DOOM ALERT: Crisis at the Port of Vancouver

All rail service coming to and from the Port of Vancouver is halted because of flooding in the British Columbia interior.” – Matti Polychronis, port spokesperson

After an unusually dry summer, British Columbia was hit by a deluge of rain in the past week. Main highway and rail arteries were damaged by severe flooding and massive landslides. Tragically, at least one person as died as a result. Critically, access to the Port of Vancouver has been cut off and operations have been seriously curtailed:

Flooding and landslides have cut off Canada’s largest port, Vancouver, from all rail services with port officials warning that there will be a significant knock-on effect for the country’s supply chain.

Significant sections of rail lines serving the Port of Vancouver were shut down by flooding and landslides following rain storms that pounded British Columbia and the Pacific Northwest.

Port officials warned yesterday (November 16) that the crisis would result in vessel delays and disruption to terminal operations.

The depth of the crisis will be determined by how quickly Canadian National Railway and Canadian Pacific Railway can repair the damage. Both have been largely quiet on the issue. The floods have shut down the movement of wheat and canola at a critical, post-harvest time. Given pre-existing inflationary pressures in the food industry, the world was counting on these exports. Imports, too, have ground to a halt, and cargo ships are stacking up offshore. The crisis comes at a time when the Port of Vancouver was already handling record amounts of cargo.

To assuage panic, we expect officials to downplay the seriousness of the crisis as they begin the process of damage assessment and repair. Since we are in the panic business, we are instead watching the actions of key players for clues. Teck Resources – a company we’ve profiled before – is a major producer of coking coal. Its coal operations are in the Elk Valley of British Columbia and all its production is railed to Vancouver for export overseas, primarily to Asia.

Teck is also extremely transparent with investors, sometimes to a fault. Sure enough, Teck was out with a detailed statement to the press yesterday (emphasis added):

VANCOUVER, British Columbia, Nov. 16, 2021 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today reported that its logistics chain between west coast terminals and B.C. operations has been temporarily disrupted due to heavy rain, flooding and mudslides.

Teck has implemented measures to mitigate the effect of the disruption, diverting some trains to Ridley Terminals in Prince Rupert. CP and CN have begun repairs but do not currently have estimated return to service dates.

The overall impact and any potential effect on Q4 sales will be dependent on the duration of the logistics chain disruption.

Production at our operations has not been impacted at this time. Teck is focused on protecting the health and safety of employees and contractors and we are continuing to closely monitor the situation.”

If the port can be reopened within days, we do not expect Teck to curtail its operations. However, if the crisis is more severe (as we suspect), look for Teck to halt mining in the Elk Valley. There’s only so much capacity for inventory in its logistical network, but with coking coal prices near historic highs, Teck will be loath to stop production. If it does, the company will be quick to inform investors, and this will signal a substantial crisis is developing. Keep a close eye on coking coal price benchmarks in Australia and China, as well – a prolonged halt of exports from Canada will be quite disruptive to markets.

We will continue to monitor this story and post updates on Twitter. Follow us @DoombergT for more.

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