11

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Marine Transportation Industry

Canada's marine industry includes a fleet of Canadian flag operators providing domestic and transborder shipping services. International trade is served largely by foreign flag operators calling at Canada's major ports. In recent years, there have been major policy reforms in the marine sector, and 1999 was no exception. The year was marked by a number of important events, as well as progress on some significant legislative changes.

Major Marine Events in 1999

Legislative and Regulatory Changes and Initiatives

Amendment to the Canada Shipping Act (Bill S-4), 1998

Bill S-4, An Act to amend the Canada Shipping Act, was implemented in Chapter 6 of the Statutes of Canada 1998. Provisions of Bill S-4, which relate to claims for oil pollution damage, were brought into force by an Order-in-Council on May 29, 1999. This was 12 months from the date on which Canada deposited with the International Maritime Organization its instrument of accession to the 1992 Protocols to the 1969 International Convention on Civil Liability for Oil Pollution Damage, and to the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage.

Review of the Carriage of Goods By Water Act (COGWA)

On December 10, 1999, pursuant to a legal requirement contained in the Carriage of Goods by Water Act (1993), the Minister of Transport submitted a Report to Parliament on the review of the Act. The report concluded, based on consultations with industry and provinces, that the Hague/Visby Rules should be retained in the COGWA until the end of the next review period (January 1, 2005).

Shipping Conferences Exemption Act, 1987 (SCEA)

During 1999, Transport Canada initiated consultations with stakeholders on the Shipping Conferences Exemption Act, 1987 (SCEA) to determine whether the legislation continues to support Canada's goals of promoting international trade and ensuring Canadian shippers have access to adequate international ocean shipping services at reasonable cost.

SCEA exempts certain practices of shipping conferences from the provisions of the Competition Act. A shipping conference is an association of liner companies operating under an agreement to provide service on common routes based upon agreed rates and terms of service. Under SCEA, shipping conferences can set ocean freight rates and services collectively, provided that the rates are published in a tariff filed with the Canadian Transportation Agency (CTA) and their conference agreement has been similarly filed.

To promote intra-conference competition and provide shippers with additional options, including pricing options, the Act incorporates provisions for confidential "service contracts" and independent action by individual conference members. The legislation is consistent with that of Canada's major trading partners.

The Act also provides for the Minister of Transport to designate a shippers group to represent the interests of shippers. The Canadian Shippers' Council (CSC) has been so designated. Under the Act, shipping conferences are required to meet with the designated shippers group when requested to do so and are to provide information for the satisfactory conduct of a meeting. It is normal practice that the CSC meet with tariff filing conferences to discuss the conferences' proposed business plans, as well as their rates, surcharges and ancillary charges.

Canada Marine Act: Implementation Status

The Canada Marine Act (CMA), which received Royal Assent on June 11, 1998, created a National Ports System made up of independently managed Canada Port Authorities (CPAs). To date, 17 of the 18 ports designated to become CPAs have received their CPA status and have established boards of directors. The implementation dates were presented in Chapter 10, Transportation Infrastructure.

A CPA for the Port of Hamilton, the last remaining designated CPA, will be established when the letters patent process is completed. In addition to these original 18 ports, applications for CPA status from two other ports, Belledune and Oshawa were received. Letters patent are under development for the Ports of Belledune and Oshawa.

The Canada Ports Corporation (CPC) has been kept open during the implementation phase of the National Ports System to ensure that all ports have been either transferred to CPA status or divested to local interests. Ridley Terminals, for its part, will become a parent Crown corporation reporting to the Minister of Transport, upon the winding up of the CPC. Over the longer term, the government intends to divest itself of Ridley Terminals when the time is appropriate.

The sections of the Canada Marine Act dealing with pilotage and the commercialization of the St. Lawrence Seaway came into force during 1998. For more details, see Chapter 10, Transportation Infrastructure.

Ports Task Force

On June 22, 1999, the Minister of Transport announced the formation of a Ports Task Force to move forward with Justice Willard Estey's vision for a more commercially oriented, contract-based grain handling and transportation system. Headed by the Deputy Minister of Transport, the Task Force studied issues of strategic importance to the ports of Churchill, Prince Rupert, Vancouver and Thunder Bay, as well as to other stakeholders with marine interests affected by the transportation and handling of grain.

The Task Force ran parallel with, and complemented, the work of Mr. Arthur Kroeger, who was appointed by the Minister of Transport to seek consensus among system participants on the changes necessary to implement the grain transportation reform framework set out by Justice Estey.

During cross-Canada meetings, stakeholders consistently stressed the importance of retaining market discipline and commercial principles in addressing port grain transportation and handling issues. In general, they were reluctant to consider quotas, traffic commitments, or measures that could distort the commercial basis of grain movement. On the other hand, confronted with low international commodity prices, many insisted on containing the various costs of doing business, including the cost of federal marine services.

The Ports Task Force Report summarizes the positions of major stakeholders and presents key findings on the issues raised. It was provided to the Minister of Transport in late September 1999 and is now publicly available.

Industry Events

International

There were a number of important events in the international marine sector in 1999.

• Three container lines (Zim, the China Ocean Shipping Company and Norasia) made Vancouver their first port of call inbound from the Far East. CN and CP Rail provide dedicated double-stack rail services to move containers to inland destinations in Canada and the US.
• The Port of Vancouver was hit by two work stoppages -- a truckers' strike in the summer and a lockout of longshoremen in November. Despite this, the port announced in early December that it would still handle a record one million TEUs (Twenty-foot Equivalent Units) in 1999.
• There was a surge of new entrants into the transpacific liner trades, reflecting improved rates and traffic levels. These included such lines as: Norasia, FESCO, the Mediterranean Shipping Company, Trans-Pacific Line, Great Western Steamship Company and CMA/CGM. In addition, two other lines, Zim and Evergreen, each added a new string of vessels to their existing services.
• The US Ocean Shipping Reform Act of 1998 came into force on May 1, 1999. It grants the right of confidential contracting between individual conference lines and shippers.
• Transpacific Westbound Rate agreement (TWRA) and Asia North America Eastbound Rate Agreement (ANERA) -- the main shipping conferences on the US transpacific routes -- were dissolved in the spring of 1999, partly in reaction to the new US ocean shipping reform legislation. The Canada Westbound Rate Agreement was also dissolved at this time.
• Maersk Inc. and Sea-Land Services Inc. announced their decision to stay with New York/New Jersey as their main load centre port on the east coast of North America. The ports of Halifax and Baltimore were runners up in the competition.
• Following Sea-Land's departure from the joint service in April 1999, NYK (Nippon Yusen Kaisha) announced that it would join the joint service offered by Maersk and P&O Nedlloyd Ltd. between Montreal and Europe.
• The Wallenius and Wilhelmsen lines announced the formation of a joint operating company to handle their car-carrying and Ro-Ro shipping activities.
• Maersk acquired the international liner services of Sea-Land, its current operating partner in worldwide liner operations.

Domestic

• Algoma Central Corporation increased the size of its tanker fleet with the purchase of the main operating companies and certain assets of the EnerChem Group, including three Canadian-registered tankers.
• Canada Steamship Lines took delivery of the CSL Niagara, the first vessel to receive a new forebody in a planned series of three. The hull replacement program is expected to cost about $100 million.
• Groupe Desgagnés registered a new oil tanker, constructed in China, under the Canadian flag. This is the first brand new ship to be added to the eastern Canadian bulk fleet since the mid-1980s.

Marine Freight Transport Services

Domestic Services

From 1979 to 1999, the Canadian merchant fleet (defined here as self-propelled vessels of 1000 gross tons and over) went from 3.3 million to 2.6 million deadweight tonnes, losing on average one per cent of its carrying capacity each year. In terms of vessels, the number of ships decreased from 260 to 174 over the period.

In terms of carrying capacity (deadweight), the peak was reached in 1984 with 3.7 million deadweight tonnes and the low in 1997 at 2.4 million tonnes. Figure 11-7 shows the evolution of the Canadian registered fleet from 1979 to 1999.

From 1979 to 1999, dry bulk carriers have formed the backbone of the Canadian merchant fleet, although their share of total deadweight tonnage went from 84 to 74 per cent over the period. Their number decreased from 134 to 72 units over the period. At the opposite, tankers' share of total deadweight tonnage moved from 9 to 19 per cent, although their number diminished from 36 to 21 vessels.

Table 11-9 reveals the transport capacity of the Canadian registered fleet, by type of vessel.

Eastern Canada

Table 11-10 provides information on vessel type, gross registered tonnage (GRT), area of operation and type of service for companies operating Canadian-flag cargo vessels of 1,000 GRT or above in eastern Canada. Algoma Central Corporation, Upper Lakes Group and Canada Steamship Lines are the three largest operators in the area. Algoma Central, with 28 per cent of eastern Canada's fleet capacity, is the largest inland shipping company in Canada.

Traditionally, Algoma Central operated in the dry bulk trades. In 1998, however, it bought five tankers from Imperial Oil Ltd., the Canadian subsidiary of Exxon Corp. In January 1999, Algoma Central increased the size of its tanker fleet with the purchase of the main operating companies and certain assets of the EnerChem Group, including three Canadian registered tankers. The sale included a part interest in two US-flag tankers as well.

Western Canada

Domestic marine freight services on the West Coast are provided by a large fleet of tugs and barges. (Unfortunately, there is no fleet list available by company that provides GRT for tugs and barges.) While most of the operators concentrate on domestic trade, some also trade internationally between Canadian and US ports. The West Coast also has a significant fleet of ferry vessels that provide links to coastal and island communities.

Three of the top tug and barge companies are owned by Montana businessman Dennis Washington -- Seaspan International Ltd., C.H. Cates & Sons Ltd. and Kingcome Navigation Company (formerly owned by MacMillan Bloedel). Seaspan International Ltd. is the largest Canadian tug and barge operator on the West Coast. Along with tug and barge transportation, Seaspan's main areas of business include log barging and ship docking.

Northern Canada

Northern Transportation Company Limited (NTCL) is the major marine operator in northern Canada, an area that encompasses the Mackenzie River Watershed and the Arctic coast and islands. It handles bulk petroleum products and dry cargo for communities, defence installations and gas exploration sites across the region. Its operations cover the Mackenzie River, the Western Arctic, Alaska and Great Slave Lake.

Since 1975, the company has also provided tug and barge operations from the Port of Churchill to service communities in what is now the Kivalliq region of Nunavut. Most recently, NTCL has added tug and barge services to the Eastern Arctic via Valleyfield. (Historically, most cargo to the Eastern Arctic moved from Montreal on freighters as part of the Eastern Arctic sealift administered by the Canadian Coast Guard.)

NTCL is a member of the NorTerra group of companies, a holding company wholly owned by Aboriginals. NorTerra Inc. is managed and owned equally by Inuvialuit Development Corporation, representing the Inuvialuit of the Western Arctic, and Nunasi Corporation, representing the Inuit of Nunavut.

According to Lloyd's List of Shipowners, Managers, and Managing Agents, 1999-2000, NTCL owns 87 vessels, including 71 barges (mainly tank barges that carry dry cargo on their decks) and 16 tugs, with a total fleet capacity of 71,449 GRT (Lloyd's does not include vessels under 100 GRT). NTCL's tugs were constructed between 1943 and 1973, and its barges between 1969 and 1975.

Other long-term operators in the Western Arctic include A. Frame Contracting Ltd. and Cooper Barging Service Ltd. The former operates a tug and several barges, and provides seasonal barge service to communities on Lake Athabasca. The latter operates a fleet of three tugs and six barges and provides resupply services on the Mackenzie and Liard Rivers from its base at Fort Simpson.

The Canadian Coast Guard has been managing the Arctic Sealift Program to re-supply coastal communities in the Eastern Arctic (Nunavut) since 1959. Operated on a cost-recovery basis, the service co-ordinates the delivery of cargoes for federal departments, the territorial government, the United States Air Force, municipalities, and private businesses and citizens. The Coast Guard contracts with commercial cargo vessels and tankers to transport dry cargo from its main marshalling base in Montreal, as well as bulk fuel from northern distribution points. Goods are moved out of Montreal during the ice-free summer period to communities in the Eastern Arctic (Nunavut). Coast Guard personnel hire space on ships, act as booking agents, negotiate the lowest possible freight rates with carriers, and monitor the movement of cargo until it is discharged at its destination. The Sealift Program serves 26 communities encompassing Foxe Basin, the High Arctic and South and East Baffin Island. Each year, the program co-ordinates the movement of approximately 10,000 tons of cargo.

International Services

Bulk Shipping

Bulk shipping refers to the sector of the marine freight industry that, in general, carries single cargoes in large volume ships. Canadian shippers of bulk commodities such as grain, coal, iron ore and potash rely on bulk shipping operators for the movement of their cargo.

Bulk freight rates are normally set in the highly competitive global open market. In general, the market is made up of time charters (term contracts) and the "spot" market. The terms of charter contracts typically range from one to five years, depending on the volatility of prices. Longer contracts are common during periods of greater predictability in transportation rates, while shorter contracts usually prevail when prices are unstable. The majority of Canada's exports and imports are moved under these types of marine service arrangements.

The "spot" or "tramp" market is made up of short-term contracts covering a specific number of voyages, days or given quantity of cargo. Spot prices are set in open markets and exchanges. Prices depend on supply and demand factors such as vessel size, equipment, trade route and timeliness of the service requirement.

Liner Shipping

Liner services are offered according to published schedules and on specific trade routes with fixed itineraries. In general, liner carriers handle containerized and/or break-bulk cargoes, such as electronics, manufactured goods or frozen produce.

The international liner trade is dominated by large fleets of specialized container vessels operating on major trade routes around the world and is controlled to a large degree by Pacific Rim and Western European interests. While Canada controls a significant fleet, it is still relatively small. Over the past few years, however, the Canadian presence has been increasing through the acquisition of other foreign lines. (The vessels in the Canadian-controlled international fleet operate under lower cost foreign flags.)

Shipping lines calling at Canadian ports may choose to provide conference or non-conference liner services. Ocean carriers providing liner services on a common trade route often elect to form a shipping conference and collectively agree on rates and/or conditions of service. Under a conference agreement, carriers are exempt from certain practices stipulated in the provisions of the Competition Act. They are entitled to this exemption, however, only if the conference has complied with the Shipping Conferences Exemption Act, 1987 (SCEA).

Non-conference lines, also referred to as "independents," are not subject to SCEA and therefore not required to file agreements or tariffs. They generally offer rates and services that are comparable with conference operators and contribute to a competitive international shipping industry.

Global traffic in containerized cargoes has expanded rapidly over the past decade, rising from approximately 80 million to 150 million containers (TEUs).Note 7 Much of the gain has been associated with expansion of markets and industrial output of the Asia-Pacific region. When measured in constant dollars, freight rates for ocean container shipping either remained steady or have declined during the last decade.Note 8

Services Available to Canadian Shippers

At the end of 1999, the Canadian Transportation Agency had 16 shipping conference agreements on file. Thirteen of these conferences file a tariff with the agency, down from 19 conferences in 1998. The majority operate from eastern Canada to Northern Europe and the Mediterranean. Among the major lines serving Canada as conference members are Atlantic Container Line, Canada Maritime Ltd., Hapag-Lloyd Container Line, P&O Nedlloyd Ltd., Mitsui O.S.K. Lines and the Orient Overseas Container Line.

Table 11-11 lists the 13 tariff-filing conferences serving Canada in 1999. Eleven serve the east coast and six serve the west coast. Six conferences serving the Canadian trades dissolved during 1999, most notably the Canada Westbound Rate Agreement (CWRA). The US Ocean Shipping Reform Act of 1998, which came into effect on May 1, 1999, appears to have influenced the decision by several conferences to withdraw from the North American trades. The CWRA's successor on the route -- the Canada Westbound Transpacific Stabilization Agreement -- is not a tariff-filing conference and therefore not included in Table 11-11.

Shippers benefit not only from competition between conference and non-conference carriers, but also from competition within conferences through the independent action provision in the Shipping Conferences Exemption Act, 1987. The provision permits individual conference lines to offer a rate, or services, different from that which is published as part of the conference tariff. In addition, shipping conference rates paid by shippers can be negotiated and signed as a confidential "service contract" between a conference and a shipper. To comply with the Act, service contracts must be filed with the Canadian Transportation Agency.

In 1999, the agency accepted filings for 95 service contracts from seven conferences, down significantly from the 146 service contracts filed in 1998. The contracts applied to both inbound and outbound traffic and to origins/destinations on both the east and west coasts of Canada. The majority, however, applied to the east coast. The average duration of the contracts was one year.

Marine Passenger Transport Services

Ferry Services

Canada's ferry services vary widely in terms of ownership, vessel type and operation. Owners range from small private operators to provincial governments and federal Crown corporations. Vessel types range from small cable ferries to large cruise-type vessels and fast ferries. In addition, some ferries operate seasonally, while others run year-round. Terminal and docking facilities are also variously owned, leased and operated by ferry companies, municipalities, provincial and federal governments, or other private companies.

All major ferry operators in Canada belong to the Canadian Ferry Operators Association (CFOA). As a group, these operators employ approximately 7,650 persons.

Federal Subsidies to Ferry Operations

The 1995 National Marine Policy set out the federal government's goal to make the marine sector more commercially oriented. This initiative is consistent with the government's objective to make Canada's transportation system as a whole more responsive to future commercial challenges by reducing its involvement in the direct delivery of transportation services and allowing the private sector to provide some of them. As such, the government has been considering various ways to cut costs and improve efficiency through new vessel management and procurement practices, commercial operation of vessels, and the streamlining of ferry services.

For example, several of Marine Atlantic's ferry services were commercialized through arrangements with provincial governments or the private sector. Additionally, on June 1, 1997, Marine Atlantic's service between Borden, Prince Edward Island, and Cape Tormentine, New Brunswick, ended with the opening of the Confederation Bridge. The corporation, which will continue to provide the constitutionally guaranteed ferry services between Nova Scotia and Newfoundland, will see its subsidy level drop from $122 million in 1993, to an estimated $28.6 million in 1999.

Federally supported ferry services in Atlantic Canada are now limited to those provided by Marine Atlantic, a federal Crown corporation, and by three private-sector operators: Northumberland Ferries Limited, Bay Ferries Limited and C.T.M.A. Traversier Ltée. The federal government will also continue to provide an annual subsidy to the Province of British Columbia for ferry services in that province.

Cruise Ship Industry

Canada's cruise ship industry continued to grow and diversify in 1999. The Alaskan luxury cruise market, using Vancouver as a base port, continued its upward trend, as did the Canada/New England market. Local Canadian operators also offer a multitude of lock, harbour and river cruises, as well as excursions such as those for whale watching. There is even a stern-wheeler offering daily cruises out of New Westminster, British Columbia, on the Fraser River.

In March 1999, amendments to Canada's Criminal Code came into effect, easing restrictions on casino gambling aboard cruise ships. International cruise lines are now able to operate their on-board casinos until they are five nautical miles from a Canadian port of call. Previously, vessels had to close casinos as soon as they reached Canadian territorial waters.

Foreign-based companies dominate extended cruise operations calling at Canada's east and west coast ports. There are two basic categories of extended cruises: the luxury cruise, with a vessel capacity of over 150 passengers; and the pocket cruise, having fewer than 150 passengers.

After the Caribbean and Europe, Alaska is the third largest cruise market in the world. Most luxury cruise vessels sailing to Alaska use the Port of Vancouver as their home port (where passengers embark and/or disembark). The US Passenger Vessel Act prohibits foreign-flag vessels from carrying passengers between US ports (i.e. embarking passengers at one US port and disembarking them at another). Trips between Vancouver and Alaska also fit conveniently into a seven-day time frame.

In eastern Canada, luxury cruise ships regularly travel along the eastern seaboard and up the St. Lawrence River to Quebec City and Montreal. They also sail out of New York to Halifax, Saint John and other Atlantic ports. While many of these cruises have traditionally travelled during the fall colour season, summer visits are also becoming popular. Pocket cruises travel the St. Lawrence River between Montreal or Quebec City, and Kingston or Rochester.

The Atlantic Canada Cruise Association forecast a total economic impact of $18.9 million in 1999, for the 19 ports in the four Atlantic Provinces, up from $13.6 million in 1998. In recognition of the increased vessel calls, the Halifax Port Authority opened a dedicated cruise facility in early September, and St. John's, Newfoundland, widened the entrance to its harbour to accommodate larger vessels. Improvements at other ports are also being planned.

On the Great Lakes, the luxury cruise ship Columbus, which first visited in 1997, has been joined by the French-owned Le Levant and Cunard-Seabourn's Seabourn Pride. This could indicate a resurgence in Great Lakes' cruising after a hiatus of over two decades.

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Rail Industry Structure

Appendix 11-1 Railway Operators by Region, 1999

Trucking Industry

Bus Transportation Industry

Appendix 11-2 Selected Urban Transit Systems of Importance to Canada

Marine Transportation Industry

Air Transportation Industry

NOTES

7 Discussion Document on Regulatory Reform in International Maritime Transport; Maritime Transport Committee of the OECD, May 1999.

8 Discussion Document on Regulatory Reform in International Maritime Transport; Maritime Transport Committee of the OECD, May 1999, page 48.