Vol. 151, No. 52 — December 30, 2017

Regulations Amending the Great Lakes Pilotage Tariff Regulations

Statutory authority

Pilotage Act

Sponsoring agency

Great Lakes Pilotage Authority

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: The Great Lakes Pilotage Authority (the Authority) provides pilotage services in all Canadian waters in the provinces of Ontario, Manitoba and Quebec, south of the northern entrance to the Saint- Lambert Lock. Pilotage tariffs, set out in the Great Lakes Pilotage Tariff Regulations (the Regulations), are set to allow the Authority to operate on a self- sustaining financial basis; however, the current tariffs will not enable the Authority to eliminate its current accumulated deficit while at the same time incurring an increase in apprentice pilot training and pilot transfer costs.

Description: The proposed amendments to the Regulations would (i) increase general tariff rates; (ii) extend the pilot training surcharge beyond 2018; and (iii) increase the pilot transfer charges.

Cost-benefit statement: The proposed amendments would result in increased pilotage costs for the marine transport industry of $7.0 million over a period of 10 years, and a corresponding increase in revenue for the Authority.

The increase in pilotage tariffs would enable the Authority to address the existing deficit and invest in the training of additional apprentice pilots, thereby increasing the pilot numbers to meet forecasted traffic demands. The increase in the number of qualified pilots would be a benefit to the industry to the extent that delays and other industry costs associated with pilot shortages would be minimized. These investments, and the regular business of the Authority, are intended to provide uninterrupted service while protecting the health and safety of the Authority’s employees.

“One-for-One” Rule and small business lens: The “One-for-One” Rule and the small business lens would not apply to the proposed amendments.

Background

The Great Lakes Pilotage Authority (the Authority), a Crown corporation listed in Part I of Schedule III to the Financial Administration Act, was established in 1972 pursuant to the Pilotage Act (the Act). Its mission is to establish, operate, maintain and administer safe and efficient pilotage services within Canadian waters in the provinces of Ontario, Manitoba, and Quebec, south of the northern entrance to the Saint-Lambert Lock. The Authority is required by subsection 33(3) of the Act to fix pilotage charges at a level that permits the Authority to operate on a self-sustaining financial basis and is fair and reasonable.

Issues

In its 2008 Special examination report, the Auditor General required the Authority to take measures to eliminate its accumulated deficit and to be financially self- sustaining within the next few years.

Pilotage tariffs, set out in the Regulations, are not sufficient to enable the Authority to eliminate its current accumulated deficit by 2019, while at the same time training greater numbers of new apprentice pilots, and incurring higher pilot transfer costs. Notwithstanding cost control efforts by the Authority, financial losses are anticipated in 2018 and thereafter, losses that would undermine the ability of the Authority to continue to deliver on its mandate and provide safe and efficient pilotage services to its clients.

Objectives

The objective of the proposed amendments is to enable the Authority to operate on a self-sustaining financial basis, with fair and reasonable tariffs that can support efficient pilotage services and ensure safe navigation.

Description

The proposed amendments would

Regulatory and non-regulatory options considered

The Authority considered other options to be financially self-sustaining without increasing tariffs. However, as the direct pilotage costs represent approximately 80% of the total costs, there are few discretionary costs for which the Authority can apply additional cost reduction initiatives beyond what has already been done. The only untouched significant controllable costs are pilot overtime compensation. Should the Authority choose to further limit pilot overtime as to align with budget requirements, these cost reductions would result in important vessel delays that the industry would not easily accept.

While being financially self-sufficient is a priority, the ultimate objective for the Authority is to continue to invest in its resources as to ensure it operates, maintains and administers its pilotage services within the Great Lakes region in an efficient and safe manner per its mandate.

Benefits and costs

A cost-benefit analysis was conducted to determine the impact of the proposed amendments. The cost-benefit analysis is based on the Authority’s understanding of the five-year average for forecasted traffic levels and vessel sizes.

The analysis covers a 10-year period starting in the first year of the increase, i.e. 2018 to 2027. According to the analysis, the proposed tariff increases would generate additional revenues for the Authority of $0.8 million in 2018, $2.2 million in 2019, and $0.8 million in each subsequent year. The annualized average is $1.0 million over the 10-year period with a net present value of $7.0 million calculated with a 7% discount rate.

The increase in pilotage tariffs would translate into equivalent operating costs to the shipping industry. However, this increase in operating costs would be offset by the savings the industry stands to gain from fewer and/or shorter delays associated with a shortage of pilots. These savings would materialize as vessel delays due to pilot shortages would return to pre-2014 levels, when pilot numbers were better aligned to the level of traffic.

The estimated quantified and non-quantified impacts are presented in the cost-benefit statement below.

Cost-benefit statement

 

Base Year
2018

2019

Final Year
2027

Total
(PV)

Annualized
Average

A. Quantified impacts (in CAN$ M, 2016 price level / constant dollars)

Benefits

Great Lakes Pilotage Authority

Additional revenue generated

$0.800

$2.200

$0.800

$6.968

$0.992

Shipping industry

Reduction in costs as hours in vessel delays due to a shortage of pilots will return to pre-2014 levels

$1.000

$1.500

$2.500

$15.270

$2.174

Total benefits

$1.800

$3.700

$3.300

$22.239

$3.166

Costs

Shipping industry

The Authority’s increase in revenue is a cost to the industry

$(0.800)

$(2.200)

$(0.800)

$(6.968)

$(0.992)

Total costs

 

$(0.800)

$(2.200)

$(0.800)

$(6.968)

$(0.992)

Net benefits

$1.000

$1.500

$2.500

$15.270

$2.174

B. Quantified impacts in non-$ (e.g. from a risk assessment)

Shipping industry

The reduction in vessel delays by 1 000 hours in 2018, 1 500 hours in 2019, 2 000 hours in 2020, and 2 500 hours for the remaining years will reduce other shipping industry operating costs (monetized estimates provided above).

C. Qualitative impacts

Great Lakes Pilotage Authority

Financial sustainability of the Authority and increased safety of its workforce. The increases are meant to keep the Authority viable and able to fulfill its mandate. The additional pilots will continue to ensure safe pilotage services that the Authority has been providing (an historical 99.9% incident-free rate).

Great Lakes Pilotage Authority

Allows the Authority to proactively address its pilot succession plan strategies given approximately 30% of the current pilots are anticipated to retire by the end of 2022.

Great Lakes Pilotage Authority

The additional revenue is generated to increase the pilot headcount to service pre-2008 recession traffic (as seen from 2014 to 2017). This will allow the Authority to reduce the average number of pilot assignments and align with industry standards, which is also part of the Authority’s safety strategy.

Canadian population

The Authority contributes to the safe and efficient movement of goods and people for Canadians, while protecting the environment from harm. The economic benefits of the services provided are difficult to measure as the benefit derived by users is primarily preventative. Pilotage plays a key role in ensuring that there are no ship source environmental disasters in Canadian waters. The Authority’s effectiveness is dependent on the ability to fulfill its mandate, which this regulatory change allows.

Importers and exporters

The maritime transport industry will flow the cost increases in the tariffs to the importers and exporters of the Great Lakes pilotage area. However, it is estimated that these rate increases are not significant when compared to the overall costs of the shipping industry. The additional pilots will reduce the vessel delays due to a shortage of pilots, which will in turn significantly reduce other operating costs currently being incurred by the shipping industry due to these vessel delays. The pass-on cost will be negligible.

“One-for-One” Rule

The “One-for-One” Rule would not apply to the proposed amendments, as there would be no change in administrative costs for business.

Small business lens

The costs of the proposed amendments result entirely from increased fees for the provision of pilotage services. Under the small business lens, taxes, fees and other charges are not considered to be compliance or administrative costs. (see footnote 1) The proposed amendments would therefore not result in any applicable costs for small businesses, and the small business lens would not apply. Moreover, the majority of stakeholders impacted by these amendments are not small businesses and the relative impact of the proposal to the overall costs of operating the business is considered very low.

Consultation

The Authority’s principal stakeholder is the Shipping Federation of Canada (the Federation) representing the owners/operators of foreign-flag ships that operate within the Great Lakes system. Pilotage services are mandatory for foreign flag ships while transiting these waters and, as such, foreign-flag ships represent approximately 85% of the Authority’s business.

The Authority met with the Federation on numerous occasions in 2017 to discuss the proposed tariff structures. Topics discussed included the need for accuracy in forecasting traffic volumes due to the financial implications for the Authority, as well as implications on vessel delays due to shortages of pilots.

The Authority has been transparent with the industry about the need to eliminate the current $1.6 million accumulated deficit by the end of 2019, and to be financially self-sufficient. The Authority also discussed the pilot numbers planned for the upcoming years given the anticipated high number of pilot retirements. The Authority provided an analysis of operational implications should the Authority not respect its pilot succession planning strategy. The Authority also provided insights on its 2018 budget based on the proposed tariff modifications.

Through its consultations to date, the Authority has made every effort to demonstrate that the proposed tariff increases are fair and reasonable and has received support that stakeholders will not file an objection to the proposed tariff increases.

The remaining 15% of the Authority’s business pertains to the Canadian domestic fleet represented by the Chamber of Marine Commerce (the Chamber). The Chamber represents approximately 70 Canadian-flagged ships. Most of these ships do not use the services of Authority pilots given that at least one of their regular crew members has a valid Great Lakes pilotage certificate. Approximately 10 ships with the domestic fleet are Canadian tankers, which request Authority’s pilotage services when transiting certain districts with the Authority’s jurisdiction or when the ship/cargo charters require the ship to utilize the services of a pilot. The Chamber was consulted in late Fall 2017, and no significant concerns were raised.

Rationale

In its 2008 Special examination report, the Auditor General required the Authority to take measures to eliminate its accumulated deficit and to be financially self-sustaining within the next few years. Recognizing the need to be self-sufficient, the proposed amendments strive to

Deficit reduction

By the end of 2014, the Authority had successfully reduced its 2009 accumulated deficit of $5.5 million to $0.4 million. In 2015 and 2016, however, driven primarily by high costs associated with training of a greater number of apprentice pilots than originally planned, linked to unanticipated pilot retirements and increased demand for service, the Authority sustained minor losses thereby preventing the elimination of the deficit. The proposed increases in general tariffs will provide the Authority with a sufficient profit in 2018 to address half the accumulated deficit, in addition to establishing a more sustainable base for ongoing profits. The ultimate objective is to allow the Authority (i) to offset the $0.3 million lost revenue resulting from the three-month delay in the 2017 tabled tariffs; and (ii) to eliminate the current accumulated deficit by the end of fiscal year 2019.

Apprentice pilot training surcharge

As per the Authority’s pilot succession planning assessment, the Authority expects to replace approximately 30% of its current pilots by 2022 due to retirements. Thus, it will need to hire and train an average of six to seven apprentice pilots per year until 2022 due to these retirements as well as to increase the pilot numbers to meet current traffic demands. Without the extension of this surcharge to 2019, the Authority will not be able to hire and train the level of apprentice pilots required to meet current and new demands.

Inflationary increase to the pilot transfer charge

The Authority is required by the Canada Labour Code to ensure the pilots board and disembark vessels in a safe manner. Paying a third-party provider to assist with the pilot transfers at the three locks stated above are the most cost-effective option at this time. The only other option is to have pilot transfers outside of the locks with the use of a pilot boat. This is not a financially feasible option as the increase in tariffs required to support this type of operation would be significant. The Authority would need to purchase pilot boats, hire additional pilots to crew the pilot boats and incur ongoing operational costs. These costs would exceed the inflationary increase for the pilot transfer services.

Implementation, enforcement and service standards

Section 45 of the Act provides an enforcement mechanism for the 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 Part 1 of the Act, other than section 15.3, or with the Regulations is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000.

Contact

Mr. Robert 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

PROPOSED REGULATORY TEXT

Notice is given, pursuant to subsection 34(1) (see footnote a) of the Pilotage Act (see footnote b), that the Great Lakes Pilotage Authority, pursuant to subsection 33(1) of that Act, proposes to make the annexed Regulations Amending the Great Lakes Pilotage Tariff Regulations.

Interested persons who have reason to believe that any charge in the proposed Regulations is prejudicial to the public interest, including the public interest that is consistent with the national transportation policy set out in section 5 (see footnote c) of the Canada Transportation Act (see footnote d), may file a notice of objection setting out the grounds for the objection with the Canadian Transportation Agency within 30 days after the date of publication of this notice. The notice of objection must cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to the Canadian Transportation Agency, Ottawa, Ontario K1A 0N9. The notice of objection must also be filed with the Minister of Transport and the Great Lakes Pilotage Authority in accordance with subsection 34(3) (see footnote e) of the Pilotage Act (see footnote f).

Cornwall, December 15, 2017

Robert F. Lemire
Chief Executive Officer
Great Lakes Pilotage Authority

Regulations Amending the Great Lakes Pilotage Tariff Regulations

Amendments

1 Section 4 of the Great Lakes Pilotage Tariff Regulations (see footnote 2) is replaced by the following:

4 A surcharge of 5% for apprentice pilot training is payable on each pilotage charge payable under section 3 in accordance with Schedule 1 or 2 for a pilotage service provided on or before December 31, 2019.

2 (1) Subsection 1(4) of Schedule 1 to the Regulations is replaced by the following:

(4) If a ship, during its passage through the Welland Canal, docks or undocks for any reason other than instructions given by the St. Lawrence Seaway Management Corporation, the basic charge is $66.63 for each kilometre ($109.49 for each statute mile), plus $407 for each lock transited, with a minimum charge of $1,361.

(2) The portion of items 1 to 15 of the table to subsection 1(5) of Schedule 1 to the Regulations in column 2 is replaced by the following:

Item

 

Column 2

Basic Charge ($)

1

   
 

(a)

2,511

 

(b)

2,511

2

 

2,684

3

 

1,585

4

 

4,669

5

 

2,684

6

 

1,942

7

 

5,412

8

 

3,485

9

 

2,684

10

 

1,585

11

 

3,513

12

 

3,513

13

 

2,727

14

 

1,585

15

 

1,942

(3) The portion of items 1 to 4 of the table to subsection 1(6) of Schedule 1 to the Regulations in column 2 is replaced by the following:

Item

Column 2

Basic Charge ($)

1

3,706

2

3,103

3

1,395

4

1,395

(4) Subsection 1(8) of Schedule 1 to the Regulations is replaced by the following:

(8) An additional charge of $131 is payable for each change of pilot at Lock 7 of the Welland Canal.

3 (1) The portion of items 1 and 2 of the table to subsection 2(1) of Schedule 1 to the Regulations in column 2 is replaced by the following:

Item

 

Column 2

Basic Charge ($)

1

   
 

(a)

1,180

 

(b)

1,033

 

(c)

745

2

   
 

(a)

1,124

 

(b)

795

 

(c)

713

(2) Subsection 2(3) of Schedule 1 to the Regulations is replaced by the following:

(3) The basic charge for pilotage services consisting of a lockage and a movage between Buffalo and any point on the Niagara River below the Black Rock Lock is $2,031.

4 Subsections 3(1) and (2) of Schedule 1 to the Regulations are replaced by the following:

3 (1) Subject to subsections (2) and (3), if a pilot is detained for the convenience of a ship at the end of the pilot’s assignment or during an interruption of the passage of the ship through designated waters or contiguous waters, an additional basic charge of $95 is payable for each hour or part of an hour that the pilot is detained.

(2) The maximum basic charge payable under subsection (1) for any 24-hour period is $2,280.

5 Section 4 of Schedule 1 to the Regulations is replaced by the following:

4 (1) Subject to subsection (2), if the departure or movage of a ship to which a pilot has been assigned is delayed for the convenience of the ship for more than one hour after the pilot reports for duty at the designated boarding point, a basic charge of $95 is payable for each hour or part of an hour of that delay, including the first hour.

(2) The maximum basic charge payable under subsection (1) for any 24-hour period is $2,280.

6 Subsections 5(1) and (2) of Schedule 1 to the Regulations are replaced by the following:

5 (1) A basic charge of $1,973 is payable each time there is a cancelled order or cancelled sail.

(2) If there is a cancelled order more than one hour after the pilot reports for duty at a designated boarding point, a basic charge of $95 is payable for each hour or part of an hour, including the first hour, between the time that the pilot reports for duty and the time of the cancelled order. The maximum basic charge for any 24-hour period is $2,280.

7 Subsections 8(1) and (2) of Schedule 1 to the Regulations are replaced by the following:

8 (1) If a pilot is unable to board a ship at the normal boarding point and must, in order to board it, travel beyond the area for which the pilot’s services are requested, a basic charge of $567 is payable for each 24-hour period or part of a 24-hour period during which the pilot is away from the normal boarding point.

(2) If a pilot is carried on a ship beyond the area for which the pilot’s services are requested, a basic charge of $567 is payable for each 24-hour period or part of a 24-hour period before the pilot’s return to the place where the pilot normally would have disembarked.

8 (1) The portion of items 1 to 4 of the table to subsection 1(1) of Schedule 2 to the Regulations in columns 2 and 3 is replaced by the following:

Item

Column 2

Basic Charge ($)

Column 3

Minimum Basic Charge ($)

1

5,478

N/A

2

25.15 for each kilometre (41.85 for each statute mile), plus 700 for each
lock transited

1,409

3

981

N/A

4

2,110

N/A

(2) Subsection 1(2) of Schedule 2 to the Regulations is replaced by the following:

(2) An additional charge of $131 is payable for each change of pilot at the St. Lambert or Beauharnois Lock.

9 Subsections 2(1) and (2) of Schedule 2 to the Regulations are replaced by the following:

2 (1) Subject to subsections (2) and (3), if a pilot is detained for the convenience of a ship at the end of the pilot’s assignment or during an interruption of the passage of the ship through the Cornwall District, an additional basic charge of $183 is payable for each hour or part of an hour that the pilot is detained.

(2) The maximum basic charge payable under subsection (1) for any 24-hour period is $4,392.

10 Section 3 of Schedule 2 to the Regulations is replaced by the following:

3 (1) Subject to subsection (2), if the departure or movage of a ship to which a pilot has been assigned is delayed for the convenience of the ship for more than one hour after the pilot reports for duty at the designated boarding point, a basic charge of $183 is payable for each hour or part of an hour of that delay, including the first hour.

(2) The maximum basic charge payable under subsection (1) for any 24-hour period is $4,392.

11 Subsections 4(1) and (2) of Schedule 2 to the Regulations are replaced by the following:

4 (1) A basic charge of $2,088 is payable each time there is a cancelled order or cancelled sail.

(2) If there is a cancelled order more than one hour after the pilot reports for duty at a designated boarding point, a basic charge of $183 is payable for each hour or part of an hour, including the first hour, between the time that the pilot reports for duty and the time of the cancelled order. The maximum basic charge for any 24-hour period is $4,392.

12 Schedule 3 to the Regulations is amended by replacing the references after the heading “SCHEDULE 3” with the following:

(Paragraph 3(1)(b.1))

Coming into Force

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

[52-1-o]