers in recent years. When a scheduled service was provided up to 2001, annual passengers averaged in the 1,775 to 3,000 range. Officials involved in this discontinued service estimate that over 90% of the traffic from Greenland to Iqaluit was going onto southern destinations. 2-6

25 2-7

26 Exhibit 2.4 Greenland Passenger Traffic By Air Domestic Air Traffic 231, , , , ,011 Airplanes 169, , , , ,554 Helicopters 62,155 64,374 37,701 39,870 39,457 Air Traffic To/From Greenland 100, , , ,562 98,118 Kangerlussuaq-Copenhagen 72,924 83,371 78,923 83,116 80,429 Narsarsuaq-Copenhagen 17,630 18,545 18,492 17,018 14,178 Greenland-Iceland 6,530 1, Reykjavik Nerlerit Innat-Kulusuk - - 3,231 3,428 3,511 Nuuk-Iqaluit Kangerlussuaq-Iqaluit 2,548 2,197 1, Canada Greenland Charter Passengers 963 1,079 1,000 est 1,000 est 1,000 est Source: Greenland in Figures 2005 Statistics Greenland; Statistics Canada, Catalogue No XIE; SGE Acres estimates. 2-8

27 2.3 Regulatory Setting & Government Policy To maintain regularly scheduled air and marine services in the study area, the commercial needs of operators are now inter-linked (directly or indirectly) with government policy and funding support. In Greenland, public funding is directly provided to Air Greenland and Royal Arctic Lines as they compete in the open market. The Home Rule Government is reluctant to provide subsidies on possible new links into Canada as they prefer the startup risks to be shared equally between participants in both countries. The Government of Nunavut (GN) has a unique operating model as the territorial governance structure resulted from a single land claim agreement between Canada and the Inuit of the Eastern Arctic. Under this structure, comanagement of resources is shared with Nunavut Tunngavik Inc. (NTI), or designates, which administer the land claims benefits agreements for the Inuit of Nunavut. The Nunavut Transportation Strategy 2001 determined the relationship between Inuit transportation organizations at that time. This research revealed partnerships or agreements with such organizations as: North West Company for the Nunavut Eastern Arctic Shipping Inc. (NEAS). Inuit of Northern Quebec (Makivik Corporation) for Nunavut Eastern Arctic Shipping Inc. (NEAS) and Nunavut Umiaq Corporation. (Makivik Corporation is also a shareholder in First Air.) Groupe Desgagnés (Transport Desgagnés is a subsidiary) for Nunavut Sealink and Supply Inc. Arctic Co-operatives Limited for Nunavut Sealink and Supply Inc. Inuvialuit of the Northwest Territories (with Nunasi Corporation) for Norterra Inc., Canadian North, Northern Transportation Company Inc. and NorTran Inc. Crosbie Shipping (with Auyuittuq Investment Corp.) for Nunavut Ocean Transport. Privately held scheduled marine or air operators that are not within this NTI structure and operate in the Baffin Region include the Woodward Group of Companies, Kenn Borek Air (Unaalik Aviation) and Kivalliq Air. While the GN does not provide direct subsidies to carriers, it indirectly provides support to air and marine carrier by following a decentralized government service model of government departments and paying for medevac/medical travel to larger southern centres. Many private companies, government branches or non-government organizations operating in the Baffin Region also provide annual vacation travel assistance can extend to five dependents for a married employee and another person for a single employee. 2-9

28 2.3.1 Canada, Greenland and Denmark The Government of Newfoundland and Labrador is following a different strategic direction. The scheduled completion of the Trans Labrador Highway (TLH) from Cartwright Junction to Happy Valley - Goose Bay in 2009 will finish the rural highway link from Quebec via Western Labrador (Wabush and Labrador City) to Southern Coastal Labrador and the Labrador Straits and onto Newfoundland via the seasonal ferry service across the Labrador Straits. Government operated and subsidized ferry service into Southern Coastal Labrador has been contracted out and adjusted to reflect the completed rural highway to Cartwright while service to Northern Coastal Labrador has also been contracted out. Labrador offers evidence of the rapid adjustments and resulting benefits (better service, lower costs) that can result when competitive market focuses work effectively in rural and remote regions. Prior to the TLH being completed from Quebec into Happy Valley - Goose Bay in 1992, this community was restricted to seasonal marine and year-round air access. Eastern Provincial Airways (EPA) used to have regular air-combi service into Happy Valley Goose Bay from the Halifax International Airport. This market rapidly shifted to trucking because of lower costs (from Montreal and the Maritimes) and reliance on air supply for perishable goods disappeared as EPA abandoned a dedicated regular air freight service. Considering it is a next-door neighbour with whom there have been virtually no issues of major conflict, Canada has maintained relatively little contact with Greenland over the years. This lack of contact is even more remarkable considering the common racial, linguistic, and cultural heritage shared between Greenlanders and the Canadian Inuit. To a large extent, this minimal flow across the Davis Strait can be attributed to the strong ties which Denmark has developed with Greenland since the Danish missionary Hans Egede re-established European settlement in These ties have profoundly influenced the political, economic and social life of Greenland since that time. Greenland is a territory within the Kingdom of Denmark. Politically, it is administered under the Home Rule Act which came into force in Under its provisions, most aspects of government have gradually devolved to Greenland over the period. In 2007, the only elements still being administered by Danish Government Departments are those dealing with the legal system and policing, defence and foreign policy, and currency. Denmark provides support to the Greenland Home Rule budget through an annual Block Grant. With Denmark s accession to the European Union (EU) in 1972, Greenland also became a part of the EU. However, Greenland opted out of the EU 2-10

29 some years later primarily due to considerations related to the fishing industry and access to the fishing stock in Greenlandic waters. Since then, Greenland has maintained its own customs and tariff system. Subsistence hunting and fishing were the traditional livelihood of the majority of the Greenlandic population. Nowadays the Greenlandic economy is dominated by the fishing industry with shrimp being the major species harvested. Mining exploration and production, and offshore oil and gas exploration had been ongoing at a relatively small scale at various locations during the last half of the 20 th century. Since the early 2000 s, there has been a significant increase in the level of activity in the mineral and offshore oil and gas sectors with Canadian companies being active players. The prospects that offshore oil and gas development and mineral production will soon be contributing substantially to the Greenlandic economy appear quite promising. Likewise, Greenland s tourism industry, while not large, has well-established infrastructure and Greenland is seen as an attractive niche tourist destination by a growing number of participants in the soft adventure, heritage and cultural, ecotourism and expedition cruise segments. In order to provide services to a population of almost 57,700 that is widely dispersed around a rugged coastline, the Greenland Home Rule Government has played a major role in the economic development of Greenland. 3 Currently most of the major companies in Greenland are government owned wholly or in part. In recent years, there has been an intention to reduce the government s involvement in the economy. Such moves to-date have demonstrated mixed results. Nevertheless, it is worth noting that a number of Greenlandic companies, such as Royal Greenland in the fishing industry, Royal Arctic Line in shipping or Air Greenland in air transport, are substantial and modern entities competing aggressively in international markets. Greenland is a signatory to several bilateral agreements dealing particularly with the fisheries and hunting. These include agreements with the EU (fisheries), Norway (fisheries), Russia (fisheries), the Faroe Islands (fisheries), Iceland and Norway (capelin), and Canada (narwhal and beluga whales). Greenland is represented in the following international organizations: NAFO (the Northwest Atlantic Fisheries Organization), NEAFC (the Northeast Atlantic Fisheries Commission), NASCO (the North Atlantic Salmon Organization), and the IWC (the International Whaling Commission). It has been evident in recent years that there is a will on the part of the Greenland Home Rule Government to broaden its international outlook and diversify its international contacts. For reasons of proximity, and the common heritage mentioned previously, Canada has been the first country to 3 The population was 56,901 based upon January 2006 data from Statistics Greenland. 2-11

30 which Greenland has turned its focus. The dialogue between the two has been strengthened by their cooperation on the promotion of sustainable development in the Arctic. Collaboration between Canada and the Greenland Home Rule is regulated by a number of bilateral agreements including the Agreement of 1983 on the Marine Environment with its appurtenant 1991 Marine Pollution Contingency Plan, and the 1989 Agreement on the Protection and Management of the Beluga and Narwhal. Greenland has also concluded regional agreements with the Northwest Territories and the Province of Quebec concerning culture, education, and possible commercial relations. Regarding bilateral agreements, it is important to note that while Canada and Denmark have signed a Convention for the Avoidance of Double Taxation. This convention does not apply to Greenland. During the Second World War, Canada maintained a consulate in Greenland which was closed not long after the end of this conflict. However, Canada established an Honorary Consul in Nuuk in the early 1990 s. Representatives of the Canadian Embassy in Copenhagen make periodic visits to Greenland. Two Canadian federal ministers (Indian Affairs and Northern Development, and Foreign Affairs) made visits to Greenland in the late 1990 s. More recently, there has been discussion underway between Canada and Denmark/Greenland since 1995 over their mutual border line running through Hans Island in the northern reaches of Davis Strait. During the period from 1999 to 2002, Greenland stationed a representative in the Danish Embassy in Ottawa. With so much shared history, geography and culture, the establishment of Nunavut in 1999 greatly expanded the opportunities for dialogue and collaboration between Greenland and Nunavut. In recognition of the importance of these linkages, on October 24, 2000, the two Governments signed a Memorandum of Understanding to develop their ongoing cooperation. This has encouraged visits between the Nunavut and Greenland governments and local companies and organizations. Also in 2002, the Arctic Winter Games were staged as a joint project between Nuuk and Iqaluit. During the 1980 s and 1990 s, trade between Canada and Greenland consisted primarily of air cargo shipped initially from Iqaluit to Nuuk, and subsequently from Iqaluit to Kangerlussuaq. This service was operated by First Air in collaboration with Air Greenland. Much of the cargo consisted of fresh produce. Starting in 2000, the establishment of a shipping connection between Canada and Greenland greatly expanded the possibilities for commercial exchange between the two countries. It is somewhat ironic that, while this shipping connection collaboration between Royal Arctic Line and Iceland-based Eimskip was developing into a year-round service with 2-12

31 significantly increased cargo loads each year, in 2001 the decision was taken to cease the Iqaluit to Kangerlussuaq air connection. The shipping connection now carries a wide variety of products (foodstuffs, building products, autos and auto parts, and consumer goods to name a few) from Canada to Greenland. Some seafood is carried on the route from Greenland to Canada. Discussions between the SGE Acres Team and senior officials of the Home Rule Government identified a desire to maintain or enhance the marine links into Canada, and to work cooperatively towards the reintroduction of air links to Iqaluit. There is a strong preference to have any new or expanded transportation links operate as viable commercial ventures or with selective start up support that is shared by government and/or commercial interests in both countries. These consultation program findings are discussed in Section 2.4. Greenland took a major step towards closer commercial cooperation with North America with the August 2004 signing of a Joint Declaration on Economic and Technical Cooperation between the USA, Denmark and the Home Rule Government of Greenland. This agreement establishes a joint committee to provide a forum for coordination and exchange of information on economic and technical issues. Meeting at least annually, this forum should lead to greater commercial exchange between the USA and Greenland. Given the longstanding ties and growing commercial interchange between Canada and Greenland, a forum for dialogue between the two that is similar to that now established between Greenland and the USA could have merit. 2-13

32 Exhibit 2.5 Case Study First Air Connections To Greenland In looking at the experience of the First Air connection to Greenland, it is important to consider the two stages of that experience: the first stage from 1981 to 1994 when the service operated from Iqaluit to Nuuk with an HS748; the second stage from 1994 to 2001 when the service operated from Iqaluit to Kangerlussuaq with a larger jet. Reports indicate that, during the first stage, the HS748 s cargo capacity was fully taken up most of the time. As for passengers, during the summer all seats were generally taken, while in the winter the number dropped to 5 to 10. As for viability during this stage, as one individual who was involved in the service put it: It depends on which side you view it from. First Air considered it okay. Air Greenland saw it as slightly less than okay. What prompted the change from Nuuk to Kangerlussuaq as the destination in Greenland for the flight from Iqaluit? Air Greenland got the contract to supply to the U.S. Thule Air Base in Northern Greenland and subcontracted this work to First Air. First Air was shipping significant cargo (mainly fresh produce) from Canada for KNI. There was also some fresh fish being flown out of Kangerlussuaq to destinations in Southern Canada. After a few years, there came several changes which significantly affected the service. Air Greenland acquired a larger aircraft with which it could fulfill the Thule contract requirement and therefore did not renew the sub-contract with First Air. Changes occurred in KNI with the splitting off and partial privatization of Pissifik. Pissifik had its own supply arrangements with its Danish owners and curtailed virtually all purchasing from Canada. Although no longer part of Pissifik, Pilersuisoq (which supplies to the settlements around the coast) remained contractually tied to Pissifik s purchasing arrangements until recently. As well, problems were encountered with the supply of fresh fish out of Kangerlussuaq into Canada and this cargo flow dried up as well. Together, these events meant the loss of the majority of the cargo potential on which the service was established. As for passengers on the Iqaluit to Kangerlussuaq route, the load factor on the larger aircraft was often quite low. This was no doubt aggravated by the fact that potential travelers from Nuuk (the largest population base in Greenland) wishing to go to Iqaluit, or potential travelers from Nunavut heading for Nuuk, were faced with a hefty additional charge for the Nuuk/Kangerlussuaq leg (currently about $600). By the early 2000 s, Air Greenland was under pressure from its owner, the Greenland Home Rule Government, to put its routes on a more commercial basis. The result was Air Greenland withdrew from the pool arrangement with First Air. Not long thereafter, First Air ceased the service. 2-14

33 2.3.2 Government of Nunavut The Government of Nunavut (GN) operates within a unique political and cultural environment. The inception of the Government of Nunavut in April 1, 1999 was the result of the Nunavut Land Claim Agreement (NLCA) between the Government of Canada, the Territorial Government and the Inuit of Nunavut. The Inuit of Nunavut are represented by the Nunavut Tunngavik Incorporated (NTI) and the Regional Inuit Associations (RIA); Qikiqtani Inuit Association, Kitikimeot Inuit Association and the Kivalliq Inuit Association. The agreement outlines specific obligations with the Inuit of Nunavut in managing the lands and resources of the Nunavut Settlement Area. The NLCA outlines 42 articles with the following objectives: To provide for certainty and clarify of rights to ownership and use of lands and resources, and of rights for Inuit to participate in decisionmaking concerning the use, management and conservation of land, water and resource; including the offshore; To provide Inuit with wildlife harvesting rights and the right to participate in decision-making concerning wildlife harvesting; To provide Inuit with financial compensation and means of participating in economic opportunities;and To encourage self-reliance and the cultural and social well-being of Inuit. The GN created the Bathurst Mandate to outline their long-term vision for Nunavut by Tactical and operational strategies focus on short to medium term objectives. Since the formation of Nunavut in 1999, the Government of Nunavut has set up a decentralized administrative structure and crafted strategies to identify options for improved programs and services. The GN is currently operating with 92% of revenues coming from Federal Government transfers and any accumulation of new debt is limited to about $50 million. There is a going forward expectation that revenue growth will not keep pace with the demands of a growing population dispersed between small and remote communities. To address these realities from a policy perspective, the GN can seek an increase in transfer payments, force more efficiencies on government expenditures (including possible recentralization of some operations to Iqaluit) or support more private sector investment. In this setting, the period of rapid public sector growth after the creation of Nunavut is ending. 2-15

34 Nunavut Transportation and Economic Development Strategies In 2001, the Department of Community Government and Transportation developed the Transportation Strategy for the Government of Nunavut. The transportation challenges identified in the strategy are the geography of Nunavut, socio-economic issues, access and equity, the economy of Nunavut, population trends, politics and culture, and decentralization. The Nunavut Transportation Strategy is largely based upon conditions in the late 1990 s and Overall, the strategy seeks greater government intervention and monopolization of marine and air services, as opposed to less regulation and public-private partnerships. The strategy was completed in the pre-september 11, 2001 era when fuel costs averaged one-third of current levels, and air and marine transport security and regulatory conditions were less stringent. In the air sector, the strategy assumed a 50% break-even load factor which is well below current industry norms. Section 8, Conclusions and Recommendations, of the Strategy provides a strategic direction and five-year business plan for implementation. The strategic direction contains three elements: More involvement by the Government of Nunavut (GN) with support from the Federal Government in the operation of public transportation companies. The assumption is the GN can provide better and more efficient services using more modern aircraft and ships with lower or more fair prices. Significant public sector investments to improve transportation facilities and infrastructure by air, sea and land. Enhanced cooperation between the GN and Inuit organizations to achieve the best transportation value and services. A series of area transportation plans are recommended for implementation over a five-year period with the mandate resting with the Department of Community Government and Transportation. These business plans are grouped by different functional areas. The following exhibit comments on relevant topics in the context of the Transportation Study. As this exhibit reveals, the strategy reflects different thinking from a very different period. The Nunavut Transportation Strategy is being updated by the Department of Economic Development and Transportation. In 2003, the Nunavut Economic Development Strategy was released. The strategy was crafted with input from the Government of Nunavut, Canada, Inuit organizations, municipal organizations, non-government organizations and the private sector. Over 25 groups contributed to the first economic development strategy for Nunavut. 2-16

35 Exhibit 2.6 Assessment Of Nunavut Transportation Strategy 2001 Sea Transportation Develop A Seaport In Southern Baffin Region Facilitate The Creation of a Preferred Shipping Carrier (GN and Canada) Controlled By Nunavummiut Have GN Assume Responsibility for the Sealift Program Undertake a Supply Chain Management Improvement Program Seek Amendments to Federal Regulations Governing the Use and Purchase of Foreign Vessels Air Transportation Facilitate the Creation of a Preferred Air Carrier (GN and Canada) Controlled by Nunavummiut, and Negotiate Service Levels and Prices Integrate Medical and Social Services Travel into a Central Transportation Contracting Office Have GN Assume Responsibility for the Food Mail Program in a Central Transportation Contracting Office Comments Kimmirut (Lake Harbour) on Hudson Strait has not moved forward. Not implemented. GN now involved in some tendering. Ongoing GN activity. Not implemented Not implemented. Not implemented. Food Mail Program remains with Indian and Northern Affairs Canada. The strategy contains rigorous analysis and concludes that the Nunavut economy is in a developmental stage, physical infrastructure is limited, the workplace is underskilled and the government sector dominates. Acknowledging the economy is behind other jurisdictions in Canada, it sets out a broad strategic direction and priorities over a 10-year period around the following set of principles: Cultural Integrity Determination and Realism Community Control Co-operation and Co-ordination Sustainability. 2-17

36 The strategy also identifies the challenges for managed change. The four key challenges are a rapidly growing population with limited employment prospects, declining rates of growth in government spending, a struggling Inuit and small business sector, and maintaining a healthy relationship to the land. Over the period from 2003 to 2013, four strategic priorities are identified with specific action plans included for each. The strategic priorities are the land, our people, our community economies and our territorial economy. Under the territorial economy strategic priority, an action plan is included on infrastructure. The need for a wide range of infrastructure improvements is identified that include power supplies, roads and airports, marine facilities, tourism infrastructure and communication systems. It is stressed that the state of Nunavut s infrastructure is a matter of national sovereignty interest with a warming of the Arctic Ocean and the expanding use of polar marine and air routes. Ongoing investments in air, marine and surface transportation infrastructure that supports community access to economic opportunities is an ongoing priority. In this context, the Transportation Study seeks to support the overall intent of the Nunavut Economic Development Strategy and the Government of Nunavut s major policy commitments that include the procurement process and to increase the capacity and build on the selfreliance of Nunavummiut. For example, the government s response to the need for skilled labour in Nunavut is not to improve the systems that permit greater importation of labour from Atlantic Canada and anywhere. Rather, the priority is to increase the capacity of Nunavummiut to meet this demand. Similarly, education and training needs will be met first with efforts to increase the capacity of the Nunavut college system; including developing partnerships with educational institutions in other parts of Canada that permit students to remain in their home communities as much as possible. In this context, the desire to promote the north east trade corridors as a means of importing labour and exporting education must be tempered by the need to build more capacity in the Baffin Region. From a Nunavut economic development perspective, the concept of the north east trade corridors should not focus on creating more economic dependency on larger southern urban regions. In Nunavut, the government is attempting to address this problem through its sector strategies. As examples, the mining strategy encourages the development of hub communities in Nunavut and the transportation strategy seeks to encourage more east-west connections within Nunavut to counter the southern pull of Ottawa, Winnipeg and Yellowknife. The recommended Action Plans contained in Section 6 seek to build upon the policy directives of the Government of Nunavut to increase the local capacity for greater engagement in economic activities that respect a balance between new and old. The Action Plans also acknowledge that the current 2-18

37 2.3.3 Government of Newfoundland and Labrador transportation systems in the Baffin Region are tied into well-established systems for medical care, education, food mail and other federal subsidies. In comparison to Greenland and Nunavut, Labrador has the most advanced and diversified transportation infrastructure with road, marine, rail and air links. The vast size of Labrador (294,330 square kilometres) with a 2006 population of 27,600 (down from 31,000 in 1991) spread over 32 communities with two inland concentrations in Western and Central Labrador and smaller coastal communities creates a complex setting. Unlike the island of Newfoundland, Labrador is connected to continental North America. Links to Canada have been increasing in recent years, principally because of the continued development of the Trans Labrador Highway (TLH) through Quebec and Western Labrador, Routes 389/500. The TLH connects Labrador with Quebec through Fermont (Quebec) east to Happy Valley - Goose Bay and this road is currently being connected with Southern Coastal Labrador and the Labrador Straits. In 2001, the road along the Labrador Straits was extended north to Cartwright, thereby allowing this area to be better served from the ferry (Apollo) operating eight months of the year from St. Barbe at the northern tip of Newfoundland to Blanc Sablon in Quebec. Prior to the advent of trucks crossing Quebec and Western Labrador to Happy Valley - Goose Bay, the entire Labrador Coast, including Lake Melville, was served by the Labrador Marine Service from Newfoundland out of Lewisporte. This pattern is slowly changing with supply routes to Happy Valley - Goose Bay principally by road from the west through Quebec and with the area Cartwright south being served by trucks from the island crossing the Strait of Belle Isle on the Apollo. Communities along the northern coast and some in eastern Labrador continue to be served by ferry and coastal vessels connecting from Cartwright and Happy Valley - Goose Bay. The Government of Newfoundland and Labrador, and Canada, have embarked upon the preparation of a Sustainable Transportation Plan for Labrador and issued a consultation document, which is on their website. Similarly, the Northern Strategic Plan for Labrador has been released. Labrador Air Transportation The Goose Bay Airport is the primary hub for Labrador, connecting with 19 other airports. Links are provided to Halifax, Blanc Sablon, Voisey s Bay, Nain, Hopedale, Natuashish, Makkovik, Postville, Rigolet, Churchill Falls, Wabush, Cartwright, Port Hope Simpson, Black Tickle, Charlottetown, Mary s Harbour, St. Lewis, and with St. Anthony and Deer Lake to St. John s. 2-19

38 Three airlines offer scheduled services to Labrador: Air Labrador, Provincial/Innu Mikun Airlines and Air Canada Jazz. Air Labrador and Provincial/Innu Mikun Airlines provide passenger and cargo service within Labrador connecting isolated communities and between Newfoundland and Goose Bay, Wabush, Churchill Falls and the Labrador Straits. Air Canada Jazz provides service between Goose Bay and Halifax as well as between Wabush and Montreal. Air Labrador provides service between Goose Bay and Montreal, Quebec City and Sept Isles and Provincial Airlines provides service between Wabush, Sept Iles and Montreal. The completion of the TLH will impact on scheduled air services as road alternatives become more cost competitive. Service to Nunavut has long been recognized as a growth opportunity which can be accessed directly from Goose Bay or indirectly from Kuujjuak in Northern Quebec. In March 2003, Air Labrador started regular scheduled Saturday flights connecting Iqaluit with Goose Bay, Stephenville and St. John s with an 18 seat Beach 1900D. The service was plagued with quality issues and was discontinued due to lack of sustained demand. Charter operations fly from time to time to Nunavut and to Nuuk. Many of these charters are used for crew changes by fishing companies in Nunavut and Newfoundland and Labrador who own shrimp vessels fishing in the Davis Strait. In light of the high cost of air travel, both the Provincial and Federal Governments provide subsidies for perishable goods in isolated areas. The provincial Air Foodlift Subsidy (food subsidy to retailers) is available during the winter when the Labrador marine service is not in operation. The Food Mail Program offered by Indian and Northern Affairs operates through tenders being called for suppliers within defined areas. Several suppliers in Happy Valley Goose Bay are registered as an entry point for communities in Northern Coastal Labrador. The Goose Bay Airport began during World War II as an American military base as a refuelling stop for flights enroute to Europe. After the War, the base became a flight training base for Canadian, American, British, German, Dutch, Italian and other air forces. In recent years, this training role of 5 Wing Goose Bay has declined and alternative uses for base infrastructure have been evaluated. The community is working closely with the Federal and Provincial Governments to expand the role of 5 Wing, drawing upon a number of options including military training and the operational requirements by the Canadian Forces for a new 650 person rapid reaction battalion and a 200 person UAV (Unmanned Aerial Vehicle) Squadron. 2-20

39 Road Transportation In 1997, the Government of Newfoundland and Labrador and Canada signed the $340 million Labrador Transportation Initiative. This program resulted in the transfer of the Labrador coastal marine service, including two vessels (MV Sir Robert Bond and MV Northern Ranger) to the Province from the Federal Government. In January 1998, these funds were placed in the Labrador Transportation Initiative Fund. This fund was established to complete Phase I and Phase II of the TLH. Phase I was to upgrade the road from Wabush to Happy Valley - Goose Bay while Phase II was for the construction of the road from Red Bay to Cartwright. Under the Federal- Provincial agreement, the Provincial Government assumed full responsibility for the Labrador coastal ferry services. The fund was not sufficient to underwrite the cost of Phase III of the TLH, which is currently underway and will by 2009 connect Cartwright Junction with Happy Valley - Goose Bay. Another possible link is the completion of Quebec Route 138 along the Quebec North Shore (QNS) which has the potential of creating another road link between Newfoundland and mainland Canada through a fixed link or an upgraded ferry service across the Strait of Belle Isle. The completion of the QNS highway through Quebec would open up a number of circle routes for travellers from mainland North America. A schedule for completion of this new route has not been set. The new TLH will have the effect of improving road connections directly with central Canada and allowing goods to flow into Labrador more directly from mainland suppliers. These changes will enhance the role of Happy Valley - Goose Bay and perhaps reduce dependence on Newfoundland. With the construction of a hard surface on the TLH from Quebec into Happy Valley - Goose Bay, the cost of trucking will be reduced and the prospects for Happy Valley - Goose Bay to serve other northern markets will be enhanced. Rail Transportation The Iron Ore Company of Canada operates a 418 kilometer railway, the Quebec North Shore and Labrador Railway (QNS&L). This was built to move iron ore to Sept-Iles but does provide Federally subsidized, scheduled year-round passenger service to Western Labrador. Labrador Marine Transportation The key policy objective is to provide marine service to those communities not connected by road as part of an effective inter-modal transportation system and thereby to facilitate social and economic development in the region. As the road reaches previously inaccessible (by road) communities, they are no longer isolated and not dependent upon the highly subsidized 2-21

40 marine service. The practice has been to withdraw marine service from these isolated communities as they are connected by road. The Labrador marine service is managed by a private operator (Labrador Marine Inc., a member of the Woodward Group of Companies) on behalf of the Department of Transportation and Works. The Sir Robert Bond operates from Lewisporte to Cartwright and Happy Valley - Goose Bay, carrying freight and passengers along with automobiles. The Astron carries freight from Cartwright and Happy Valley - Goose Bay to isolated communities while the Northern Ranger provides passenger and limited freight service from Happy Valley - Goose Bay to northern communities. The MV Apollo offers a ferry service carrying automobiles, freight and passengers between Newfoundland and the Labrador Straits. With the completion of the highway to Cartwright, the Straits ferry has assumed a larger role. With the completion of the TLH, the Sir Robert Bond may be removed from service if demand declines. A decision will need to be taken as to the selection of the principal staging port for serving northern communities, possibly Happy Valley Goose Bay, Cartwright or Rigolet. The Provincial Government might also then evaluate the remaining fleet and consider a new multi-purpose vessel, carrying passengers and freight, which might replace the Northern Ranger and the Astron. Opportunities for Collaboration The Government of Newfoundland and Labrador recently undertook a Ministerial Visit to Nunavut, headed by Deputy Premier Rideout and Transportation and Works Minister Hickey and including senior representatives of the Nunatsiavut Government. A reciprocal visit by the Government of Nunavut, including Premier Paul Okalik, took place during the Expo Labrador conference in June of This indicates a strong commitment at the political level on behalf of both governments. The visits focused on opportunities in the following areas of interest: Transportation (air links) Economic Development (housing and the sealing industry) Sharing of experiences and best practices in working with the Inuit and their respective organizations. The jurisdictions of Nunavut and Newfoundland and Labrador have continued to focus on building multi-sector partnerships through a variety of forums such as at Expo Labrador in June 2007 as well as the upcoming Northern Lights Trade Show scheduled for February A multilateral meeting in Nunavut in February 2007 focused mainly on issues of marine freight transportation shared administrative experiences/best governance practices and regional economic development issues. 2-22

41 Economic development strategies are currently being led by initiatives aimed at supplying the expanding housing market in Nunavut with secondary and tertiary forest products (such as modular homes) produced in Labrador as well as by the development and promotion of seal hunting across the region. Economic growth opportunities identified by the Assistant Deputy Minister for Labrador Affairs (NL), are aimed at continuing to develop interjurisdictional collaboration (including the participation of the Greenland Government) and common intra-regional positions on advocacy for fishery issues, value added forest products, sea freight shipping (with some air transportation), and the development of first nations interest in regional tourism potential. 2.4 Consultations Summary of Key Findings Over 100 consultations were completed for the study. From the consultations, a number of key themes emerged regarding current marine and air service, and expectations towards future requirements and changing needs. They findings are: Legacy Transportation Links Dominate The Study Area - There is a consensus opinion that the current air and marine transportation services in Labrador, the Baffin Region and Greenland are founded more on legacy links than changing market realities. For Labrador, the historic ties have been to Newfoundland (Lewisporte and St. John s for marine, St. John s for air) and Nova Scotia (Halifax for marine and air). In the case of the Baffin Region, these links have been to Montreal (marine sealift) and Ottawa, Montreal, Yellowknife, Edmonton and Winnipeg for air. For Greenland, the historic ties are to Copenhagen for both air and marine links. Established Transportation Operators Have Built Their Operations Around Legacy Links - Air and marine transportation service into the study area is provided by well established operators that have built their network and supporting infrastructure on the continuation of traditional links with marketdriven incremental adjustments. Over the past decade, land claims settlements and economic development agreements with Canada have allowed Innu and Inuit development corporations to take an equity position in established operations or to form new ventures. With the exception of Air Canada Jazz (tier 1 air carrier) which provides daily regional jet service from Halifax to Goose Bay, all other air service is provided by operators that specialize in rural and remote areas (First Air, Canadian North, Air Labrador, Provincial Airlines, Air Greenland) or charter operators. The same condition exists with marine transportation. 2-23

42 The Business Communities In Labrador and the Baffin Region Want Efficiency and Market Responsive Marine and Air Transportation Links There is a consensus opinion that road links into Central Labrador from Quebec are effective and will improve with a scheduled program of highway paving or chip sealing and completion of the Trans Labrador Highway in Also, marine and air links must adjust to changing investment and trade patterns. The result must be more efficient and market responsive services. The Business Community of Greenland Wants Stronger Economic and Transportation Ties to Canada Increased mining and offshore oil and gas activity from Canadian firms, as well as cultural ties between Aboriginal Peoples, are creating a look west focus in Greenland. The strong ties of retailers and other service providers to Denmark will limit other opportunities. Happy Valley - Goose Bay Wants A Multi-Modal Gateway Role The convergence of air, marine and expanded road links into Central Labrador should support an expanded role for Happy Valley - Goose Bay as a southern gateway to the Baffin Region, Greenland and points beyond. There is a concern that senior government policy (such as the Food Mail Program) may represent a barrier to more open market forces and alternatives to established links into Quebec. Marines Service Operators Are Market Responsive But Limited By Regulations Marine operators will alter their ports of call and frequency of service to meet changing demand. However, they are restricted by cabotage rules Labrador Air Links (Goose Bay-Iqaluit and Iqaluit-Greenland) Are Desired But Any New Service Must Reflect Demand There is a strong desire to not repeat the past experiences of Air Labrador, First Air and Air Greenland where service was started and then discontinued. A business case must exist and frequency of service is important. There are many residents of Newfoundland and Labrador living and working in Nunavut and these people travel back and forth. There are also links between Aboriginal groups particularly the Inuit in Labrador and those in Nunavut. In this setting, any new transportation initiatives between Newfoundland and Labrador and Nunavut should seek to provide for strong Aboriginal participation on both sides. The consultations identified a number of opportunities for air and marine connections which can be pursued, including the following: 4 Canadian cabotage regulations restrict trade between domestic ports to Canadian flagged vessels. Cabotage rights of foreign flagged vessels are restricted to either picking up or dropping off cargo but not both. 2-24

43 Turbot and shrimp fisheries along with crew changes and training of mariners; The transport of transient Atlantic Canadians working and/or living in Nunavut; Fisheries surveillance and management, focusing upon shrimp and turbot; Mineral development drawing primarily upon Labrador West s expertise in the iron ore industry; Export of agri-foods and forest products; Cruises to northern areas, embracing Labrador, Nunavik, Nunavut and Greenland; Food Mail; Travel for access to health care; and Travel for education and learning such as university and for skilled workers in trades in Happy Valley-Goose Bay, Labrador City and other locations in Newfoundland. 5 Wing Goose Bay The facility and activities (or lack thereof) of Canadian Forces Base (CFB) 5 Wing Goose Bay could plan a vital role to the future of a viable northern gateway strategy. Airfield infrastructure and land use opportunities are unique in the region and a potential food mail distribution operation based in Goose Bay could be a viable alternative to Val d Or and create a competitive setting where both communities benefit from the demand for the transport of perishable foods to remote northern locations. Through the potential involvement of federal departments (INAC, DND, etc.) and the local municipality, various re-use strategies may be undertaken that could strengthen the position of CFB 5 Wing Goose Bay as a transportation hub, training centre and/or commercial operation. Transportation Labrador Marine Inc. operates the service under contract with the Province. This service is heavily subsidized by the Government of Newfoundland and Labrador. The contractor has shown an interest in providing a service to Nunavut. Such a service would extend the existing coastal service north to Iqaluit. Some reconfiguration of vessels may be needed but the opportunity which presents itself would be to supplement the existing service to Nunavut out of Montreal with a more frequent marine service supplied by truck transport and operating out of Goose Bay for cargo, local passengers and tourists. This service would shorten the shipping time and lead to a faster turnaround time. The marine transport time from Montreal to Iqaluit is 100 hours while the time from Goose Bay is 40 hours and trucking freight from Montreal to Goose Bay takes 36 hours. Currently the Nunavut shipping season begins later than the opening of Labrador ports. The demand for supply in Labrador (Nunatsiavut) is greatest early in the season and in late fall. Therefore, the Nunavut market could be supplied using the underutilized 2-25

44 capacity outside the peak periods of demand in Labrador. Voisey s Bay is supplied from Montreal and could be included in an expanded service. Similarly, this service could be extended to Greenland, Iceland, the Faroe Islands and other northern destinations. The Department of Transportation and Works is undertaking a consultation program to design a Sustainable Transportation Plan for Labrador and an Advisory Committee to the Minister has been established to assist in this endeavour. There is considerable flexibility with respect to the marine service to allow Nunavut to be included in shipping operations. Contracts for the operation of the Sir Robert Bond, the Astron and the Northern Ranger are available on a multi-year basis or can be extended. The Astron is on a oneweek cycle to Nain and this could double if the vessel is routed to Iqaluit. The current volume shipped to northern communities is 25,000 tonnes and this could double if the service is expanded north. The Department has to ensure that the isolated communities currently depending upon the service are not adversely affected. The case for an extended service must be based upon economics although a supportive policy framework would be helpful. The mine at Voisey s Bay is currently served out of Montreal so its material shipping requirements should be factored into any extended northern service. The completion of the TLH to Cartwright Junction in 2009, along with paving or chip sealing of the highway section to Quebec, will create a new environment for shipping to the north. The marine service can be reconfigured to open up the possibility of shipping to Nunavut and Northern Quebec. A new fleet may be required. Potential new roads to Rigolet and the Labrador North Coast would open up new possibilities. Rigolet is not ice free but it opens up earlier in the spring than Cartwright or Goose Bay. The Coast Guard operation proposed by the former Federal Government for Goose Bay would open up shipping and lengthen the season. Fisheries management, climate monitoring and northern sovereignty could combine to create the basis for a new marine operation out of Goose Bay. The consensus opinion is a reliable air service must be in place on a yearround basis to sustain closer working relationships with the Baffin Region. This service may require a subsidy for set up. The training program for welders which was established in Happy Valley Goose Bay was adversely impacted when Air Labrador discontinued the air service to Iqaluit. The airlines that fly into the north are First Air and Canadian North both of which are partnerships with Aboriginal companies. Such partnerships are seen as a prerequisite for any joint ventures, whether in transportation or in other sectors. 2-26

45 Mining/Oil and Gas The mining sector in Western Labrador is well developed and its services could be made available for mining in Nunavut and Greenland. However, major sea lifts for exploration and development will still be provisioned from Montreal or Quebec City because of supplier concentrations. There is a training program at the College of the North Atlantic in Labrador West which can handle mining personnel from the north. The College of the North Atlantic has programs at Labrador City to train millwrights and other trades. There is also a mining technician program in place. It is a very successful program with 60 to70 students. Offshore oil and gas developments along the West Coast of Greenland could create linkages with the offshore sector in Newfoundland and Labrador. There is a gold mine at Nalunaq in Greenland and the concentrate is shipped to Nugget Pond on the Baie Verte Peninsula. This opens up the possibility of a back haul from Labrador, which could be wood products for housing or other buildings in the north. World demand for iron ore is high and Labrador West has a long standing operation as well as new resource prospects. Baffin Island is also the site of at least one major iron ore deposit at Mary River that is proceeding through regulatory approval. Exploration has been accelerated in response to the international price for iron ore. The development of new large scale projects in the Baffin Region holds the potential to draw upon the large supply and services sector in Labrador West. Fisheries and Fisheries Training The LIDC is the economic development organization of Nunatsiavut. It operates a number of ventures; including a service company and marble quarry (visit nunasiavut.com for more information). LIDC is heavily involved in fishing for shrimp and turbot and much of the fishing takes place in the Davis Strait. They have their own vessels for fishing shrimp and turbot. They operate with a number of partners, including the Government of Nunavut and various companies in Newfoundland and Labrador, Denmark and Iceland. Often the landings are made in Nunavut and Labrador and some of the turbot is processed in Pangnirtung and Makkovik. Crews are from Nunatsiavut and Nunavut. Crew changes require travel between Labrador, Nunatsiavut and Greenland. Quotas assigned to Nunavut are fished by LIDC and other partners. There is a shortage of infrastructure to support the northern fishery. Saglek was mentioned as a good location for landings to be made in close proximity to the fishing grounds. Nunavut does not have port infrastructure for fish to be unloaded so fishing vessels tend to land at Nuuk (summer for turbot) and in Harbour Grace (winter for shrimp). The Marine Institute (MI) has a partnership with Nunavut Arctic College (NAC) that goes back to the 1970 s. Nunavut is the largest single market for the Institute outside of Newfoundland and Labrador. Typically, the MI delivers its 2-27

46 training in Nunavut, sending instructors and training kits along by air. Nunavut Arctic College has links with Dalhousie University for Nursing, the University of Ottawa for Social Work and the University of Victoria for law. MI training activity is directed to the training of Nunavut crews to operate eight to 10 shrimp vessels and to replace foreign, mostly Danish and Icelandic, crews. Over 400 clients have been trained for the offshore shrimp and turbot fishery. Much of the training has been in smaller communities such as Clyde River, Pangnirtung and Pond Inlet. The Baffin Fisheries Coalition (BFC) was set up in 2001 and operates as a consortium, which is owned by 10 to 12 individual communities with quotas. The quotas are held and managed by the Nunavut Wildlife Board. There is one fish plant that is located in Pangnirtung. Other communities have lobbied for their own fish plants. The main species taken are shrimp, turbot, seals and arctic char. All fishing takes place offshore. The members of BFC are all Inuit-owned organizations from Baffin Island. The focus of BFC is to develop the fishery in adjacent waters. They are involved in major training initiatives. They employ up to 75 people on their vessels and have all Canadian crews. Landing in Nuuk saves around 15 fishing days. They fish 8,000 tonnes of turbot and 5,000 tonnes of shrimp. There is not a lot of shipping involved in their business other than shipping to final markets. Forestry and Agri-Foods Forest products and agri-foods provide good opportunities for trade with Nunavut and Greenland. A recent consulting report is viewed as promising for wood products to be exported for housing and other buildings to the north. Labrador has forest resources and the demand for Labrador pulpwood by mills on Newfoundland has been reduced with the closure of the Stephenville paper mill. Forest products provide a good base on which to build trade links, recognizing the forest resources in Area 19 in Labrador and the housing needs in Nunavut and Greenland. If cabotage restrictions were not in place, carriers like Eimskip would consider a stop in Goose Bay to move forest products north to the Baffin Region. Under the current regulatory regime, no carrier can circumvent cabotage limitations. The micro-climate in Central Labrador creates the opportunity for a managed commodity industry (eggs, dairy, chicken) in the Lake Melville region for export to the Baffin Region and possibly Greenland without the transportation costs and time constraints of southern suppliers. The Northern Agribusiness Development Strategy of the Department of Natural Resources has released 800 acres. This opportunity is dependent upon air-combi service from Goose Bay or marine service along Northern Coastal Labrador 2-28

47 into Iqaluit. It is also dependant upon changes in the managed quota relationship between Nunavut and Quebec. Under the current system, Quebec has control over Nunavut s quota for dairy products, chickens and eggs. The Government of Nunavut must make a formal request to have control over the quota returned to them for this Central Labrador opportunity to be realized. Tourism Cruise ships represent a major opportunity for collaboration, combining trips to Northern Labrador and the West Coast of Greenland. (See Section 4 for a detailed assessment.) Education The College of the North Atlantic in Happy Valley Goose Bay established a welding technician program which involved students from Nunavut. The program ended when Air Labrador service to Iqaluit was discontinued. The flight was a lifeline for the program and, with its termination, the government of Nunavut and students found it too expensive to travel through Ottawa or Montreal. The welding program had 15 students and it offered shop training, unlike the Marine Institute programs which could be delivered on site in Nunavut. With the rapid population growth in Nunavut and projected requirement for skilled / support workers in the territory, there may be an opportunity for educational institutions to deliver programs in Labrador (and Newfoundland) with a scheduled air linkage as some have done in the past. Policy Framework Linkages with similar northern regions should be promoted. A formal policy of collaboration would strengthen linkages and create a policy environment where companies such as air carriers could seek a stable customer base. The Federal, Provincial and Territorial Governments will need to come on side to make the linkages happen, particularly with respect to the Food Mail Program designating Goose Bay as an entry point for the Baffin Region and Nunavik. Dialogue with the North The Labrador North Chamber of Commerce (LNCC) continues to lead a business opportunity group (NorthLink) that connects chambers of commerce in Canada s northern regions, and other circumpolar regions. NorthLink was established to strengthen northern Canadian business networks, and is now placing more focus on international trade, commercial partnerships and international business training. It provides business training for small and medium sized enterprises (SMEs) and improves the knowledge 2-29

48 of northern issues among its members. There is an MOU in place between the LNCC and the Baffin Regional Chamber. NORA (Nordic Atlantic Cooperation) is another forum for cooperation in the north. Discussions regarding potential cooperation between the Nordic region and the Province of Newfoundland and Labrador have been initiated. In February 2005, NORA invited Canadian participation at a NORA Conference in Reykjavik, Iceland. In November 2006, a forum was held in the Labrador Straits, hosted by Smart Labrador with support from community leaders in Labrador. The Harris Centre of Memorial University provided conference facilitation and planning. The forum is based upon the premise that North Atlantic communities have a lot that they can share with respect to best practices and lessons learned in regional development. The premise that similar regions can contribute to their mutual well-being is the underlying principle for the collaborations being explored. Wholesaling Distributors in Happy Valley - Goose Bay generally bring their supplies in by truck from the Maritimes and the Montreal area. Construction of a hard surface on the road will enhance the economics of supplying Nunavut by multi-modal distribution at Happy Valley Goose Bay. Most of the stores on Coastal Labrador continue to be supplied by Island wholesalers, particularly Atlantic Wholesalers. Favorable credit terms from suppliers in Lewisporte and elsewhere on the Island are an advantage and suppliers in Happy Valley - Goose Bay have not yet been able to compete on these terms. Retailers in Happy Valley - Goose Bay no longer buy from the island, as a general rule, but purchase from local wholesalers who bring goods in by truck. For fresh fruit, milk and vegetables, this is an attractive option and local supermarket prices are approaching those in St. John s. Health Care There has not been much progress made in sharing medical equipment with others in the north by bringing people from Nunavut to Happy Valley - Goose Bay. This may have some potential but it does not appear to have much momentum to date. There is currently no direct air link that would serve the two communities Nunavut Nunavut is 1,994,000 square kilometres or one-fifth of Canada with a population of about 31,000. The Nunavut environment poses many daunting transportation challenges. The territory is large and the communities are far apart. There are no highways connecting the communities, and marine transportation is available only on a seasonal basis. The main transportation link is by air. 2-30

49 Nunavut has one of the longest supply routes in Canada. Some Nunavummiut sense that adding another entry point, like Goose Bay, may compromise the level of quality and service that is already received. However, the case to explore a transportation link to Labrador may have some merit because of the large numbers of Newfoundlanders working in Nunavut. The main entry points into Nunavut s Baffin Region are Ottawa, Montreal and Val d Or, Quebec. Most Nunavummiut sense that these routes are effective for now but are open to alternative links that result in more efficient service and the resulting benefits of higher quality and lower costs. The main connection between Nunavut and Labrador is the supply of skilled labour. Nunavut is in short supply of skilled labour. The 2005 Economic Outlook has identified serious short comings with Nunavut s level of human capital and this issue is a top priority of the Government of Nunavut. The secondary connection between Nunavut and Labrador is cultural. The Inuit of Nunavut and the Inuit of Labrador share not just their culture but also kinship and family ties. The result is strong ties that would be enhanced by closer transportation links. The Northern Stores and the Arctic Ventures get their supplies all year around by combining air freight and marine services. However, most of their non-perishable supplies are received by ship which occurs on a seasonal basis. This is challenging because of the short summer seasons. Perishable products are flown in all year around, mainly from Val d Or, Quebec under the Food Mail Program. This program is an important component to the shipment of perishable products. The largest Northern Store is in Iqaluit. Exploration and mining is on a growth trend in Nunavut. There are a number of emerging mines and active exploration sites. Namely gold, diamonds, iron ore, and other precious metals. The consultations identified a number of issues that could facilitate improved transportation routes, both air and marine to Labrador and Greenland, including the following: The need for trade skills as Nunavut businesses operate by bringing in skilled workers on a rotational basis. The number of Atlantic Canada residents who work/live in Nunavut. Growing exploration and mining activity. Growing fisheries sector. Medical client travel needs ongoing need for health care and medical treatment. Tourism cruises to the north and opening the European market. Cultural preservation and land claims as Inuit organizations work together. 2-31

50 Air Transportation The majority of travel in Nunavut occurs by air. It has one of the longest, most complex and expensive supply routes in Canada. The end of the commercial supply line is Grise Fiord. Air transportation to Iqaluit is serviced by three carriers: First Air, Canadian North and Kenn Borek. Within the Baffin Region, First Air and Kenn Borek serve the local routes. Kenn Borek focuses on small fixed wing aircraft so it cannot compete effectively with First Air. First Air goes to most communities in the Baffin Region with ATR (payload 10,000 pounds) and Hawker Siddley (payload 10,500 pounds) aircrafts. First Air has the dominant market share within the region while smaller carriers like Air Nunavut also offer charter services. The major transportation issue for the Baffin Region is serving the high Arctic. These are the remote communities that depend on the level of service Iqaluit receives from the south. Iqaluit is a key hub that connects to every community except Grise Fiord (the northern most community and the end of the supply line). For example, the routing to Grise Fiord requires connecting through Resolute Bay and Iqaluit. The typical cost from Grise Fiord to Ottawa is: Grise to Resolute Bay, return Carrier Kenn Borek, Twin Otter $1,000 (approximate) 1.5 hours Resolute to Iqaluit, return $2,028 Carrier First Air, Hawker Siddey 4 hours Iqaluit to Ottawa return $1,531 Carrier First Air, Jet service 3 hours TOTAL $4,559 The high Arctic communities like Pond Inlet, Arctic Bay, Resolute Bay and Grise Fiord pay premium transportation costs and this impacts on the routings that Iqaluit receives from the south. When prices increase, there is a ripple effect all the way to the end of the supply line. Air routes going outside of the Baffin Region originate from Iqaluit. There are daily or twice daily flights to Ottawa. There are also three flights per week to Montreal, Rankin Inlet, Yellowknife and Edmonton. There are two carriers that fly these routes: First Air and Canadian North. First Air has the competitive advantage over Canadian North because it has been in the transportation industry longer, with a more diversified fleet. First Air connects to Ottawa on a daily basis with an all passenger Boeing First Air also provides routes, with a Boeing 737 combi-configuration, from Iqaluit to Montreal three times per week. 2-32

51 Those that travel from Iqaluit to the south are accustomed to the jet service. This is a standard that may have to be considered if routes to Greenland and/or Labrador are opened. First Air also provides cargo services with Boeing 727 (capacity of 60,900 pounds or 12 pallets) and Boeing 737 (capacity 30,000 pounds). There is also a Hercules aircraft that services exploration and mine sites with a load capacity of 45,800 pounds or five to eight pallets. First Air has the Food Mail Program contract plus the majority of the medical client travel. The size of the contract is $150 million for a 65 month period. 5 In 2006, the Government of Nunavut spent $37.5 million on medical client travel and medi-vacs. Air traffic into Nunavut is increasing. In 2005, there were 107,000 passengers that came through Iqaluit on 19,200 flights. The number of passengers coming to Iqaluit is growing steadily at around 5% per annum. The Iqaluit Air Terminal has reached its maximum capacity and there is a master plan for a new $40 millions terminal building with airside apron improvements. Marine Transportation There are two marine carriers in the Baffin region: Nunavut Sealink & Supply Inc (NSSI) and Nunavut Eastern Arctic Supply (NEAS). They compete against each other and provide competitive rates. The Government of Nunavut has awarded sealift contracts to NSSI, NEAS and NTCL. The Canadian Coast Guard services some communities. The cost of sealift prices is directly affected by the world oil price. There has been volatility with oil prices with corresponding increases in shipping rates. In 2006, the shipping scheduled stops increased by 32% across Nunavut. This is because Nunavummiut are using more products and goods as part of a growing economy. The volume of cruise ship activity has also been increasing. Fisheries in Nunavut The Nunavut fishery is dominated by turbot and shrimp. Turbot is also known as Greenland halibut. All species are harvested by offshore trawlers. The Nunavut Economic Development Strategy (NEDS) is a strategy that lays the foundation of the Nunavut economy over the next 10 years. It identifies the need to develop specific sectors of the economy like the fishery. It has been recognized that the fishery can be a major contributor to economic 5 Canadian International Trade Tribunal, Canadian North Inc. v. INAC; March 1,

52 growth. It is estimated that Nunavut fisheries contributes between $12 and $14 million annually to the economy and create more than 300 seasonal jobs. The fishery is demanding better marine facilities in Nunavut as there are no deep sea docks. There are a number of communities that are also being proposed for docks: Pond Inlet, Clyde River, Qikiqtarjuaq, Pangnirtung and Iqaluit. Historically, the Federal Government has made major investments into marine infrastructure throughout Canada with Nunavut being an exception. Mining Mineral exploration expenditure in 2006 approached $200 million in Nunavut, with spending from over 60 ongoing exploration projects. Nunavut ranks in the top five of Canadian provinces and territories in exploration expenditures. Diamonds, gold, uranium and base metals are the main exploration targets. The Jericho diamond project, the territory's first diamond mine, opened in August The Meadowbank gold project near Baker Lake begins construction in Another gold project, Doris North, has been approved for construction. Another potential major project is at Mary River in the Baffin Region where Baffinland has been conducting sample testing for a planned high grade iron ore operation. In total, five new mines are expected to be operating in Nunavut by 2010, adding $500 million to the GDP annually, and creating 1,700 new jobs. The result will be increased marine and air demand. The Mineral Exploration and Mining Strategy is the Government of Nunavut's plan to create opportunities for Nunavummiut to participate in the sustainable development of mineral resources. The strategy is intended to guide development in the period leading up to the devolution of management responsibilities for lands and resources from the Federal Government. The strategy was released in March 2007 at the PDAC Convention. The goal of the strategy is to create the conditions for a strong and sustainable minerals industry that contributes to a high and sustainable quality of life for all Nunavummiut. Nunavut is faced with a human resources problem because it does not have the local capacity to provide necessary skilled and semi-skilled workers for mining exploration, project development and facility operations. This shortage will be a continuing challenge, at least in the short to medium term. The mining industry in Western Labrador is well developed and Nunavut could benefit from the skills and knowledge that are in Labrador to meet the capacity needs. 2-34

53 Capacity Challenges The Government of Nunavut and the growing sectors of the economy like mining require skilled labour. To meet the need, skilled workers are mostly sourced in Atlantic Canada, Newfoundland particularly. Economic Development Nunavut s has a unique mixed economy featuring both land-based and wagebased participation. The traditional economy is founded on harvesting animals, plants and fish. These activities have sustained Inuit for thousands of years, and continue to support livelihoods in smaller communities. The nominal gross domestic product of Nunavut was $1.1 billion in Real gross domestic product was $875 million in 2005, an increase of more than 18% (from $739 million) since Average weekly earnings (including overtime) were $ in 2005, the second highest level recorded among all the provinces and territories. A rapidly growing population is an indicator of a growing economy. Nunavut s population was estimated at 30,782 in 2006, representing an increase of 2.5 per cent from Food Mail The Food Mail Program has had its successes and ongoing struggles in Nunavut. The supply routes are long and complicated. Communities in the Baffin Region do not feel the program is fully meeting their needs. There are cases where deliveries are two weeks late in northern communities like Grise Fiord. There have been situations where the prices in the communities, especially when the stores have a monopoly, were excessively high. In this context, INAC has conducted a series of investigations into allegations that stores were gouging, the results of which are expected in the near future. There is also contention regarding the air contract for the program. First Air was awarded the contract but Canadian North alleged that Canada Post, which acts on behalf of INAC, subjected Canadian North to discriminatory treatment by not fully disclosing all the criteria used to evaluate proposals. The program is worth $150 million. The contract, one of the largest that the Federal Government awards in Northern Canada, covers the handling of food mail for Northern Quebec, Baffin, the Kitikmeot, and parts of the Northwest Territories. All storage, handling and transportation work is done by the airlines, who must provide warehouses, freezers and refrigerators. 2-35

54 The conclusion, after consulting with a variety of stakeholders, is the Food Mail Program may not be meeting some objectives. Communities that receive food mail are demanding improvement in overall services and increased competition is seen as a possible solution (including Goose Bay). Wholesale/Supplier The stores in Nunavut have a need for supply route options. Labrador suppliers for pop, frozen foods and high volume products would be welcome. If the cargo rates are competitive from Labrador, the stores in the Baffin Region would be interested. Medical Travel The Government of Nunavut spent about $40 million on medical travel in 2006 and this value includes medi-vac charters. Depending on the capacity of Goose Bay, there may be an opportunity to partner on some medical services. Land Claims Both the Nunavut Inuit and the Labrador Inuit have common culture, language and land claim agreements. There is a growing need expressed by the Nunavut Inuit organization leaders that they see an increasing need to work with the Labrador Inuit. Both Nunavut Tunngavik (NTI) and the Labrador Inuit objectives are similar and this is creating a need to consult with each other on a more frequent basis. At times, both Inuit organizations will need to stand together on issues related to implementation. The land claims organizations have expressed a need to connect to Labrador. Meetings between the organizations happen only when it is convenient. However, the mining industry is developing in both regions and this will require interaction, comparing notes, consulting each other and more. Tourism Expedition cruising is viewed as a growth opportunity with more activity moving in this direction with Labrador and Greenland partnering. There is also interest to open more links to Greenland for the European market. Military Northern sovereignty is a priority for the Federal Government. Joint Task Force North (440 Squadron) is based in Yellowknife and there is a detachment with five members in Iqaluit. Canadian Rangers are used for 2-36

55 2.4.4 Greenland northern sovereignty patrols. Canadian military travel to Greenland sometimes occurs as part of various exercises such as re-supplying the Alert outpost. Military officials expect an arctic winter warfare centre to be established in the north with 20 to 25 members but Iqaluit is not the preferred location. There is over 250 years of established transportation links between Greenland and Denmark with Copenhagen being the major commercial and governmental centre. When combined with cultural, social/family and government ties, there is a strong inertia for existing transportation links (and suppliers, importers and exporters who use these services) to be incrementally adjusted to meet changing needs. According to the Chief Statistician with Statistics Greenland, there are 6,500 Danes living in Greenland and 10,000 Greenlanders living in Denmark. In 2007, the marine transport and air passenger/cargo operators in Greenland are market-focused and sophisticated. In this operating environment, the trade corridor opportunities with Labrador and the Baffin Region offer limited opportunities in local clusters (like retail) and must focus on natural resource clusters (mining and minerals, offshore oil and gas exploration), tourism and cultural activities. Retail is limited because of the ties of senior management at Pissivik and Brugsen (food and department store-type merchandise chains) to Danish suppliers and discounts provided by Danish suppliers for large multi-product line orders. In this business environment, the net impact of using Canadian suppliers for major purchases can be significant if product lines are removed from Danish suppliers because the level of discount on the overall order is negatively impacted (higher costs). However, Brugsen is willing to consider Canadian purchases while KNI may consider fresh fruit and vegetable purchases. This is probably not the case with Pissifik as it is tied into the Dagrofa conglomerate in Denmark. In addition, KNI/Pilersuisoq is responsible for supplying the small settlements around the coast of Greenland. With regard to food products, as far as Pilersuisoq is concerned, there is very little activity with Canada aside from a few independent stores in Nuuk (one operation in the Ottawa area is doing most of the business.). They don t see an air link from Iqaluit to Nuuk providing any benefit to them as they can buy at lower costs in Denmark; and labeling (regulations require labeling in Danish or Greenland) is a barrier. They have in the past purchased some Canadian product without this but are unlikely to do so again. Senior management and the boards of Royal Arctic Line A/S, Air Greenland and Arctic Umiaq Line A/S bring a transnational business perspective to their operations. While both Air Greenland and Royal Arctic have an 2-37

56 established legacy of operations into and within Greenland, Arctic Umiaq Line A/S is a new company formed in October 2006 by Air Greenland and Royal Arctic Line to operate the coastal vessel Sarfaq Ittuk. It provides coastal boat service between Narsarsuaq and Ilulissat from late spring onwards. Icelandair and SAS also re-entered the market in the summer of 2007 and offer regular scheduled seasonal service into Kangerlussuaq from Reykjavik and Copenhagen respectively. The current air links to Canada are by air charter (Iqaluit and Newfoundland for gold mine crew rotations in Southern Greenland). Regular scheduled short sea service is provided by a commercial agreement between Icelandbased Eimskip and Royal Arctic Line. This marine service currently links Richmond, Virginia to Boston, Halifax and Argentia, Newfoundland to Southern Greenland. There is no link into Goose Bay or Coastal Labrador for this service but seasonal service is provided to St. Anthony. In the expedition cruise sector, operators and itineraries vary by season and past itineraries into Greenland have included Iqaluit, St. John s and Halifax. While the regulatory barriers for new market entrants are similar to the European Union, increased cargo will depend on understanding the value chain between suppliers and sellers in Greenland, and setting price points or value propositions that are unique or lower cost. The air passenger market (business, tourism, Greenlander) is different. The current air service follows a hub and spoke system both within Greenland and to Europe. Kangerlussuaq is the main hub within Greenland and Copenhagen is the hub for Europe. This network changed in mid 2007 when Air Greenland introduced seasonal service from Kangerlussuaq to Baltimore. Beyond this new link, there is a general expectation that latent demand currently exists for limited travel between Nuuk and Iqaluit (and points beyond) and other Canadian gateway airports that will provide connections to Canada, as well as the United States and the Caribbean. Regardless of how new services are introduced, the consensus opinion within both government and the transportation sectors of Greenland is new services must be self-sustaining without government subsidies. If startup support is required, then the risks and rewards must be bore by interests in both Canada and Greenland. The cargo market requires a year-round service. At the present time, Air Greenland s cargo from Copenhagen to Kangerlussuaq is 50% fresh food and 50% other (spare parts and electronics). Around 1,400 tonnes per year (plus mail) is carried north by Air Greenland and 15% of this capacity is used going south (back to Copenhagen). The southbound cargo is mostly Air Greenland spare parts for repair. There is very little fresh fish air cargo. 2-38

57 Increased mineral exploration and offshore oil and gas activity is creating a new economic base for Greenland. The investment and expertise for the mining and minerals, and offshore oil and gas, sectors is largely based in Canada (various locations) and Texas in the United States. The expectation within government and the private sector in Greenland is major new mines, offshore oil and gas facilities, industries (like Alcoa) and fresh water processing (bottled for export) will see an increasing focus on air and marine links to Canada. How these links will evolve will depend on the commercial development of natural resource clusters. At the present time, the demand for operating mines and exploration activity is being met by charter operators. If a service is re-launched, it must be recognized that +/- 90% of the traffic from Greenland to Iqaluit is going to southern destinations. Discussions with the Nalunag Gold Mine s logistics manager indicate an interest in shifting from charter to regular scheduled service (with guaranteed bookings). In the short to medium term, a tipping point is expected to occur that creates sufficient demand for regular schedule passenger (and possibly cargo) links to Canada. Iqaluit is viewed as a logical choice for the initial air link as long as direct links south are available. Although the study results remain disputed by various residents and officials in the Baffin Region, Air Greenland investigated the potential market (2004) for a renewed air service between Nuuk and Iqaluit. The estimate was 800 passengers per year which will not support a commercial service without government subsidy at least for a startup period. The expedition cruise sector is viewed as a major growth sector for Greenland that can be cross-marketed with Labrador and the Baffin Region. With transportation linkages to major markets, deep water berths and high quality cruise ship facilities in place, Halifax is considered to be the preferred home port (in North America) for this expanded business. Royal Arctic Line deserves credit for recognizing, late in the 1990 s, that its owner, the Greenland Home Rule Government, was beginning to look west and then putting in the resources to do something about it. This resulted in the establishment of a seasonal connection between Montreal and Nuuk starting in 2000 in collaboration with Groupe Desgagnés. This was followed in 2002 by a collaboration with Eimskip of Iceland which has led to a year-round connection between Halifax through Argentia, Newfoundland to Narsaq in South Greenland. From there, cargo is transshipped to Royal Arctic Line for distribution around the Greenlandic coast. This service operates approximately every four weeks during the summer, and every three weeks during the winter (when Royal Arctic is picking up the cargo in Reykjavik rather than Narsaq). The service has been operating successfully with increasing cargo each year. The service is operating about as successfully as Royal Arctic Line wants it to. It does provide Greenland 2-39

58 companies the option of sourcing in North America, thus fulfilling the wish of its owners. On the other hand, the operator recognizes that every cubic metre of cargo it takes on from Canada means a cubic metre less from Denmark the source of its core business. Traditionally, Royal Arctic Line has sailed with full cargos from Denmark to Greenland but returned only partially loaded. This situation has changed significantly over the past couple of years. The export of shrimp and halibut is up so that now on the backhaul from Greenland to Denmark the ships are regularly completely full. However, the seafood production in Greenland is not expected to grow. Just over 400,000 cubic metres is shipped annually from Denmark to Greenland. This compares to about 4,000 cubic metres from Canada/USA. Several developments point to increasing demands for cargo space: the increasing mineral and oil exploration and production activity underway in Greenland, a planned aluminum smelter and the increasing export to Europe of bottled drinking water. Representatives of the Greenland Home Rule Government and Nuuk Municipality offered a wide range of opinions on improved transportation links. They are summarized below: Representatives are very supportive of direct air links between Greenland and the Baffin Region (Iqaluit). They believe that the link should initially focus on the cultural exchange and tourism markets, and then gradually grow in commercial sectors. There is no bilateral agreement between Denmark/Greenland and Canada. In contrast, there are agreements with the United States, European Union (EU) and a tourism development agreement (quasi trilateral) with Iceland and the Faroe Islands. A bilateral agreement should be considered with Canada to formally strengthen trade and investment between the two entities, and also to encourage a dialogue on broader northern issues of mutual interest like climate change, Aboriginal needs and northern sovereignty and defence. This initiative should include approaches to Federal Ministers with a view to establishing a bilateral arrangement. The Honorary Danish Counsul in Iqaluit is known in Greenland and he could play a role in facilitating more formal transportation links (trade, cultural and tourism) between Greenland and the Baffin Region. The marine or air cargo export of food from Greenland into the Baffin Region and Labrador is not considered viable at this time because of 2-40

59 2.5 Summary of Opportunities and Barriers different standards and subsidies provided on the importation of food from Denmark into Greenland by the Danish Government. The marine transport of forestry products and construction material from Labrador into Greenland may be viable for a new trade corridor. At the present time, these imports to Greenland come from Europe and the United States which are more distant than Goose Bay. The Canadian tariff (25%) on imported boats was described as a regressive tax that has reduced the opportunity to manufacture smaller fishing boats (yard in Southern Greenland). Greenland representatives have raised the opportunity with Nunavut interests of selling boats into the Baffin Region market but the tariff results in uncompetitive prices. Without the tariff, a market would exist. There is increasing interest in offshore oil and gas exploration, and onshore mineral exploration and mine development in Greenland. This interest is largely North America-based and is expected to increase in the future. In the offshore sector, the key players are expected to be EnCana, Husky and ExxonMobil. The increasing levels of mining activity should result in more demand for air and marine links to Canada. The Home Rule Government is also looking at allowing uranium mining that could involve Canadian expertise. Tourism in Greenland is a developing sector. The key going forward issues are training, accommodation, capacity building (including infrastructure such as harbour facilities) and local input. The overall strategy for Greenland seeks to spread out the visitors amongst 17 municipalities. The number of municipalities will be reduced from 17 to 4 in Over the past several years, there has been an average of 20 cruise ships per year in Nuuk. The number increased to 31 in The majority of cruise ship passengers are from the United States, Holland and Canada. The ships typically stay 24 hours in Nuuk and then sail to Disko Bay. The opportunities and barriers reflect the different operating environment in two countries and three regions, established business relationships with legacy transportation systems and rapidly evolving economies around natural resource clusters. For any new service to succeed, it will require a load factor that is sustainable and can grow. This reality means that expectations on the level and type of new service must be aligned with market realities and supportive government policies that encourage more trade and exchanges. 2-41

60 3 Assessment Of Air Options 3.1 Introduction Iqaluit Goose Bay This section was primarily prepared under the direction of IATA. It discusses the possibilities of establishing an air connection between Goose Bay and Iqaluit. It also discusses options in re-establishing a link from Iqaluit into Greenland. The two communities each have regional significance within their own individual areas. Iqaluit is the capital of Nunavut Territory, a region of immense size. Nunavut is both the least populated jurisdiction in Canada with 29,474 inhabitants (2006 Census) and yet the largest in terms of landmass. There are 25 incorporated communities in Nunavut ranging from 130 persons in Grise Fiord on Ellesmere Island to approximately 6,200 in Iqaluit on Baffin Island. Exhibit 3.1 Potential Labrador - Baffin Island Air Route Happy Valley - Goose Bay is the largest town in Labrador with a 2006 census population of 7,572. The nearest centre with equivalent population is Labrador City nearly 550 kilometres to the west. Labrador itself has a land area similar in size to Italy. Airports at both centres have made good use of their particular geography. Iqaluit is used by several aircraft manufacturers as a cold weather testing site for new aircraft. Airbus for example recently brought their new A380 to the airport as part of its initial testing program. The airport at Goose Bay acts as an emergency oceanic refuge for transatlantic flights allowing passengers in need of care to receive urgent medical attention. It was also until recently a 3-1

61 training base for several NATO member nation s air-force exploiting the vast adjacent area for uninterrupted flight training. Despite these aviation similarities, the two airports do not have direct air services linking their respective catchment areas (Central Labrador and the Baffin Region). The great circle or shortest distance between the two points is 1,254 kilometres (km) or 667 nautical miles (nm). In a small regional aircraft such as a Dash 8, this journey would take around 2½ hours flying time or even less in a larger jet Iqaluit Greenland There are ancient historic and cultural links binding Nunavut and Greenland. The population of Greenland is predominantly Inuit, a people bearing an affinity and solidarity with the Inuit of Canada. It is only 140 years since the last immigration from Canada took place. Greenland is part of the Kingdom of Denmark, but since the introduction of Home Rule Government in 1979, it has moved towards relative independence based on parliamentary democracy. Its population is 57,700 with an estimated 20 percent born outside Greenland. Its land area is over 2.1 million square kilometres. Exhibit 3.2 Potential Greenland - Baffin Island Air Route The economic and social similarities of life in the arctic present opportunities for shared experience and cultural exchange that could be facilitated by greater co-operation and improved communication links. Indeed, there has been growing support for the idea of re-establishing air links which ceased to operate several years ago. The connection was operated by First Air under an agreement with Air Greenland. However, it was ended for a variety of reasons but principally because it was only marginally financially viable. 3-2

62 3.2 Existing Transportation Links Goose Bay - Iqaluit Air Greenland recently examined the possibilities of reopening this connection with connecting flights to Ottawa and Montreal in cooperation with First Air and possibly other Canadian operators (Canadian North). However, Air Greenland concluded that it would not be viable at that time despite requiring some financial support. The concept involved a small Beechcraft King Air 200 with six seats. The basis for this service would need to be under a cooperation agreement between the Greenland Home Rule Government and the Government of Nunavut. The current route options for this journey involve either a three sector journey travelling through Ottawa and Halifax, or a four sector option via Sept Isles, Montreal and Kuujjuaq. The former route involves total distance of 2,496 mi (4,017 km) taking at best 17 hours with connections and the latter involves a slightly shorter total distance of 2,392 mi (3,850 km) but even longer 21 hours with connections. Each trip involves an overnight stop en route and requires two days to complete. Exhibit 3.3 Existing Transport Links Goose Bay-Iqaluit A typical round-trip economy fare for such a journey costs over $3,000 which would not include necessary overnight accommodation. Whilst from a business travel viewpoint such travel costs might not be considered prohibitive, the opportunity cost of spending two days to make this extended journey for such a relatively close destination is inefficient and time consuming. For travellers visiting friends and relations, or tourists, the journey appears particularly expensive and tiresome. 3-3

63 3.2.2 Iqaluit and Nuuk The journey between Iqaluit and Nuuk represents one of the most globally inefficient scheduled air routes in the world. A passenger wishing to make the 450 nm (815 km) journey between the two destination is required to undertake a 6,588 nm (12,200 km) five sector journey via Ottawa, London, Copenhagen, Kangerlussuaq before reaching Nuuk. It is likely to take over two days to complete and cost in excess of $5,000. Exhibit 3.4 Existing Scheduled Air Services Iqaluit-Nuuk The impact of such an extremely circuitous journey is that it inhibits wider communication between the two communities and adjacent areas. Clearly those who consider the journey essential might consider chartering a small aircraft to complete the journey. For a Beechcraft King Air 200 such a journey would take around 2½ hours and would represent a very effective connection. Carriers such as Air Nunavut and Kenn Borek Air as well as Air Greenland operate such ad hoc charters between the two centres. 3.3 Market Demand Iqaluit-Goose Bay The scale of passenger traffic between the two centres is small. Part of an explanation for this perhaps lies in the historic and socio-geographic orientation of the two centres. Iqaluit has a natural orientation towards Ottawa, the nation s capital and Montreal, the second largest urban region in Canada. Nunavut was only separated from the Northwest Territories in 1999 and this was the culmination of several decades of protracted negotiation with Canada leaving a legacy of transport patterns between the three centres. 3-4

64 Indeed it is estimated that 500 to 1,000 Nunavut citizens live in or around Ottawa. Labrador has a proud tradition of independence with the orientation Happy Valley Goose Bay southwards towards the Provincial capital at St. John s and even the larger regional centre at Halifax, Nova Scotia rather than Ottawa. This is evidenced in the principal frequencies at each airport being towards these centres with double daily to Ottawa from Iqaluit, and daily services to Halifax and St. John s from Goose Bay. Overcoming strong traditional flow patterns presents significant challenges. Clearly when an economic environment changes, for example where new mineral deposits are found creating immediate demand for mining personnel, this will generate its own air service independently of historical transport links. In these circumstances, a new economic imperative typically forces the introduction of an air service. The scale of these services is usually a function of several factors including population density, cost of air tickets, accessibility, infrastructure (e.g. runway length) and aircraft equipment. Airport infrastructure at both ends of the proposed route does not present an operational limitation with almost any type of aircraft able to use the two airports. Exhibit 3.5 Iqaluit and Goose Bay Runway Details Direction Runway Length Surface ft m Iqaluit 17/35 8,600 2,621 Asphalt Goose Bay 08/24 11,046 3,367 Concrete with Asphalt overlay 16/34 9,580 2,920 Concrete with Asphalt overlay *Note: Runway directions are provided as the whole number nearest one-tenth the magnetic azimuth of the centerline of the runway, measured clockwise from the magnetic north. Each runway can be used in either direction, and hence has two numbers. Historic statistics of passengers who have recently traveled between the two points can be obtained by analyzing Marketing Information Data Tapes (MIDT). These show the size of the market travelling between the two points Iqaluit and Goose Bay using all the existing (extended) routings. They also allow analysis of a wider catchment area. Thus if a direct connection was established between the two airports for example: the whole of Labrador and Newfoundland travelling to Iqaluit, the potential number of passengers from this wider area that might be attracted to use this alternate routing can be identified. In order to estimate approximate market size, MIDT data is required for a whole year for either Iqaluit International Airport or Goose Bay Airport. On this occasion, data for Iqaluit in 2005 has been provided for analysis and this 3-5

65 has enabled a fairly accurate estimate of passengers travelling between the two centres to be determined. 6 At the raw level for the whole of 2005, there were only 148 passengers making the trip between Iqaluit and Goose Bay. This number alone is hardly adequate to support a direct air service. Extending the analysis further for the whole of Labrador and Newfoundland, there were only 261 recorded passengers making the trip to Iqaluit during the year. Numbers travelling from the wider Atlantic Provinces, Nova Scotia, Newfoundland and Labrador, New Brunswick and Prince Edward Island only totaled 641 travellers. However, MIDT data uses tickets recorded in Computer Reservation Systems (Sabre). It is likely, given the remote region, that some passengers are making an independent ticket purchase either on the Internet or by walking up to the ticket desk at the airport. These would not be recorded by MIDT. It has been conservatively assumed that this would be around two-thirds of travelers based on the findings of the consultation program in the Baffin Region. Exhibit 3.6 MIDT Route Analysis Passenger Demand 2005 Route Passengers (2005) MIDT Analysis Adjusted (3 times) Iqaluit - Goose Bay Iqaluit NL and Labrador Iqaluit Atlantic Provinces 641 1,923 It is evident that flows of passengers are considerably smaller than are normal to attract airlines to operate routes between regions. The actual traffic from Atlantic Canada to Nunavut can be seen below. Exhibit 3.7 MIDT Route Analysis Regional Passenger Demand 2005 Origin Passengers (2005) MIDT Analysis Adjusted (3 times) Nova Scotia Newfoundland and Labrador New Brunswick Prince Edward Island 4 12 Total Atlantic Canada 641 1,923 There is no doubt that the presence of a new air link can often encourage passengers that previously would not consider flying to particular destinations or to use the new air service. Many carriers will heavily discount fares in the initial phases of a route start-up in order to change behaviour 6 by Halifax International Airport Authority 3-6

66 patterns. Alternatively carriers, often with the help of airports and local regions, launch promotion and advertising campaigns to create awareness of a new route launch. As a consequence there is often an initial stimulation effect of a new air service. On low cost routes this effect can be quite spectacular with traffic boosted significantly by the new route. It would not seem unreasonable, given the increased interest in tourism, for the impact of a carefully targeted promotion strategy for traffic to enhance traffic demand by as much as 100% on this route. Considerable support expense might be incurred by this method of market stimulation but there is no doubt its effect to increase traffic flow can be a key component in the successful launch of a new route Iqaluit-Nuuk Nuuk Airport has only a short runway limiting its operational capability to aircraft with good Short Take Off and Landing (STOL) capability. It cannot for example handle a short haul jet without extreme operational limitations. Exhibit 3.8 Nuuk Airport Runway Details Direction Runway Length Surface ft m 05/23 3, Asphalt The impact of this infrastructure constraint is that any jet operation needs to be routed through the airport at Kangerlussuaq which has a much longer runway enabling access for short and long haul jets. Exhibit 3.9 Kangerlussuaq Airport Runway Details Direction Runway Length Surface ft m 05/23 9,235 2,815 Asphalt Air Greenland undertook a market survey in 2004 of private companies and public authorities and institutions in Greenland with more than five employees. In Canada, a survey was taken of the largest customers who use the Royal Arctic Line as well the largest travel agencies with an interest in Greenland. This research showed a potential passenger base of 832 one-way trips yearly. 7 Air Greenland cautioned use of this information insisting that the estimate was largely based on speculation particularly of the number of 7 Research by SGE Acres indicates this volume has increased to ±1,000 potential passengers. 3-7

67 official visits between the U.S./Canada and Greenland. Nonetheless, it provided a very strong indication of the potential traffic demand. MIDT analysis of all 2005 Greenland bound data has also been analyzed. This looked principally at traffic at the Kangerlussuaq Airport which is one of the two main entry points to the country. (The other is Narsasuaq.) This source showed only 56 passengers. Using the same method as previously, this could be adjusted by 20% to account for walk-up or non- computer reservation sales. If it can be assumed that an equal number of passengers used the Narsasuaq entry route. Exhibit 3.10 MIDT Analysis Canada Greenland 2005 Route Passengers (2005) MIDT Analysis Adjusted (+20%) Canada-Greenland via Kangerlussuaq Canada- Greenland via Narsasuaq 56 (Assumed) 68 Total Clearly such numbers ignore other flows particular seasonal charters or flights of mining workers. In addition, it does not give any indication of Canadian or Greenland passengers who might have considered travelling between the two countries if a much quicker, shorter distance air service had been in place. It is therefore plausible that the scale of activity could be considerably larger than MIDT analysis illustrates if a direct air service provision was in place. The same MIDT analysis for U.S.-Kangerlussuaq traffic was only 64 two way passengers equivalent to 154 passengers (adjusted) for the whole of Air Greenland started seasonal Baltimore Kangerlussuaq weekly service on May 25, 2007 using its Boeing 757 aircraft configured with 28 business class seats and 156 economy class seats. Clearly this demonstrates some recognition that there is considerable latent, arguably frustrated demand between the two countries. It might be expected that some of this capacity will be satisfied by passengers transferring through Kangerlussuaq en route to Europe. Nevertheless, the airline must believe that the market for North America in Greenland is much greater than it is at present. It therefore follows that the low flows indicated by the MIDT analysis should not be taken too literally. Indeed they may not be the only criteria influencing a carrier s decision to establish an air route and other external factors such as strategy and network may play a part. 3-8

68 3.4 Assessment of Route Options The MIDT analysis and consultation program findings show that there are relatively small numbers of travelers making the journey between Goose Bay and Iqaluit, and between Iqaluit and Greenland. Without substantial changes in travel patterns/factors, the generally small populations at each point, coupled with a long sector length probably requiring jet service, makes it unlikely that a direct air service linking the two centres would be sustainable on its own. It is likely that there would need to be some additional structure to make it a more attractive routing for carriers. In other words, because passenger demand has been low, carriers have not had the option to adjust the air service provision (supply) to meet demand (the classic demand supply balance) because the air service would be so infrequent or the cost of service provision so high that it would not have been sustainable. However, they can introduce some additional route structure to reinforce demand possibly making a route viable. For example, a carrier might introduce a stop through an intermediate point where other demand exists (i.e. Method 1 below). This increases the flow on all legs and introduces an extra route option for some passengers. An alternative approach is for a carrier to stimulate traffic by providing a network of connections through one of the points from destinations beyond. (Method 2 below). In this instance, it may be possible for the Goose Bay- Iqaluit service to be more viable if traffic from say Halifax and St. John s are added to the route. Similarly passengers to and from Europe could be given a new route into Northern Canada if the connection Iqaluit-Kangerlussuaq was created. Exhibit 3.11 Examples of Methods Used To Boost Traffic Flows B B B B C A A A A D E D E Method 1 Method 2 Network management is at the heart of efficient airline operations and carriers work continuously to devise improvements to their overall network. 3-9

69 Indeed, network development is an evolving process and most carriers are usually receptive to ideas that might increase passenger loads and yields. In view of the relatively weak passenger volumes between the centres under consideration, it is useful to consider a range of possible route options in order to determine the most viable to be established as an air link. For the trade corridor, the following alternatives have been reviewed: Exhibit 3.12 Alternative Route Options Option 1 Goose Bay Nain Iqaluit Option 2 Goose Bay Nain Kuujjuaq Iqaluit Option 3 Goose Bay Kuujjuaq Iqaluit Option 4 Goose Bay Ottawa/Montreal Iqaluit Option 5 Nuuk Iqaluit Option 6 Nuuk Kangerlussuaq Iqaluit 3.5 A New Route Along the Labrador Corridor Route Option 1 - Goose Bay to Iqaluit via Nain In summary, these options can be reduced to two route groups for consideration: 1. A new route along the Labrador Corridor. 2. A new route to Greenland. Currently Innu Mikun Airlines, a joint venture partnership with Provincial Airlines Ltd (PAL), provides a Dash 6 Twin otter service from Goose Bay to the coastal communities of Rigolet, Makkovik, Hopedale, Portville, Natuashish and Nain. This twice daily service tends to be a sequential service to each centre either reaching Nain directly from Goose Bay and then serving each of the other centres in turn, or reaching Nain last and returning directly to Goose Bay. As a possible option for the trade corridor, the route could be extended from Nain to Iqaluit. Exhibit 3.13 Route Option 1 Details From To Distance Nmi Km YYR Goose Bay YDP Nain YDP Nain YFB Iqaluit ,257 Nain itself is only a small community of approximately 1,050 citizens. It is the northern most year-round settlement in the Province of Newfoundland 3-10

70 and Labrador and the furthest point of the Innu Mikun network. The airstrip has a runway that is only 2,000 feet, (610m) long made up of compacted gravel. This makes it suitable only for small communication aircraft. It is unlikely that it would form a satisfactory field for extended operations along the trade corridor. In any case, a larger aircraft would be needed to make the operation viable because the sector length of 479 nm is too long for the current aircraft in use. It might operate as an independent service adding frequency on the Nain- Goose Bay leg and allowing the Twin Otter to maintain the shorter community hopping service. Exhibit 3.14 Route Option 1 One particular advantage of this route is that it would provide an opportunity to enhance the regional and ethnic community links along the coastal areas of the Baffin Region and Labrador. There are clearly limitations to this operation; particularly the limited facility at Nain where passenger transfer would take place. Critical to the whole option is the synchronization of services so that valid connections can take place. It is doubtful if there is sufficient demand for the Nain Iqaluit operation alone. This would require the reinforcement of the service from Goose Bay. Similarly, the Nain Goose Bay activity does not seem to be able to support a larger aircraft. The prospect of a connection at Nain made possible by careful scheduling will contribute to making the total journey more sustainable. 3-11

71 3.5.2 Route Option 2 - Goose Bay to Iqaluit via Nain and Kuujjuaq This route is a variation on Option 1 but with the addition of a connection into Kuujjuaq. Exhibit 3.15 Route Option 2 Details From To Distance Nmi Km YYR Goose Bay YDP Nain, YDP Nain YVP Kuujjuaq YVP Kuujjuaq YFB Iqaluit Total 778 1,440 Kuujjuaq is the headquarters of Makivik Corporation, the Nunavik Innu company that has equity ownership in First Air. It is not the largest operating base of the airline but it forms an important entry point into its network. This means that a carrier would not need to fly the whole route from Goose Bay to Iqaluit to enable the link to be formed. Indeed, through a partner airline like Air Inuit, it could provide the small yet important link that might make the whole route possible. On the assumption that some degree of synchronization would take place, an air link between Nain and Kuujjuaq would complete the overall route since air services already exist between Kuujjuaq and Iqaluit (operated by First Air) and Nain and Goose Bay (operated by Innu Mikun as in Option 1). Exhibit 3.16 Route Option

72 3.5.3 Option 3 - Goose Bay to Iqaluit via Kuujjuaq The advantage of this route is that it is relatively short and could enable a link into the route networks of the local carriers. This would provide additional passenger flows for the Nain Goose Bay route. It would also provide access for remote Innu and Inuit communities in Labrador to those destinations out of Kuujjuaq flown by Air Inuit. The same limitations on the operation exist as on Option 1. Since it is a shorter routing, it could be operated by a much smaller aircraft such as the Twin Otter and this may make the option more feasible for the operator. It is possible that the route could be operated under an agreement, say between Air Inuit and Innu Mikun, on the basis that the additional passengers would be contributing to each carrier s route network. Careful scheduling to minimize overall journey times would again become a key feature of this operation. This Option 3 is a variation on Option 2 without the service into Nain. It presents probably the strongest case for the air link not only because it would have the largest number of air connections but also because it provides the best opportunity to link up three of the most important regional centres in an expanded trade corridor. Exhibit 3.17 Route Option 3 Details From To Distance Nmi Km YYR Goose Bay YVP Kuujjuaq YVP Kuujjuaq YFB Iqaluit ,326 Kuujjuaq is the largest Inuit settlement in the Nunavik Region of Québec, with a population of 1,932. It is the administrative capital of Nunavik and lies on the western shore of the Koksoak River. It boasts a state-of-the-art 500 seat conference centre, two three-star hotels, as well as several stores and shops. There is a branch of the Canadian Imperial Bank of Commerce and the Tulattavik Ungava Hospital which provides healthcare for the region. 3-13

73 Exhibit 3.18 Route Option 3 The airport at Kuujjuaq provides adequate operational facilities for shorthaul jet operations. It has two runways as follows: Exhibit 3.19 Kuujjuaq Airport Runway Details Direction Length Surface ft m 07/25 6,000 1,829 Asphalt 13/31 5,000 1,524 Gravel Kuujjuaq confronts almost the same issues encountered by Goose Bay and Iqaluit. Each has a vital role as the administrative and local community focal point particularly for the health, education and social services sectors. The linking of these three centres could strengthen the overall corridor, building on cultural ties and possibly leading to improved co-operation and greater economic development Option 4 - Goose Bay to Iqaluit via Montreal or Ottawa This option involves either starting a direct route Goose Bay to Montreal or re-establishing the link between Goose Bay and Ottawa. Both links would connect onto the existing air services to Iqaluit from Montreal or Ottawa. 3-14

74 Exhibit 3.20 Option 4 Details From To Distance Nm Km YYR Goose Bay YUL Montreal 701 1,299 YUL Montreal YFB Iqaluit 1,113 2,061 1,814 3,360 YYR Goose Bay YOW Ottawa 765 1,416 YOW Ottawa, YFB Iqaluit 1,134 2,100 1,899 3,516 A direct service Goose Bay to Montreal would have some credence and might possibly stand up to analysis on its own without any consideration of a trade corridor route. However, such a route would be in competition not only from alternate routing via Halifax but also the slower route via Sept Iles and Wabush. Montreal itself is a particularly important transportation and logistics centre not only for the Eastern Provinces but also for Canada as a whole. A direct service would add considerable economic benefit for trade and commerce. It would also provide quicker access to a wider international route network through Montreal (Trudeau) International Airport. Declining military activity at Goose Bay is probably a contributing factor to the closure of the direct air link between Ottawa and Goose Bay. Such a link would have key strategic and administrative advantages, keeping a remote part of Canada close to the Federal Government. Ease of communication is a vital part of enabling economic and social development of any region. It has particular importance for one that is remote from the centre of decisionmaking, making it potentially disadvantaged. Currently, Ottawa is served by a daily indirect service routing through Halifax and this is likely to challenge the economics of re-establishing a direct service. If regional economics around Goose Bay are likely to change then this will influence such reinstatement. 3-15

75 Exhibit 3.21 Route Option Iqaluit Goose Bay Options Summary The direct distance between Iqaluit and Goose Bay is 677Nm (1253 km) which makes the journey through either Montreal or Ottawa considerably more than twice this distance. It is clear that neither link offers a major material advantage or any overall transport efficiency for the Iqaluit bound traveller. It is true that connections to either Ottawa or Montreal are important for Goose Bay and are likely to be operated on a daily basis. But this alone is unlikely to justify the route particularly within the context of the trade corridor. The estimated flow of passengers that made a trip between Atlantic Canada to Iqaluit in 2005 was less than 2,000. This alone is considered possibly too small to support a viable route or interest a carrier to provide regular direct services between Goose Bay and Iqaluit. The distance is such that it would need a jet operation and if a 50-seat CRJ were used on the route, the minimum that would be attractive for a carrier to establish a weekly yearround service is 1,500 passengers at 60% load factor. While this level could be achieved by the estimated volumes, passengers from Iqaluit to Nova Scotia, New Brunswick or PEI may prefer to continue routing via Ottawa or Montreal. The result is an estimated core market (Newfoundland and Labrador) of ±800 passengers. A carrier might be interested in establishing such a service if it could be assured that it would maintain this load throughout the year. If the Food Mail Program could be directed through Goose Bay (possibly in partnership with Halifax to facilitate air-combi service on the Halifax-Goose Bay portion), this additional cargo revenue might aid the route viability. In Europe, air routes in remote regions are eligible for financial support if an economically justifiable business case can be established. Risks associated with the route 3-16

76 are shared under the Route Development Fund program. Airports, local development agencies and the carriers share the risk of operating the route. This does not guarantee long- term survival of a route if genuine demand does not exist. However, it does encourage some entrepreneurial activity in regions where remoteness might otherwise hold route development back. Air fares in Northern Canada are inevitably expensive. Routes are thin and there is little scope for competitive forces to hold prices in check. Current Iqaluit Goose Bay return fares are in excess of $3,000. Even Ottawa Iqaluit return fares typically cost over $1,500. While the distance to Ottawa is almost twice that of Iqaluit to Goose Bay, it is likely that this scale of fare will dominate all possible alternate routes. This is likely to have a dissuading effect on travel along the trade corridor. For those travelers involved in trade and business activity, this price point should not be constraining. They would demand greater frequency than a single weekly service since that would commit their time to a whole week for business and this is unlikely to be acceptable. Direct services to Ottawa or Montreal might marginally improve communication along the trade corridor and have a corresponding economic impact on Goose Bay. It is unlikely given the current non-operational military state of Goose Bay that passenger numbers are likely to match those when the Ottawa service used to operate. This leaves alternate route pairings up the trade corridor itself. Option 1 from Nain to Iqaluit is plausible but seems unlikely because the distance from Nain to Iqaluit (480Nm, 888Km) would be too long for the small aircraft currently making the coastal hop service and therefore would require entirely different equipment to make viable. Option 2 is more attractive because the sector length between Kuujjuaq and Nain (238 Nm 441km) is still within the range of the Twin Otter aircraft currently in use between Nain and Goose Bay (although it would be operating close to its limits). Alternatively, the service could be operated by an operator like Air Inuit using a similar aircraft from Kuujjuaq. In either case, co-operation between carriers would be an essential feature of this service. Furthermore, it is likely that a larger aircraft would be required to carry the additional loads generated by the connecting service. Option 3 Iqaluit Goose Bay via Kuujjuaq is potentially the most interesting proposition because the distances involved would require a larger aircraft with scope for greater cargo activity (a Dash combi would seem most suitable). PAL themselves have tried unsuccessfully with this through routing in the past but it has ceased operation. This may possibly have been because the route represents a cross-over into another carrier s network (First Air/Air Inuit). 3-17

77 3.6 A New Route to Greenland Option 1 Nuuk to Iqaluit It is interesting to note that First Air currently fly Boeing 737 on the route to Iqaluit-Kuujjuaq. It is an intermediate stopping point for the service to Montreal. Perhaps the Kuujjuaq route has more economic sense to be operated by First Air than by PAL. The carrier could synchronize connections in Kuujjuaq so that the whole trade route would be enabled. First Air fares on the Iqaluit-Kuujjuaq route are around $1,200 and the added sector Kuujjuaq to Goose Bay of say $600, would equate to a total trip cost of $1,800. Whilst this is still expensive, it would be well below the fare for the circuitous Iqaluit to Goose Bay trip via Ottawa and Halifax. On balance, it would appear that the Iqaluit to Goose Bay air service can be best delivered through Kuujjuaq. The route density is likely to be low but if the two communities of Goose Bay and Iqaluit show serious support for the service by active promotion and close co-operation with First Air/Air Inuit, it is quite possible that a new service can be sustained. Furthermore, the Kuujjuaq community could hopefully add their support to the venture making the probability of success even greater. Air service in Greenland is dominated by the activity of Air Greenland which operates an extensive route network throughout the territory with connections to Copenhagen and a new seasonal service to Baltimore in the United States. Most recently, the carrier SAS has announced that it too will operate a new twice-weekly summer schedule from Copenhagen to Kangerlussuaq. There is no direct air service from Canada. In the past, there has been limited scheduled air service activity mainly between Iqaluit and Nuuk/Kangerlussuaq. This was operated by First Air but ceased operations due to commercial problems. Currently, there is other ongoing ad hoc charter business throughout the year connecting points in Canada with Greenland and serving mining and exploration activity, (plus some government, business and tourism charters). This is provided as and when required by the relevant air charter operators. There is no doubt that there are intrinsic cultural, ethnic and shared issues that link the remote communities of the Baffin Region and Greenland. A direct air service linking the two regions could have strategic and economic benefit. The mining and offshore exploration activity in the Davis Strait is daunting and will require complex solutions. The ice, water depth and geology will all present technical challenges for the companies granted licenses. 3-18

78 Exhibit 3.22 Offshore Hydrocarbon Exploration Blocks Won By EnCana and Nunaoil 2005 Calgary-based EnCana in conjunction with Nunaoil A/S from Greenland won a license to explore an area of some 2,900 square kilometres located approximately 250 kilometres west of Nuuk, offshore of West Greenland. New exploration licenses are expected in other blocks with Canadian and U.S. firms making permit applications. In 2007, offshore air support is in its early stages and as yet appears self contained relying entirely on helicopter support from Nuuk to service rigs and ad hoc charter services from around the world to meet air transport needs. Nuuk Airport has limited infrastructure. Its runway is constrained by obstacles within its safeguarding surface and it only has a surface of 950m. This means the airport is only suitable for use by aircraft with exceptional STOL (Short Take Off and Landing) characteristics such as the Twin Otter or Dash 7. Air Greenland also operates a Beechcraft King Air 100 at the airport. Exhibit 3.23 Greenland Route Option 1 Details Distance From To Nm Km GOH Nuuk YFB Iqaluit The direct journey to Nuuk is well within the range of the Dash 7 and Twin Otter aircraft (±650Nm) and the King Air itself. In principle, there would be scope for a direct service linking the two centres if sufficient demand existed. It is difficult to prove whether a service would 3-19

79 3.6.2 Option 2 - Iqaluit to Nuuk via Kangerlussuaq gain momentum when the supporting MIDT data shows such small numbers traveling on scheduled services in 2005 (136). As stated previously, there were also a number of services operated by Air Greenland and Canadian carriers that passengers choosing to make the journey to Greenland chartered themselves to make the journey. The demand is estimated at ±1,000 charter passengers annually. In any case, if an air service was operated it would be marketed by the carrier and if this was supported by the communities at each end, it is quite likely that many more passengers would consider Iqaluit as a gateway to Greenland. Given the likely increase in activity when the EnCana (and possibly other Canadian oil and gas firms) offshore exploration gathers pace, the prospect for viable service becomes more realistic. The route Option 2 involves an air service to Nuuk via Kangerlussuaq from Iqaluit. Passengers from Iqaluit wishing to make the journey to Nuuk simply connect to the regular air services that operate between Nuuk and Kangerlussuaq by Air Greenland. The Iqaluit Kangerlussuaq service was operated by First Air several years ago but was later abandoned. Kangerlussuaq has the advantage of a long runway making it suitable for aircraft of all types. Exhibit 3.24 Greenland Route Option 2 Details Distance From To Nm Km YFB Iqaluit SFJ Kangerlussuaq SFJ Kangerlussuaq GOH Nuuk This route is only worthy of discussion because it offers potential to interline with the daily long haul passenger aircraft to Europe. For passengers to and from the Canadian Arctic, this route provides an alternative routing to the traditional means of access through the major gateways in the south of Canada (Toronto, Montreal, Vancouver, etc.). Within the context of the trade corridor, the possibility of an air link from Goose Bay to Kangerlussuaq to connect onto the Iqaluit service was also considered. This was dismissed because the opportunity for passengers to link onto this European service through Kangerlussuaq is not so attractive given the array of air service provisions across the Atlantic from the closer centres of Halifax and St. John s. There would thus be insufficient demand from Goose Bay alone to fill the larger aircraft needed to make the longer journey to Kangerlussuaq. 3-20

80 In the period since the collapse of the First Air operation, more regular international air links between Kangerlussuaq and Europe have been established making this route more interesting. At a time when heritage/cultural and soft adventure tourism seems to be growing, any route that makes the region more accessible is likely to become attractive. This could provide a major boost to the Iqaluit economy because the journey time from Europe would be much shorter than alternative routes and it would represent a significant niche tourism market for development. Any objection from other carriers currently operating to and from Canada across the Atlantic would be unlikely given the scale of activity envisaged. Clearly, any connection from Canada would give access to this market. It is therefore possible that this may now be subject to operating objection from other Canadian carriers wishing to protect this activity. This is further complicated by the recent announcement of Open Skies negotiations between Canada and the European Union. It is understood that Greenland is exempt from such discussions and therefore it is unclear just how a new route application from Canada to Kangerlussuaq would now be viewed. The economic impact of a shorter tourist air route could bring welcome contribution to the relatively fragile economy in the Baffin Region. It is not envisaged that the number of passengers in the first instance would be great given the likely cost of the overall air service. However, the potential for a seasonal arctic exploration presents a growing and exciting development for tourism. There is already a considerable niche market for nature and heritage/cultural tourism in Nunavut. Ease of access along with appropriate accommodation and suitable overall infrastructure will be important to meet the market needs of the many older, educated and quite affluent tourists. Small lodge tourism, expedition cruise tourism and visitors wishing to see the aurora borealis are all expected to increase demand. Tourism in Nunavut is, at best, a small and developing sector that is vulnerable to either positive or negative shifts in demand. With the exception of some major cruise lines traveling to the Arctic from Europe and North America, it is mainly an industry of small-scale local operations. It faces serious challenges including the high cost of transportation and the high costs of maintaining infrastructure in a harsh setting. The summer tourist season is very short and heavily dependent on favourable weather conditions. It is essentially nature-based tourism with limited opportunity to diversify and this means that any disruption of the natural setting or of the wildlife on which the industry depends can have serious long-term ripple effects on the tourism industry. 3-21

81 A link into Greenland, connecting on to services from Europe and Iceland offers potential for transport of air freight particularly electronic and higher value items. This further adds to the scope for increased service viability and with the use of combi-aircraft would enable larger volumes of freight to complement the relatively small numbers of passengers envisaged. Improved air links will therefore be one of the important solutions to these difficulties. Indeed, establishing this service at this critical time may just be one of the contributory factors to enable the economy of Nunavut to become more diversified and sustainable Option 3 Iqaluit to Nuuk to Kangerlussuaq to Iqaluit A third option, suggested to the consultant, would be a triangular route from Iqaluit to Nuuk to Kangerlussuaq and back to Iqaluit, or in the reverse direction. In contrast to Option 2, this route would not depend on a connecting domestic flight between Nuuk and Kangerlussuaq and a round trip could be completed with three stops instead of four. It would carry passengers originating in Nunavut to both Nuuk to Kangerlussuaq and vice versa. This route could offer market attractions over the other two options, particularly by reducing time delays, extra costs, and other passenger inconveniences associated with relying on an Air Greenland connection between Kangerlussuaq and Nuuk. It would be designed to capture the breadth of the passenger market from Iqaluit to Nuuk that First Air serviced between 1981 and 1994 (i.e. tourists, government employees, students, mining employees and crew changes, fishing crew changes, etc.). It would provide direct Canadian access to Nuuk, Greenland s largest community, and maintain a connection through Kangerlussuaq with Greenland s main tourist attractions in the north. It would also provide an alternative access via Kangerlussuaq for Nunavut residents traveling to Europe, as well as for Europeans wishing to visit Nunavut. Development of this route would have to overcome some obstacles. A Canadian carrier would not have cabotage rights in Greenland, so could not carry domestic passengers between Nuuk and Kangerlussuaq. As discussed in Option 1, Nuuk s short runway significantly restricts the size and type of aircraft that it can accommodate. Air Greenland uses the Dash 7, which is an expensive solution. The old HS 748 also would not be a particularly economical aircraft to operate. The Greenland Home Rule Government appears to be considering whether to extend the runway in Nuuk to accommodate larger aircraft. This would have a positive influence on the viability of a direct triangular Iqaluit-Nuuk- Kangerlussuaq connection. However, it is probably still some years away. 3-22

82 3.6.4 Iqaluit Greenland Options Summary The opportunity to provide direct air service to Nuuk from Iqaluit is likely to be marginal and only viable with considerable government support. By contrast, an air service into both Nuuk and Kangerlussuaq offers wider potential for en-route connections particularly for tourists from Europe during the summer season. Air Greenland and SAS operated direct services from Kangerlussuaq to Copenhagen in the summer of 2007 and the opportunity exists to provide connection to Iqaluit. This will provide a new, shorter and possibly cheaper means of reaching Nunavut. The potential for tourism development is very evident and makes the opportunity for a triangle route (Iqaluit-Nuuk- Kangerlussuaq) rather compelling. In order for this operation to become sustainable, concise marketing will be necessary and if more than one carrier is involved, close co-operation. The key player in this is of course Air Greenland who stands to gain (or lose) the most by increased activity (or competition) to the region. A persuasive case will need to be formulated to tempt the carrier into looking at Iqaluit again. This will need strong diplomatic support from the Nunavut Government and the Home Rule Government to ensure that any air service obstacles can be overcome. There is no doubt that a new real opportunity exists to re-establish important links for the Inuit of both Greenland and Nunavut. One of the obstacles is the high cost of landing at Nuuk and Kangerlussuaq as illustrated in the following exhibit. 3-23

83 3.7 St. John s and Halifax As Distribution/Entry Points Air services currently link Goose Bay with St. John s and Halifax. If a route along the corridor to Kuujjuaq or Iqaluit was operational, there would be some passengers from the Halifax or St. John s areas who might consider using the link to travel northwards and vice a versa. The scale of the potential feed from these points via Goose Bay cannot be readily estimated. Exhibit 3.26 Halifax and St. John s Routes 3-24

84 It has been demonstrated from the available MIDT data using routings through Ottawa or Montreal to Iqaluit from Nova Scotia or Newfoundland and Labrador that demand is fairly weak. Whether this would suddenly increase with an operational corridor route is unlikely but clearly passengers will begin to consider the new routing and this would reinforce the corridor activity. Both MIDT data and consultations conducted for this study were used to calculate demand. It is also possible that Halifax, with its new U.S. preclearance gateway status, could open the corridor route for the trans-boarder market. Passengers from the U.S. could then use the corridor route to Iqaluit. However, this would require more stops (three) than if a passenger used a route from the U.S. to Iqaluit through Ottawa (two stops). More stops translate into more flying time that is dependant on the aircraft and connection times. Recent developments on the North Atlantic could also create a new opportunity for the corridor as direct flights begin by Air Canada and charter operators from Europe to St. John s. The duration of the flights across from Europe to St. John s is much shorter than to other more western points such as New York (2:30 hours further), Montreal (2 hours) or Toronto (2:45 hours). Passengers could consider the corridor route as a shorter potential path to Iqaluit. At the moment, this routing is unsatisfactory because the aircraft arrives from Europe in the early hours of the morning. If it is to become adopted as a possible route option, Air Canada or charter operators would need to be lobbied to adjust their timetable to a more practical timing. However, this could become an important new route to and from Nunavut to Europe. In summary, the combined feeds from St. John s and Halifax will make important contributions to the traffic flows along the corridor route. The carriers involved need to be lobbied to improve timings but if this is successful, it might prove a key balancing factor to enhance the overall viability of routes along the corridor. 3-25

85 4 Assessment of Marine Options 4.1 Introduction 4.2 Cargo This section discusses the options to change the current marine service in the study area. It also includes discussions on the expedition cruise market. In 2004, there were 153,787 tonnes of cargo handled to and from Nunavut. Of this total, 27,717 tonnes (18%) was general cargo and 126,070 tonnes (82%) was fuel. A total of 1,787 tonnes of containerized cargo and 143,121 tonnes of non-containerized cargo were shipped north from various ports in the south, including Cote Ste. Catherine, Valleyfield, Montreal/Contrecoeur and Churchill. Of the 27,717 tonnes of general cargo handled, approximately 20,000 tonnes was Arctic Sealift cargo, which suggests about 7,000 tonnes were shipped independently. Iqaluit/Frobisher Bay handled a total of 61,944 tonnes of cargo in 2004, of which 47,025 tonnes (76%) was fuel, leaving 14,919 tonnes (24%) of general cargo. Of this total, 708 tonnes of container cargo and 11,615 tonnes of noncontainerized cargo was handled inbound. About 767 tones of container cargo and 1,829 tonnes of non-containerized were loaded in this particular area. Shipments primarily originated in Cote Ste. Catherine, Montreal, and Valleyfield. In total, both container and non-container non-fuel cargo equate to approximately 1,562 twenty-foot containers, based on 10 tonnes per container. Within the context of the six-month season, this volume equates to about 260 TEUs per month. Exhibit 4.1 provides a summary of domestic shipments into Iqaluit. 4-1

86 Exhibit 4.1 Domestic Shipments to Iqaluit, 2004 (tones) Domestic Marine 2004 Province Handling Port Origin/Destination Commodity Containerized Non- Containerized Non- Containerized Containerized Loaded Loaded Unloaded Unloaded Nunavut Nunavut Nunavut Nunavut Nunavut Nunavut Nunavut Nunavut Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Frobisher Bay/Iqaluit Source: Statistics Canada Côte-Ste-Catherine 09 Manufactured and miscellaneous goods ,206 Hall Beach/Sanirajak 09 Manufactured and miscellaneous goods Montréal/Contrecoeur 04 Fuels and basic chemicals ,025 Nanisivik 08 Machinery and transportation equipment Pelly Bay/Aqviligjuaq 04 Fuels and basic chemicals Pelly Bay/Aqviligjuaq Valleyfield Valleyfield 09 Manufactured and miscellaneous goods 08 Machinery and transportation equipment 09 Manufactured and miscellaneous goods , , , , Arctic Sealift A brief history of the Sealift program was provided in a 2005 Mariport study on the annual resupply. 8 The Sealift was carried out by the Canadian Coast Guard until The carriers involved have also changed over the past two decades, but the service has been carried out and based out of the Montreal area. Desgagnés moved to Cote Ste. Catherine in 1995 and Logistic moved to Valleyfield a few years later due to high stevedoring charges and work practices in the Montreal urban area. A Newfoundland company, Crosbie Shipping was also a contractor, although shipments took place from the Montreal area. With the creation of Nunavut, Group Desgagné s formed a joint venture with the Arctic Co-ops as Nunavut Sealink and Supply (NSSI) was formed. Similarly, Logistec and Ogloolik joined together as Nunavut Eastern Arctic Shipping (NEAS). Crosbie started Nunavut Ocean Transport (NOT) based in Pangnirtung. In 2001, another company, Nortran, (a packaging operation) and Desgagnés bid as N³ Alliance and won all of the Eastern Arctic delivery. 8 Annual Resupply Evaluation, Mariport Group Ltd., December

87 According to press reports, the bid was for $ per metric tonne for about 20,000 tonnes. 9 As of late 2005, there were four Sealift carriers. Two of them, NEAS and NSSI were under contract for resupply out of the Montreal area. Another was a privately operated public service from Churchill to Kivalliq and the Kitikmeot was served by NTCL from Hay River, NWT. Iqaluit is served by NSSI, a joint venture of Arctic Co-ops and Desgagnés Transarctik, itself a division of Groupe Desgagnés of Quebec City. This service utilizes four vessels: Anna Desgagnés, Cecilia Desgagnés, Camilla Desgagnés and Mathilda Desgagnés. 10 Vessels take four days to load in Cote Ste. Catherine and round trip voyages take approximately 22 days. Exhibit 4.2 M.V. Camilla Desgagnés For the 2006 shipping season, NSSI provided service to 14 communities including Iqaluit, NEAS provided service to eight sites and NTCL operated to 13. For 2007, NSSI is planning three trips. As port facilities in Iqaluit are rudimentary at best and cargo is handled multiple times, adding to cost, loss and breakage. Cargo is transferred to shore by barge and vessels can only be worked for a few hours per day at high tide. A 2005 study Strategic Plan for the Iqaluit Deepwater Port Project recognized these issues and provided a potential solution Sealift Charts new course, Nunatsiaq News, 15 June Mariport, Strategic Plan for the Iqaluit Deepwater Port Project, Aarluk Consulting Inc., Gartner Lee Limited and Chris Anderson, August

88 4.4 Alternatives MariNova Consulting Limited, a member of the SGE Acres Team, examined three different vessel types and five alternative routings between the lower mainland and Iqaluit for the trade corridor. The vessels included a small container ro-ro ship, Astron, which is owned by the Woodward Group of Companies, and has a total capacity of 113 TEUs (twenty-foot units). This vessel has operated along the Labrador coast for many years. We also analyzed the costs to operate a vessel currently deployed in the Arctic Sealift program, Camilla Desgagnés, which is capable of carrying 399 TEUs plus ro-ro and break bulk cargo. The vessel routings examined included: Goose Bay Iqaluit St. John s Iqaluit Halifax Iqaluit Quebec City Iqaluit Montreal Iqaluit. Each routing had a different modus operandi. The Goose Bay routing involved trucking containers from Montreal along the Trans Labrador Highway. The thinking behind this concept is the operator could provide a more frequent service to Iqaluit than the status quo and other routings. The second alternative involves shipping containers from Montreal to St. John s with Oceanex, and from there to Iqaluit. The third routing involves shipping containers from Montreal to Halifax by rail and from there to Iqaluit. The fourth option has containers trucked from Montreal to Quebec City and shipped from there to Iqaluit. Lastly, we also examined the status quo, shipping direct from Montreal to Iqaluit. In all cases, we assumed cargo originates in Montreal or environs. However, if it was sourced in the Maritimes or Newfoundland, some interesting possibilities in terms of shipping could arise. Exhibit 4.3 M.V. Astron 4-4

89 We undertook our analysis based on the following parameters for a return trip. Please note the following terminology: Marine Gas Oil (MGO), Intermediate Fuel Oil (IFO), Twenty foot (Container) Equivalent (TEU). Exhibit 4.4 Parameters For Large Vessel (Camilla Desgagnés) Evaluation Vessel Camilla Desgagnés, 399 TEUs Operating cost per day $Cdn 12,900 ex fuel Deadweight 7340 Speed/Consumption 13 knots on 18t IFO + 1.5t MGO MGO 1.5t in port /12t in approaches IFO Price $Cdn 350 / t MGO Price $Cdn 700 / t Port Time Load 8 hours Port Time Discharge 24 hours Approaches 12 hours (except Montreal & Quebec 2 ½ hours) Weather Allowance 0% Commencement Goose Bay St. John s Halifax Quebec Montreal Distance Days Vessel cost $94,170 $117,390 $165,120 $188,340 $199,950 Fuel Cost 44,551 58,262 84,788 98, ,750 Pilots (in/out) 2,090 1,412 6,894 12,514 Lines 1,000 1,000 1,000 1,000 1,000 Voyage Cost $139,721 $178,742 $252,320 $294,387 $318,214 Stevedoring $90,000 $105,000 $105,000 $120,000 $135,000 Port Charges $15,000 $15,000 $15,000 $25, TEU Cost $900,000 $1,050,000 $270,000 $204,000 from Montreal 300 TEUs $5,475 $6,825 $9,600 $10,950 $11,625 Total Cost $1,135,196 $1,355,567 $651,920 $644,377 $489,939 Per unit $3,783 $4,518 $2,173 $2,147 $1,632 NSSI Rate $3,293 $3,293 $3,293 $3,293 $3,293 Notes: 1. Based on vessel carrying 300 TEUs, or 75% capacity 2. Trucking Mtl to Goose Bay: $5,000 2 = $2,500 per TEU; $500 return from Goose 3. Ocean freight Mtl SJ: $3,500 2 = $1,750 per TEU 4. Rail Mtl - Hfx = $ Trucking Mtl QC = $680 per TEU 6. TEU cost at $2.50 per day 7. Stevedoring: Goose Bay $150; St. John s and Halifax $175; QC: $200; Mtl: $

90 Our analysis indicates that using the larger vessel, Camilla Desgagnés, the status quo is the least expensive means of round trip shipping to Iqaluit, followed closely by Quebec City and Halifax. Goose Bay is $1,650 per TEU more expensive on a round trip basis. Halifax is $541 per TEU more expensive, allowing for inland transportation. If product was sourced in Halifax, shipping costs would be $359 per TEU less than via Montreal. Likewise, if product was sourced in Quebec City, it would cost $165 less per TEU on a round trip basis. Most of Newfoundland and Labrador s consumables need to be shipped from the mainland, so it is assumed that shipping from the mainland needs to be included under this scenario. However, if not included, St. John s becomes very competitive, at $614 per TEU less expensive than Montreal, on a round trip basis. It is unlikely that the type of consumables needed in the Baffin Region could be sourced in Goose Bay, but the cost of shipping alone would be some $3,000 less expensive per TEU than Montreal. Operating costs for a small vessel such as Astron are quite similar for all options except St. John s, but not very close to the actual estimated cost of operating with the Camilla Desgagnés. 4-6

91 Exhibit 4.5 Parameters For (Astron) Evaluation Vessel Astron Operating cost per day $Cdn 9500 ex fuel Deadweight 7340 Speed/Consumption 11 knots on 9t MGO MGO 1.5t in port /9t in approaches IFO Price MGO Price $Cdn 700 / t Port Time Load 8 hours Port Time Discharge 24 hours Approaches 12 hours (except Montreal & Quebec 2 ½ hours) Weather Allowance 0% Commencement Goose Bay St. John s Halifax Quebec Montreal Distance Days Vessel cost $78,231 $99,174 $139,693 $165,242 $175,318 Fuel Cost 44,005 57,893 84, , ,389 Pilots (in/out) 1,626 1,342 4,767 7,302 Lines 1,000 1,000 1,000 1,000 1,000 Voyage Cost $123,236 $159,693 $226,799 $272,716 $292,009 Stevedoring $22,500 $26,250 $26,250 $30,000 $33,750 Port Charges $3,750 $3,750 $3,750 $6, TEU Cost $225,000 $262,500 $67,500 $51,000 from Montreal 75 x 20 $1,537 $1,950 $2,756 $3,262 $3,468 containers Total Cost $372,273 $454,143 $327,055 $360,728 $335,477 Per 20 unit $4,963 $6,055 $4,360 $4,809 $4,473 NSSI rate $3,293 $3,293 $3,293 $3,293 $3, Based on vessel carrying 75 x 20 or 75% capacity 2. Trucking Mtl to Goose Bay: $5,000 2 = $2,500 per TEU; return $1,000 2 = $ Ocean freight Mtl SJ: $3,500 2 = $1,750 per TEU 4. Rail Mtl - Hfx = $ Trucking Mtl QC = $680 per TEU cost = $2.50 per day 4-7

92 All of the scenarios above could accommodate the present volume of cargo to Iqaluit (Frobisher Bay). It would be most cost-effective if the cargo could be containerized; indeed the 2005 Mariport study recommends as much. To achieve this, a better port facility would be needed in Iqaluit, which the Aarluk Consulting report also recognized. If this development was to take place, all cargo destined for Nunavut could be shipped to Iqaluit in one or two large vessels and re-distributed along the coastline in smaller vessels. This would achieve some economies of scale and increase the frequency of service. Cargo could also be warehoused in Iqaluit. This concept is worthy of research as the port concept for Iqaluit is refined. We also looked at the potential to operate a small cargo and passenger ferry, and examined a design provided to us by Woodward Group of Companies. The vessel would cost $25 to $30 million to build and would carry 100 TEU or 12 trailers, plus up to 50 passengers. 4-8

93 Exhibit 4.6 Parameters For New Small Cargo and Passengers Ferry Vessel ferry (12 trailers) Day Rate (at cost) $Cdn ex fuel (12 crew) Deadweight Speed/Consumption 17 knots on 21t IFO MGO 1.5t in port /9t in approaches IFO Price $Cdn 350/t MGO Price $Cdn 700 / t Port Time Load 8 hours Port Time Discharge 24 hours Approaches 12 hours (except Montreal & Quebec 2 ½ hours) Weather Allowance 0% Commencement Goose Bay Distance 823 Days 6.0 Charter Hire $88,101 Fuel Cost 37,201 Pilots (in/out) Lines 1,000 Voyage Cost $126,302 Stevedoring $1,800 Port Charges Trailer Cost from $72,000 Montreal 12 Trailers $360 Freight Cost $200,462 Cost per trailer $16,705 Cost per TEU $5,062 NSSI rate $3,293 In trailer mode operating just from Goose Bay, the return cost would be the equivalent of over $5,062 per TEU, or about $1,769 per TEU more than the cost from Montreal. In freight mode carrying 75 TEUs, the return cost would be $4,999 per TEU, or more than $1,700 per TEU more than the rate from Montreal. 4-9

94 Exhibit 4.7 New Small Vessel (Freight Mode) Commencement Goose Bay Distance 823 Days 6.0 Charter Hire $88,101 Fuel Cost 37,201 Pilots (in/out) Lines 1,000 Voyage Cost $126,302 Stevedoring $22,500 Port Charges Trailer Cost from $225,000 Montreal 75 TEUs $1,125 Freight Cost $374,927 Cost per TEU $4,999 NSSI rate $3,293 If the vessel had a complement of 40 passengers in each direction, who paid $275 per day or $1,650 each, the cost per TEU would reduce to $4,239, still $1,000 more than the rate (not cost) from Montreal. The advantage would be better and more frequent vessel turnaround times. Exhibit 4.8 New Small Vessel (Passenger and Freight Mode) Vessel ferry (Passenger + containers) Day Rate (at cost) $Cdn 16,100 ex fuel (23 crew) Deadweight Speed/Consumption 17 knots on 21t IFO MGO 1.5t in port /9t in approaches IFO Price $Cdn 350/t MGO Price $Cdn 700 / t Port Time Load 8 hours Port Time Discharge 24 hours Approaches 12 hours (except Montreal & Quebec 2 ½ hours) Weather Allowance 0% 4-10

95 Commencement Goose Bay Distance 823 Days 6.0 Charter Hire $97,152 Fuel Cost $37,201 Pilots (in/out) Lines $1,000 Voyage Cost $135,353 Stevedoring $22,500 Port Charges Trailer Cost from $225,000 Montreal 75 TEUs $1,125 Freight Cost $393,978 Rev 40 $66,000 $1,650 Net freight cost $317,978 Cost per TEU $4,239 NSSI rate $3,293 Obviously, port facilities in Iqaluit would need to be improved to accommodate a ro-ro vessel. From the General Arrangement (vessel plan) supplied to the SGE Acres Team, it was not clear how 20 foot or 40 foot containers would be stowed and how they would be loaded, as the standing head room inside the hold does not appear high enough to operate a reach stacker to load two-high. They could be loaded on mafis, but these can be unstable in high seas. We also examined potential links between Greenland and Labrador/Baffin Island. Eimskip, (aka Icelandic Steamship Company), has recently reconfigured its Americas services such that its port rotation now consists of Rekjavik Argentia Halifax Everett/Boston Richmond, (Virginia) Halifax Argentia Rekjavik. In the summer, after the Argentia port call, it returns to Reykjavik via St. Anthony and Narsaq, Greenland. In Reykjavik, the service connects with two European services. In Narsulak, the service connects with Royal Arctic Line, which services the Greenland coast. If there was sufficient demand in Labrador, the service could call at a Labrador port. It is possible that a link could be developed between the Greenland coast and Iqaluit, but Canada s cabotage laws would not permit Nova Scotia or Newfoundland and Labrador cargo to be carried to Iqaluit, even if it was financially feasible. 4-11

96 Exhibit 4.9 Eimskip Route Map 4.5 Expedition/Adventure Cruises The expedition cruise market in Labrador and the Arctic has been evolving over the past 20 years, but has gained considerable momentum in the period since Norwegian, Sven-Olaf Lindblad, is usually credited with having invented the concept. Lindblad Expeditions carries on that tradition. The Norwegian coastal service, the Hurtigruten, has also gradually introduced a cruise element to its basic coastal transportation service since the introduction of the mid-generation vessels in the early 1980 s. Similar services existed on the Greenland coast, along the Chilean fjords, and even between the U.K. and St. Helena. In 1992, Marine Atlantic (MAI) introduced Cruising Labrador utilizing the Northern Ranger, a cargo passenger vessel which provided service from Lewisporte on the Island of Newfoundland to Nain, Labrador. Until this time, reservations on the service were restricted to people actually present in Newfoundland. A capacity utilization study determined that there was sufficient capacity available to package the trip into five, eight and 15 day cruises and to accommodate the pent-up demand for access to Labrador. Two suites were refurbished and a tour operator hired to provide land operations, and the product was introduced to national and international markets. Despite rave reviews from National Geographic Traveller, Equinox and other media, when the service was privatized in the late 1990 s, the new operator cancelled the program. The Labrador Lake Melville Tourism recently offered similar tour packages on the Northern Ranger to Labrador's North Coast, but this ended in 2006 due largely to lack of staffing within the organization. 4-12

97 Around the same time, MAI partnered with Blythe & Company to use the Ranger for a similar program in Antarctica. Out of this program grew Blythe s Marine Expeditions, which also began to offer expedition cruises in the Arctic using two Russian ice-breaking research vessels, Livonia and Akademik Ioffe. Blythe eventually departed and two employees took over the operation. Two similar markets, Greenland and Spitsbergen, have evolved into something quite substantial and beyond the Eastern Arctic and Labrador markets. Greenland is able to accommodate some very large 2,000+ passenger vessels such as those operated by Holland America and P&O Cruises. Starting in 2007, the Norwegian coastal operator Hurtigruten will operate a new, purpose-built expedition 318 passenger vessel, Fram, on three Greenland itineraries in the summer and Antarctica in the winter. This development is expected to have a dramatic impact on the Arctic expedition cruise market. As one operator told us, Greenland will evolve into its own market. Exhibit 4.10 Specifications For New Greenland Expedition Vessel (Fram) 4-13

98 We discussed the potential for Newfoundland, Labrador/Baffin Island and Greenland expedition/adventure cruises with several existing operators, including Quark Expeditions, Cruise North, Adventure Canada, Polar Star Cruises and Quest Nature Tours. The findings are summarized below. Quark Expeditions Quark Expeditions is a U.S.-owned company that is managed from Toronto. It is the largest polar expedition cruise operator in the world. They operate all polar cruises in the Arctic and Antarctic. In the latter, they use six ships; in the Arctic they use two ships. Current Arctic itineraries include: Murmansk- North Pole; North West Passage (Provideniya-Resolute); Tanquary Fjord (Resolute-Tanquary Fjord); Arctic Adventure (Resolute-Nares Strait- Kangerlussuaq); Greenland Odyssey (Kangerlussuaq-Peary Land). The two vessels include Yamal, a 100 passenger, nuclear-powered Russian icebreaker, and Kapitan Khlebnikov, a large conventionally-powered Russian ice-breaker capable of carrying 108 passengers. None of these itineraries call at Iqaluit or Baffin Island. They are contemplating a Western Greenland itinerary but need a six-voyage season to make it worthwhile for a 100 passenger vessel. They would likely start with a 50 passenger ship, doing two to four departures. They are interested in Iqaluit but need better air connections and the ability to load provisions. An air connection between Iqaluit and Greenland would be ideal for their purposes. Exhibit 4.11 M.Vs. Yamal and Kapitan Klebnikov 4-14

99 Cruise North Cruise North is a three-year old venture headed by a marine expedition s alumnus and owned by Makivik Corporation, which is also involved in First Air, Air Inuit and NEAS, amongst other interests. It operates entirely in Canadian waters, with a foreign-flag vessel imported on a seasonal basis. A portion of the crews are Canadian as are all guides. The long-term vision is to evolve somewhat like the Norwegian Hurtigruten. Makivik is currently exploring joint ventures between Nunavut, themselves and Labrador Inuit in this area. Most of its operations are based in Kuujjuaq, Quebec, in Ungava Bay. In 2007, it will offer 10 departures, starting in mid-june from St. John s, and finishing in Kuujjuaq in early September. A mid-summer itinerary starts in Kuujjuaq and finishes in Iqaluit and another starts in Iqaluit and finishes in Kuujjuaq. Another starts in Churchill and finishes in Iqaluit and the next one starts in Iqaluit and finishes up in Kuujjuaq. Having owners who are in the airline business provides Cruise North with an advantage over its competition. The company is also keen on Labrador but ice is a factor and the season is limited. Labrador also helps the company extend its season, but it suffers from limited market profile. It has been described as Patagonia of the North and the Last Frontier but it remains a marketing challenge. In 2007, Cruise North called at Goose Bay with other stops at Makkovik, Hopedale, Nain, Hebron, and Nachvak Fiord/Eclipse Harbour in the Torngat Range. Polar Star Polar Star Expeditions is a Halifax-based expedition cruise operator that specializes in Spitsbergen and Antarctica. It is owned by Karlsen Shipping, which has roots in Norway. The company operates one vessel, Polar Star, a converted Norwegian ice-breaker capable of accommodating 100 passengers. Exhibit 4.12 M.V. Polar Star 4-15

100 In addition to its main itineraries, Polar Star offers four positioning voyages, In the Wake of the Vikings and Around the Rugged Rock. The Viking cruise starts in Reykjavik and ends in St. John s, calling at ports in Greenland, as well as Iqaluit and Hopedale, Red Bay and Battle Harbour in Labrador along the way. The last itinerary circumnavigates the Island of Newfoundland and calls at St. Pierre et Miquelon before finishing off in Halifax. Exhibit 4.13 Polar Star In the Wake of the Vikings The company will no longer offer the Newfoundland circumnavigation after 2007, as they find it a tough sell, particularly in Europe. They are looking for a second vessel but it would likely concentrate on its two main operating regions. Adventure Canada Adventure Canada was founded in 1987, and has offered expedition cruises in Labrador for the past 13 years. It uses two small vessels under charter, including the 108 passenger Explorer and 48 passenger Islander. Exhibit 4.14 M.S. Explorer 4-16

101 The majority of its operations are in Greenland and Nunavut. Four itineraries touch upon the study area: Kuujjuaq-Cape Dorset-Pangnirtung-Quamarvjuk Fjord-Disko Island- Kangerlussuaq (not complete) Kangerlussuaq-Sisimit Coast-Melville Bay-Devon Island-Grise Fiord-Somerset Island-Beechy Island-Resolute (not complete) Resolute-Peel Sound-Beechy Island-Pond Inlet-Buchan Gulf- Kangiqtugaapik-Igaliqtung-Davis Strait-Disko Island- Kangerlussuaq Kangerlussuaq-Davis Strait-Iqaluit-Lower savage Islands-Torngat Mountains-Hebron-Hopedale-Battle Harbour-L Anse Aux Meadows-Bonavista Bay-St. John s. Exhibit 4.15 Adventure Canada, Greenland and Wild Labrador Adventure Canada has had great success selling its Newfoundland circumnavigation program and won the Cruise Visitor Award in Issues for Adventure Canada include the inability to clear customs electronically in the Arctic, unlike Greenland. Canadian cabotage regulations also restrict their ability to offer some very creative and interesting itineraries. Air access is also an issue, but they usually charter aircraft to Iqaluit and Resolute. 4-17

102 Quest Quest is a long-standing expedition tour operator but does not own or even charter vessels themselves. They have been in the business since 1970 and have vast experience in this sector. About 30% of their business involves expedition cruises. In 2007, they are offering Svalbard, High Arctic, North West Passage and Newfoundland Circumnavigation tours using the 110 passenger Russian vessel Akademik Ioffe. They are concerned that small vessels will get squeezed out of the market and detract from the wilderness experience. Other issues relate to customs and the cost of charter aircraft. The RCMP could clear vessels in Iqaluit but customs officials are flown in from Montreal or Ottawa at the tour operator s expense. Exhibit 4.16 M.V. Akademik Ioffe 4.6 Summary The existing operation does a workmanlike job at supplying the North. However, as our analysis indicates, there are several potential alternatives available, some of which are less costly than the status quo. These alternatives involve shipping out of Goose Bay, Halifax or St. John s. With sufficient volume, and an available vessel, they are feasible even without changes to the Arctic Sealift program. The Goose Bay option is more expense if product is sourced from Montreal. However, it also allows much more frequent service, which may be of interest to shippers of perishables and time sensitive cargo, as well as tourists. The Halifax option is both less expensive than Montreal and provides access to more suppliers than Goose Bay. Likewise, much of what St. John s would supply comes from the mainland, so this network would have to be factored into any decision. In any case, a myriad of choice would become available if a new docking facility was built in Iqaluit. The Capital of Nunavut could become a transportation node which would in turn supply coastal communities on more frequent schedules, rather than three to four sailings per year from southern Canada as at present. 4-18

103 With respect to the expedition/adventure cruise area, there is much scope and potential for growth. The region and its geography and infrastructure is very suitable for small vessels. There is some danger that it would lose its attractiveness if large vessels were to begin operating there. The Cruise North operation and its ownership and relationship to First Air and Air Inuit offer some synergies perhaps not available to other operators. The potential to evolve into a Norwegian passenger/cargo/cruise operation is also very intriguing. Reasonably priced air access to jumping off points is an issue that should be addressed, as well as cabotage restrictions and customs service costs. 4-19

104 5 Food Mail Program 5.1 Introduction 5.2 History of Food Mail Program The purpose of this section is to review the overall effectiveness of the Food Mail Program. More specifically, the review focuses on the potential for Happy Valley - Goose Bay to be designated as an entry point for the Baffin Region of Nunavut, and possibly Nunavik from a cost perspective In the late 1960 s, the Federal Government set up the Northern Air Stage Program (Food Mail Program) to subsidize the cost of Canada Post sending nutritious (perishable) food to the north by air transport. The overall objective of the Indian and Northern Affairs Canada (INAC) Food Mail Program is to increase the level of nutrition from healthy foods in the diets of residents in isolated northern communities. When the program began, it was limited to Northern Quebec and Ontario. It has expanded to over 90,000 potential users in 140 communities that include Nunavut as well as parts of Northern Quebec, Labrador, Ontario, Alberta, Saskatchewan, Manitoba, the Yukon, and the Northwest Territories. The business model used by the Food Mail Program (see Exhibit 5.1) allows users to arrange for shippers (wholesalers) to send food that is eligible under the program to a Canada Post facility in one of the 21 designated entry points. The responsibility then rests with Canada Post to fly, within 48 hours, the perishable food to any one of 140 communities in the north. The rate charged by Canada Post is $0.80 per kilogram plus a small charge ($0.75 per parcel). For Nunavik, this rate is $0.20 below the postage charge of $1.00 per kilogram for non-perishable food and non-food items. For Nunavut, the rate is $1.35 below that regular rate of $2.15 per kilogram. In the early years of the program, Val d'or and Montreal were both designated as the entry points for the Baffin Region and Nunavik in Northern Quebec. Montreal was removed in the mid 1980 s as an entry point and other entry points were added. In 2007, the entry points are shown in Exhibit 5.2. Not shown is Winnipeg which was added in May 2007 as an entry point for Kivalliq communities. With Winnipeg, there is now direct food mail air links from Winnipeg to Rankin Inlet. As this exhibit reveals, Happy Valley - Goose Bay is the entry point for Northern Coastal Labrador and Val d Or in Quebec is the entry point for the Baffin Region and Northern Quebec. Resolute Bay, Grise Fiord, Nanisivik and Arctic Bay can also use Yellowknife as the entry point. 5-1

105 Exhibit 5.1 How The Food Mail Program Works The program starts with a retailer, or in some instances, an individual consumer living in a designated northern community, who wants to purchase an item that is eligible for a subsidy. The retailer places the order with a southern wholesaler (e.g. - Montreal or Edmonton) who has a contract with Canada Post to supply food or eligible products under the Food Mail Program. The wholesaler must then deliver the item to one of the 20 designated Canada Post entry points, which are located at the airports in those communities. There are limitations regarding weight, size, and packaging quality. Canada Post randomly checks the content of packages to be sure that the items are eligible under the program. There are a number of classes of eligible products. While they all receive the same subsidized rate per package, there are three different per-kilogram rates $0.80, $1.00, and $2.15, depending on the specific product and destination. Canada Post then takes responsibility for delivering the product to one of the 140 final destinations from one of 20 entry points. It guarantees that the item will be delivered to any of these eligible northern communities within 48 hours for perishables and 72 hours for non-perishable foods. All shipments must be picked up at the airport within 15 minutes of the time that the aircraft arrives. The carrier must notify the retailer or individual person who placed the order when the plane is scheduled or anticipated to arrive. The retailer or individual pays the wholesaler the full cost for the item. This includes the cost of packing the product for delivery, the cost of getting it to the entry point, and the subsidized rate that Canada Post charges for the service. INAC pays Canada Post the difference between the subsidized rate and the rate that would be charged if there was no subsidy. Source: Indian and Northern Affairs Canada. 5-2

106 Exhibit 5.2 Food Mail Program Entry Points 5.3 Food Mail Program Eligibility At present, the vast majority of shipments under the Food Mail Program are from southern wholesalers to northern retailers. Some other types of businesses and households can also receive subsidized shipments, as long as the southern supplier has an account under the Food Mail Program with Canada Post. The Food Mail Program was not set up to subsidize the transport of perishable foods to non-residential entities. In October 2005, a list of ineligible users for direct shipment under the program was prepared by INAC. The list contains: Mining operations Oil and gas companies Exploration camps Firms engaged in support activities for mining and oil and gas extraction, exploration and development 5-3

107 Surveying and mapping services Construction companies Environmental cleanup operations Electricity companies Weather stations Research stations and projects Military facilities. Northern retailers are permitted to sell designated products under the Food Mail Program to those government operations and private businesses listed as ineligible for direct shipment. Also, direct shipments from southern suppliers to the northern providers of day care programs, school food programs and healthcare-related services are eligible, as well as tourist operations such as restaurants, outfitters, camps and hotels. 5.4 Evaluations of the Food Mail Program Effectiveness INAC Internal Reviews INAC has not completed a program-wide assessment on the impact of entry points on program effectiveness and cost. There have been calls for such a review because other southern locations may prove to be more efficient but none of these requests represent an objective size-up of alternatives. In September 2006, Canadian North Inc. filed a complaint with the Canadian International Trade Tribunal (CITT) against the awarding of the Food Mail Program air transport services contract to Bradley Air Services Limited (operating under the trade name of First Air). The CITT ruled in favour of Canadian North on March 2007 and this award was overturned on appeal. The determination and reasons for the CITT decision provide insights into the workings and the Food Mail Program and the factors that are used to select a contractor for this air service. In 1989, INAC completed a review to determine what role the Federal Government should perform in the Food Mail Program. This assessment concluded that the program performs an important role in increasing the consumption of perishable nutritious foods and decreasing the cost in isolated northern communities. By the late 1990 s, the level of consumption of perishable nutritious foods was still below accepted guidelines. In 1996, the Federal Government agreed to continue the program with a yearly budget of $15.6 million. Overall, this budget cap was achieved until fiscal year 1999/2000. By fiscal year 2001/02, spending had increased to $24.5 million as a result of increasing demand and cost escalation in Canada Post contracts with air carriers. The shortfall in funding was addressed by the reallocation of funds from elsewhere in INAC. 5-4

108 5.4.2 Auditor General of Canada Observations In 2002, the Auditor General published an audit observation on the Food Mail Program. The Auditor General concluded that the program contributes to the nutrition of northerners by keeping the price of fresh foods affordable. She also concluded that people involved in program delivery were committed to its success. Against this setting, the Auditor General determined that no systematic review had been completed to determine if altering the entry points would enhance program effectiveness. The Auditor General noted that a 1996 INAC study revealed that northern merchants and consumers expressed the opinion that more southerly entry points would improve both the quality and choice of designated foods. Montreal or Ottawa were identified as potential alternative to Val d'or, and Winnipeg or Thompson as options to Churchill. Concerning the relationship between the location of entry points and the program budget, the Auditor General questioned the validity of some entry points as designated southern airports may not be the shortest air distance. She noted the case of Val d Or where orders must travels from Montréal to Val d'or (typically five to seven hours by road) and then the order (package) is flown from Val d'or to Iqaluit. The air distance from Montreal to Iqaluit is 220 kilometres more than from Val d'or to Iqaluit while the air distance from Ottawa to Iqaluit is just 260 kilometres more than Val d'or to Iqaluit. The Auditor General concluded that there is a knowledge gap in determining the effectiveness of current designated southern entry points to the overall quality and price of nutritious foods, as well as the cost to INAC. She further recommends that INAC should undertake a review to assess the effectiveness of the major southern entry points. Val d'or, Happy Valley - Goose Bay, Churchill, and Yellowknife are specifically mentioned. This review should focus on whether the existing points are the most effective in terms of contributing to the overall levels of nutrition in the North. It is recommended that the review extend beyond financial costs and benefits of existing and alternative locations, but also consider the quality, freshness, variety of foods, and delivery times. In response, INAC stated that the department would examine alternatives on a case specific basis where there was evidence that an existing entry point is adversely impacting on the quality or price of nutritious perishable foods. Churchill which serves the Kivalliq Region of Nunavut was selected by INAC for a priority review with cost being the major evaluation factor. Winnipeg was then reviewed and added as an entry point for this region in No other locations have been reviewed and the findings made public. 5-5

109 5.4.3 Food Mail Program Procurement Having Happy Valley - Goose Bay designated as an entry point for the Baffin Region and Nunavik will require Canada Post to award a contract for air transport services in accordance with terms and conditions that commenced between INAC and Canada Post in 1996, and have been amended numerous times since. The current contract to First Air is for up to 65 months and was awarded in late Price (cost of air service) is not the key factor in an air transport services contract being issued by Canada Post for the Food Mail Program. Of a possible 82 evaluation points under the current First Air contract (Solicitation No. TCS 04/95), only 20 points (less than 25%) relate to price. The most important selection factor is the ability of a carrier to provide the service. 13 The solicitation sets out the standards and specifications for ground facilities but is silent as to the required frequency of aircraft use or size of aircraft. Interline transfers (transferring cargo from one carrier to another) are permitted. For Happy Valley - Goose Bay or any other centre participating in the Food Mail Program, air carriers must have access to sufficient facilities to hold a full aircraft load based upon the largest aircraft operating within the respective vicinity. To meet the requirements for shipment preparation and to hold product in case of delayed or cancelled flights, the following are required: One cold room at 0 to 4 degrees Celsius One cold room at 10 to 12 degrees Celsius One freezer at minus 18 degrees Celsius. The current First Air fleet provides a proxy of the space requirements for Happy Valley - Goose Bay. This fleet has the following cargo configuration: L382G Hercules: 5 to 8 pallets B C: 7 Pallets B C / 200F: 11 to 12 pallets. There are surplus buildings and hangers at CFB Goose Bay, and underutilized buildings in the Northside Industrial Park across from the Goose Bay Airport that could adequately meet these volumes in cold storage rooms and freezers. 13 File No. PR , Canadian North Inc. v. Department of Indian Affairs and Northern Development, Canadian International Trade Tribunal Determination and Reasons, February,

110 5.5 Evaluation Of Goose Bay Shortest Air Distance To evaluate the comparative position of Happy Valley - Goose Bay, we return to the 2002 observations of the Auditor General for guidance. The Auditor General stated that shortest air distance, quality and price of nutritious foods, and contributing to the overall level of nutrition in the North are important factors in selecting entry points. In comparison to Montreal, Ottawa and Val D Or, Goose Bay has the shortest air distance to Iqaluit. A direct air link from Goose Bay to Iqaluit is 1,254 kilometres. This link is 72 kilometres shorter than a link via Kuujjuaq and 586 kilometres closer to Iqaluit than Val d Or. Montreal and Ottawa are respectively 807 and 846 kilometres further to Iqaluit than Goose Bay. Exhibit 5.3 Comparative Entry Point Air Distances To Iqaluit Distance From To Km Compared To Goose Bay (Km) YYR Goose Bay YFB Iqaluit 1,254 0 YYR Goose Bay YFB Iqaluit via 1, Kuujjuaq YUL Montreal YFB Iqaluit 2, YOW Ottawa YFB Iqaluit 2, YVO Val d Or VFB Iqaluit 1, Shortest Combined Air and Road Distance The air distance advantage of Happy Valley - Goose Bay is a function of its geographic proximity northeast of Val d Or, Montreal and Ottawa. This air distance advantage is also reflected in longer ground transportation links. Treating Montreal as the key urban centre and hence perishable food supply source, road and air comparisons can be prepared. Val d Or is 520 kilometres north of Montreal (Dorval) while Ottawa is 190 kilometres northeast. These two centres are geographically closer to Montreal than Happy Valley - Goose Bay which is 1,796 kilometres to the northeast. 5-7

111 5.5.3 Provincial Retail Price Comparisons On a total road and air distance basis, Montreal has the advantage over other centres. It is 229 kilometres closer to Iqaluit than Ottawa, 299 kilometres closer than Val d Or and 989 kilometres closer than Happy Valley - Goose Bay (direct) or 1,061 kilometres closer than Happy Valley - Goose Bay via Kuujjuaq. Exhibit 5.4 Comparative Road and Air Distances From Montreal To Iqaluit From Road Air Total (km) Goose Bay 1,796 1,254 3,050 Goose Bay via Kuujjuaq 1,796 1,326 3,122 Montreal 0 2,061 2,061 Ottawa 190 2,100 2,290 Val d Or 520 1,840 2,360 If all perishable items covered by the Food Mail Program were grown, processed or manufactured in the Montreal area, then a compelling argument would exist to have Montreal designated as the only entry point for the Food Mail Program into Nunavik and the Baffin Region. In reality, this is not the case. Nutritious foods sold across Canada and into the Arctic are globally sourced with the retail (consumer) price including fixed and variable costs (labour, building operations, etc.). When these costs are taken into account, a very different price (consumer cost) picture emerges at the retail level. Exhibit 5.5 shows the consumer price index (CPI) of food purchases from stores as defined and calculated by Statistics Canada. These purchases include nutritious foods as covered by the Food Mail Program. In comparison to Quebec in January 2007, food costs are lower in all other provinces except Manitoba and Nova Scotia (both only 1% higher). These data dispel the notion that food costs in Atlantic Canada should be higher because the major entry point for many imports into Eastern and Atlantic Canada is the Windsor - Detroit international border crossing. As the vast majority of food is transported by truck, the cost of ground transportation does not appear to be a major factor in the retail price charged to consumers. 5-8

112 Exhibit 5.5 Consumer Price Index (CPI), Food Purchased From Stores (1992=100) Date & CPI Value 2007 Comparison To Quebec = 100 Geography 2004/ / / /01 Canada Newfoundland and Labrador Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia Whitehorse, Yukon Territory Yellowknife, Northwest Territories Source: Statistics Canada Ground and Air Transport Cost Comparisons To compare the cost of transporting perishable items from different locations, the cargo (general) air freight rates used by First Air for 500 kilograms from Montreal, Ottawa, Val d Or and Kuujjuaq to Iqaluit was used as the benchmark. Excluded in the comparative calculations are the 6.5% NavCanada surcharge and the carrier s 9.5% fuel surcharge. The rate to Iqaluit is: $3.71 per kilogram from both Montreal and Ottawa $3.95 per kilogram from Val d Or $2.65 per kilogram from Kuujjuaq. The current road shipping costs (18-wheeler) to Happy Valley - Goose Bay is $5,000 from Montreal (1,796 kilometres) or $5,500 from the Maritimes (1,827 kilometres from Halifax, Nova Scotia). The travel time from both locations to Happy Valley - Goose Bay is around 21 hours. A typical 18- wheeler can carry 20 to 25 tonnes, or 20,000 to 25,000 kilograms. This load range translates into an average cost of $0.25 to $0.20 per kilogram from Montreal to Happy Valley - Goose Bay. For comparative purposes, the cost of $0.25 was used. 5-9

113 The road distance from Montreal (Dorval) to Val d Or is 520 kilometres or approximately six hours. First Air is charging more from Val D Or to Iqaluit ($3.95 per kilogram for an order of 500 kilogram) than either Montreal or Ottawa ($3.71). This difference means that the total real cost from Val d Or reflects transport costs of $ $3.71 (Montreal rate) of $0.24 per kilogram. Applying this cost to ground transportation (520 kilometres to Montreal) is the same cost to transport 1,796 kilometres from Montreal to Happy Valley - Goose Bay. Based upon these data, the comparative cost of ground to air transport can be calculated. The cost per kilometre to transport from Montreal to Happy Valley - Goose Bay is: $0.25 / 1,796 kilometres = $ per kilometre. The cost (rounded) of transporting a 500 kilogram order from Montreal, Ottawa or Val d Or to Iqaluit is: Montreal: $3.71 / 2,061 kilometres = $ per kilometre Ottawa: $3.71 / 2,100 kilometres = $ per kilometre Val d Or: $3.95 / 1,840 kilometres = $ per kilometre. These comparisons show that air transport to Iqaluit, on a kilometre basis, is around 13 times higher than ground transportation costs from Montreal and Ottawa, and 15 times higher from Val d Or. A cost structure for air freight transport from Happy Valley - Goose Bay to Iqaluit must be estimated because this service does not currently exist. It is reasonable to assume that the cost structure for the Food Mail Program in Happy Valley - Goose Bay will be higher than costs in Montreal or Ottawa because of the comparatively remote location (lower power rates in central Labrador and surplus buildings at CFB Goose Bay may temper the costs). In this regard, it is important to note that the current First Air rate from Kuujjuaq to Iqaluit (631 kilometres) for a 500 kilogram order is: $2.65 / 631 kilometres = $ per kilometre. With these data, three scenarios were prepared for the possible cost of air transport from Happy Valley - Goose Bay to Iqaluit under the Food Mail Program. The low cost scenario has costs per air kilometre that are similar to Val d Or to Iqaluit ($0.002 per kilometre). The high cost scenario would be similar as costs from Kuujjuaq to Iqaluit ($0.004 per kilometre) while the medium cost scenario is between the low and high ones ($0.003 per kilometre). When the comparative ground and air distances are applied to the three scenarios, Exhibit 5.6 shows that Happy Valley - Goose Bay will be a lower 5-10

114 cost provider of the Food Mail Program if the air cost structure from Happy Valley - Goose Bay to Iqaluit is similar to the cost structure from Montreal, Ottawa and Val d Or. If this cost structure trends toward the rates charged from Kuujjuaq, then Happy Valley - Goose Bay is not competitive (medium and high cost air scenarios). If Happy Valley - Goose Bay was designated as a new location for the Food Mail Program going into the Baffin Region and Nunavik, it is reasonable to assume that prices in Val d Or and Montreal (if it is also re-assigned as an entry point) would drop to compete with Goose Bay. It appears that the road transport cost from Montreal to Val d Or can drop by 75% to just $0.18 per kilogram to transport from Montreal to Val d Or. 5-11

115 Exhibit 5.6 Comparative Air and Road Transportation Costs To Iqaluit From Goose Bay Road 1,796 Air 1,254 Total (km) 3,050 Goose Bay via 1,796 1,326 3,122 Kuujjuaq Montreal 0 2,061 2,061 Ottawa 190 2,100 2,290 Val d Or 520 1,840 2,360 Goose Bay Low Cost Air Scenario Goose Bay $0.25 $2.508 $2.758 Goose Bay via $0.25 $2.652 $2.902 Kuujjuaq Montreal 0 $3.71 $3.71 Ottawa 0 $3.71 $3.71 Val d Or $0.24 $3.71 $3.95 Goose Bay Medium Cost Air Scenario Goose Bay $0.25 $3.762 $4.012 Goose Bay via $0.25 $3.978 $4.228 Kuujjuaq Montreal 0 $3.71 $3.71 Ottawa 0 $3.71 $3.71 Val d Or $0.24 $3.71 $3.95 Goose Bay High Cost Air Scenario Goose Bay $0.25 $5.016 $5.266 Goose Bay via $0.25 $5.304 $5.554 Kuujjuaq Montreal 0 $3.71 $3.71 Ottawa 0 $3.71 $3.71 Val d Or $0.24 $3.71 $

116 5.5.5 Volume Transfer To Goose Bay In 2005/2006, 7.37 million kilograms of food and other goods were shipped under the Food Mail Program into Nunavut. The majority of this volume (±75%) is shipped from Val d Or. The program is increasing at an average annual rate of over 7% or doubling every 10 years. Exhibit 5.7 Food Mail Volumes (Kgs) Nunavut Areas Entry Port 2004/ /2006 Eastern (Val d Or) 5,295,005 5,361,929 Central (Churchill) 756, ,832 Western (Yellowknife) 951,008 1,180,032 Total 7,002,574 7,372,793 Source: Canada Post In assessing options for Churchill, INAC stated that the economic impacts of any changes in entry points must consider the impacts on the concerned community and businesses involved in the retail, wholesale and transportation sectors. INAC will also consult stakeholders before making any significant changes in the Food Mail Program. From a government policy perspective, the Food Mail Program does not have regional economic benefits to the entry point community as a key requirement. However, the need to provide timely and quality perishable food to designated northern communities is a core objective. This is currently being carried out by a business model that avoids competition between the major southern entry points. The lack of action on a wider assessment of entry points since the 2002 Auditor General s observations suggests a broad reworking of the program is not a departmental priority. In this context, the question can be posed: Could Happy Valley - Goose Bay be designated as an entry point for Nunavut (Baffin Region) and possibly Nunavik? From a cost perspective, there is no compelling evidence to suggest that Happy Valley - Goose Bay or possible other entry points in Atlantic Canada for the Baffin Region and Nunavik would experience higher costs. Over 91% of funding and 80% of volume of the Food Mail Program is being shipped to Nunavut and Nunavik with the majority from Val d Or. In this setting, an opportunity exists to open up Nunavut and Nunavik to a more 5-13

117 5.5.6 Halifax Combined With Goose Bay Summary competitive environment where more wholesalers can pursue strategies that result in higher value/lower cost items to northerners. This competition can be achieved without negatively impacting upon the historic role of Val d Or because the market demand is rapidly growing. Also, the designation of Happy Valley - Goose Bay will also increase the scope and range of products that can be provided by wholesalers who currently serve the Northern Coast of Labrador with relatively small volumes (less than 500,000 kilograms are forecast for 2007). There are currently 34 approved shippers by Canada Post with four in Happy Valley - Goose Bay (Newfoundland Multi Foods, Labrador Investments, Snelgroves Wholesalers and Hamilton Stores). A challenge faced by Happy Valley - Goose Bay as an expanded entry point is the current absence of regular scheduled 727 or 737 air-combi service into the community. If this new service could be combined with Halifax, then the current schedule out of Halifax (Air Canada Jazz one daily flight with a regional jet and no cargo capacity) could be enhanced with an air-combi service by a carrier like First Air and Canadian North that provided regular scheduled service from Halifax to Goose Bay and onto Iqaluit. While this scenario may appear to go against the interests of wholesalers in Labrador, it could create sufficient cargo volume to create the direct Goose Bay Iqaluit link with a larger airplane that avoids a routing via Kuujjuaq. St. John s could also be considered as an entry point but it has less cargo activity than Halifax and is 1,250 kilometres further from Truro, Nova Scotia where the TransCanada Highways connects with the highway to Halifax. The notion of dual or multiple entry points was recognized as an option in INAC s assessment of Churchill as Thompson and Winnipeg were identified as alternatives for the Kivalliq Region. The opportunities for new air and marine links from Happy Valley - Goose Bay along the trade corridor when combined with an expanded role under the Food Mail Program creates the opportunity for a Made in the North sustainable solution which enhances the ability of northern communities to supply themselves by creating a new gateway through Happy Valley - Goose Bay, one which does not currently exist and which clearly requires initial support from government. If the Government of Nunavut and the Government of Newfoundland and Labrador agree on the creation of a new supply point, this decision will make it easier for Federal Ministers to support an expanded role for Happy Valley - Goose Bay. 5-14

118 6 Recommended Action Plans 6.1 Introduction 6.2 The Business Case The report contains the information and insights that can be used to craft more detailed business plans to implement managed change programs for the. Based upon the findings of this report, it is recommended that the Action Plans presented in this section be implemented or investigated beyond the pre-feasibility stage. The findings of the consultation program reviewed an overall consensus opinion on the preferred future for the North East Trade Corridor. In five to 10 years, the preferred vision would include the following elements: Regular scheduled air service between Goose Bay and Iqaluit which may include an air-combi service that includes a Halifax Goose Bay Iqaluit routing, or possibly a St. John s Goose Bay Iqaluit routing. Regular scheduled air service between Iqaluit, Nuuk and Kangerlussuaq (a new triangle route). More competition in the entry points to the Food Mail Program for the Baffin Region and Nunavik with Goose Bay designated as an alternative to Val d Or. A short sea marine service from Goose Bay via Northern Coastal Labrador to Iqaluit, as ancillary to the current sealift from Montreal, for cargo and passengers (residents and tourists). Increased expedition/adventure cruise activity that could possibly evolve into a Norwegian style passenger/cargo/cruise operation that is combined with a short sea service from Goose Bay to communities in Northern Coastal Labrador and onto Iqaluit. Marine service from Goose Bay to Greenland and points beyond that capitalizes upon resource development in Labrador (including exporting of forest products) and the completion of the Trans Labrador Highway in All of these elements of the preferred future will involve investments by the private sector. The consultation program determined that there is no appetite by government to implement a corridor strategy that is dependent upon regular government subsidies or limits the ability of Iqaluit to function as a more diversified and self reliant urban centre. However, if start up assistance 6-1

119 is required, then the preference by the Home Rule Government in Greenland, the Government of Nunavut and the Government of Newfoundland and Labrador are to equitably share public expenditures. Achieving these elements of the preferred future must focus on new services that encourage competition with the resulting benefits of lower prices and increased quality and capacity building in the Baffin Region. A key finding of the study is the use of larger vessels on the current sealift from Montreal is the least expensive method of round trip shipping to Iqaluit. As such, no major changes are recommended in this service, but rather a short sea service from Goose Bay (more frequency and the resulting higher costs) should be positioned as ancillary to the sealift. There are barriers that need to be addressed to allow operators to move forward with new investments and expanded services. These barriers include excessively high landing fees at Nuuk and Kangerlussuaq, the absence of formal agreements to facilitate new services, and no formal process for Happy Valley - Goose Bay to become an expanded entry point for the Food Mail Program. The demand for transportation services has increased in the 6% to 8% compound annual rate in recent years. We consider this rate of growth to be a reasonable indicator of future conditions with a realistic possibility of annualized growth in the 10% range if major resource projects proceed to the development and operational stage. In addition, it is reasonable to assume that demand on an Iqaluit Greenland triangle regular scheduled air service could be double or triple the current levels. The result would be passenger volumes that reflect conditions in 1999 and 2000 prior to the cancellation of previous service by Fist Air and Air Greenland. Five Action Plans are recommended. Each Action Plans contains information on: Objective(s) Responsibilities Priorities (Short, Medium or Long Term) Deliverables/Outputs Budget Estimates Funding Sources. A risk assessment is also included for each Action Plan to identify the risk exposure. 6-2

120 6.3 Recommended Action Plan Expand The Role of Goose Bay Food Mail Program Objective: The purpose of this action plan is to have Goose Bay designated as an alternative entry point to the Food Mail Program for the Baffin Region and Nunavik. Responsibilities: The Food Mail Program is managed by INAC and administered by Canada Post. The responsibility for this entry point designation rests with these Federal entities. Priorities: The opportunity for the designation of Happy Valley - Goose Bay is a high priority for commercial interests in Labrador and air carriers. The priority of such an expanded role for Happy Valley - Goose Bay within the Federal Government is unknown. However, the lack of response to the Auditor General s 2002 investigation into the exclusive designation of Val d Or suggests that alternatives to this entry point are not a priority. Deliverables/Outputs: The role of commercial interests in Labrador and beneficiaries in the Baffin Region and Nunavik is to seek a change in government policy and operating procedures under the Food Mail Program. In this setting, the ultimate responsibility rests with the Federal Government. To influence policy, a possible strategy could have the Government of Nunavut and the Government of Newfoundland and Labrador formally request that Goose Bay be given an expanded designation to its current position as the entry point for Coastal Labrador. This request should be backed up with strong local business and resident support (formal and informal) and examined in context with any other potential locations. Budget Estimates: The cost of these initiatives would involve commercial interests in Happy Valley - Goose Bay and receptive retailers and residents in the Baffin Region making their case. A budget estimate of $25,000 should be allocated to facilitate these efforts. Funding Sources: These efforts will be self financed. Risk: Based upon past experiences with efforts to add new entry points for the Baffin Region and Nunavik, this Action Plan is high risk with an unknown level of success. The addition of Halifax (and St. John s) as complementary entry points to Happy Valley - Goose Bay may strengthen the business case to expand the number of entry points in Eastern and Atlantic Canada. 6-3

121 6.3.2 Introduce A Short Sea Service From Goose Bay (Via Northern Coastal Labrador) To Iqaluit Objective: The intent of this Action Plan is to develop a short sea service from Happy Valley - Goose Bay along Northern Coastal Labrador and into Iqaluit that will function as an ancillary service to the sealift out of Montreal. The service will strengthen the role of Happy Valley - Goose Bay as a strategic transportation entry point into the Baffin Region. The service will focus on general cargo, vehicles and passengers (residents and tourists). It will function as an extension of the Trans Labrador Highway that will be completed in 2009 and will allow goods, services and passengers to move from any southern area to Iqaluit as an extension of the North American highway system. Responsibilities: The service represents an extension of the current coastal service in Northern Coastal Labrador that is operated on a short-term contract by a private operator (Woodward Group of Companies) for the Government of Newfoundland and Labrador. The policy framework for the Action Plan will require the Government of Newfoundland and Labrador to allow this service to operate beyond Nain. A private operator will then have to negotiate a long-term contract for the service and secure a vessel that is estimated to cost in the range of $30 million. Priorities: This is a medium term opportunity that is dependent upon a formal agreement between the concerned governments and an operator. The success of this Action Plan will be dependent upon a business plan that shows the service is viable without subsidies into Nunavut. A vessel that can be re-configured for a changing mix of cargo, containers, vehicles and passengers (residents and visitors) is required. Deliverables/Outputs: This Action Plan is intended to have a new vessel operate out of Happy Valley - Goose Bay on a regular schedule during the navigation season. Budget Estimates: The estimated cost of the vessel is $30 million. Related port upgrades in Happy Valley - Goose Bay will be dependent upon the type of vessel while the construction of port facilities in Iqaluit is preferred. Port infrastructure upgrades are an existing priority of the Government of Nunavut and require federal government support. The current port facilities in Happy Valley - Goose Bay may be adequate for this service. The feasibility and business planning costs of the project should average in the 5% range of capital costs or $1.5 million. Funding Sources: Federal: Provincial/Territorial infrastructure programs will be required for marine terminal-related works. The vessel would be financed with private debt and equity. 6-4

122 Risk: The key risk exposure in this action plan is the cost of a new vessel versus market conditions Expand International Marine Exports From Goose Bay to Greenland and Beyond Objective: This Action Plan will build upon improved transportation links into Happy Valley - Goose Bay when the Trans Labrador Highway is completed in 2009 and untapped opportunities to export natural resources (including forestry products) into Greenland and points beyond in Northern Europe. There is an established marine service along the East Coast of North America by Iceland-based Eimskip that extends from Richmond, Virginia through Halifax to Argentia and Reykjavik, Iceland. At Reykjavik, this service links up with a range of services to North Europe and Scandinavia. In the summer, this service calls at St. Anthony and Greenland. Responsibilities: The responsibility rests with business interests in Labrador and the Province of Newfoundland and Labrador to craft a solid business case to secure regular or charter service (export only under Canadian cabotage regulations). Priorities: This action plan is a high priority opportunity because it can tie into an established service. Deliverables/Outputs: A detailed market feasibility study should be completed as the foundation of any other initiatives. Once this work is completed, business interests in Labrador and the Provincial Government should facilitate the matching of shippers with a marine service operator. Iceland-based Eimskip is the current operator of the service passing via Newfoundland to Greenland and Iceland, and this operator would be the preferred starting point of discussions. Budget Estimates: A budget estimate of $150,000 is proposed for the detailed market study and negotiations. Funding Sources: Community economic development and export market funding sources are available from senior levels of government. Risk: This action plan is low risk and has the potential to open up new markets for Labrador resources. 6-5

123 6.3.4 Introduce Regular Scheduled Air Service From Iqaluit to Greenland Objective: The purpose of this action plan is to reintroduce regular scheduled air service between Iqaluit and Nuuk and Kangerlussuaq in Greenland. The result will be a triangle route that links into the major commercial centre at Nuuk and the gateway airport at Kangerlussuaq. Responsibilities: The responsibility for this Action Plan ultimately rests with commercial carriers. Air Greenland could be viewed as the preferred carrier as it is the incumbent carrier and has infrastructure and ground support services in Greenland. Priorities: This action plan is a high priority as it will meet both latent (untapped) and growing demand. Deliverables/Outputs: The research contained in this report will be treated as a pre-feasibility study by interested carriers. The role of the Baffin Regional Chamber of Commerce is to present the findings to carriers (including First Air, Canadian North, PAL and Air Greenland) and seek to obtain commitments from potential users of the service (Home Rule Government, Government of Nunavut, Canada, key commercial operators in Greenland, Aboriginal organizations, mine operations in Greenland, fishing fleet owners, exploration companies and tourism operations). The Baffin Regional Chamber of Commerce should also lobby the Greenland Government to consider a review of airport fee structures. A media program should be initiated in Iqaluit and Nuuk to inform Aboriginal organizations, the business community and government of the key benefits of a renewed air link. Budget Estimates: A budget of $50,000 is suggested for the media and information exchange phase of the new service. Other costs will be the responsibility of carriers. A joint tourism and business travel marketing program can also be pursued with the selected carrier, the Home Rule Government, and the Government of Nunavut. Funding Sources: Export market and tourism funding sources are available from senior levels of government for media and information exchange activities. Risk: This Action Plan will need strong diplomatic support from the Government of Nunavut and the Home Rule Government to ensure that any air service obstacles can be overcome. There is no doubt that a new real opportunity exists to re-establish important links for the Inuit of both Greenland and Nunavut. One of the obstacles is the high cost of landing at Nuuk and Kangerlussuaq that should be addressed with the Home Rule Government and the Board of Directors of Air Greenland. 6-6

124 6.3.5 Introduce Regular Scheduled Air Service From Goose Bay to Iqaluit Objective: This action plan will result in regular scheduled air service from Goose Bay to Iqaluit. Research by IATA for this study indicates that an initial link should include Kuujjuaq. Responsibilities: The responsibility for this Action Plan ultimately rests with commercial carriers. PAL (Innu Mikun), Air Inuit, Air Labrador, First Air and Canadian North are carriers that should be approached by both chambers, the Goose Bay Airport Corporation and the Government of Nunavut (operator of Iqaluit International Airport). Priorities: This Action Plan is a high priority as it will meet demand for a more direct link between the Baffin Region, Newfoundland and Labrador and the Maritimes. Deliverables/Outputs: The research in this report represents a pre-feasibility study for potential carriers. The Labrador North Chamber of Commerce and the Baffin Regional Chamber of Commerce should formally present the findings to the carriers listed above and seek to obtain commitments from potential users of the service (major contractors in Nunavut, Government of Nunavut, Canada, Government of Newfoundland and Labrador, Aboriginal organizations, mining and exploration companies, fishing fleet owners and tourism operations). A media program should also be initiated in Happy Valley - Goose Bay, St. John s and Iqaluit to inform Aboriginal organizations, the business community and government of the key benefits of a renewed air link. Budget Estimates: A budget of $30,000 is proposed for media and information exchange activities to increase awareness of the opportunity. Other costs will be the responsibility of interested carriers. A joint tourism and business travel marketing program can also be pursued (including Destination Labrador) and others with the selected carrier, the Government of Newfoundland and Labrador and the Government of Nunavut. Funding Sources: Business-to-business, cultural exchange and tourism funding sources are available from senior levels of government for media and information exchange activities. Risk: The risk for this action plan rests with the carriers. Because of experiences with the failed Air Labrador service, potential users of a new service may take a cautious posture in the initial start-up phase. This means that a long-term commitment is required to the new service with a focus on quality and customer service. 6-7

125 6.4 Barriers To Overcome There are institutional and regulatory barriers that should be addressed to facilitate ease of Action Plan implementation. The recommended initiatives to address the barriers are listed below. 1. The Labrador North Chamber of Commerce and the Baffin Regional Chamber of Commerce should seek to facilitate a formal agreement between the Government of Newfoundland and Labrador, and the Government of Nunavut to allow the extension of the Northern Labrador Coastal Marine Service into Iqaluit, and to designate Happy Valley - Goose Bay as an alternative entry point for the Food Mail Program for the Baffin Region and Nunavik. Both Governments should then approach the Federal Government to have Happy Valley - Goose Bay added as an alternative entry point to Val d Or. 2. The Labrador North Chamber of Commerce and the Baffin Regional Chamber of Commerce should work with the Government of Nunavut and the Government of Newfoundland and Labrador to set up protocols with the Home Rule Government of Greenland for the international air links to Greenland. A key barrier is hours of operation and costs at the airports at Nuuk and Kangerlussuaq. A formal approach should be made to the Home Rule Government and the Board of Directors of Air Greenland to address this cost issue. 6-8

126 Appendix A Terms of Reference A

127 P.O. Box 460, Station B Happy Valley-Goose Bay, NL A0P 1E0 Tel: Fax: execdirector@chamberlabrador.com BAFFIN REGIONAL CHAMBER OF COMMERCE PO BOX 59, IQALUIT NU X0A 0H0 TEL: (867) FAX: (867) BRCC@NUNANET.COM WEBSITE: REQUEST FOR PROPOSALS: NORTH EASTERN TRADE CORRIDORS TRANSPORTATION STUDY NOVEMBER 17, 2006