Sunday, October 18, 2015

Cabotage Laws under threat [UPDATED]

The new trade agreements as currently negotiated with Europe and Pacific nations threaten to disrupt many long held Canadian traditions.

One of particular concern to the marine scene is the gradual gutting of cabotage regulations. These regs, which restrict carriage of cargoes between Canadian ports to Canadian ships has been widely (and legally) circumvented due to the scarcity of suitable Canadian ships.

A shipper or ship owner may apply to the Canadian Transportation Agency for a coasting license for a foreign ship to trade between Canadian ports for a single or multiple trips. If no suitable Canadian ship can be found, the CTA then recommends to the Minister of Public Safety and a license is issued.

Because there are few Canadian crude oil tankers, and a limited number of product tankers, these coasting licenses have become a regular way of doing business for many companies such as Suncor. They are relieved of the responsibility of acquiring their own ships, or making long term charter commitments.

The regulation creates little incentive for Canadian shipping companies to buy or build ships, and has not protected or promoted jobs for Canadian seafarers.

Specialized ships, often associated with the oil patch or perhaps such as cable layer and dredges have also been favoured with coasting licenses, since Canadian ships of this type are rare or non-existant. This is understandable to a degree, since they are highly specialized, and often use some proportion of Canadian crew.

Interesting oddities in these regulations have come to light.

Portland, ME, USA is considered a Canadian port when crude oil arrives there from another Canadian port for transfer via pipeline to Montreal. Therefore crude oil from any Canadian port or offshore oil installation, heading to the Portland pipeline, must be carried on a Canadian ship - if one is available. Some companies have their own ships, others don't, so coasting licenses are common for this work.

Another oddity is the transport of crude oil from Alberta, via pipeline to Texas. If it is then sent to a Canadian port, such Quebec City or Montreal (directly or via Portland pipeline) it is considered to be a Canadian coastal voyage and must use a Canadian ship - if one is available. Such ships are rarely if ever available, so again a coasting license is issued to a foreign ship. As a result Nederland, Texas has become an major "Canadian" coastal port.

So the ultimate oddity that transporting Canadian crude oil from Nederland, TX to the pipeline in Portland, ME is Canadian coastal voyage and requires a coasting license, or must use a Canadian flag ship. 

If you build a ship overseas and bring it Canada you must pay a substantial duty. Duties are rebated for certain classes of ships that can't realistically be built in Canada. However for others, such as small ferries and tugs, the duties are still in place. Owners find the Canadian shipbuilding prices to be astronomically higher than foreign prices, so they have found a nice loophole.

Build or charter the ship overseas, and bring it Canada, then apply for perpetual coasting licenses in the expectation that there will be no suitable Canadian ship available - ever. This is fairly easy to do if you can describe the service requirements for the ship in such a specific way that no other ship could expect to meet it.

A current user of this loophole is the Province of  Newfoundland. Their newly built ferry Veteran (from Romania) is registered in St.Kitts and Nevis, and has applied for a coasting license. The minster responsible has been quoted as saying this registry is just for the delivery trip (no Canadian crew would thus be needed) and that an application for Canadian registration will be made once the ship arrives here. The ship arrived in St.John's on Saturday, October 17. [see Update below]

The coasting license application is for a year from November 1, 2015 to October 31, 2016. Nothing in the current rules would prevent continual re-application year after year for ever. Once the ship has become well used, its value would depreciate considerably, and thus the duty would be less. Clever move Newfoundland.

The coasting license application describes the Change Islands / Fogo Island route where the ship will run, so there is little doubt that this is some form of tax dodge or a way to skirt around some Canadian regulations.

Another variation is that a ship brought to Canada and even registered in Canada, but without duty paid, may still be granted a coasting license if no other suitable Canadian ship is available. This allows foreign crews and deprives the tax man of his duty.

With the new free trade agreements many of the restrictions will drop and some foreign ships will be allowed to trade freely between Canadian ports, with foreign crews. It will still be no where near as wide open as Europe is, but it will certainly further reduce the opportunities for Canadian ship owners, ship builders, and crews.

With crew wages, and overseas shipbuilding wages at about 1/10th of Canadian wages, and tax free or heavily subsidized foreign flag states there are few rays of sunshine in this new regime unless it is lower transportation costs for Canadian shippers and consumers. Even that however may be illusory, since foreign shipowners will set rates that will be highly lucrative to them and only marginally lower than Canadian rates.

Recently the Canadian Seafarers International Union began legal action against the Canadian Border Services Agency for issuing work permits to foreign sailors when Canadian sailors were available. They cite the tankers AmaltheaEast Coast and Sparto all of which were granted coasting licenses (the latter serially) because the Minster of Public Safety determined (on the finding of the Canadian Transportation Agency) that no suitable Canadian vessels were available.

The SIU contends that the cabotage laws require also that Canadian sailors must be employed if available. It will be interesting to see if this claim makes it to court.

East Coast (Irving Oil) is a product tanker and eventually came under Canadian flag.
Amalthea (Greek flag) crude oil tanker,  made one trip from Nederland, TX to a Canadian port or more likely, Portland, ME, with Canadian crude oil for Suncor Energy.
Sparto (Isle of Man flag) crude oil tanker, has made, by my count, ten coastal voyages so far this year. Three for Irving Oil from Newfoundland to Saint John, and seven for Suncor from Nederland, TX likely to Portland, ME.

Irving Oil has brought in some of its foreign flag coastal tankers for a trip or two while its Canadian tankers were off having exhaust scrubbers in stalled. This seems to be an entirely reasonable use of the coasting license.

However in the United States, where the much more stringent Jones Act prevails, it would never be permitted. The Jones Act has many critics and many supporters, and has recently been blamed for the loss for the ship El Faro with all hands, because the ship was old and would have gone to scrap long ago if it had not been Jones Act compliant (i.e. owned and built in the US and crewed by US citizens.) 
This seems an unfair criticism to me, since the Jones Act has protected US shipping and shipbuilding  interests that would never be competitive in the world market. The goals of the Jones Act were essentially to do just that and ensure a stock of trained mariners and a fleet of ships in case of emergency.

I fear if Canada's waters are opened up any more, we will lose what little Canadian shipping we do have (that includes shipowners, ships and crews) and we will be held hostage by offshore shipowners, using underpaid crews on under documented ships.

 Update: The Minster of Transportation and Works of the Province of Newfoundland has decided to register Veteran in Canada. It was enrolled in St.John's Friday October 23.


1 comment:

  1. In CETA it says that "pre-international" cargos can be carried by ships from any of the parties. I take this to mean that any cargo eventually destined for overseas like grain, iron ore, or coal could be carried by a foreign flagged ship.
    I think the SIU has a good point. If Sparto is chartered to Suncor for 2 years then why don't they hire a Canadian crew for the time that it will be trading between Texas and the east coast of Canada?