5 MARINE

Major reforms of Canada's marine transportation system are proposed. Port facilities have been divested by the federal government; steps taken to establish a not-for-profit Seaway corporation; and private sector operators sought for the Bay of Fundy ferry services. Seaway and port traffic are at healthy levels.

The Legislative and Institutional Framework Canada Marine Act (Bill C-44)

In mid-1994, the Minister of Transport announced a sweeping review of federal marine policy with the overall objective of ensuring the availability of affordable and efficient marine transportation services to Canadians. The new policy undertook to match infrastructure and service levels more realistically with user needs, and to increase the commercialization of marine services. Currently there is a multitude of legislation governing the marine sector in Canada. Ports, for example, operate under several different legislative regimes, each with its own mandate, financial rules and regulations.

The review culminated in the introduction of Bill C-44 - the proposed Canada Marine Act (CMA) - in the House of Commons on June 10, 1996. This legislation was intended to make it easier for ports to operate according to business principles, to enable the Minister of Transport to commercialize the operations of the St. Lawrence Seaway and to improve the way pilotage authorities and ferry services operate in Canada.

Canada Transportation Act

On July 1, 1996, the Canada Transportation Act (CTA) came into force. The CTA continues the trend of removing economic regulation begun with the National Transportation Act, 1987 (NTA). The NTA deregulated resource-sector tonnage moved by marine operators in the Mackenzie and Western Arctic but maintained economic regulation of carriers involved in resupplying Northern communities. The new CTA has eliminated licensing and tariff regulation of marine resupply services in the North.

The CTA has also extended the final offer arbitration provision to Northern marine resupply rates. Final offer arbitration allows resolution of private commercial disputes between shippers or users and carriers, in cases involving the movement by water of goods required for Northern marine resupply services within the Mackenzie River watershed and the eastern Arctic.

The Coasting Trade Act

The Coasting Trade Act entered into force on Dec. 1, 1992, replacing Part X (sections 590 to 595) of the Canada Shipping Act. The Act restricts to Canadian ships the transport of cargo and passengers, along with all commercial marine-related activities in Canadian waters. It also extends this restriction to the Canadian continental shelf for activities related to exploration and exploitation of non-living natural resources.

The Coasting Trade Act provides for the temporary importation of foreign and non-duty-paid Canadian flag vessels in specified circumstances and eliminates the uncertainties associated with the operation of cruise ships in Canadian waters.

Over the past 10 years, applications for entry to the coasting trade have numbered between 57 and 122 annually. In 1996, 111 applications were received for temporary coasting trade licences. Of these, 98 were approved, contingent upon there not being a suitable Canadian flag vessel available. In 1995, foreign flag vessels were recorded as carrying 1.87 per cent of total domestic trade.

Shipping Conferences Exemption Act,1987

The Shipping Conferences Exemption Act, 1987 (SCEA) exempts certain shipping conference practices from provisions of the Competition Act (Canada's anti-trust legislation) in recognition of the fact that liner conferences provide a measure of stability and reliability in shipping services to importers and exporters. The SCEA allows shipping conferences to set ocean freight rates and services collectively, but requires that the rates be published in a tariff filed with the Canadian Transportation Agency (the Agency). To promote intra-conference competition and to provide shippers with additional pricing options, the SCEA incorporates provisions for independent action on rates and confidential service contracts.

Twenty tariff-filing shipping conferences served Canada in mid-1996, down from 25 in 1994. Six of these conferences covered services to/from both Canadian coasts, 12 to/from the East Coast only and two to/from the West Coast only. The Asia North America Eastbound Rate Agreement (ANERA), one of the major conferences on the Canada-Far East trade circuit, was dissolved effective Nov. 1, 1996.

In 1995, the Agency accepted filings for 175 confidential service contracts from nine shipping conferences, an increase of 286 per cent over the 61 filed in 1994. The great majority of service contracts are conference-wide and remain in effect for one year.

The SCEA gives the Minister of Transport the power to designate shipper groups; the only group designated to date is the Canadian Shippers Council (CSC). The SCEA also requires that conferences meet with the designated shipper group and provide meaningful information. During 1996, CSC concerns have focused on conference freight rate surcharges and ancillary charges - currency adjustments, fuel adjustments, documentation fees and terminal handling fees - and the perceived unwillingness on the part of certain conferences to provide justification for these.

Canada Shipping Act

The Canada Shipping Act (CSA) deals with the activities of foreign ships in Canadian waters and Canadian ships in all waters. It covers issues such as ship registration, licensing of masters and crew, ship safety, wrecks, salvage and casualty investigations, light stations and other aids to navigation, port wardens, collisions and liability, delivery of goods, fatal accidents, ship-source pollution, and civil liability and compensation for pollution.

Transport Canada has undertaken a multi-year project to reform the Canada Shipping Act. In the interim, various amendments have been proposed to update, clarify and harmonize some of its key provisions, ensuring their compatibility with other federal and provincial legislation and with international conventions.

In September 1996, following consultations with industry representatives, the Minister of Transport introduced Bill C-58, An Act to amend the Canada Shipping Act, in the House of Commons. The purpose of Bill C-58 is twofold:

• to implement the provisions of the 1976 Convention on Limitation of Liability for Maritime Claims and its 1996 protocol; and
• to implement the provisions of the 1992 protocols to the 1969 Convention on Civil Liability for Oil Pollution Damage and to the 1971 Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage.

On Dec. 9, 1996, the Minister of Transport introduced Bill C-73, An Act to amend the Canada Shipping Act and other acts as a consequence, in the House of Commons. Key amendments relate to ship registration; ship inspection; marine pollution prevention; port state control of shipping; ^{note 1} the manufacture, sale and licensing of small vessels; and the updating of the definitions and provisions with respect to passengers, pleasure ships and wrecks.

Carriage of Passengers by Water Act

In September 1996, the Minister of Transport also introduced Bill C-59, a new Carriage of Passengers by Water Act (COPWA). The proposed act is based on the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974, and its 1990 protocol, as adopted by the International Maritime Organization (IMO). Its purpose is to establish a comprehensive liability regime for the loss of life or personal injury of passengers carried by water in Canada. The proposed act would also prohibit ship-owners' contractual exemptions from liability to passengers.

The proposed COPWA undertakes to extend the application of the Athens Convention from its current international focus to include domestic carriage. This extension is important since most Canadian passengers travel on domestic services. [Editor's note: Bills C-44, C-58, C-59 and C-73 did not complete the parliamentary process prior to the dissolution of Parliament in April 1997.]

Intergovernmental Maritime Initiatives

The World Trade Organization (WTO)

Maritime transport is covered by the General Agreement on Trade in Services (GATS). The World Trade Organization (WTO) was established on Jan. 1, 1995, following the conclusion of the Uruguay Round of multilateral trade negotiations. It is the only multilateral institution with almost global coverage that deals with liberalization of trade in goods and services.

Uruguay Round negotiations on maritime transport were largely unsuccessful because a number of countries were unwilling to make market access or national treatment commitments in the maritime sector. Nevertheless, a majority of WTO members supported broad sectoral coverage and were able to establish the Negotiating Group on Maritime Transport Services (NGMTS). The mandate of NGMTS was to secure, by June 1996, liberalization commitments from all countries in international shipping, maritime auxiliary services (freight forwarding, shipping agencies) and access to and use of port facilities. Unfortunately, this was not possible, and negotiations on maritime transport services have been suspended until the next full round of service negotiations, beginning in the year 2000.

Canada/China Maritime Agreement

In March 1996, the People's Republic of China proposed a bilateral mari-time agreement with Canada. Canada has always focused its efforts on multilateral initiatives and, to date, has not entered into bilateral agreements in the maritime sector. China, on the other hand, has bilateral maritime accords with 46 countries, including Denmark, France, Germany, Greece, Japan, Norway, the Netherlands, the UK and the US. These contain provisions on a wide range of subjects, including open access to international shipping trades, most-favoured-nation treatment for port access and port services, recognition of ships' and crews' documents and certificates, establishment of representative offices, measures to facilitate maritime traffic, avoidance of double taxation, immigration, and customs treatment.

After consideration of the Chinese proposal, Canadian officials determined that such an agreement with China could have significant commercial benefit to Canadian maritime interests. Negotiations with China began early in 1997.

Carriage of Hazardous and Noxious Substances by Sea

Canada participated in a diplomatic conference on hazardous and noxious substances (HNS) and on limitation of liability, hosted by the International Maritime Organization (IMO) from April 15 to May 3, 1996. Participants adopted the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 - or, as it is more commonly known, the HNS Convention.

Initially, the definition of HNS included certain low hazard/high volume commodities such as coal, metal concentrates, wood chips and sawdust - substances generally known as "materials hazardous when in bulk" or MHB. Prior to the diplomatic conference, Canada had indicated its wish to exclude this category from the definition of HNS. The key argument for the exclusion of MHB was the inequity inherent in a volume-based compensation system where high-volume materials (including Canadian coal exports) would be exposed to potentially very substantial increases in transport and insurance costs as a result of cross-subsidization of claims paid by the HNS fund in response to incidents with other, lower volume substances. Eventually, after a joint effort of the Canadian government and industry, and in collaboration with like- minded countries, MHB cargoes were excluded from the definition of HNS.

Canada will consult with interested parties and consider signing the convention in 1997.

Networks (Infrastructure)

The discussion of Canada's marine infrastructure will cover four major components of the system - the ports network, the St. Lawrence Seaway system, marine pilotage and the activities of the Canadian Coast Guard (now part of the Department of Fisheries and Oceans).

Ports
Current Ports System

Canada's ports system comprises a variety of facilities that fall under a number of different jurisdictions: Ports Canada, harbour commissions, Transport Canada, the Department of Fisheries and Oceans, municipal governments and private interests.

Ports Canada

Ports Canada is a federal system of commercial ports administered pursuant to the Canada Ports Corporation Act. The system includes seven large ports - at St. John's, Halifax, Saint John, Quebec, Montreal, Prince Rupert, and Vancouver - that are administered by autonomous local port corporations, and several smaller ports - at Sept-×les, Saguenay (Chicoutimi/Baie des Ha!Ha!), Trois-RiviŠres, Belledune, Churchill, Port Colborne and Prescott - that are administered by the Canada Ports Corporation as a separate division. Each port corporation (including the Canada Ports Corporation) is directed by an appointed board whose chairperson is ultimately responsible to the Minister of Transport.

Harbour Commissions

The nine harbour commissions located in Toronto, Hamilton, Windsor, Thunder Bay, Oshawa, Fraser Port, North Fraser, Port Alberni, and Nanaimo are locally controlled and managed commercial ports under the jurisdiction of the Minister of Transport by virtue of either the Harbour Commissions Act, the Toronto Harbour Commissioners Act or the Hamilton Harbour Commissioners Act.
Transport Canada

The remaining commercial ports under the authority of the Minister of Transport are the public harbours and ports administered directly by Transport Canada under the Public Harbours and Port Facilities Act. As of Dec. 31, 1996, the department administered 272 sites. The Minister of Transport is also responsible for 16 ferry facilities, some of which are located with other public port facilities.

Department of Fisheries and Oceans The Department of Fisheries and Oceans (DFO) maintains and operates more than 2,000 harbours under the Fishing and Recreational Harbours Act. These ports are used primarily for commercial fishing and recreational boating.

Other

The remaining ports are operated by provincial or municipal governments or by private interests. As of Dec. 31, 1996, there were 37 private ports, including those recently transferred to local interests by Transport Canada.

Proposed Structure

Canada Port Authorities

The draft Canada Marine Act (CMA) provided for a national ports system composed of those financially self-sufficient ports that are vital to domestic and international trade. Called "Canada Port Authorities" (CPAs), these facilities were to be operated in a commercial manner under letters patent issued by the Minister of Transport. It was envisioned that local port corporations, major Canada Ports Corporation divisional ports and most harbour commissions would be included in this system.

Seventeen ports had already filed for status as a CPA by the end of 1996.

In support of the National Marine Policy, a total of $29.3 million in port debt was forgiven by the federal government effective April 1, 1996: $5 million for Prince Rupert, $6.3 million for Quebec, and $18 million for Saint John. The intent was to place these potential CPAs in a stronger financial position. The Province of New Brunswick also agreed to forgive an outstanding $19.7-million loan to the Saint John Port Corporation.

Regional/Local

A second category of ports, to be called regional/local ports, would comprise Transport Canada facilities not considered to be remote facilities and any Canada Ports Corporation facilities or harbour commissions not incorporated as a Canada Port Authority. These ports would be transferred to other bodies, such as provincial governments, municipal authorities, community organizations, private interests and, in some cases, other federal departments.

The transfer of regional/local ports began in 1996 with the divestiture by Transport Canada of 78 facilities: 12 ferry ports to the Province of Newfoundland, 47 port sites in the Arctic to the Canadian Coast Guard, 12 fishing and recreational ports to DFO and seven ports to local interests. Public harbour status was also terminated for 199 sites.

Remote Ports

Remote ports serving the basic transportation needs of isolated communities would be maintained by the Government of Canada. These ports could also be divested, however, to appropriate interested parties.

DFO Ports

The Department of Fisheries and Oceans would continue to maintain and operate harbours for commercial fishing and recreational boating under the Fishing and Recreational Harbours Act.

Other

A growing category of ports would be operated by provincial or municipal governments or by private interests as Transport Canada divests itself of its facilities.

Port Traffic
Preliminary 1996 Results Preliminary 1996 data has been released by a number of individual ports. The Port of Vancouver, for example, handled a total of 72 million tonnes in that year. The Port of Montreal reported total traffic of 19.9 million tonnes in 1996, with container traffic increasing 11.3 per cent over that of 1995 to total 7.9 million tonnes. Halifax Port Corporation reported 1996 traffic totalling approximately 13 million tonnes. The Port of Saint John posted record tonnage in most sectors, with total cargo of 21 million tonnes. The ports of Sept-×les and Trois-RiviŠres reported 1996 total cargo handled as 23 million tonnes and 2.3 million tonnes respectively. (Statistics Canada annual data for all ports is available only up to 1995.)

1995 Traffic Statistics

Statistics Canada data reveals that a total of 361 million tonnes of cargo was shipped through Canada's ports in 1995, an increase of three per cent over 1994 totals. Domestic shipments accounted for 101 million tonnes and international shipments 260 million tonnes.

As Figure 5-1 shows, Ports Canada handled the largest share (50 per cent) of Canada's 1995 commercial port traffic. Harbour commissions were responsible for 12 per cent and Transport Canada facilities for another 21 per cent. The remaining 17 per cent was handled by other facilities, including those managed privately and those managed by or on behalf of the Department of Fisheries and Oceans and provincial and municipal governments.

Tables 5-1 and 5-2 provide details of traffic levels for Ports Canada ports and for harbour commissions. Table 5-3 provides details of traffic levels for selected Transport Canada and "other" facilities.

Altogether, Transport Canada ports handled 77 million tonnes of cargo in 1995. Of this amount, fully one-quarter (19.5 million tonnes) was shipped through declared public harbours where Transport Canada has no facilities. Another significant portion of the total was shipped across private facilities that co-exist with Transport Canada facilities. A total of 61 million tonnes was handled at "other" types of ports. Port Cartier, the largest port in this group, handled 24.9 million tonnes of cargo in 1995, an increase of 15 per cent over 1994.

Financial Profile
Preliminary 1996 Results

Many ports have announced results of their 1996 performance, although in most cases financial statements have yet to be audited. The Port of Montreal reported operating revenues of $56.2 million and a total net income of $11.8 million for 1996. The Port of Halifax recorded 1996 operating revenues of $13 million for a total net income of $3 million. The Port of Saint John announced operating revenues of $13.5 million and a total net income of $2.1 million for 1996. The ports of Sept-×les and Trois-RiviŠres have reported 1996 total net incomes of $300,000 and $1.9 million, respectively.

1995 Financial Profile

Ports Canada. In 1995, gross operating revenues, including those of Ridley Terminals Inc., amounted to $228.3 million, while operating expenses came in at $186.1 million. The total net income of the Ports Canada system, including interest income and expenses and other non-operating revenues and expenses, came to $34.2 million. Port details can be found in Table 5-4.

All local port corporations reported positive net earnings in 1995. The Port of Vancouver reported gross operating revenues in excess of $62.5 million and a net income of $12.1 million. Gross operating revenues at the Port of Montreal totalled $54.6 million, resulting in a net income of $9.3 million. Net income for the Port of Halifax was $1.8 million. The remaining local port corporations posted net incomes totalling $1.2 million.

The ports of Sept-×les, Trois-RiviŠres, Belledune, Prescott and Port Saguenay all posted net earnings in excess of $500,000 in 1995. Only Port Colborne and the port of Churchill posted net losses.

Harbour Commissions. Positive net incomes were reported by all harbour commissions in 1995 except that of Toronto. The largest net income - $2.5 million - was reported by the Hamilton Harbour Commission. Port-by-port details on operating revenues, operating expenses, net income, capital expenditures and the net book value of assets can be found in Table 5-5.

Transport Canada. In fiscal 1995/96, Transport Canada ports reported total gross revenues of $17.1 million and total expenditures of $44.9 million (including commissions to harbour masters and wharfingers). While the public ports system generated revenues to recover only 49 per cent of its operating expenses and 36 per cent of total expenditures, some ports - such as Goderich and Dalhousie - generated revenues in excess of operating expenditures.

Great Lakes/St. Lawrence Seaway System

Background

The Seaway opened in 1959, providing a strategic waterway into the North American heartland. The waterway between Lake Erie and the Port of Montreal falls under the mandate of the Canadian St. Lawrence Seaway Authority (SLSA), which operates the eight locks in the Welland Canal and five of the seven locks between Montreal and Lake Ontario. The US Saint Lawrence Seaway Development Corporation (SLSDC) operates the two remaining locks in the Montreal- Lake Ontario (MLO) segment. (see Figure 5-2).

Traffic and Trends

The main commodities moved through the Seaway are grain, iron ore, steel products and coal, which generally account for more than 70 per cent of cargoes. There are also significant movements of petroleum products, salt, potash, and low-value bulk construction materials such as limestone, cement and gypsum.

Traffic levels between 1994 and 1996 resulted in a welcome reversal of the downward trend of the previous 15 years, with an increase in tonnage over that of 1993 of close to 25 per cent on the Welland segment and 20 per cent on the Montreal-Lake Ontario segment. Significant in-creases in the movement of grains, iron ore, construction materials and steel all contributed to the surge in both "upbound" and "downbound" traffic volumes (see Figure 5-3). Traffic levels on the Seaway continue to be dependent on the health of the steel industry around the Great Lakes and on the strength of agricultural exports to markets in the Baltic, the Mediterranean and the Middle East. However, industry downsizing and the availability of alternative routes or modes for much of the traffic has led to concern that the system is losing its competitive position relative to these other routes. Eastbound rail shipments, for example, and the subsidized US Mississippi River system are becoming more competitive. Shifting markets - Far East markets replacing those in Europe - also favour other routes.

Financial Situation of SLSA

The Canadian Seaway's ability to raise revenues is constrained by US opposition to toll increases. The 1959 toll agreement with the United States requires that both sides agree to any change in the toll structure. Since 1993, the SLSDC, which no longer collects tolls, has vetoed all toll increases proposed by the Canadian Seaway Authority. As a result, tolls have remained frozen at 1993 levels.

Tolls on commercial cargoes account for about 90 per cent of annual operating revenues of the SLSA. Revenues from leases and licences, wharfage and pleasure boaters make up the remaining 10 per cent.

Operating revenues, which have averaged $67.4 million over the past 10 years, remained relatively constant up to 1993/94, as toll increases offset lower traffic levels. Then, in 1994/95, revenues increased more than 20 per cent, in line with traffic increases. In 1995/96, however, because of a shift to lower value cargoes, revenues dropped 6.9 per cent even though traffic remained stable. (see Table 5-6)

Operating expenses have fluctuated around the $75-80 million level over the period, with inflationary cost increases largely contained by gradual downsizing.

Operating losses averaged $7.8 million over the past 10 years. The trend was reversed in 1994/95 as traffic and revenue increases exceeding 20 per cent resulted in an operating profit of $9.9 million. The upswing did not last, however, and 1995/96 registered a negative result.

A more complete view of annual financial results requires an examination of net income. This includes investment income averaging $5.1 million per year, unusual items (such as claims), and the large corporation tax paid (averaging $1.3 million annually since 1989/90). Net loss over the 10-year period has averaged $2.8 million annually.

Reserves maintained by the SLSA provide a cushion to deal with emergency situations and help to even out the financial fluctuations that mirror traffic levels. Over the past 10 years the reserves averaged $25.3 million, dropping to their lowest point ($14.8 million) in 1993/94. Rebounding traffic in 1994/95 and 1995/96 has allowed the SLSA to rebuild reserves to $44.7 million.

Seaway Commercialization On July 15, 1996, the Minister of Transport signed a letter of intent with the Seaway Users' Group, which comprises the main users of the system. An agreement in principle has been reached on most issues, with a target date set for mid-1997.

The new private-sector not-for-profit Seaway corporation would be responsible for operation of the system and for asset renewal costs up to past levels, but with incentives to achieve operating efficiencies and lower cost levels. The federal government would continue to own the fixed assets.

To avoid conflict-of-interest situations and to prevent discrimination against particular users, the new corporation will be required to have a board of directors large enough to represent major stakeholder interests.

Canada-US Seaway Working Group

On June 5, 1996, the Minister of Transport and the US Secretary of Transportation established a joint working group to develop measures to improve bi-national management of the Seaway. After a progress report on Sept. 17, 1996, the Seaway Working Group was established as an ongoing consultative mechanism. The group is considering short and long-term options to increase efficiency. A second interim report was scheduled for submission at the end of March 1997.

Marine Pilotage
Legislative Framework

Marine pilotage in Canada is governed by the Pilotage Act of 1972, which established four regional pilotage authorities: Atlantic, Laurentian, Great Lakes and Pacific. Three of the authorities are parent Crown corporations, while the Great Lakes Pilotage Authority (GLPA) has been incorporated as a subsidiary of the St. Lawrence Seaway Authority. Notwithstanding this structural anomaly, the GLPA is considered a parent Crown corporation for the purposes of the Financial Administration Act. All authorities report directly to the Minister of Transport. The authorities are not, however, agents of the Crown.

Each authority has a mandate to provide safe and efficient pilotage services that respond to the particular requirements of its traffic and the varied geography and climatic conditions of the waterways concerned. To carry out this mandate, the authorities train and license suitably qualified persons to act as pilots, issue pilotage certificates, operate pilot boats, and negotiate agreements with pilot corporations and unions.

Each authority has a full-time chairperson - who is also the chief executive officer - and not more than six part-time members. The authorities, with Governor-in-Council approval, are permitted to make regulations:

• establishing compulsory pilotage areas;
• prescribing which ships are subject to compulsory pilotage;
• setting out classes of pilots' licences and the related qualifications; and
• setting tariffs for pilotage charges to make the authority a self-sustaining operation.

Financial and Operating Performance

A landmark year for pilotage authorities, 1996 was the first year since 1983 - and only the third year since the inception of the Pilotage Act - that no parliamentary appropriations were used to offset operational deficits. In fact, as is shown in Table 5-7, three of the authorities managed to return modest surpluses. While the Laurentian Pilotage Authority (LPA) suffered a $2.8 million loss, financing was arranged through a commercial loan with a financial institution, in accordance with the December 1995 National Marine Policy.

Table 5-8 shows the number of assignments per pilot and the subsidy provided for each pilotage authority, as well as the percentage of incident-free assignments. In general, efficiency is holding steady, system-wide safety is increasing, and all authorities have managed to improve their financial position despite declining traffic levels.

Canada Marine Act

In June of 1996, changes to the Pilotage Act were introduced in the House of Commons as part of the proposed Canada Marine Act. These changes were intended to exert downward pressure on costs and impose greater financial account-ability upon the pilotage authorities by denying access to parliamentary appropriations and setting limits on the amounts they can borrow. The amendments included the requirement for a report to Parliament by the Minister by Dec. 31, 1997, reviewing the continued progress on all major outstanding issues.

Canadian Coast Guard

Structure/Assets

As a result of the merger of April 1995, the Canadian Coast Guard (CCG) is a division of, is accountable to, and actively supports the multi-faceted oceans mandate of the Department of Fisheries and Oceans.

In addition to its continuing role in the provision of a safe and environmentally sustainable marine transportation system, the Coast Guard now also has a mandate to contribute to the sustainable management of Canada's ocean and marine resources. The five business lines provided by the CCG are marine navigation services; marine communications and traffic services; ice-breaking operations; rescue, safety and environmental response; and fleet management. Its client base includes recreational boaters as well as those involved in marine transportation, such as commercial shipping, ferry services, and fishing and cruise-ship industries.

Marine Navigation Services (MNS)

This group provides efficient operation of navigation aids to assist mariners in determining their position in relation to land and to hidden dangers. Its purpose is to reduce navigation risk and vessel transit time in support of a safe and environmentally sound national transportation system.

The supporting infrastructure of MNS includes 194 automated light stations, 70 staffed light stations, seven LORAN C stations, more than 9,000 land-based marine fixed aids to navigation, and more than 14,000 floating aids.

Marine Communications and Traffic Services (MCTS)

MCTS provides communications and traffic services for the marine community and for the benefit of the public at large to ensure safety of life at sea in response to international agreements, protection of the environment through traffic management, efficient movement of shipping, and information for business and national interests. It is intended to enhance the economic and operational performance of both the marine industry and government programs.

The supporting infrastructure includes 33 MCTS centres and 165 remote transmitter/receiver sites.

Ice-Breaking Operations (Ice)

This group provides support for economic activities by facilitating safe and efficient movement of marine traffic through ice-covered waters both in the Arctic and in more southerly waters (including the Great Lakes and the East Coast of Canada), flood prevention activities in areas prone to flooding or threatened as a result of ice build-up, and the annual resupplying of Northern settlements and military sites.

The infrastructure comprises five ice operation centres.

Rescue, Safety and Environmental Response (RSER)

RSER supports lifesaving and marine environment protection activities by responding to marine search- and-rescue incidents, assisting with marine oil and chemical emergencies, and encouraging safe recreational boating through safety promotion and regulatory activities.

The supporting infrastructure includes 28 search and rescue (SAR) stations with in-shore rescue boats, 31 regular SAR stations and 13 spill response equipment depots.

Fleet Management

The Coast Guard is also responsible for the management of a large multi-tasked fleet, which, in 1996, delivered service to all of DFO's operational business lines. In addition to those just described, these include fisheries management, fisheries and oceans science, and hydrography. Assets are listed in Table 5-9.

The Coast Guard continues to adjust its fleet to provide efficient and high-quality service to DFO. In 1996, CCG acquired three new Type 300-A high-endurance lifeboats and took five vessels out of service; work continues on the rationalization of the fleet and the multi-tasking of vessels. Expenditures

The Coast Guard 1996/97 forecast expenditures by business line are shown in Table 5-10.

Carrier Services

Domestic and Transborder Shipping

Canadian flag vessels are not only active in the domestic or coasting trades but also in the transborder trades between Canada and the US. In 1995, the Canadian registered merchant fleet carried more than 98 per cent of the coasting trade and about 54 per cent of Canada/US waterborne trade, but less than one per cent of Canadian deep-sea trade.

As of December 1995, the Canadian registered merchant fleet consisted of 183 self-propelled vessels (more than 1,000 gross registered tonnes) with a total deadweight tonnage of 2.5 million tonnes (see Figure 5-4). These figures represent a decrease of 19 per cent in the number of vessels as compared to 1985, and a decrease of 29 per cent in deadweight tonnage. The dry bulk carriers form the backbone of this fleet, with 40 per cent of vessels and 80 per cent of deadweight carrying capacity. The liquid bulk carriers ranked second with 12 per cent of total carrying capacity (see Figure 5-5). The average age of vessels in the Canadian merchant fleet in 1996 was 25 years.

Eastern Canada

In 1995, the Canadian Shipowners Association represented 12 companies operating in Eastern Canada, with a combined fleet of 101 vessels (including five ships operating under foreign flags). Companies operating in the St. Lawrence River and Atlantic regions were represented by the St. Lawrence Ship Operators Association (23 active members in 1996), based in Quebec City. Other companies, like the Irving Group, were not members of the associations.

The Great Lakes/ St. Lawrence Region

The largest portion of the Canadian domestic fleet operates in the Great Lakes/St. Lawrence Seaway system. In mid-1996, the dry bulker fleet comprised 34 straight-deck bulkers ("bulkers"), 32 self-unloader bulkers ("self-unloaders"), two cement carriers and six other bulkers. Between 1989 and 1996, the number of bulkers decreased to 34 from 48 (29 per cent), while the number of self-unloaders remained relatively stable, a good reflection of their respective markets. Bulkers mainly carried grain downbound to St. Lawrence ports and iron ore as backhaul cargo for upbound destinations. Self-unloaders serve a more diversified market - moving coal, iron ore, stone, salt and gypsum, among other things.

The Atlantic Region

At the end of 1995, the Canadian fleet operating on the Atlantic Coast included 17 ferries, 17 multipurpose cargo vessels and 20 tankers.

Western Canada

The West Coast is home to a significant tug and barge fleet and an important fleet of ferry vessels. The Council of Marine Carriers, which represents West Coast tug and barge operators, listed 22 companies as full and associate members in 1996, and an additional 13 companies as auxiliary members. Most members operate in domestic trade, but some trade internationally between Canadian and US ports.

At the end of 1995, the Canadian Transportation Agency estimated the Canadian fleet of tugs and barges (100 gross registered tonnes and over) at 248 and 1,324, respectively, for a total of 1.5 million gross tonnes. Approximately 60 per cent of these were located on the Pacific Coast.

Northern Marine Activities

Structure of Resupply Operations

Keewatin. The Port of Churchill, which plays an important role in the resupply of Northern communities in the Keewatin/Hudson Bay region of the Northwest Territories, handled 30,000 tonnes of resupply traffic during the 1995 season. Cargoes consisted primarily of petroleum products, building materials, vehicles, equipment and other essential supplies. Projections for 1996 forecast another 30,000 tonnes of throughput.

Mackenzie River/Western Arctic. The Mackenzie River and Western Arctic system is composed of seasonal tug and barge services along the Mackenzie River and from the north slope of Alaska east to the lower Arctic islands and Taloyoak (formerly Spence Bay). Cargoes of bulk fuel and community resupply goods predominate. Regulated traffic in this area in 1994 totalled about 120,000 tonnes. (With deregulation, traffic figures are no longer filed.)

Eastern Arctic. Each year an Eastern Arctic sealift takes place, co-ordinated by the Department of Fisheries and Oceans under the authority of the Treasury Board of Canada. Communities served include coastal Labrador, Hudson Strait, Baffin Island, Foxe Basin, the middle and high Arctic, and Greenland. The Coast Guard's Sealift Task Force acts as the exclusive co-ordinator for the assembly, transportation and delivery of all cargoes to the Eastern Arctic. Clients include federal departments, the Government of the Northwest Territories, the United States Air Force, commercial concerns, and individuals. Direct costs of the transport services provided are recovered from clients.

Seven dry cargo ships and one tanker, all Canadian flag, were involved in the 1995 Sealift. Twenty-one Arctic sites were supplied with dry cargo and eight sites with bulk petroleum products. The total shipment included 14,376 tonnes of dry cargo and 1,052 tonnes of bulk petroleum products.

Canarctic Shipping Company

Another significant occurrence during 1996 was the sale of the federal government's majority interest in the Canarctic Shipping Company to Fednav Ltd. of Montreal. Canarctic operated a single vessel, the Canadian- built MV Arctic, which it used to move mineral and petroleum products into and out of the Canadian North as well as internationally. Prior to the sale, the government owned 51 per cent of Canarctic, with the remaining 49 per cent owned by North Water Navigation, a subsidiary of Fednav. With the purchase, Fednav assumed all responsibilities of the company, including its long-term debt.

International (Overseas) Marine Trade

Canadian shippers rely on foreign-based carriers for most international marine movements. Historically, Canadian-flag vessels have carried less than one per cent of international marine traffic other than in transborder trade with the United States.

Bulk or Non-Liner Shipping Markets

Bulk commodities figure prominently in Canada's international trade, particularly for exports. Most bulk shippers charter vessels as needed to meet their shipping requirements. Either the buyer or seller of the commodity may be responsible for making the transportation arrangements, depending on the terms of sale. The charter rates for bulk carriers are set in the open market, which is global and intensely competitive.

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

Time charters can cover longer periods (e.g., five years), enabling shippers to secure regular and predictable transportation rates during the period of the contract. Vessels are sometimes even built to the specific requirements of a given shipper in connection with a pre-arranged long-term charter. However, contracts covering only one year are not uncommon when prices are volatile. Details of the arrangements are usually strictly confidential.

International Liner Shipping

Liner services are offered according to published schedules and on specific trade routes with fixed itineraries. Liner carriers generally handle containerized and/or break-bulk ^{note 2} cargoes, which are traditionally of higher value - such as electronic equipment, frozen foods or manufactured goods. The lines that carry containers, break-bulk and general cargo are the "common carriers" in international marine transportation.

The international liner trade is dominated by large fleets of specialized container ships operating on major routes. A large proportion of the world fleet is controlled by Pacific Rim and Western European interests.

Ocean carriers providing liner services on a common trade route often elect to form a conference and collectively agree on rates and/or conditions of service. Conferences have been in existence on major routes for well over a century and are shielded from the competition laws in Canada by the Shipping Conferences Exemption Act, 1987 (see "Legislative and Institutional Framework" at the beginning of this chapter).

Shipping lines that do not operate within the confines of a shipping conference are referred to as "independents" or "non-conference operators." These carriers also provide liner services but are not required to file a tariff with the CTA. While nearly all of the tonnage moved by conference carriers is containerized, that of independent lines includes a larger share of general/break-bulk cargoes. The ranks of the independent liner operators today include many large, well-established firms such as Evergreen Lines and China Ocean Shipping Company that can match conference operators in terms of vessel size, operating frequency and extensive route networks.

Lines that are conference members on one route are not necessarily members on all of the routes or points served. Also, where a conference agreement applies only to Canadian cargo, shipping lines that solicit cargo from US-based shippers (such as North Atlantic operators calling at Montreal) could carry non-conference cargo on the same vessels that operate in the conference service.

Services Available to Canadian Shippers The number of shipping lines offering services to Canadian shippers (on the three major trade routes linking Canada with Europe, the Far East, and Australia) has declined slightly in recent years because of a decline in the number of conference operators serving both the East and West coasts. On the East Coast, the number of conference lines offering services was down to 20 in 1996 from 25 in 1989. Over the same period, the number of non-conference lines increased slightly, to 30 from 28. On the West Coast, the number of conference lines declined to 14 in 1996 from 23 in 1989. The reverse was true for the non-conference lines, with the numbers climbing to 23 from 14 over the period. In total, 41 lines provided services to Canadian shippers on the East Coast in 1996, and 33 served the West Coast.

Canadian-Based Companies Engaged in International Trade

Canadian-Based Companies

Canadian-based companies are active in many aspects of inter-national shipping: ship ownership; management; financing; acquisition; chartering and brokering; agency services; chandlery; freight forwarding; and marine law, insurance and safety. They tend to register their ships abroad to avoid financial and tax-related burdens that make Canadian company and vessel registration more costly.

Thus Canadians control a significant fleet that is registered under various foreign flags such as Liberia, Greece, Bermuda and the Marshall Islands. This Canadian-controlled foreign-flag fleet comprised 140 vessels (26 companies) totaling 4.2 million deadweight tonnes in mid-1996. The main types of vessels, based on deadweight tonnage, were bulkers (52 per cent), self-unloaders (13 per cent), tankers (13 per cent) and container ships (11 per cent). Fednav Ltd., Canada Maritime Ltd. and the Irving Group were among the most significant operators. ^{note 3}

International Maritime Centre

To encourage new ship operators to locate in Canada and to retain Canadian management offices for companies operating internationally, the federal government elected in 1991 to change the regulatory regime for foreign incorporated companies engaged in the operation of ships in international trade. The Asia Pacific Initiative, a trade promotion organization funded by federal and provincial governments, played a major role in lobbying for these changes.

In 1991 and 1992, changes were made to Canada's Income Tax Act, Coasting Trade Act, Canada Shipping Act, Customs Act, and Customs Tariff. Foreign-registered companies operating international shipping concerns were no longer to be taxed in Canada on profits earned worldwide. These changes were made to promote employment and income in the marine and maritime services sectors, to support trade and to encourage the development of Vancouver as a major finance and transportation centre.

The International Maritime Centre- Vancouver (IMC) was established in 1992 to market new opportunities for international shipping operators in Canada resulting from the amendments to the Income Tax Act. The IMC estimates that, as of 1996, 21 companies controlling some 200 ships have taken advantage of the changes and account for approximately 350 direct jobs.

Ferry Services

Structure

Ferry services in Canada vary widely in terms of ownership (from small private operators to provincial governments and federal Crown corporations), vessel types (small cable ferries to large cruise vessels and fast ferries) and operations (seasonal to year-round schedules). Terminal and docking facilities are variously owned/leased and operated by ferry companies, municipalities, provincial and federal governments or private companies.

Federal Role

Since 1976, Transport Canada has been responsible for the administration of federal contributions to certain ferry transportation services, in accordance with the Water Transportation Assistance Policy (WTAP). Under the WTAP, federal assistance was to be provided or considered for constitutional services and their alternatives, the Newfoundland Coastal service, and services offering special development opportunities.

Overview of Ferry Services

Marine Atlantic Inc. (MAI), a federal Crown corporation on the East Coast, accounts for approximately 75 per cent of the federal government's annual funding for ferry operations. Its operations include the constitutionally guaranteed ferry links between North Sydney, N.S., and Port-aux-Basques, Nfld., and between Cape Tormentine, N.B., and Borden, P.E.I. It also provides a highway alternative between Saint John, N.B., and Digby, N.S. MAI operates seasonal connections between Labrador and the island of Newfoundland; between North Sydney, N.S., and Argentia, Nfld., and between Yarmouth, N.S., and Bar Harbor, Maine. Freight and passenger services to coastal communities of Labrador are also supplied by the corporation.

Coastal Transport Ltd., a wholly-owned subsidiary of Marine Atlantic, operates the ferry service between Black's Harbour, N.B., and North Head, Grand Manan, under contract with the Province of New Brunswick. Since Oct. 1, 1995, it has also operated a ferry service between the islands of Grand Manan and White Head.

Northern Cruiser Ltd. (NCL) operates a single passenger/vehicle ferry between Blanc Sablon, Que., and St. Barbe, Nfld., from May to January, under contract with the federal government.

Northumberland Ferries Ltd. (NFL) provides seasonal ferry transportation (May 1 to Dec. 20) between Caribou, N.S., and Wood Islands, P.E.I., under contract with the federal government. This service is considered to be an alternative to the constitutional service between Cape Tormentine, N.B., and Borden, P.E.I.

CTMA Traversier Lt‚e provides federal subsidized passenger/vehicle ferry service between Cap-aux-Meules, Magdalen Islands, Que., and Souris, P.E.I. The federal government has committed up to $30 million to find a suitable replacement vessel for the MV Lucy Maud Montgomery for use on this service. CTMA also provides a passenger/cargo ferry service from Cap-aux-Meules to Montreal from April to December and from Cap-aux-Meules to Matane during the winter, under contract with the Province of Quebec.

In 1995, the Province of Newfoundland reached an agreement with the federal government to assume responsibility for ferry service along the south coast of Newfoundland. Marine Atlantic's coastal boat service was replaced with several smaller passenger/freight services providing daily road connections for the isolated communities. Newfoundland and Labrador's Department of Works, Services & Transportation now services 13 year-round ferry routes throughout coastal Newfoundland.

Quebec's transportation ministry subsidizes la Soci‚t‚ des traversiers du Qu‚bec, which operates a total of eight services across the St. Lawrence River. La Traverse RiviŠre-du-Loup/Saint-Sim‚on Lt‚e also operates a one-vessel passenger- and-vehicle service on the St. Lawrence River.

The Quebec Ministry of Transportation subsidizes three regular passenger and freight lines, four private ferry operations and a water taxi. It is also responsible for the adjudication of contracts for transporting supplies to native communities in Northern Quebec.

The Ontario Ministry of Transportation directly operates, or provides an operating subsidy for, 10 ferry services in the Province of Ontario.

The Manitoba Department of Highways & Transportation operates seven passenger-and-vehicle ferries, three motor vessels and four cable ferries.

The British Columbia government receives a federal grant for the provision of ferry services in coastal waters. British Columbia Ferry Corporation, a provincial Crown corporation, is the largest ferry operation in North America, with a fleet of 40 vessels on 24 routes serving 42 ports of call. The corporation is embarking on a 10-year, $800-million capital program to build several new ships and terminals.

The Ministry of Transportation and Highways is responsible for 17 freshwater ferry routes in British Columbia. A new route, which started in 1995, crosses Adams Lake in central northern B.C.

Traffic

1996 figures are not yet available for all Canadian Ferry Operators Association (CFOA) members; however, the relative size of their operations is evident in the traffic figures for 1995. BC Ferry Corporation, by far the largest operator in Canada, carried approximately 22.4 million passengers and 8.3 million vehicles. B.C.'s Ministry of Transportation and Highways carried 5.2 million passengers and 2.6 million vehicles. Together, the Ontario Ministry of Transportation and la Soci‚t‚ des traversiers du Qu‚bec carried nine million passengers and 2.5 million vehicles, while Marine Atlantic carried about 2.7 million passengers and 0.9 million vehicles in 1995. The remaining CFOA members accounted for 2.8 million passengers and 1.1 million vehicles.

Financial Performance

Financial data is available for federally subsidized ferry services only. Table 5-11 presents a five-year summary (1991-1995), showing revenues, expenses and subsidies.

National Marine Policy (Ferries)

In accordance with the National Marine Policy announced in December 1995, the federal government is examining ways to reduce costs and increase efficiency through new vessel management and procurement practices, commercial operation of vessels and streamlining of services; this includes reducing its involvement in the direct delivery of transportation services.

A request for proposals (RFP) was issued in July 1996, seeking commercial interest in providing MAI's Bay of Fundy ferry services between Saint John, N.B., and Digby, N.S., and between Yarmouth, N.S., and Bar Harbor, Maine. The RFP was designed to solicit strong business plans to ensure the long-term viability of the ferry services, which are to be operated by the private- sector operator without further federal subsidy after a three-year transition period. It is expected that these two services will have been turned over to a new operator by April 1997.

MAI's constitutional service between Cape Tormentine, N.B., and Borden, P.E.I., was terminated on May 31, 1997, to coincide with the opening of the new Confederation Bridge linking P.E.I with New Brunswick. This, together with the privatization of the Bay of Fundy ferry services, will see MAI's traditional five ferry and coastal services reduced to two services by mid-1997.

Other cost-saving measures continue to be sought by Marine Atlantic and the three private operators in an effort to reduce the level of taxpayer subsidization without adversely affecting ferry service.

There will be no change in the government's regulation of safety for ferries, and subsidies will continue for constitutionally guaranteed services and for service to remote communities.

Cruise Industry

Structure

Foreign-based companies provide the vast majority of extended cruise operations calling at ports on both Canada's East and West coasts. There are two basic categories of extended cruises - the "luxury cruise" and the "pocket cruise," distinguished by vessel capacity of more or less than 150 passengers.

The Port of Vancouver is the home port for the majority of the luxury cruise ships offering Alaska cruises, serving as the principal point of passenger embarkation and disembarkation. Vancouver has benefited from the provisions of the US Passenger Vessel Act, which prohibit foreign- flag vessels from carrying passengers between US ports (i.e., embarking passengers at one US port and disembarking them at another). As a result, Vancouver has become home port to the non-US flagged vessels that dominate the Alaska cruise industry. Vancouver is also an en-route stop on various other cruises, such as round-trip Alaskan cruises out of San Francisco and Los Angeles.

In Eastern Canada, the luxury cruise ships regularly travel three major routes. The first is along the Eastern Seaboard and St. Lawrence River up to Montreal; the second route is between Montreal, the islands of St. Pierre and Miquelon, and Quebec City; and the third is a more recently added three-day round-trip out of New York to Saint John and Halifax. Pocket cruises travel the St. Lawrence between Montreal/Quebec City and Kingston or Rochester, or along the Erie Canal and Hudson River to Warren, NY. The Canadian embarkation/disembarkation point for the luxury cruises is generally Montreal; for the pocket cruises out of the US, it is Quebec City.

There are also a multitude of lock, harbour and river cruises, as well as excursions such as those for whale-watching - all offered by local operators on Canadian vessels. The Canadian Passenger Vessel Association, based in Kingston, Ont., estimates the number of companies across Canada engaged in the passenger-carrying tourism business at about 200.

Traffic

The 1996 season marked the fourteenth consecutive year of growth for Alaska cruises and the largest year-over-year gain (17.7 per cent) for the Port of Vancouver. The Vancouver-Alaska market now ranks as the third most popular cruise region in the world, behind the Caribbean and Europe. Cruise traffic for major Canadian ports is summarized in Table 5-12.

Marine Freight Traffic

Overview

Canadian maritime traffic has three main components: domestic traffic, transborder traffic with the US, and deep-sea international traffic. In 1995, these movements amounted to more than 310 million tonnes. Domestic trade accounted for more than 50 million tonnes, while transborder traffic between Canada and the US totalled 85 million tonnes and deep-sea waterborne traffic stood at 175 million tonnes. Table 5-13 contains a 10-year time series showing international traffic (US and overseas) loaded and unloaded at Canadian ports, as well as domestic traffic.

The value of Canadian international waterborne trade ^{note 4} in 1995 was nearly $85 billion, with exports at $45 billion (up from $37.7 billion in 1994) and imports at $39.5 billion (up from $34.9 billion in 1994). Trade with the US represented about $8 billion, or less than 10 per cent of the total. No data is available on the value of domestic waterborne trade.

International. While the United States is Canada's largest trading partner, based on the volume of marine trade, significant portions of marine traffic travel to and from Asia and Oceania, as well as Europe (see Table 5-14).

Domestic. Ports located in Quebec, Ontario and British Columbia handle most of Canada's domestic traffic. As Table 5-15 demonstrates, virtually no traffic moves by water between the East and West Coasts of Canada.

International

Increases in traffic at Canadian ports in 1995 were driven by international bulk cargoes, particularly commodities that were transshipped between the US and foreign ports - crude petroleum, fodder, and feed and corn - and coal.

Of commodities loaded for foreign ports in 1995, wheat, coal and iron ores together accounted for nearly half of the tonnage (47 per cent). Nineteen million tonnes of wheat were loaded, with five million tonnes going to China. Exports of coal, primarily to Japan and South Korea, stood at 33.8 million tonnes, up from 31.7 million tonnes in 1994. Iron ores and concentrates, bound mostly for the US and the EU countries, totalled 30.7 million tonnes, down slightly from 1994. Total dry bulk cargoes loaded in Canadian ports amounted to over 130 million tonnes in 1995.

Nearly one-third (31 per cent) of the international cargo unloaded was crude petroleum (25.7 million tonnes), virtually all of it at Atlantic or St. Lawrence ports. Of the 5.6 million tonnes of petroleum loaded, 97.6 per cent was bound for the US (1995 was the first full year of operation at Port Hawkesbury, where North Sea crude petroleum is being transshipped from very large crude carriers to smaller tankers that comply with the US Oil Pollution Prevention Act of 1990).

General cargo (including containerized cargo) accounted for the balance of international traffic moving through Canadian ports. Twenty-six million tonnes were loaded and 10 million tonnes unloaded. Wood pulp (6.8 million tonnes) bound for Europe and Asia, lumber (5.6 million tonnes) bound largely for the US, and newsprint (3.2 million tonnes) were among the principal exports. Among the major imports were machinery and equipment (3.2 million tonnes) from Europe and Asia, and iron and steel (2.8 million tonnes), 65 per cent of which originated in Europe.

Domestic

The amount of domestic cargo handled (loaded and unloaded) sank to a record low of 100.6 million tonnes in 1995, down 3.6 per cent from 1994. Cargo loaded at Atlantic ports declined by a million tonnes, mainly because of decreased loadings of salt and gypsum bound for St. Lawrence River ports. Cargo shipped between Great Lakes ports was also down because of decreased shipping of limestone and other non-metallic mineral products.

Iron ore (13.8 million tonnes), wheat (11.3 million tonnes), fuel oil and gasoline (15.3 million tonnes), pulpwood (14.6 million tonnes), and logs and bolts (7.8 million tonnes) were among the principal commodities handled in domestic commerce.