Pilotage Act Review discussion

On May 31, 2017, Marc Grégoire was named Chair of the Pilotage Act Review. This discussion document, written by Mr. Grégoire, outlines:

• context and rationale for the Review
• the Review’s key questions and areas for reform

On this page

• Introduction
• Objectives
• Pilotage in Canada
• Rationale for review
• Key questions
• Areas for reform
• How to participate

Introduction

According to the United Nations, 90% of world trade travels by sea. The OECD expects marine shipping will continue to grow. It’s report "The Ocean Economy in 2030" outlines an expected annual growth in global marine shipping of 4.1% in 2017, 2018, and 2019, and 4% annual growth from 2020-2029. Growth from 2030 to 2040 is expected to be 3.3% annually.

Marine shipping helps Canada meet its economic goals and provides vital services to remote and Northern communities such as basic necessities and essential goods. Our coastline is the longest in the world, and our waterways are among one of our most important resources. With over 500 port facilities, 800 fishing harbours and 120 recreational harbours, Canada’s water transportation moved $200 billion worth of trade in 2016, and contributed an estimated $1.5 billion to Canada’s Gross Domestic Product^{Footnote 1}. This also translates into marine shipping and support activities employing roughly 22,600 people in Canada.

Marine pilotage makes an important contribution to marine shipping. This is a vital service whereby marine pilots board a vessel to navigate it through ports, straits, lakes, rivers and other waterways. Marine pilots are experts who use their seafaring experience and superior local knowledge of the waterways they serve, to safely navigate vessels to and from their destinations. Canadian pilots carry out over 50,000 assignments per year, often navigating ships with either precious or potentially hazardous cargo. Canadian pilots provide service 24 hours a day, 7 days a week, all year long in all types of weather. They routinely face workplace challenges that are unique to the shipping profession. Marine pilotage ensures the safe transit of vessels and prevents accidents that can result in environmental contamination and damage.

In November 2016, the Government announced the Oceans Protection Plan to improve marine safety and responsible shipping, protect the environment, strengthen partnerships with Indigenous communities, and to make investments in science for evidence-based decision making. As part of this national strategy, the Government promised to review the Pilotage Act to support the delivery of safe, efficient and environmentally responsible pilotage services into the future. On May 31, 2017, I was named the Review Chair.

Objectives:

• To generate discussion about marine pilotage in Canada
• To seek views and advice about potential reforms to modernize the Pilotage Act

Pilotage in Canada

Pilotage services in Canada existed long before the Pilotage Act became law in 1972. The Pilotage Act was enacted following the Royal Commission on Pilotage (Bernier report). The Pilotage Act provides the legislative framework for creating Canada’s four Pilotage Authorities (the Atlantic Pilotage Authority; the Laurentian Pilotage Authority; the Great Lakes Pilotage Authority; and the Pacific Pilotage Authority) with a mandate to establish and operate a safe and efficient pilotage service in their jurisdictions. These Pilotage Authorities are Crown corporations that operate at ‘arms-length’ from the federal government and report to Parliament through the Minister of Transport. As Crown corporations, the Pilotage Authorities must adhere to Part X of the Financial Administration Act. Under Section 138 of the Act, they must undergo a special examination by the Office of the Auditor General, at least once every ten years.

Each Pilotage Authority is governed by a Board of Directors composed of a chairperson and a maximum of six other members. The Chief Executive Officer (CEO) is appointed by the board of directors.

The Atlantic Pilotage Authority (APA) provides services for all Canadian waters surrounding the four Atlantic provinces and within certain waters in the Bay of Chaleur. In 2016, the APA recorded $24.1 million in revenue and a surplus of $1,197,000. The APA performed 7,959 assignments, with a safety record of 99.92% and provided a pilot within one hour of the confirmed order in 99.5% of assignments.

The Laurentian Pilotage Authority (LPA) provides services in all Canadian waters in and around the province of Quebec, north of the northern entrance of the St. Lambert Lock, except the waters of Chaleur Bay south of Cap d’Espoir. In 2016, the LPA recorded $91.4 million in revenue and a surplus of $1,500,000. The LPA performed 22,432 assignments with a safety record of 99.93%. The LPA performed a full 99.8% of assignments without a pilot-related delay.

The Great Lakes Pilotage Authority (GLPA) provides services in all of the Canadian waters of the Great Lakes in the provinces of Ontario, Manitoba and in Quebec, south of the northern entrance to the St. Lambert Lock. In 2016, the GLPA recorded $25.9 million in revenue for a loss of $854,000. The GLPA performed 7,020 assignments with a safety record of 99.99%. Although the GLPA has struggled with delays due to a shortage of pilots, they made good progress and saw a 31% decrease in delays in 2016 compared to 2015.

The Pacific Pilotage Authority (PPA) provides services in the coastal waters of British Columbia, including the Fraser River. In 2016, the PPA recorded $76.5 million in revenue for a loss of $3,800,000. The PPA performed 12,661 assignments with a safety record of 99.96% without a pilot-related delay.

All of the Pilotage Authorities’ safety records boast an excess of 99.9% of assignments completed without a safety incident, a record they have maintained over many years. Shipping incidents can range from minor to catastrophic events that result in injuries, loss of life and environmental contamination. These safety records demonstrate that overall, Canada’s pilotage system is working well. The Pilotage Authorities strive for a minimum of delays and often track several other key indicators such as the number of complaints or customer satisfaction.

Pilotage in Canada is a regulated monopoly. The Pilotage Authorities deliver these services either by their own employee pilots or through pilot corporations under a service contract. The Pilotage Authorities are to be financially self-sufficient which means they receive no funding from Parliament and set fair and reasonable tariffs to sustain their operations. This is why the Pilotage Act contains an important mechanism to promote fairness and allow industry users to object to tariff increases they believe to be prejudicial to the public interest. The Canadian Transportation Agency investigates all objections and then makes a recommendation to approve, reject, or modify the proposed tariff increase. Although the Pilotage Act allows the federal government (Governor-in-Council) to change or reverse an Agency decision, this rarely occurs.

Rationale for review

While the pilotage system is working well, it’s time for an update. The last set of substantive amendments were made to the Pilotage Act almost 20 years ago, and some provisions have never been amended. Despite a lack of continuous amendment, however, there have been several reviews of the Pilotage Act or pilotage issues.

This includes:

• 1999 – Review by the Canadian Transportation Agency, mandated by the 1998 amendments of the Pilotage Act. The report made 21 recommendations related to pilotage. These recommendations addressed a wide array of subjects including risk assessments, waivers, certification, training, licensing, consultations, and reporting.
• 2003 – Canada Marine Act Review made two recommendations on pilotage related to arbitration and the composition of the Pilotage Authorities’ boards of directors.
• 2007 – Consultations preceding the former Bill C-64 (An Act to amend the Pilotage Act) discussed challenges to meeting the requirement to be financially self-sufficient.

Proposed amendments would have:

• given the Pilotage Authorities more flexibility in hiring pilots
• given the Minister authority to choose an arbitrator
• made the Corporate Plan a consideration in final offer selection and Canadian Transportation Agency decisions

2016 – Canada Transportation Act Review made three recommendations about pilotage:

• Amalgamate the Pilotage Authorities
• Review governance for marine navigation
• Review compulsory pilotage areas

Based on the results of these reviews and ongoing feedback from stakeholders, it is clear it is time to update the legislative framework to ensure that safe and efficient pilotage services are available into the future.

Key questions

1. Do you believe the pilotage system works as intended? What would you improve?
2. Pilotage is a regulated monopoly delivered by four Crown Corporations. Can you suggest other ways to deliver pilotage services without compromising safety?
3. The Pilotage Act gives the Pilotage Authorities and the federal government (Governor in Council) the responsibility to regulate safety. Can you suggest ways to improve the current system?
4. Technology evolves rapidly. What do you believe is the best way to respond to this challenge without compromising safety?
5. What do you believe is the best way to set pilotage tariffs?
6. What do you believe are the most important elements of the fee-setting process?
7. What do you see as the main challenges and opportunities over the next 5, 10, or 15 years?

Areas for reform

1. Governance

The Canada Transportation Act Review made recommendations related to the governance of Canada’s pilotage system. One was to amalgamate the four Pilotage Authorities to:

• provide a strategic and holistic approach for all regions to contract for and provide services
• seek efficiencies through streamlining processes
• manage the convergence of technologies

However, through the consultations on the Development of a Long-Term Agenda for Transportation, stakeholders:

• suggested that amalgamation may result in a loss of local knowledge and cooperation
• suggested that the Government consider amalgamating common functions such as invoicing, as a way to increase efficiencies
• gave some support for limited amalgamation along the St. Lawrence River and Great Lakes

Secondly, the board of directors for each Pilotage Authority has long been composed of representatives from the pilots, industry and the public. This structure has evolved through use and convention, but is not outlined in the Pilotage Act. While the 1999 Pilotage Review recommended maintaining the composition of the board, several special examinations have raised the concern that having members from both industry and pilot representatives, raises a potential conflict of interest situation for these directors. Members of the House of Commons Standing Committee on Public Accounts also voiced this concern in 2016. Although the 2003 Canada Marine Act Review did not focus on pilotage, it did make a recommendation to formalize the structure of the boards of directors in order to respond to stakeholder concerns about fairness and the need for a more commercial approach to decision making and hands-on knowledge about the marine industry.

Questions for consideration:

1. Pilotage services are delivered by four separate Crown Corporations. Can you suggest other models worth considering (e.g., one entity responsible for the delivery of pilotage services, delivery by a private entity, etc.)?
2. Do you believe it is important to have representatives from both the pilots and industry on the board of directors? What other skills do you believe would promote more effective stewardship of the organization?
3. Do you support amalgamating common functions? Why or why not? Do you believe this would promote efficiencies within the industry?

2. Safety

The Pilotage Authorities and pilots have demonstrated that they can achieve an exemplary safety record that is in excess of 99.9%, within the Pilotage Act framework. The Pilotage Act gives Transport Canada and the Pilotage Authorities regulatory power to establish minimum standards for certification and operations. As the marine industry grows and evolves, there is a need to continuously modernize this regulatory framework.

Currently:

• Transport Canada sets the minimum requirements for training, certification and medical standards in the General Pilotage Regulations
• Each Pilotage Authority regulates regional competencies

The Pilotage Authority will issue:

• A licence to a pilot who successfully completes both training and evaluations
• Certificates to eligible mariners once they pass examinations. This certificate allows the holder to pilot a vessel through a compulsory area, which negates the need to have a licensed pilot on board the vessel.

Following the 1999 Review recommendations, training and certification programs have been created to achieve more standardization for simulation training, bridge resource management, and ship handling techniques. The regulatory framework needs to continue to evolve to respond to any new:

• International Maritime Organization (IMO) training and certification standards
• new vessel designs
• new technologies

This evolution includes reviewing minimum licencing, certification and medical requirements.

The Pilotage Act currently gives the Pilotage Authorities power to determine:

• The conditions for issuing a waiver of pilotage services. A waiver allows a vessel to proceed through a compulsory area without taking on a pilot. There are currently no national standards to allow for waivers for safety reasons, such as when a vessel is in distress or seeking a port of refuge.
• The procedures for applying for a waiver, which vary from jurisdiction to jurisdiction. Vessel operators must verify each Pilotage Authority’s regulations to determine how to apply, and the conditions they must meet for the waiver.

The Review will examine both domestic and international best practices related to waivers.

The 2016 Canada Transportation Act Review recommended that compulsory pilotage areas be reviewed every three to five years. These reviews should take into consideration changes in traffic, technology and best practises. The most common review method currently used is the Pilotage Risk Management Methodology (PRMM). The PRMM is a rigorous process that applies a thorough risk assessment framework. It includes four defined modules, with stakeholder consultations throughout. The four modules are:

• Module 1- Project Initiation
• Module 2- Risk Assessment
• Module 3- Documentation
• Module 4- Action

Transport Canada will review the PRMM and other risk assessment tools and best practices to determine the best way to respond to this recommendation, given advancements in marine shipping and the need for efficient responses to changes in risk.

The marine industry is making technological advancements on an international level. Currently, neither Canada’s pilotage legislative or regulatory framework prescribes the use of any particular technology, such as shore based pilotage systems to help navigate vessels through our waterways. Issues to consider, include:

• The implementation of ENAV
• The modernization of automation in vessels
• How pilots will interface with these technologies to ensure the safe navigation

At this time, many of these technologies are still being studied and reviewed internationally. Canada needs to establish minimum standards for new technologies, to ensure that adopting them does not compromise safety.

Although a pilot may be fully trained and meet all of the medical requirements to assume the work, it is the master who is ultimately responsible for the vessel at all times. In Canada, pilots are currently liable for damages up to $1,000. Pilot liability is a concept that has been established in international conventions and many countries have adopted domestic legislation that reflects that a pilot is only liable for damages of up to 1,000 units of the local currency. Although the pilots have exemplary safety records, an incident would cause more than $1,000 damage to a vessel, property and the environment. This is why the Review will consider international practices and conventions with respect to liability and sanctions.

Questions for consideration:

1. What are the aspects of the Pilotage Risk Management Methodology you believe work well or you would like to see improved?
2. Can you suggest other tools the Pilotage Authorities can use to verify that designated compulsory areas should remain compulsory?
3. The Pilotage Authorities determine the conditions and situations for issuing a waiver. Can you suggest any other models to consider? Do you believe there should be a national standards (e.g., a vessel in distress should automatically qualify for a waiver)? Why or why not?
4. Pilotage Authorities can issue licences and certificates, which remain valid with proof of service. Do you believe Canada should adopt a standard approach to issuing licenses and certificates? Why or why not? What do you believe is the best way to monitor compliance? Do you believe Transport Canada should place any limitations on the licencing and certification process?

3. Labour models

The Pilotage Authorities currently operate using their own employee pilots, contracted pilots or both. Pilotage is a specialized profession, with natural barriers to entry. Potential candidates must have many years of seafaring experience and be able to demonstrate significant local knowledge of the area in which they wish to perform pilotage. The specific requirements are outlined in both the General Pilotage Regulations and in each of the Pilotage Authorities’ Regulations. Most pilotage applicants have been captains or senior officers for a number of years. It takes about two to three years for an apprentice pilot to become a pilot, because they must undertake pilotage training duties on all classes and sizes of vessels under the supervision of a licensed pilot.

When enacted, the Pilotage Act reflected the fact that there were pilot corporations in Canada already providing services. According to the Bernier report, pilot corporations have a long history in Canada, including a pilot corporation in Quebec that existed before Confederation.

The following table illustrates the number of both employee and contract pilots providing service in Canada:

	Atlantic Pilotage Authority	Laurentian Pilotage Authority	Great Lakes Pilotage Authority	Pacific Pilotage Authority
Employee Pilots	47	--	59	8
Contract or entrepreneurial pilots	11	185	--	103
Total*	58	185	59	111

*Includes apprentices

Stakeholders have identified both advantages and disadvantages with each type of service delivery model. For example, in contract jurisdictions, the Pilotage Authority may not be able to develop a desired level of in-house expertise related to pilotage, as it is unable to hire active pilots and provide them with the necessary number of assignments to maintain their license.

Stakeholders have identified both advantages and disadvantages with each type of service delivery model. For example, in contract jurisdictions, the Pilotage Authority may not be able to develop a desired level of in-house expertise related to pilotage, as it is unable to hire active pilots and provide them with the necessary number of assignments to maintain their license. There have also been concerns about whether or not to incorporate safety provisions into a service contract or whether this is an area to regulate. However, Pilotage Authorities who employ a full complement of pilots may face higher financial risks related to traffic volatility.

Pilotage in Canada is a regulated monopoly, (i.e., there is no competition). There are provisions in the Pilotage Act that forbid employee pilots and contract pilots from providing services in the same areas. Arguments against offering competitive services generally focus on safety implications, ensuring that pilots are appropriately trained and have access to appropriate tools, and ensuring that there is an adequate supply of pilots to serve all vessels.  While the Pilotage Act does not allow for competition, other countries have considered these arrangements.

Since marine pilotage is a regulated monopoly, it is essential that pilotage services continue throughout any negotiation or dispute resolution process. As there is no competition, even a short withdrawal of service would have a negative impact on both marine shipping and Canada’s economy.

In 1998, the Pilotage Act was amended to include provisions related to final offer selection and preventing work stoppages. Simply, in the event that the Pilotage Authority and the pilot corporations are unable to conclude a contract negotiation, the Act provides for mediation, and if unsuccessful, arbitration using final offer selection. This type of arbitration requires the arbitrator to select one of the two offers in its entirety, which creates a win/lose situation for the parties. While some academics have noted that this can facilitate a compromise between the parties^{Footnote 2}, in the context of Canadian marine pilotage it has often resulted in an outcome unsatisfactory to the parties and leads to a costly judicial review process.

Questions for consideration:

1. Do you believe there are any advantages to using different pilotage service delivery models? Please explain.
2. Should the Pilotage Authorities develop in-house pilotage expertise? If so, how?
3. Can you suggest other dispute resolution mechanisms that may be appropriate to address a contract impasse?
4. Should the final offer selection process should be maintained? Why or why not?
5. Do you believe an arbitrator should be required to take into account the financial status of the Pilotage Authority? Why or why not?

4. Tariff setting process

The Pilotage Authorities maintain a pilot complement so they can supply pilots for assignments on a continuous basis. However, they have no direct control over the number of vessels that may require a pilot in any given year. The Pilotage Authorities undertake to forecast the number of pilots they need by meeting with industry and monitoring local, national and international trends. The forecasts for the number of vessels may be accurate, but the vessels may be smaller or larger than anticipated. This has a direct impact on the Pilotage Authority’s revenues. Although the Pilotage Authorities make best efforts to produce accurate forecasts, they have no control over global economic conditions, such as a change in the value of a particular commodity or a global recession.

Pilotage Authorities set tariffs in regulation after a thorough consultation process with the users. On average this process takes about six to eight months to complete, but can take longer if there are delays in the regulatory approval processes. Once the rates are in place, making any changes requires a new regulatory submission. Such delays in applying rate increases can be costly to the Pilotage Authorities. However, the current process provides a broad and rigorous objection process, which is important to ensure fairness within a monopolistic service delivery model. Anyone can object to a tariff increase they perceive as prejudicial to the public interest consistent to the national transportation policy. An objection triggers an investigation by the Canadian Transportation Agency and its recommendations to approve, vary, or reject the increase.

Under the Pilotage Act, Pilotage Authorities must be financially self-sufficient and are not eligible to receive funding from the federal government. The Office of the Auditor General has made recommendations relating to the financial self-sufficiency of the Pilotage Authorities in the LPA’s 2005 special examination; the GLPA’s 2008 special examination; and the APA’s 2016 special examination. All of the recommendations relate generally to the need for each Pilotage Authority to ensure that its processes respond to the legislated requirement to be financially self-sufficient. This highlights the need to address the inherent tension between the mandate to be financially self-sufficient and the lengthy fee adjustment process.

Questions for consideration:

1. What do you believe are the most important elements of the current process?
2. Do you believe the Pilotage Authorities should have more flexibility to adjust their tariffs? Why or why not?
3. How do you believe Pilotage Authorities should inform users about tariff increases?
4. How would you describe an ideal objection process? Who or what organization do you believe should be able to approve or reject proposed increases?

5. Economic and public policy considerations

All fees associated with marine shipping can affect the competitiveness of the industry and of Canadian ports. Since marine shipping makes such a large economic contribution, there is an incentive to ensure that pilotage fees meet the legislative requirement to be ‘fair and reasonable’. The 2016 Canada Transportation Act Review estimated that pilotage fees represent between 20% and 25% of the marine fees vessels pay in Canada. This has been reasonably consistent over the past ten years.

Text version

Marine Fees Paid by Vessels in Canada
(in thousands of dollars)

	Marine Safety Regulatory Fees	St. Lawrence Seaway Toll Revenues	Canadian Port Revenues	Canada Coast Guard Fees (Marine Navigation Services, Dredging, Icebreaking)	Pilotage Authorities' Revenues	Total
2007/2008	7,858	78,097	371,685	41,286	155,135	654,061
2008/2009	7,708	70,959	396,468	41,785	157,077	673,997
2009/2010	7,376	55,247	400,012	41,102	152,229	655,966
2010/2011	7,129	65,952	467,473	37,906	170,126	748,586
2011/2012	7,011	68,165	499,613	40,205	180,797	795,791
2012/2013	10,200	72,010	524,815	41,368	184,227	832,620
2013/2014	11,130	68,526	554,994	39,968	193,824	868,442
2014/2015	12,217	77,894	587,561	41,814	208,989	928,475
2015/2016	11,896	71,894	614,136	40,208	207,472	945,606

Sources

Marine Safety Regulatory Fees: Annual Departmental Performance Reports, Transport Canada
Canada Coast Guard Fees: Annual Departmental Performance Reports, Fisheries and Oceans Canada
St. Lawrence Seaway Toll Revenues, Pilotage Authorities’ Revenues and Canadian Port Revenues: Annual Transportation in Canada Reports – Statistical Addendum.

Most Pilotage Authorities costs relate to providing pilotage services. These costs include contract fees, salaries, and pilot launches/boats. As demonstrated below, the Pilotage Authorities are always looking for operating efficiencies.

Questions for consideration:

1. Can you suggest ways to find further efficiencies in providing pilotage services to reduce costs to shippers?
2. Safety is the most important consideration when providing pilotage services. Can you suggest ways to reduce costs without compromising safety?
3. Can you suggest modern tools that vessels can use to reduce the need of mandatory pilotage in some areas?

6. Enforcement and emerging issues

Compliance with the Pilotage Act and regulatory regime is high. Contraventions of the Pilotage Act are a summary offence and carry fines of $5,000. In addition, vessels that proceed through a compulsory pilotage area without a pilot are still liable for the tariffs. The Review should consider whether or not to update the current enforcement provisions, which were enacted in 1972. While there have not been any successful prosecutions under the Pilotage Act, other transportation-related Acts have introduced more flexible enforcement tools in recent years.

Similar to shipping, the delivery of pilotage services continues to evolve by using new tools and taking innovative approaches. A few examples are the introduction and use of:

• Portable pilotage units, which provide a range of data and chart information in one self-contained unit that pilots can customize to their needs.
• Helicopter hoists, which provides an alternate way to transfer the pilot onto the vessel without the risks posed by traditional ladder transfer.

Other maritime nations also continue to evolve and change in response to their unique needs and challenges. The Review will study each of these ‘best practices or lessons learned’ to determine whether they can be applied to the Canadian context.

Pilotage has made a significant contribution to Canada’s economic prosperity by ensuring the safe transit of ships since before Confederation and will continue to make an important contribution in the years to come.

Questions for Consideration:

1. Do you believe monetary penalties are an effective response to non-compliance with the Act? Why or why not? Can you suggest other options?
2. What do you see as the future needs for pilotage services in the North?
3. In your opinion, what are the main challenges and opportunities for pilotage in the next 5, 10 or 20 years?

How to participate

The Government of Canada recognizes that it is important to take the time it takes to solicit and consider views, and ‘get it right’.

Your views are key inputs to this process and will inform much of the work we do over the upcoming fall and winter. It would be appreciate if you could submit your comments and suggestions by October 30, 2017.

Online:

Please fill out the survey or share your comments with the Chairperson at:

https://www.tc.gc.ca/en/reviews/pilotage-act-review.html

By mail:

Send your submission or comments to:

Mr. Marc Grégoire
Chairperson – Pilotage Act Review
Transport Canada
330 Sparks Street, Tower C
Ottawa, Ontario
K1A 0N5