10

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Marine Transportation Industry

Canada's marine industry is made up of a fleet of Canadian flag operators that provide domestic and transborder shipping services, while foreign-flag operators calling at Canada's major ports, provide services for overseas international trade. There have been major policy reforms in the marine sector in recent years. Once again, 2001 was marked by a number of important events and progress on some significant legislative changes.

Major Marine Events in 2001

Legislative and Regulatory Changes and Initiatives

Marine Liability Act

In January 2001, the government introduced a new Marine Liability Act (MLA) in the Senate as Bill S-2. Bill S-2 moved successfully through Parliament, received Royal Assent on May 10, 2001, and came into force on August 8, 2001. The new Marine Liability Act is now implemented in Chapter 6 of the Statutes of Canada, 2001.

This legislation adopts a new regime of shipowners' liability to passengers and a new regime for apportioning liability. It also consolidates existing marine liability regimes into a single Act. The new Act enables passengers to seek compensation for damages suffered while travelling by ship.

New Marine Liability Regulations are now being developed to deal with liability for oil pollution damage and for passengers carried by water.

Canada Shipping Act (CSA), 2001

At the top of the list of legislative accomplishments was Royal Assent on November 1, 2001 of Bill C-14, the Canada Shipping Act, 2001.

The CSA is one of the oldest pieces of legislation still in effect in Canada - it is also the principal legislation governing the operation of Canadian vessels, as well as the operation of foreign vessels in waters under Canada's jurisdiction.

The overhaul of the CSA began in 1996 and its final product, the CSA 2001, is the result of extensive consultations with a wide range of marine stakeholders. The new Act is a reorganized, updated and streamlined piece of legislation that represents the government's commitment to modernize shipping legislation and promote the economic growth of the shipping industry.

Although the CSA 2001 has received Royal Assent the coming into force date will not take place until the supporting regulatory framework is in place. Among other things, the new Act simplifies the legislative framework, removing technical detail that is better placed in regulations, standards or other documents. Consultations with stakeholders are currently taking place to ensure that the new regulations contribute to the economic performance of the marine industry while maintaining safety as a priority and protecting the marine environment.

Amendments to the Shipping Conferences Exemption Act

A shipping conference is an association of liner companies operating under an agreement to provide ocean transportation services on common routes and using common rates and terms of service. The Shipping Conferences Exemption Act (SCEA) exempts certain shipping conference practices from the provisions of the Competition Act. Following an extensive review of SCEA, Bill C-14 received Royal Assent on November 1, 2001. The Bill contained amendments to SCEA that inject greater competition into liner shipping conference operations. The amendments support Canada's goals of promoting international trade and ensuring that Canadian shippers have access to adequate international ocean shipping services at a reasonable cost. The amendments also keep Canada's shipping conference legislation in balance with major trading partners, in particular the United States.

Industry Events

International

• The Korean carrier Cho Yang declared bankruptcy in mid-2001. Two alliances have reshuffled their memberships as a result. Cho Yang's former partners -- Hanjin and Senator Lines -- have now joined COSCO, K-Line and Yang Ming in a new alliance.
• In October 2001, Tropical Shipping Ltd. acquired Kent Line's weekly container service from Saint John to the Caribbean and South America. Kent Line will concentrate on its breakbulk transport services in the future.
• Concentration in the international liner industry continued to increase, with the top 20 carriers controlling 83 per cent of the world's cellular fleet in 2001, compared with 70 per cent in 1998 (Containerization International). CP Ships now ranks as the tenth largest liner operator in the world.
• CP Ships was spun off in 2001 by its parent company to become a separately traded public company at the end of September 2001.
• CP Ships and Canadian Pacific Railway Ltd. (CPR) (also now a separate company) announced a long-term agreement, extending to 2014, under which CPR will continue as CP Ships' exclusive rail carrier in the Port of Montreal.
• On the west coast route to Australia/New Zealand, Columbus Line, P&O Nedlloyd, FESCO and ANZDL implemented a new vessel-sharing agreement in 2001. Their service includes a call at Vancouver.
• Another new joint service was also established on the West Coast in 2001. Lykes Line, Columbus, Maruba and TMM are now operating a joint service from the west coast of North America to Mexico and the west coast of South America. This service now includes service to the Far East as well.

Domestic

• Upper Lakes Group (an operator of traditional self-propelled tonnage) has formed a joint venture with McAsphalt Industries Ltd. to construct and operate a new barge/tug unit to carry heavy oils and asphalt products on the Great Lakes and the St. Lawrence River, and along the East Coast.
• Canada Steamship Lines purchased the assets of Parrish & Heimbecker's Shipping Division, which included the vessels Oakglen and Mapleglen. The company will use these two bulkers in the conventional grain and iron ore trades on the Great Lakes.
• During 2001, Algoma Tankers sold off the Algoscotia, formerly part of the Imperial Oil fleet, because of the requirement for double-hulled protection on ships carrying petroleum products.
• Water levels on the Great Lakes remained low again in 2001, particularly for Lake Michigan and Lake Huron, forcing vessel operators to reduce their loads. These reductions affected operators' profits because costs remained the same but revenues per load (based on tonnage carried) were reduced.

Marine Freight Transport Services

Domestic Services

Over the last 25 years (1976 - 2001), the Canadian merchant fleet (defined here as self-propelled vessels of 1000 gross tons and over flying the Canadian flag) has faced many economic and financial difficulties. After its 1981 peak of 271 vessels and a combined loading capacity of 2.7 million gross tons,Note 6 the Canadian merchant fleet experienced a slow decline to a low of 174 vessels and two million gross tons (carrying capacity) in 1997. Carrying capacity started a recovery process in 1998, with 180 vessels and over 2.3 million gross tons by the end of 2001.

Figure 10-6 illustrates the evolution of the Canadian registered fleet from 1976 to 2001.

Although dry bulk carriers registered a declining share in terms of gross tons and number of vessels from 1981 to 2001, they remain the backbone of the Canadian merchant fleet, accounting for 55 per cent of tonnage and 39 per cent of vessels in 2001. Dry bulk carriers totalled 71 vessels in 2001, composed of straight-deck bulkers dedicated mainly to grain transportation and self-unloaders carrying various bulk commodities. While tankers' share rose from 11 to 21 per cent of total gross tonnage thanks to the addition of larger units, their number fell from 41 to 22 vessels over this period.

An extensive fleet of tugs and barges also operates both domestic and international services. In 2001, the Canadian Transportation Agency estimated that the Canadian fleet of tugs and barges was made up of 334 tugs (115,000 gross tons) and 1,245 barges and scows totalling nearly 1.2 million gross tons of capacity.

Table 10-9 shows the transport capacity of the Canadian registered fleet by type of vessel from 1981 to 2001.

Eastern Canada

Table 10-10 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 over in eastern Canada. Algoma Central Corporation, Upper Lakes Group, and Canada Steamship Lines are the three largest operators in this area. Algoma Central Corporation, with 27 per cent of eastern Canada's fleet capacity, is the largest inland shipping company in Canada.

Consolidation continued in the domestic Great Lakes fleet during 2001, with Canada Steamship Lines (CSL) acquiring the shipping division of Parrish & Heimbecker (P&H), including its two straight-deck bulk carriers.

Western Canada

A large tug and barge fleet provides domestic marine cargo services on the west coast. Most of the operators in this fleet concentrate on the domestic trades, but some also trade internationally between Canadian and US ports. A significant fleet of ferry vessels also provides links to coastal and island communities.

The Washington Marine Group, owned by Montana businessman Dennis Washington, controls several of the largest tug and barge operations, including Seaspan International Ltd., Cates Tugs, Norsk, and Kingcome Navigation Company (formerly owned by MacMillan Bloedel). Seaspan International Ltd., the largest Canadian tug and barge operator on the west coast, focuses on tug and barge transportation, log barging and ship docking.

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

Northern Canada

Western Arctic

Northern Transportation Company Limited (NTCL) is the principal marine operator in northern Canada. Its operations cover the Mackenzie River, the western Arctic, Alaska and Great Slave Lake, and include bulk petroleum products and dry cargo for communities, defence installations, and gas exploration sites across the North. NTCL also provides tug and barge operations from the Port of Churchill to service communities in what is now called the Kivalliq region of Nunavut.

NTCL operates an Eastern Arctic Sealift Marshalling and Packaging Service out of Montreal through its subsidiary, NorTran Inc. In addition, the company further expanded its eastern Arctic operations in 1996, when it secured a contract to resupply fuel to Baffin communities using chartered foreign ice-strengthened tankers. It is also currently a partner in the N3 Alliance, to which the Nunavut government awarded a two-year contract to coordinate the Eastern Arctic Sealift.

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

Other long-term operators in the western Arctic include A. Frame Contracting Ltd. and Cooper Barging Service Ltd. A. Frame Contracting Ltd. operates a tug and several barges and provides seasonal barge services to communities on Lake Athabasca. Cooper Barging Service Ltd. provides resupply services on the Mackenzie and Liard Rivers from its base at Fort Simpson. During 2001, Cooper took delivery of three new barges that were built in China.

Eastern Arctic

At the end of the 2000 shipping season, the Canadian Coast Guard transferred responsibility for the Arctic Sealift Operations to the Government of Nunavut. The Government of Nunavut awarded a two-year contract to the N3 Alliance to continue the Sealift, including three key services: administration of the Eastern Arctic Sealift, Marshalling and Packaging Services, and Marine Transportation of Goods.

The N3 Alliance is a joint venture between Northern Transportation Company Limited, Nortran Inc. and Nunavut Sealink and Supply Inc. (NSSI). Arctic Co-operatives Limited holds 60 per cent of the shares of NSSI, while Transport Desgagnés Inc. holds 40 per cent.

Although the Sealift contract is with the Government of Nunavut, any person or company can use the service and enjoy the same rates and services. The published resupply schedule for 2001 showed four vessels performing Arctic Sealift Operations: Mathilda Desgagnés, Anna Desgagnés, Cécilia Desgagnés and Jacques Desgagnés.

In addition, the Quebec Ministry of Transportation also manages resupply services to the Nunavik Region, while the James and Hudson Bay Cree receive supplies out of Moosenee (from cargo originating in the Toronto region).

Mines such as Polaris and Nanisivik also have vessels bringing supplies in to their operations, and carrying zinc and lead concentrates out to world markets. Fednav, the owner of the MV Arctic, is active in these operations.

International Services

Liner and bulk shipping constitute the main parts of international marine freight transport.

Bulk Shipping

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

Competition in the global open market sets bulk freight rates. The global market generally consists of time charters (term contracts) and the "spot" or "tramp" market, which consists of short-term contracts covering a specified number of voyages, days or given quantity of cargo. Spot prices are set in open markets and exchanges, and prices vary according to supply and demand factors, such as vessel size, equipment, trade route and timeliness of the service requirement.

The terms of charter contracts typically range from one to five years, depending on price volatility. 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 bulk exports and imports are moved under these types of arrangements on foreign-flagged vessels. Canadian-registered ships transport the majority of domestic shipments of bulk materials on the Great Lakes and along the coastline of Canada.

Table 10-10 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 over in Eastern Canada.

Liner Shipping

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

Large fleets of specialized container vessels operating on major trade routes around the world dominate the international liner trade. To a large degree, Pacific Rim and Western European interests prevail. CP Ships controls a significant fleet that ranks tenth in the world based on vessel capacity and number of ships.Note 7 CP Ships acquired much of its fleet by purchasing foreign shipping lines. 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 conference from the provisions of the Competition Act. The Canadian Transportation Agency is responsible for administering SCEA.

Lines that choose not to participate in conferences are considered "independent" shipping lines or non-conference carriers. These generally offer rates and services that are comparable with conference operators and contribute to a competitive international shipping industry. China Shipping Container Line, Coral Container Line, Costa Container Line, Hoegh Lines, Kent Line and Westwood Shipping Line were among the lines providing independent services to Canada in 2001. Liner operators may also choose to be a conference member on certain routes and an independent operator on others. For example, Maersk Sealand is a member of the Canadian conferences on the transpacific routes but is not a member on the North Atlantic.

Services Available to Canadian Shippers

In 2001, the Canadian Transportation Agency had 14 shipping conference agreements on file. Twelve of these conferences filed tariffs with the Agency while two of the agreements are non-tariff filing arrangements. Five of the conferences operate between Eastern Canada and Northern Europe and the Mediterranean. Atlantic Container Line, Canada Maritime Ltd., Hapag-Lloyd Container Line, P&O Nedlloyd, MITSUI O.S.K. Lines and Orient Overseas Container Line were some of the major lines serving Canada as conference members.

Table 10-11 lists the 12 tariff-filing conferences serving Canada in 2001. Eleven serve the East Coast, while seven serve the West Coast.

Shippers benefit not only from competition between conference and non-conference carriers, but also within conferences through the independent action provision contained in the Shipping Conferences Exemption Act. The provision permits individual conference lines to offer a rate, or services, different from those published as part of the conference tariff. The recently amended SCEA allows independent action by a conference line to take effect more quickly (five days as opposed to 15 in the old Act).

In addition, under the amendments to SCEA, individual conference lines may now sign service contracts with shippers without disclosing the contract terms and conditions to the conference. These pro-competitive provisions are designed to maintain Canadian conference legislation in balance with Canada's major trading partners and support the recent trend toward a greater reliance on the marketplace.

As under the previous legislation, conference-wide service contracts may also be negotiated and signed between a conference and a shipper. These contracts are confidential but, to comply with SCEA, must be filed with the Canadian Transportation Agency.

In 2001, the Agency accepted filings for 98 service contracts from seven conferences, four more than in 2000. The contracts applied to both inbound and outbound traffic and to origins/destinations on both the east and west coasts of Canada. The average duration of the contracts was one year.

Marine Passenger Transport Services

Ferry Services

Although most major ferry operators in Canada belong to the Canadian Ferry Operators Association (CFOA), Canada's ferry services vary widely. Ownership ranges 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; and operations range from 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.

Federal Subsidies to Ferry Operations

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

Since then, Marine Atlantic Inc., a federal Crown corporation, has commercialized some of its routes and transferred others to the Province of Newfoundland and Labrador. Its subsidies were in the order of $36 million in 2001/02, compared with a peak of $122 million in 1993. The corporation will continue to provide constitutionally guaranteed ferry services between Nova Scotia and Newfoundland.

Marine Atlantic Inc. and two private-sector operators, Northumberland Ferries Ltd. and C.T.M.A. Traversier Ltée, are now the only federally supported ferry services in Atlantic Canada. On the West Coast, the federal government also provides an annual grant to the BC Ferries Corp.

In addition, an agreement with Bay Ferries Ltd. for the two Bay of Fundy services has been structured to phase out operating subsidies by 2000/01 and capital subsidies by 2002/03. This agreement is another example of improved efficiencies and of the National Marine Policy's being successfully implemented in the ferry program. Beginning in 2002, the company will continue to operate as an independent commercial ferry service.

In the management of ferry operations, service to Canadians and security remain critical. In 2001, Marine Atlantic Inc. put the MV Leif Ericson (formerly the MV Stena Challenger), and recently acquired fourth vessel, into service to respond to increased demand and anticipated traffic growth between Newfoundland and Nova Scotia.

Cruise Ship Industry

Currently, the international cruise sector is experiencing a time of adjustment, with many factors at work. The events of September 11, 2001, occurred when the industry was already beginning to feel the effects of the economic slowdown and facing a considerable backlog of large new ships coming into service over the next 12 months. The fallout from the terrorist attacks pushed US-based Renaissance Cruises and American Classic Voyages into bankruptcy. American Classic Voyages had vessels calling in eastern Canada and the Great Lakes.

Other companies have reduced their staff, and still others are involved in mergers. In November, Royal Caribbean and P&O Princess Cruises (the second- and third-largest cruise operators after Carnival) announced that they were planning to merge their operations, pending regulatory approval. Then in December, Carnival announced a rival takeover bid for P&O Princess Cruises in a move planned to upset its proposed merger with Royal Caribbean.

On the Alaskan route, environmental concerns again surfaced as a major issue in 2001. Alaska passed a stringent new law to regulate cruise ship pollution in state waters. Several vessels were cited for violations during 2001. Areas of concern relate to visible smoke emissions, air quality, traffic in communities, wastewater discharge, oil spill response, and the impact on sea life.

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

After the Caribbean and the Mediterranean, Alaska cruises through British Columbia's scenic Inside Passage are the most popular 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 seven days. Seattle's recently opened cruise facility attracted calls by the Norwegian Cruise Lines during 2000 and 2001. To comply with the US Passenger Vessel Act, ships calling in Seattle and travelling to Alaska include a stop at Vancouver/Victoria. Mini-cruises (three to four days) operate between Seattle, Vancouver and Victoria, and are proving increasingly popular with the public.

In eastern Canada, luxury cruise ships regularly sail out of New York and up the eastern seaboard. They make stops in Halifax, Charlottetown and other east coast ports before entering the St. Lawrence River for calls at Quebec City and Montreal. There are also shorter cruises out of New York or Boston, which travel northward to Halifax, Saint John and other Atlantic ports. The fall colour season used to see the heaviest traffic, but the cruising season now extends over several months, beginning as early as May or June. Eastern Canadian ports receive calls from all the world's major cruise lines -- including Carnival, Royal Caribbean, Cunard, Princess, Holland America and others. Pocket cruises travel the St. Lawrence River between Montreal or Quebec City, and Kingston or Rochester. They 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.

Across Canada, local Canadian operators offer a multitude of lock, harbour and river cruises, as well as excursion cruises, such as those for whale watching.

STRUCTURE OF THE TRANSPORTATION INDUSTRY

Rail Industry Structure

Trucking Industry

Bus Industry

Marine Transportation Industry

Air Transportation Industry

Appendix 10-1 Canadian Air Transport Security Authority (CATSA)
Appendix 10-2 Bill C-42:  The Public Safety Act

NOTES

6. Gross tonnage is the capacity in cubic feet of the spaces within the hull and of the enclosed spaces above the deck of a vessel, divided by 100. Thus 100 cubic feet of capacity is equivalent to one gross ton. However, capacity of a cargo carrying ship can also be expressed as deadweight in tonnes (1000 kg) required to immerse the hull at a particular draught (usually the maximum summer draught).

7. Containerization International: "The Big Have Got Bigger," November 2001, page 63.