11

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Marine Transportation Industry

A fleet of Canadian flag operators providing domestic and transborder shipping services make up Canada's marine industry, while foreign flag operators calling at Canada's major ports largely serve international trade. Recent years have seen major policy reforms in the marine sector, and the year 2000 was no exception. A number of important events took place and progress on some significant legislative changes occurred.

Major Marine Events in 2000Note 8

Legislative and Regulatory Changes and Initiatives

Marine Liability Act (MLA)

The introduction of the Marine Liability Act (MLA) is an important step toward modernizing marine liability legislation in Canada. The principal objective of the Act is to introduce, for the first time, legislation aimed at establishing liability for passengers in the marine mode. At the same time, the legislation introduces new rules for apportioning liability in maritime cases and consolidates all existing marine liability regimes into the Act.

The Senate passed the MLA, introduced as Bill S-17, on May 17, 2000. It moved successfully through the House of Commons, receiving second reading on October 6, 2000, and referral to the Standing Committee on Transport shortly before Parliament was dissolved. The proposed MLA was re-introduced and passed by the Senate on January 31, 2001, as Bill S-2. It was referred to the House of Commons where it received its Second Reading on February 23, 2001. The Bill was referred to the Standing Committee on Transport and Government Operations (SCOTGO).

Amendments to the Shipping Conferences Exemption Act, 1987 (SCEA)

Following a review of the Shipping Conferences Exemption Act (SCEA), begun by Transport Canada in 1999, and including extensive consultations, Bill C-14 was introduced in Parliament on March 1, 2001. The Bill contains amendments to SCEA that relate to shipping and navigation. Transport Canada remains committed to ensuring that its shipping conference legislation is kept in balance with that of Canada's major trading partners, in particular the United States. The amendments promote a competitive operating environment in conferences and also support Canada's international trade. The Act attempts to ensure that Canadian shippers have access to a reliable level of service from international ocean shipping lines at reasonable cost.

Canada Shipping Act, 2001 (Bill C-14)

The Canada Shipping Act (CSA) is the principal legislation governing the operation of Canadian vessels, as well as the operation of foreign vessels in waters under Canada's jurisdiction. It is one of the oldest pieces of legislation still in effect in Canada. A complete rewrite of the CSA was undertaken and was introduced in the House of Commons on June 8, 2000, as the Canada Shipping Act, 2000 (Bill C-35). This legislation modernizes all aspects of the current CSA. The legislation introduces a new enforcement scheme that seeks to encourage and promote compliance by means of administrative penalties, thus, reserving the court system for only the most serious offences.

Bill C-35 died on the order paper when Parliament was dissolved. It was re-introduced in the House of Commons on March 1, 2001, as the Canada Shipping Act, 2001 (Bill C-14), which received second reading on March 16, 2001, and was then referred to the Standing Committee on Transport and Government Operations (SCOTGO).

Transportation and International Initiatives

Organisation for Economic Co-operation and Development (OECD) - Maritime Transport Committee

Through the Maritime Transport Committee, the Organisation for Economic Co-operation and Development (OECD) continued work on various maritime issues. Of particular interest was a workshop on Regulatory Reform in International Maritime Transport that focused on liner shipping conferences and questions concerning the application of antitrust laws.

More than 100 participants representing maritime and competition administrators, shipowners, shippers and freight forwarders attended. They openly expressed their views on such issues as removal of immunity from antitrust laws, setting common conference tariffs, discussion and capacity agreements, and recent reviews of domestic conference legislation in OECD countries.

Shippers strongly endorsed lifting antitrust immunity for conferences, while shipowners and a number of OECD countries argued that the current system is working well and is necessary to ensure the availability of services to shippers.

The workshop resulted in the recommendation that the Maritime Transport Committee continue to investigate antitrust immunity, common pricing behaviour, and the impact of various types of operating agreements between carriers.

Industry Events

International

• Concentration is increasing in international liner shipping. The top 20 companies now control 76 per cent of the world's cellular fleet, up from just over 50 per cent in 1995.
• The financial recovery enjoyed by the liner shipping industry during 1999 continued through 2000.
• Two established shipping lines added direct calls at Halifax to their transatlantic services during 2000 -Costa Container Line and Mediterranean Shipping Company.
• Vancouver also has new services calling: China Shipping Container Line introduced a service to the Far East in July 2000 and Compania Sud Americana De Vapores (CSAV) started a new service operating from the Far East to Vancouver and then outbound to Central and South America.
• Two independent operators - Norasia Lines and BOLT Canada Line - withdrew their services to Montreal early in 2000.
• CP Ships continued on its expansion path, acquiring TMM Lines shareholding in Americana Ships in January 2000 and then Christensen Canadian African Line in April 2000.
• CP Ships is also undertaking a major fleet retonnaging program, including both new building orders and the acquisition of used vessels. CPR Ships currently ranks as the 11th largest container operator in the world, based on its fleet capacity, according to Containerization International.
• Kent Line (Irving Group) has entered into a vessel sharing agreement with Seaboard Marine for a service that will call in Miami and the Caribbean.
• Matson Navigation announced that it was dropping its West Coast marine feeder service, connecting the Pacific Northwest and California, in favour of intermodal rail service late in 2000.

Domestic

• Algoma Central Corporation and Upper Lakes Group Inc. announced the pooling of their straight deck bulker and self-unloader fleets into a single new entity, Seaway Marine Transport, early in 2000.
• CSL Group purchased the 50 per cent stake in Marbulk Canada Inc. belonging to Upper Lakes Group to become partners with Algoma Central Corporation.
• Rotterdam-based Smit International acquired Rivtow Marine Ltd., the second-ranked tugboat company in British Columbia.
• The year 2000 marks the last year that the Canadian Coast Guard will administer the Eastern Arctic Sealift, a responsibility to be assumed in future years by the Government of Nunavut.

Marine Freight Transport Services

Domestic Services

From 1980 to 1997, the Canadian merchant fleet, defined here as self-propelled Canadian-flagged vessels of 1,000 gross tonnes and over, lost on average one per cent of its carrying capacity each year, declining from 3.4 million to 2.3 million deadweight tonnes. Carrying capacity (deadweight) started a recovery process in 1998 to reaching nearly 2.9 million tonnes by the end of 2000.

The number of ships followed a similar trend, falling from 261 to 174 vessels over the 1980-1997 period, before rising to 182 ships in 2000. Figure 11-5 illustrates the evolution of the Canadian registered fleet from 1980 to 2000.

From 1980 to 2000, dry bulk carriers remained the backbone of the Canadian merchant fleet, although this segment's share of total deadweight tonnage dropped from 81 to 69 per cent over the period. The total fleet of dry bulk carriers fell from 129 to 72 vessels, on the other hand, tankers' share rose from 10 to 21 per cent of total deadweight tonnage, although their number declined from 39 to 22 vessels.

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

Eastern Canada

In January 2000, Algoma Central Corporation and Upper Lakes Group Inc. announced the merger of their pooled fleets, Seaway Self Unloaders and Seaway Bulk Carriers into a new entity, Seaway Marine Transport. Algoma Central and Upper Lakes will continue to independently own and operate the 43 vessels dedicated to the pool.

The merger of Algoma and Upper Lakes Group's entire dry bulk fleets continues a pattern of fleet consolidation that started in 1990 with the pooling of the firms' bulker fleets into Seaway Bulk Carriers. The driving force then came from the dwindling of the eastbound movement of export grain - the primary cargo for Great Lakes bulkers - thus pressuring the Canadian bulker fleets to reduce costs wherever possible. In 1991, Canada Steamship Lines, Misener Holdings Ltd. and James Richardson & Sons Ltd. followed suit and pooled their 16 bulkers to create Great Lakes Bulk Carriers (GLBC). In 1994, Algoma and Upper Lakes Group swallowed up GLBC and also extended their partnership to the self-unloader side by forming Seaway Self Unloaders. The two partners hope to achieve further increases in efficiency by integrating both bulkers and self-unloaders.

On the international side of their operations, the companies also participate in pooling arrangements. In January 2000, Canada Steamship Lines Inc. (CSL) purchased the 50 per cent stake in Marbulk Canada Inc. belonging to Upper Lakes Group, becoming partners with Algoma Central Corporation. Marbulk operates a fleet of eight self-unloading bulk carriers in international trades. The Marbulk commercial operation has since been integrated into CSL International Inc., a subsidiary of CSL, which also operates a fleet of self-unloading bulk carriers in international trades.

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 and over in eastern Canada. Algoma Central Corporation, Upper Lakes Group, and Canada Steamship Lines are the three largest operators in the area. Algoma Central Corporation, with 28 per cent of eastern Canada's fleet capacity, is the largest inland shipping company in Canada.

Western Canada

A large fleet of tugs and barges provides domestic marine cargo services on the West Coast. (Unfortunately, there is no fleet list available by company providing GRT for their tugs and barges.) Most of the operators concentrate on domestic trade, but some trade internationally between Canadian and US ports. There is also a significant fleet of ferry vessels providing links to coastal and island communities.

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

The second-ranked tugboat company in British Columbia, Rivtow Marine Ltd., was acquired during 2000 by a Canadian subsidiary of Rotterdam-based Smit International. The acquisition included Rivtow's wholly owned subsidiary Tiger Tugz Inc. and its interest in Westminster Tug Boats.

Northern Canada

Headquartered in Hay River, Northern Transportation Company Limited (NTCL) is the principal marine operator in the area of Northern Canada that encompasses the Mackenzie River Watershed and the Arctic coast and islands. Its operations cover the Mackenzie River, the western Arctic, Alaska and Great Slave Lake. Operating on the Mackenzie River since 1934, NTCL handles bulk petroleum products and dry cargo for communities, defence installations and gas exploration sites across the North.

Northern Transportation Company Limited has also provided tug and barge operations since 1975 from the Port of Churchill to service communities in what is now the Kivalliq region of Nunavut. In 1987, the company established an eastern Arctic Sealift marshalling and packaging service out of Montreal, operated through its subsidiary, NorTran Inc. In 1996, NTCL expanded its eastern Arctic operations when the company secured a contract to resupply fuel to Baffin communities, using chartered ice-strengthened tankers.

Lloyd's List of Shipowners, Managers, and Managing Agents, 1999-2000 records NTCL as the owner of 87 vessels, including 71 barges (mainly tank barges that carry dry cargo on their decks) and 16 tugs, with a total 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 date from 1969 to 1975.

NTCL is a member of the NorTerra group of companies. NorTerra Inc. is a 100-per cent Aboriginally owned holding company. It is managed and owned equally by Inuvialuit Development Corporation, representing the Inuvialuit of the western Arctic, and Nunasi Corporation, representing the Inuit of Nunavut.

A. Frame Contracting Ltd. and Cooper Barging Service Ltd. are other long-term operators in the western Arctic. A. Frame Contracting operates a tug and several barges, providing seasonal barge services to communities on Lake Athabasca. Cooper Barging Service operates a fleet of three tugs and six barges, providing resupply services on the Mackenzie and Liard Rivers from its base at Fort Simpson.

For over 40 years, the Canadian Coast Guard has been co-ordinating the movement of goods in the eastern Arctic. The Coast Guard Arctic Sealift divides the eastern Arctic communities into five zones, combining smaller communities with larger centres in the same zone. This allows all communities to share in a lower average shipping rate through economies of scale, with the same rate applying regardless of the size of the shipment.

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. Coast Guard personnel lease space on ships, act as booking agents, negotiate the lowest freight rates with the carriers, and monitor the movement of the cargo until it is discharged at its destination. Working under contract with the Coast Guard, commercial cargo vessels and tankers transport dry cargo from its main marshalling base in Montreal and bulk fuel from northern distribution points to communities in the eastern Arctic (Nunavut) during the ice-free summer period. The Sealift Program serves 26 communities in the areas of Foxe Basin, the High Arctic, and the South and East Baffin. In 1999, a total of 11,045 tonnes of cargo were delivered to all of the communities.

The year 2000 was the last year that the Canadian Coast Guard administered the Arctic Sealift. In September 2000, the Minister of Fisheries and Oceans announced that the Government of Canada is transferring responsibility for the Arctic Sealift operations to the Government of Nunavut, effective at the end of the 2000 shipping season.

In addition to the Arctic Sealift to the Baffin Region of Nunavut and the Northern Transportation Company Limited service to the Kivalliq Region out of Churchill, the Quebec Ministry of Transportation manages resupply services to the Nunavik Region, while Moosenee Transport Ltd. handles cargo originating in Toronto and bound for the James and Hudson Bay Cree out of Moosenee.

Carriers active in the eastern Arctic resupply include Northern Transportation Company Limited, Transport Desgagnés, C.A. Crosbie Shipping Ltd., Transport Nanuk Inc., McKeil Work Boats Ltd., and Moosenee Transport Ltd., a tug and barge operator servicing James Bay and the lower part of Hudson Bay.

In addition to community resupply, mines such as Polaris and Nanisivik have vessels calling with supplies inbound and carrying zinc and lead concentrates to world markets outbound. Fednav, the owner of the MV Arctic, is active in this market.

International Services

International marine freight transport consists mainly of liner and bulk shipping.

Bulk Shipping

In general, bulk shipping refers to the sector of the marine freight industry that carries single cargoes in
large volume ships. Canadian shippers of bulk commodities - including grain, coal, iron ore and potash - rely on bulk shipping operators to move their cargo.

The open global market sets bulk freight rates. In general, the market is highly competitive and 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. During periods of greater predictability in transportation rates, longer contracts are common, while shorter contracts usually prevail when prices are unstable. These types of marine service arrangements move the majority of Canada's exports and imports.

Short-term contracts covering a specific number of voyages, days or given quantity of cargo make up the "spot" or "tramp" market, with prices 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

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

Controlled to a large degree by Pacific Rim and western European interests, the international liner trade is dominated by large fleets of specialized container vessels operating on major trade routes around the world. Canadian Pacific subsidiary CP Ships controls a significant fleet that ranks 11th in the world, based on vessel capacity and number of ships.Note 9 Much of CP Ships' fleet has been amassed through the acquisition of foreign shipping lines over the past few years. The vast majority of vessels in the Canadian-controlled international fleet operate under foreign flags and employ foreign officers and crew.

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 the Shipping Conferences Exemption Act (SCEA), a group of lines are entitled to operate under a conference agreement that exempts certain practices of the conferences from the provisions of the Competition Act. The Canadian Transportation Agency is responsible for administering the SCEA.

"Independent" shipping lines or non-conference carriers are those that choose not to participate in conferences. They generally offer rates and services that are comparable with conference operators and contribute to a competitive international shipping industry. In recent years, the tonnage carried by non-conference carriers has been increasing compared with the tonnage carried by conference operators visiting Canadian ports.

Services Available to Canadian Shippers

In 2000, the Canadian Transportation Agency had 15 shipping conference agreements on file. Thirteen of these conferences filed tariffs with the Agency, the same number as in 1999. Most 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, Mitsui O.S.K. Lines and Orient Overseas Container Line.

Table 11-11 lists the 12 tariff-filing conferences serving Canada in 2000. Eleven serve the East Coast, and seven serve the West Coast. The Japan-East Canada Freight Conference and the Japan-West Canada Freight Conference, which appeared on the list for 1999, have now been dissolved, further reducing the number of active conferences.

Shippers benefit from competition within conferences through the independent action provisions contained in the Shipping Conferences Exemption Act, as well as between conference and non-conference carriers. The competition provisions permit individual conference lines to offer rates or services different from those published as part of the conference tariff. In addition, shipping conference rates paid by shippers can be negotiated through "service contracts" between a conference and a shipper. To comply with the Act, service contracts must be filed with the Canadian Transportation Agency.

For the year 2000, the Agency accepted filings for 94 service contracts from seven conferences, one less than the 95 filed in 1999. 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 for one year.

Marine Passenger Transport Services

Ferry Services

Canada's ferry services 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-type vessels and fast ferries) and operations (seasonal to year-round schedules). Ferry companies, municipalities, provincial and federal governments, and private companies also variously own, lease and operate terminal and docking facilities. All major ferry operators in Canada belong to the Canadian Ferry Operators Association (CFOA).

Federal Subsidies to Ferry Operations

In 1995, the National Marine Policy outlined the federal government's goal to make the marine sector more commercially oriented and reduce its involvement in the direct delivery of transportation services. This move was intended to allow the private sector to provide some of these services.

In 1997, Marine Atlantic Inc., a federal Crown corporation, commercialized several of its routes and had its subsidies reduced to approximately $32 million in 2000/01 from a peak of $122 million in 1993. The corporation will continue to provide constitutionally guaranteed ferry services between Nova Scotia and Newfoundland.

Federally supported ferry services in Atlantic Canada are now limited to those provided by Marine Atlantic Inc. and by three private-sector operators: Northumberland Ferries Ltd., Bay Ferries Ltd. and C.T.M.A. Traversier Ltée.

As a further example of improved efficiencies and how the National Marine Policy is being successfully implemented in the ferry program, the agreement with Bay Ferries Ltd. has been structured to phase out both operating and capital subsidies by 2000/01. Beginning in 2001, the company will continue to operate as an independent commercial ferry service.

Service to Canadians remains critical in the management of ferry operations. In light of increased demand and anticipated traffic growth between Newfoundland and Nova Scotia, Marine Atlantic Inc. has procured a fourth vessel, the MV Stena Challenger, to address fleet capacity requirements. This new vessel will enter into service for the 2001 summer season.

Cruise Ship Industry

The large cruise vessels calling at Canada's ports are owned by foreign-based companies and fly foreign flags. The extended cruises offered by these vessels fall into two basic categories - the luxury cruise and the pocket cruise, distinguished by vessel capacity of more or less than 150 passengers.

Optimism for the continued growth of the international cruise sector continued high in all regions of Canada, where ports are continuing to invest in new infrastructure to serve this growing market. The Vancouver Port Authority has begun construction of a third cruise berth at Canada Place to be ready in time for the 2003 cruise season, at a cost of $79 million. Also on the West Coast, Prince Rupert is refurbishing its small ship cruise facility in anticipation of 25 pocket cruise ship calls in 2001. They are also looking at the possibility of developing a docking facility for large cruise vessels.

On the East Coast, Halifax opened its Cruise Pavilion in September 1999 and continues to invest in improvements to its facilities. The Canadian government has announced that it is funding the expansion of the cruise ship terminal at Pointe-à-Carcy, in Quebec City's Old Port, with work to be completed in time for the 2001 season.

Alaska cruises through British Columbia's scenic Inside Passage are the third most popular cruise in the world, after the Caribbean and the Mediterranean. Most luxury cruise vessels sailing to Alaska use the Port of Vancouver as their home port (where passengers embark and/or disembark) because the US Passenger Vessel Act prohibits foreign-flag vessels from carrying passengers between US ports. Trips between Vancouver and Alaska also fit conveniently into a seven-day time frame. Seattle has recently opened a new cruise facility and has attracted calls by the Norwegian Cruise Line during 2000. Ships calling in Seattle and travelling to Alaska include a call at Vancouver/Victoria in their itinerary in order to comply with the US Passenger Vessel Act. Three-to-four-day pocket cruises were also operated out of Seattle in 2000 with calls in Vancouver and Victoria and proved popular.

In eastern Canada, luxury cruise ships regularly sail out of New York and up the eastern seaboard with calls at Halifax, Charlottetown and other East Coast ports before entering the St. Lawrence River, where they call at Quebec City and Montreal. Shorter cruises out of New York or Boston travel northward to Halifax, Saint John and other Atlantic ports. The cruising season used to be concentrated in the fall colour season but now extends over several months, beginning as early as May or June. The world's major cruise lines - including Carnival, Royal Caribbean, Cunard, Princess, Holland America, and others - all call at eastern Canadian ports. Pocket cruises travel the St. Lawrence River between Montreal or Quebec City and Kingston or Rochester, or even travel by canal through New York State up to Lake Ontario and then into the St. Lawrence River. Vessels travelling into or out of the Great Lakes on repositioning voyages also call at Quebec and Atlantic ports en route.

On the Great Lakes, Hapag Lloyd's luxury vessel, Columbus, with accommodation for 420 passengers, continued to offer its popular cruises during 2000. The French yacht, Le Levant, carrying 90 passengers, also called again in 2000. Other pocket cruise vessels are also operating. Windsor has been chosen as the home port for the 225-passenger Arcadia, beginning calls in 2001. Seventeen US and Canadian Great Lakes ports (including Chicago, Toronto and Thunder Bay) joined together in 1999 to found the Great Lakes Cruising Coalition to market the area.

Local Canadian operators also offer a multitude of lock, harbour and river cruises, as well as excursions for such activities as whale watching.

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Rail Industry

Trucking Industry

Bus Industry

Marine Transportation Industry

Air Transportation Industry

NOTES:

8 Some initiatives started in 2000, or before, that entered formally the legislative process in 2001 are also presented in this sub-section.

9 Containerisation International; "Packing a Punch - The World's Top 20 Liner Operators," November 2000, page 54-59.