Overview of Canada's Transport Sector

• Over 1,300 air carriers operating in, or to and from Canada (40% Canadian, 60% international)
• Nearly 37,000 Canadian registered aircraft and over 31,000 licensed pilots
• 296 certified land airports, 5 certified water airports, and 264 certified heliports
• 26 National Airports System airports and 71 regional/local airports
• 89 airports designated for Canadian Air Transport Security Authority (CATSA) security screening and 565 certified aerodromes
• $31 billion in annual revenues generated pre-pandemic by the third largest aerospace sector in the world, creating over 215,000 jobs in Canada

• Canada has two major Class I railways, Canadian National (CN) and Canadian Pacific (CP); large US-based carriers also operate in Canada
• 44,917 route-kilometres of railway track:
  • Canadian National (CN) owns 48.8% (21,904 km)
  • Canadian Pacific (CP) owns 29.1% (13,063 km)
  • other railways own 22.2% (9,950 km)
• Moved more than 330 million tonnes of freight in 2021
• VIA Rail Canada Inc. carried 1.5 million passengers in 2021, below pre-pandemic levels, but increased from 2020

• Over 42,000 active registered commercial vessels, including 6,100 active tugs and barges operating in Canada
• Close to 20,000 registered pleasure crafts
• Over 560 port facilities, excluding fishing and recreational harbours, of which 17 are Canada Port Authorities (CPAs)
• In 2020, across all CPAs, the total volume of cargo handled was over 346 million tonnes (a 0.5% decrease from 2019), with approximately 42% handled by the Port of Vancouver, Canada's largest and busiest port

• Most dominant mode for moving freight and passengers in Canada
• Over 25 million road vehicles registered in Canada
• More than 1.1 million two-lane equivalent lane-kilometres of public road

A well-functioning transportation system is critical to securing supply chains, enabling global trade, and forms the backbone of nearly all sectors of the economy. With congestion pressures continuing to face global supply chains, Transport Canada plays a critical role when it comes to overall system performance and reliability to get products to market, keep Canadians safe, and support our economic prosperity.

Globally, supply chain challenges are helping to push 30-year high inflationary pressures. Over the course of 2022, the demand balance between services & durable goods was returning to pre-pandemic levels; however, ongoing COVID-related lockdowns in China created uncertainty in production and shipping, leading to some ongoing price volatility. These acute challenges compounded pressures from existing system issues – for example, consolidation in key shipping industries has resulted in large increases in freight rates; while these rates have largely stabilized, it is expected they will remain higher than pre-COVID levels. Meanwhile, Russia's invasion of Ukraine is creating uncertainty in energy, food markets, adding to global inflationary pressure and likelihood of continued disruptions.

It is noticeable how “hotspots” in Canadian supply chains add to global problems creating pressure in the system. Lack of warehouse capacity, drayage in central Canada is creating new backlog pressures, which in turn adds to the acute congestion issues at the Port of Vancouver. The damage to efficiency as well as Canada's reputation as a reliable trading partner is also jeopardized by the occasional blockades of key corridors (Indigenous rail blockades 2020, Freedom Convoy border blockades 2022). Underneath these specific hotspots are structural challenges such as infrastructure constraints related to port gateways and distribution centres; the lack of real-time data sharing among operators which leads to lack of coordination at entry points & distribution centres; weak winter/extreme weather performance by rail operators; and finally, labour shortages, especially in trucking & rail.

Over the course of the last three years, Transport Canada (TC) made key advances to support the post-pandemic recovery of our transportation and logistics sector. Budget 2022 announced a commitment of $603.2 million over five years, starting in 2022-23, to help build more resilient and efficient supply chains, and the Minister of Transport created an arms-length National Supply Chain Task Force (Task Force) to consult broadly with industry, associations and experts to examine the key pressures and make recommendations regarding short and long-term actions to strengthen the efficiency, fluidity and resiliency of transportation infrastructure and reliability of Canada's supply chain. The Fall Economic Statement 2022 reiterated whole-of-government commitment to improving supply chain performance, indicating that more information on the National Supply Chain Strategy would be forthcoming in Budget 2023.

On November 17, 2022, the Minister of Transport introduced Bill C-33, the Strengthening the Port System and Railway Safety in Canada Act, which includes proposed measures to: amend current legislation and modernize the way Canada's marine and railway transportation systems operate; remove systemic barriers to create a more fluid, secure, and resilient supply chain; expand Canada Port Authorities' mandate over traffic management; position Canada's ports as strategic hubs that support national supply chain performance and effectively manage investment decisions for sustainable growth; improve the government's insight into ports and their operations; and modernize provisions on rail safety, security, and transportation of dangerous goods.

Despite these efforts to enable a strong recovery of the transportation system, Canada is still facing structural challenges - productivity growth in the transportation sector has plateaued - this includes both a decline in logistics performance as well as the relative quality of infrastructure, and the air, rail, marine and transit sectors all lag the overall economy's average in terms of innovative practices. The consolidation of key transport suppliers dampens competition; Canada's geographic diversity creates connectivity issues for some communities and more frequent extreme weather events amplify the risk of disruptions. Congestion in urban areas, and supply chain bottlenecks in key supply chains constrain network fluidity, and this leads to more coordination challenges across modes.

Fostering Canadian production and transportation logistic supply chain resiliency will be critical to maintaining our competitive advantage and to seizing global and domestic economic opportunities. Promoting digital solutions in the transportation industry using new technologies to leverage real-time data and developing predictive analytics will be one key area to explore in order to gain an international advantage. The Department will continue to make strategic investments and leverage other tools to advance measures that strengthen Canada's supply chains by making transportation infrastructure more efficient and reliable, and that improve the country's economic competitiveness by working in closer collaboration with industry and other supply chain partners to better enable digitally-driven solutions, modernize regulatory practices that impact the flow of goods, and explore other opportunities that support an expansion of Canada's economic capacity and productivity, while driving sustained growth over the longer-term. This will include legislative/regulatory changes to further optimize our supply chain system and identify priority investments, which will in turn support long-term growth in emerging industries.

Canada's vast territory and widely dispersed communities make Canadians more reliant on air transport than in most other countries. Canada's air sector also faces unique challenges:

• Relies more on user-pay than most other countries, particularly the subsidized United States (U.S.) approach
• Air transport is capital-intensive, but geography and population distribution limit economies of scale and efficiencies, driving up costs;
  • 90% of the population thinly spread within 160 kilometers of the U.S. border
  • Less than 1% of the population in the territorial north
• Proximity to the U.S. further complicates competitive dynamics
• Weather adds costs

The last two and a half years have proved extremely difficult for the air sector, but above all for its workers and passengers. Canadians experienced delays and service issues across the entire network. Traffic volumes were 90% below pre-pandemic levels for upwards of 2 years, much longer than most other countries. The air sector was one of the hardest hit sectors with peak employment loss over 50% -- leading to current labour shortages. Coupling these shortages with widespread service reductions and challenges around issuing refunds has led to extensive financial losses for stakeholders across the sector, meaning increased debt resulted in fee increases being passed on to passengers. In the midst of the COVID crisis, the Government undertook support measures to provide financial stability but less so than the in US and in some other countries.

During the pandemic, Canada's user-pay system had almost no users and suffered deeply. Between March 2020 and December 2022, the sector will have experienced:

• 370M passengers lost (2.3 times 2019 total passengers)
• $67B in lost revenues
• $13B more debt

Given the current system, this means that the last two years have been marked by increased costs driven by losses - airport improvement fees are up 36%, the average airline ticket price is up 20%, and NAV CANADA costs are up 30%. However, the extended downturn only created pent up demand, which the system was unprepared to absorb. Two years with little traffic followed by a rapid passenger growth has exposed issues to address. Government services have not been able to keep up with traveller demand, this includes Canadian Air Transport Security Authority (CATSA)/ Canada Border Services Agency (CBSA)/Public Health Agency of Canada (PHAC) screening capacity, and the efficiency of their processes; backlogs in Immigration, Refugees and Citizenship Canada (IRCC) visa processes; and U.S. Customs and Border Protection capacity. These capacity issues are exacerbated by the fact that transparency and accountability is lacking in some areas – for example, the recent holiday travel disruptions demonstrated a lack of communication with regard to coordinating services, especially during extreme events. More fundamentally, an opacity exists with regard to airport decision-making as well as airlines honouring passenger rights.

Much the same as the ongoing issues related to supply chains, the extreme disruptions of the last two years have exposed structural fragility in the air sector, as parts of the sector face viability, capacity and performance issues - small/remote airport and air navigation infrastructure is in need of modernization, there is a high cost of routes to small communities creating imbalance for travellers who rely on air travel for essential connections, and infrastructure constraints in hub airports impeded performance. For example, the pandemic created particular challenges for Northern and remote communities, given their higher reliance on air transportation due to their remoteness and dependence on supply chains for the delivery of essential goods, services and connectivity. For many Northern and remote communities, aviation is their only mode of transportation year-round, and these communities require the continued viability of Canada's air sector.

Rapid passenger growth in 2022 revealed challenges related to capacity, performance and accountability. Significant viability, capacity and performance issues limit the air sector's ability to meet growing demand; for example, there currently exists a lack of trained, certified, experienced labour; the sector is reliant on an inefficient security screening model, there is an excessive reliance on manual processes, as well as a failure of US Customs services at preclearance.

The aforementioned lack of transparency and accountability limited the sector's response to both the COVID crisis, as well as the rapid return of passengers. This is being borne out in the public sphere through the demonstrable lack of coordination among services at airports, including information/data sharing, and frustration has been expressed with regard to the lack of clarity in passenger rights.

Moving forward, TC has an integral role to play in providing the right incentives and frameworks for the sector to continue to decongest airports through digital travel solutions and service improvements, to empower airports to make decisions for delivering results with accountability and transparency, and to improve network and infrastructure capacity to absorb future shocks.

The Department will work in collaboration with industry to advance measures to minimize the impacts of any future disruptions and continue to update technologies and service delivery to improve the air travel experience in Canada. Work will also be advanced with partner agencies to support the full implementation of the Air Passenger Protection Regulations regime, and ensure that travellers are benefitting from clearer and more consistent air passenger rights.

Transportation accounts for 25% of Canada's greenhouse gas (GHG) emissions and is one of the most challenging sectors due to its integrated nature. Coordinated federal action is key to accelerating the pace of technological change, and support Canada's 2030 Emission Reduction Plan which committed to new actions across all transportation modes to help reach its emissions reduction target of 40 percent below 2005 levels by 2030.

Since 2015, TC has made significant progress in taking measures to reduce pollution in the on-road sector. The iZEV and iMHZEV programs have and will continue to lead to considerable reductions in greenhouse gas emissions, while supporting the transition to a greener future more affordable. Given the global nature of climate change and the lag in the climate system's responses to mitigation efforts, even as measures are put in place and emissions are reduced, the climate will continue to change. For Canada, this involves a range of changes, such as more extreme heat, less extreme cold, longer growing seasons, shorter snow and ice seasons, thinning glaciers, thawing permafrost, and rising sea levels. The frequency, intensity and duration of extreme weather events such as heat waves, wildfires and flash floods are projected to increase over the coming decades.

Current and projected impacts of climate change present a significant and growing risk to Canada's transportation sector. Recent extreme weather events have impacted the safety, reliability, and competitiveness of Canada's transportation sector. Northern supply chains are especially vulnerable due to increasing climate change impacts on transportation infrastructure and a lack of system redundancies. It is important to continue close engagement and collaboration with partners, including provincial and territorial governments, Inuit and Indigenous communities, and the air industry, to address the unique needs of these communities and to increase the resiliency of the Northern supply chain. Collaboration will help to ensure that essential transportation and supply chains for Northern and remote communities are protected for the health, safety and social and economic well-being of all Canadians.

With the potential safety risks and disruptions to economic activity that can result from extreme weather events, it further highlights the important need to build resiliency and redundancy into Canada's transportation system across all regions, including adapting our operations, practices and infrastructure. The transportation sector is at various stages of readiness to address these growing needs.

Growth in transportation activities will continue to exert pressure on key corridors and congestion in urban areas, exacerbating environmental issues and public expectations for sustainable development. Risks and potential harm as a result of accidents can also have significant implications on both safety and the environment. The transportation sector poses direct, indirect and cumulative environmental impacts for which mitigation is complex and multidimensional. Therefore, coordination across federal departments, jurisdictions, stakeholders and other sectors is an important element of any mitigation approach.

TC is also prioritizing actions to advance decarbonization in the air, rail, and marine sectors. This includes regulatory measures, financial incentives, and support for Canadian research and development that will further reduce GHG emissions per year, and will support the Emissions Reduction Plan published in 2022.

The Department will also continue work in protecting Canada's oceans and seaways from coast-to-coast-to-coast, which support billions of dollars of daily economic activity and have sensitive ecosystems with several species of marine mammals (e.g., Southern Resident killer whales, North Atlantic right whales, beluga whales, etc.) that are vulnerable to vessel disturbances and ship strikes. TC will continue to refine vessel management measures to reduce acoustic and physical disturbance, while also working with Indigenous groups to co-manage, develop and implement marine initiatives that are supported by the peerless knowledge they bring to our partnerships in environmental stewardship. 

Appropriate adoption of new and emerging technologies, such as artificial intelligence (AI) and automation, could be key enablers to optimizing supply chain efficiency, mobility of people, and safety. Currently, two of the key technologies for Canada's transportation system are remotely piloted aircraft systems (RPAS) and connected and automated vehicles (CAVs). These technologies represent both an immense opportunity for social, economic, and safety benefits; but this opportunity needs to be balanced with a well-articulated safety regime that ensures successful adoption.

As these technologies mature, the RPAS seeking regulatory approvals today are larger, heavier, fly further distances, and support more sophisticated operations for commercial use cases. Large, next-generation RPAS will be electric and have potential to supplant short-haul carbon intensive flights, and replace some high-emitting on-road applications (e.g., urban delivery). Meanwhile, CAV technology is exceptionally complex, requiring expanded technical, regulatory and oversight expertise. This technology is particularly promising for seniors and Canadians with disabilities who will gain mobility; all Canadians would also benefit from additional mobility options at a potentially lower cost. These technologies can also play a role in helping the transportation sector decarbonize – as electrification is expected to be more effectively deployed with CAV-enabled data, connectivity and digital infrastructure.

It must be recognized that with new technology comes new safety concerns, and TC faces growing pressures to address new safety risks that challenge existing capacity while being called upon to accelerate and facilitate regulatory development and oversight. Primarily, the Department has a duty to ensuring safety – through regulations, codes, standards, and non-regulatory tools that are foundational to building Canadians' trust in new technologies and delivering responsibly on innovation and economic agendas. This safety imperative provides the foundation for the economic opportunity presented by these new technologies, and TC can play a role in fostering accelerated technology development and deployment – industry is actively seeking new ways to partner with regulators to through collaborative pilot deployments and regulatory sandboxes. Once the technology is proven through these innovative pilots and test cases, TC can assist industry in attracting investment.  

COVID-19 has accelerated digitalization, creating an opportunity to invest in new technology, data, and cross-industry collaboration to better optimize supply chains and gain a collaborative view of the infrastructure that supports it, thereby increasing capacity. There are increasingly sophisticated applications being created through the development of technologies such as AI and the Internet of Things. These technologies and applications have shown promise to enable greater optimization and responsiveness, enhance productivity, and lower costs in logistics, transportation, borders and information transfers – generating higher throughput capacity and yielding better end-to-end visibility across the value chain.

For example, new AI solutions are being integrated in advanced transportation systems, cargo inspection, and the processing of transport documentation. Blockchain innovations have been finding success as a base for global supply chain management, while IoT devices and sensors can track shipping containers in real-time, improving efficiencies and transparency for the movement of goods.

Leveraging new technologies can also help solve urban transportation challenges, as fostering smart mobility solutions presents significant opportunities, with possibilities including: digital infrastructure, sensors and connectivity to change the way roads are used and managed; new modes of transit and improvements to existing services with the introduction of on-demand, shared, electric – and eventually, CAVs that connect to and complement transit; and new mobility hubs, with a range of travel options, to address first- and last-mile challenges and deliver a more seamless travel experience (e.g., mobility-as-a-service).

To remain competitive in the global economy while optimizing security and rebuilding public confidence in the air transportation sector, there is a need to harness innovation, data analytics, information sharing, and to strengthen partnerships to respond to increasing passenger and cargo volumes, the evolving threat and risk environment, and escalating passenger expectations. Technological advancements, such as biometrics, support identity verification and present an opportunity to strengthen transportation security to better facilitate the efficient movement of people, particularly at airports and other major transportation hubs. Using advanced technologies will also allow TC to respond and keep pace with international partners and heightened passenger expectations for fast, seamless, touchless and paperless service – while protecting privacy.

TC remains focused on developing and administering a regulatory framework that ensures it can capture the economic advantages from and harness the potential of disruptive technologies to simultaneously unlock new sources of economic activity and job creation while improving safety and access to Canada's roads and airspace.

Canada has one of the safest and most secure transportation systems in the world. Road casualty collisions have decreased, as have aviation and marine accidents; however, progress on improving rail safety outcomes has stalled.

While Canada has an impressive safety record, TC must also contend with the fact that safety and security risks to the transportation system are becoming more complex and multifaceted, with the time and costs to mitigate them increasing.

Safety and environmental stewardship are intrinsically connected, given that accidents have the potential to cause significant harm to both humans and the environment, including wildlife, and as freight and passenger volumes grow and transportation networks become more interconnected and complex, the risks to the system continue to evolve, and new risks emerge. Ongoing efforts to modernize regulations, strengthen oversight and enforcement, and sustain vigilance are essential to ensure world-class safety and security for Canadians.

Maintaining a world-class safety and security regime demands time and costs to both government and industry to mitigate risks as they continue to rise. This underscores the importance of monitoring risks and responding to safety and security incidents in a timely and robust manner.

Canada's rail network is confronted with complex and emerging risks, including an increase in the volume of dangerous goods transported by rail, growing concerns about the reliability of supply chains, and rising cases of security disruptions (e.g. tampering, sabotage). The heat and wildfires, as well as the atmospheric river of 2021 in British Columbia demonstrated the broader set of risks facing the rail network and community safety throughout Canada, along with the potential disruptions that a changing climate can have on critical transportation corridors and supply chains. It also highlighted the importance of ongoing engagement with rail safety partners, Indigenous groups, communities, and other stakeholders. While interim measures were put in place to reduce risks to public safety and the integrity of the railway tracks and infrastructure, TC is working with railway companies to incorporate these fire risk reduction measures on a permanent basis into the existing regulatory framework for railway operations in Canada.

Opportunity also exists to further strengthen Canada's marine safety, particularly with marine traffic volumes projected to grow by 50% by 2030. Public and Indigenous expectations are rising when it comes to marine traffic risks being actively managed in a comprehensive, integrated and inclusive manner. Interconnected safety, environmental and economic priorities require prudent management, with pressures heightened in certain regions, such as the Salish Sea, the Gulf of St. Lawrence, and the Arctic.

TC plans to continue making its safety and security oversight of the transportation system more transparent by publicly reporting on compliance and enforcement activities. The Department will also continue to advance the transportation of dangerous goods (TDG) through transformation initiatives with enhanced digital tools to further support risk-based planning. TC will continue to transform the design and delivery of programs through the continued implementation of a data strategy that supports transparency by increasing the availability of open and accessible transportation data and information, including modernizing how the Department oversees and administers regulations by developing common data-driven, risk-informed digital inspection processes, and by providing inspectors with better data and tools.

TC will also advance work to enhance its rail safety oversight program, leveraging technology, expanding engagement with local and Indigenous communities, and addressing emerging challenges, such as the increased risks and impacts of our changing climate. Recent investments are advancing safety and security in the rail sector and activities will continue to improve the Department's proactive planning and risk mitigation strategies. TC remains committed to managing acute community and Indigenous concerns regarding rail safety, a key component of the work undertaken by the Department. With extreme weather events increasing in frequency that will continue to pose risks on the safety of rail operations, TC will continue to safeguard Canada's communities and supply chains by enhancing the safety and security of the rail sector.