Vol. 143, No. 20 — September 30, 2009

Registration

SOR/2009-272 September 17, 2009

PILOTAGE ACT

Regulations Amending the Great Lakes Pilotage Tariff Regulations

RESOLUTION

Whereas the Great Lakes Pilotage Authority, pursuant to subsection 34(1) (see footnote a) of the Pilotage Act (see footnote b), published a copy of the proposed Regulations Amending the Great Lakes Pilotage Tariff Regulations, in the annexed form, in the Canada Gazette, Part I, on July 18, 2009;

Therefore, the Great Lakes Pilotage Authority, pursuant to subsection 33(1) of the Pilotage Act (see footnote c), hereby makes the annexed Regulations Amending the Great Lakes Pilotage Tariff Regulations.

Cornwall, August 19, 2009

ROBERT F. LEMIRE
Chief Executive Officer
Pilotage Authority

P.C. 2009-1597 September 17, 2009

Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, Infrastructure and Communities, pursuant to subsection 33(1) of the Pilotage Act(see footnote d), hereby approves the annexed Regulations Amending the Great Lakes Pilotage Tariff Regulations, made by the Great Lakes Pilotage Authority.

REGULATIONS AMENDING THE GREAT LAKES PILOTAGE TARIFF REGULATIONS

AMENDMENT

1. Section 4 of the Great Lakes Pilotage Tariff Regulations (see footnote 1) is replaced by the following:

4. A surcharge of 15% is payable until December 31, 2010 on each pilotage charge payable under section 3 for a pilotage service provided in accordance with any of Schedules I to III.

COMING INTO FORCE

2. These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issue

During the past four years, the Authority has experienced significant changes in traffic levels while salary increases for its pilots has influenced the costs of its pilotage services. Traffic levels during 2006 and 2007 were generally stable and generated modest surpluses. During 2008, however, traffic levels decreased by 17%, due to a sharp decline in traffic particularly during the latter months of the year. During the first few months of the 2009 navigational season, traffic levels took a significant plunge and have fallen by approximately 30% due to the worldwide economic recession. This decline has produced further successive losses in revenue during this two-year period despite recent tariff increases and the Authority has had to rely on external borrowing. During the past four years, the Authority’s cash flows have been insufficient to reduce its accumulated cash deficit of approximately $3.3 million. Presently, the Authority has an accumulated cash deficit of $3.6 million and has sought to extend its level of external borrowing.

Without implementation of the 15% temporary surcharge and the significant reduction in its pilot numbers, the Authority’s accumulated cash deficit would probably have increased to $4.9 million at the close of the 2009 navigational season.

This amendment to the Great Lakes Pilotage Tariff Regulations (the Regulations) is intended to allow the Authority to operate on a self-sustaining financial basis. The temporary surcharge is intended to realize a positive cash flow at the end of 2010. This positive cash flow will ensure that the costs for the Authority’s pilotage services up until the close of the 2010 navigational season are fully covered and the remaining funds are allocated to reducing its deficit. This temporary surcharge involved extensive consultation and discussions with the marine industry and other key stakeholders operating within the Great Lakes region.

Objectives

The Authority is responsible for administering, in the interests of safety, an efficient pilotage service within Canadian waters in the province of Quebec, south of the northern entrance to Saint-Lambert Lock and in and around the provinces of Ontario and Manitoba. The Authority is required to prescribe tariffs of pilotage charges that are fair and reasonable and consistent with providing revenues sufficient to allow the Authority to operate on a self-sustaining financial basis. Mindful of the present economic situation, its clients and its Board, the Authority strives to be financially self-sufficient. In addition, the Treasury Board and the Office of the Auditor General in its Special Audit Report of April 2008 require the Authority to take appropriate measures to be financially self-sufficient and to eliminate its deficit within the next five years. The Authority has consequently increased its current 6% surcharge to a 15% temporary surcharge on all pilotage invoices until December 31, 2010. This surcharge is intended to ensure that the Authority will have a positive cash flow that will fully cover the costs of pilotage services to its clients and provide funding to reduce its accumulated $3.6 million deficit while continuing to provide a safe and efficient pilotage service in accordance with the Pilotage Act (the Act).

Description

The Authority is increasing its 6% temporary surcharge and implementing a 15% temporary surcharge on all its pilotage invoices until December 31, 2010. This 15% temporary surcharge is calculated on a 2009 base rate.

Regulatory and non-regulatory options considered

Retention of the existing tariff rates was a possible option. The Authority, however, rejected this status quo position since it has an accumulated deficit of $3.6 million and must take measures to ensure its financial self-sufficiency and reduce its deficit. During 2006 and 2007, the Authority produced modest surpluses; however, during the past two years it has incurred increasing losses, particularly due to the current worldwide economic recession and it has had to rely on external borrowing. In accordance with the Special Audit Report of April 2008, the Authority is required to be financially self-sufficient and eliminate its deficit by 2013.

Since the decision was taken to approve the 15% temporary surcharge, valid until December 31, 2010, the Authority’s revenues have fallen based on a substantial decline in traffic levels due to the current worldwide economic situation. During this period, the Authority has continued to keep its administrative costs at the lowest possible level. Over 90% of the Authority’s expenses are on pilot salaries and direct operating expenses, and less than 10% are on administrative overheads.

The personnel at headquarters includes nine administrative officers and staff and also eight full-time dispatchers. This number is essential to administer and maintain an efficient pilotage service from Saint-Lambert Lock (Montreal) to Thunder Bay, including multiple ports within the Great Lakes and the St. Lawrence region. As part of its cost-cutting measures to generate savings in 2009 and 2010, the Authority has reduced eight pilot positions by means of an early retirement incentive program for senior pilots. This represents a 15% reduction in pilot numbers and will provide savings of approximately $1.7 million. In addition, it is deferring pilot training and development, deferring staff/ management professional development, limiting salary increases and reducing travel and maintenance costs. These measures are expected to create savings of approximately $2.0 million and will contribute substantially to keeping tariff increases as low as possible.

Benefits and costs

The 6% temporary surcharge brought into effect by SOR/2009-124 on April 23, 2009, has generated approximately $110,800, per month, pro-rated on an annual revenue of $998,000. If the 15% temporary surcharge comes into effect on October 1, 2009, the Authority will generate an additional $526,500 for the remaining 3 months of 2009. In 2010, the 15% temporary surcharge is expected to generate approximately $2.0 million. It is anticipated this increase will provide the Authority with a positive cash flow in 2010. This positive cash flow will ensure the Authority’s self-sufficiency for 2010 and provide additional funding of approximately $1.7 million that will be allocated to reducing its deficit. The Authority’s savings due to its continuous cost-cutting measures will also have a positive impact on its revenue for 2010.

For an average-sized ship transiting the Seaway between Saint-Lambert Lock (Montreal) and Thunder Bay, the current pilotage charge is $40,000 for a one-way trip. With the 6% temporary surcharge increase to 15%, the pilotage charge will be $43,000 for a one-way trip or about $2.00 a ton. The pilotage charge in 2010 will remain at $43,000 for a one-way trip. For a round trip, the above charges are doubled.

There are presently fewer than 20 companies operating foreign-flag ships within the Great Lakes that employ Authority pilots. For a foreign-flag ship transiting the Great Lakes, its total pilotage costs represents approximately 3% of its total operating costs. The increase in pilotage costs attributed to the 15% temporary surcharge will represent approximately 0.5 % of the ship’s total operating costs. For the few Canadian flag ships that employ Authority pilots, they will experience a similar percentage increase as the foreign-flag ships transiting the Great Lakes.

The Authority’s pilotage costs are approximately 10% less per mile transited with respect to other Canadian pilotage organizations while it provides a safe and efficient pilotage service through multiple Seaway locks and miles of narrow congested waters.

In certain districts within the Authority’s jurisdiction, pilotage is shared equally between Canadian and U.S. pilots on a turn-about basis. The Authority and its U.S. counterpart regularly exchange information concerning pilotage rates. In early 2009, the U.S. pilotage authority increased its tariff rates by 18.98% and it implemented a further increase of 9.41% in August 2009. This ensured compatibility between U.S. and Canadian rates. With implementation of the 15% temporary surcharge, the Authority’s rates are 9% higher than those of the U.S. pilotage authority based on a 90-cent dollar. Although this provides the U.S. pilotage authority with a financial competitive advantage, the impact on international competitiveness is negated by operational principles since pilotage services are shared equally between both countries on a turn-about basis.

The increase in the temporary surcharge from 6% to 15% and the savings taken by the Authority are beneficial in that they will enhance its ability to operate on a self-sustaining financial basis that is both fair and reasonable, while repaying its deficit in accordance with the Special Audit Report of April 2008. The 15% temporary surcharge is also beneficial in that the Authority can continue to provide a safe and efficient pilotage service in accordance with the requirements of the Act.

Strategic environmental analysis

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals of 1999 and the Transport Canada Policy Statement on Strategic Environmental Assessment, a strategic environmental assessment of these amendments was conducted in the form of a preliminary scan. The strategic environmental assessment concluded that the amendments are not likely to have important environmental effects.

Consultation

The Authority met with representatives from the Shipping Federation of Canada (the Federation) on June 11, 2009 and with the Canadian Shipowners Association (the Association) and the Chamber of Maritime Commerce on June 15, 2009, to discuss current and future traffic levels within the Great Lakes and to present its financial position. The Authority indicated that traffic levels since the beginning of the 2009 navigational season were averaging 30% less than normal due to the current worldwide economic recession and pointed out the impact that these levels were having on the Authority’s financial position. To address its concerns, the Authority introduced this amendment to implement a 15% temporary surcharge that will expire at the close of the 2010 navigational season and that will consequently revoke the 6% temporary surcharge. This 15% temporary surcharge will ensure the Authority’s self-sufficiency during these turbulent times and assist in reducing its present $3.6 accumulated deficit.

The Authority’s major stakeholder is the Federation, which represents the agents/owners of foreign-flag ships that trade within the Great Lakes system and are required to utilize the services of Authority pilots while transiting these waters. These foreign-flag ships represent 95% of the Authority’s business while the remaining 5% pertains to the Canadian domestic fleet, represented by the Association. The Association represents approximately 70 Canadian-flag ships and most of these ships do not utilize the services of Authority pilots. Approximately 10 ships in the domestic fleet, however, are Canadian tankers that employ the services of a pilot when transiting certain districts within the Authority’s jurisdiction or when the ship/cargo charterers require the ship to utilize the services of a pilot.

During the Federation’s meeting, its representatives acknowledged the effects of the global recession on the Authority’s reduction in traffic levels and indicated that a slight increase in traffic should be expected in the future, once the economy starts to recover. They realized that without additional, short-term funding, the Authority would have no recourse other than to substantially eliminate some pilot positions that could cause the Federation expensive delays in the future when traffic returns to traditional levels. The Federation recognized that the 15% temporary surcharge will allow the Authority to generate sufficient revenue to be self-sufficient and maintain an adequate number of pilot positions that will be able to service their foreign-flag ships once traffic returned to more normal levels. In sum, the Federation expressed its general support of the 15% temporary surcharge, due to expire on December 31, 2010.

During its meetings with the Association, the Authority explained its financial position and its reduced traffic levels in light of the current worldwide recession and discussed the same amendment as was tabled at the Federation meeting. The Association indicated that it did not support the 15% temporary surcharge and believed that the following actions should be taken:

1. Pilot numbers should be reduced by 12 pilots; not by 6 pilots as the Authority suggested.

2. The tariff should be frozen.

3. The Government of Canada should either fund the Authority’s deficit or allow the Authority to finance losses with bank financing.

The Authority also circulated relevant information concerning traffic levels, its financial position and its amendment to various port and Seaway authorities and other stakeholders to solicit their comments.

At the Authority’s Board meeting on June 17, 2009, the Board members concurred with the Authority’s principal stakeholder, the Federation, in believing that the action measures proposed by the Association could jeopardize the long-term efficiency of the Great Lakes system and agreed with the more moderate reduction in pilot numbers as proposed by the Federation and the Authority. The Board remains mindful of the Authority’s need to operate on a self-sustaining financial basis and eliminate its deficit as contained in the directive from the Treasury Board and the Auditor General of Canada of April 2008.

Based on the active participation and input during the consultative process with the Federation and the Association and the lack of further comments/response from these representatives and other stakeholders, the Authority considered that the 15% temporary surcharge was fair and reasonable since more than 95% of the marine industry was generally supportive of this amendment.

These amendments were pre-published in the Canada Gazette, Part I, on July 18, 2009, to provide interested persons with the opportunity to make comments or to file a notice of objection. No notices of objection were filed with the Canadian Transportation Agency.

Implementation, enforcement and service standards

Section 45 of the Act provides an enforcement mechanism for these Regulations in that a Pilotage Authority can inform a customs officer at any port in Canada to withhold clearance from any ship for which pilotage charges are outstanding and unpaid. Section 48 of the Act stipulates that every person who fails to comply with the Act or Regulations is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000.

Contact

Mr. R. F. Lemire
Chief Executive Officer
Great Lakes Pilotage Authority
P.O. Box 95
Cornwall, Ontario
K6H 5R9
Telephone: 613-933-2991
Fax: 613-932-3793

Footnote a
S.C. 1998, c. 10, s. 150

Footnote b
R.S., c. P-14

Footnote c
R.S., c. P-14

Footnote d
R.S., c. P-14

Footnote 1
SOR/84-253; SOR/96-409

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