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Canada reviews Pilotage Act, recommends changes

Jun 1, 2018 03:18 PM

Thirty-eight recommendations include principles, labor structure, safety framework and tariffs

Courtesy Transport Canada

The following is text of a report from the government of Canada:

(OTTAWA) — The Pilotage Act was enacted in 1972, following the Royal Commission on Pilotage chaired by the Honorable Justice Yves Bernier. The Pilotage Act provides the legislative framework for pilotage services in Canada and establishes the four pilotage authorities as crown corporations: the Atlantic Pilotage Authority, the Great Lakes Pilotage Authority, the Laurentian Pilotage Authority, and the Pacific Pilotage Authority. Each of the pilotage authorities has a mandate to establish and operate safe and efficient pilotage services in their respective regions.

The Pilotage Act has been reviewed several times since its inception, either as a stand-alone subject or as part of a review of wider transportation issues. Although there have been several recommendations for reform, there was only one set of substantial amendments made in 1998. Otherwise, the majority of the Pilotage Act is largely unchanged. The primary purpose of the current Pilotage Act review is to modernize the legislation to better align with the existing and future realities of the marine transportation system.

Background

Marine transportation is a key component of Canada’s economic prosperity, with more than $200 billion of Canada’s international trade carried on domestic waters. A safe, efficient, and environmentally responsible transportation system is crucial, and all stakeholders in the marine sector have a role in supporting such a transportation system.

Canada’s marine pilotage system has an overall incident-free safety record of over 99.9 percent — a record which has not gone below 99.7 percent in the last decade. Overall, the safety record demonstrates that the nation’s pilotage system is safe. Any proposed reforms to the Pilotage Act must maintain an environment for continuous improvement of safety.

While acknowledging this exemplary safety record, concerns have been raised by some stakeholders that pilotage costs in Canada are too high. Pilotage fees represent approximately 20 to 25 percent of the marine fees that vessels pay as they enter Canada. Furthermore, the monopoly structure of pilotage service delivery has drawn criticism from industry users, especially since pilotage is mandatory and shippers are responsible for the costs of pilotage through tariffs.

Throughout the Pilotage Act review process, industry users expressed interest in increasing the overall cost-effectiveness of Canada’s pilotage system by implementing changes to the current pilotage framework. Some considerations include amalgamating the four pilotage authorities into one entity, introducing more advanced technologies, and amending the existing labor model for pilots.

Additional challenges have also been identified, such as the inconsistency of pilotage regulations across the country, the absence of robust oversight and enforcement mechanisms, and the rigidity of the tariff-setting process. Some of these problems can only be addressed through legislative amendments.

In considering how to best modernize the Pilotage Act, all aspects of the legislation were examined to provide a comprehensive set of recommendations. The report on the Pilotage Act review, as well as its recommendations, are organized into the following themes: purpose and principles, governance, labor, safety, and tariffs and fees.

Purpose and principles

Many federal statutes contain a preamble or purpose clause, or a general statement of public interest principles, to govern the provision of mandated services or the exercise of statutory powers created by the legislation. Apart from outlining the objects of the pilotage authorities in section 18 of the Pilotage Act, the legislation contains no direction on the public outcomes to be achieved.

The absence of a statement of objectives and policy principles links to three broad concerns about the delivery of pilotage services in Canada. The first concern is a lack of national consistency – four autonomous pilotage authorities have created distinctive program arrangements that respond to local preferences. The second concern is the lack of a governing policy framework for the broad discretionary powers of regulation that the Pilotage Act creates. The third concern is that some stakeholders have suggested that a purpose clause or a statutory declaration of principles could address current irritants or concerns, mostly related to the cost of pilotage services delivered through a monopoly. An explicit purpose clause for the Pilotage Act that clarifies the mandate of the board of directors and management team with respect to fee-setting would improve accountability and transparency and ensure that fees and tariffs fixed by the pilotage authorities are consistent with their purpose and objectives.

These concerns can be addressed by amending the Pilotage Act to enhance policy clarity, predictability and national consistency through an expanded statement of legislative purpose and governing policy principles, which are consistent with the Canada Transportation Act’s National Transportation Policy.

Governance

The 2016 Canada Transportation Act Review report recommended the amalgamation of the four pilotage authorities into a single national entity. The purpose of exploring an amalgamated model was to determine whether there was potential to achieve cost-savings and improvements in service delivery. Through the Pilotage Act review process, a wider array of potential governance models were also identified and analyzed. Any changes to the current governance structure are expected to maintain or improve pilotage’s current high-level of safety.

The six models considered were to:

• Retain the four pilotage authorities;
• Amalgamate the Great Lakes Pilotage Authority and Laurentian Pilotage Authority, while retaining the Atlantic Pilotage Authority and the Pacific Pilotage Authority;
• Amalgamate the Atlantic Pilotage Authority, Great Lakes Pilotage Authority and Laurentian Pilotage Authority, while retaining the Pacific Pilotage Authority;
• Amalgamate the four pilotage authorities into one single pilotage authority;
• Create a single, not-for-profit pilotage corporation modeled after the St. Lawrence Seaway Management Corp.; or
• Create a single, not-for-profit pilotage corporation modeled after NavCanada.

Research on the different governance structures indicates that the predominant method for delivering pilotage services worldwide is through regulated monopolies.

In principle, the greater the degree of consolidation, the greater the likelihood of achieving efficiencies. There may also be other advantages, such as an increased national consistency for service delivery, the potential to harness more expertise to assist with risk management, and facilitating a more standardized adoption of technology. However, the extent of these gains is uncertain since they could be counterbalanced by cost increases in other categories. Furthermore, there is the potential for the loss of local responsiveness with amalgamation.

Undertaking full amalgamation or creating a not-for-profit pilotage corporation may carry greater implementation challenges than undergoing partial amalgamation. Depending on how the model is implemented, there is the potential for transitional costs that could increase the overall costs of providing pilotage services over the medium or long term. Notably, a not-for-profit model may be guided by greater cost-minimizing incentives than a crown corporation model.

While there are benefits to amalgamating the four pilotage authorities, there is a lack of stakeholder support due to the potential cost increases associated with the transition and the risk that local responsiveness may decrease.

The majority of stakeholders, as indicated within their written submissions and participation within the Pilotage Act review roundtables, are in support of retaining the four crown corporations. Most pilotage authorities and pilot representatives also favor the status quo, while some industry representatives have demonstrated a level of interest in alternative options, such as amalgamating the pilotage authorities or transitioning to a not-for-profit NavCanada model. Throughout the review, partial amalgamation into one eastern and one western pilotage authority received little stakeholder support, as did the creation of a single not-for-profit corporation modeled after the St. Lawrence Seaway Management Corp.

However, given the contiguous waterway and existing working relationship between the Great Lakes Pilotage Authority and Laurentian Pilotage Authority, the amalgamation of these two pilotage authorities could be undertaken with the view to reduce costs, increase efficiency, and provide a basis for assessing the feasibility and desirability of further amalgamation in the future.

Furthermore, the development of a National Advisory Committee as a national forum to discuss pilotage issues may help drive effective management, achieve national consistencies, and promote inclusiveness of a broader cross-section of expertise.

With the discussion around the governance structure comes the question of the composition of the board of directors. Most stakeholders voiced support for retaining the current structure of the board of directors – for two representatives from shipping, two from pilots, two from the public – in their preliminary written submissions, even calling to enshrine this historical composition within the Pilotage Act. However, some stakeholders felt that there are real or perceived conflicts of interest on the boards of directors, since active members of the pilots and shipping industries hold voting seats.

Using sectorial representation is inconsistent with the government of Canada’s current practice of making appointments to boards of directors. Some pilotage authorities already have board compositions that reflect the outcome of a selection process which differs significantly from the historical composition.

At the Roundtable on Governance in January 2018, most stakeholders signaled a shift toward supporting the idea of a neutral board of directors that does not have any active pilots or industry members. Some stakeholders also suggested that the majority of directors should have some form of maritime experience, and that specialized expertise could be moved to a National Advisory Committee.

Having a neutral board of directors will reduce the real or perceived conflict of interest among board members and will align with the government of Canada’s open and transparent processes for appointments.

Furthermore, to support the government of Canada’s commitment to reconciliation with Indigenous communities, and to provide greater opportunities for the sharing of traditional and localized expertise, it is also recommended that one position on the board of directors of the Pacific Pilotage Authority be designated for a representative from the Indigenous communities of British Columbia.

Labor

Throughout the Pilotage Act review process, advantages and disadvantages have been identified with the current labor structure for delivering pilotage services. The rising cost of pilotage fees has been central to this discussion, as labor costs are a significant proportion of the pilotage authorities’ costs. Differences between employee and contract pilots have also resulted in calls to reform the labor structure of pilotage.

For example, while the pilotage authorities have management and oversight capabilities over employee pilots, they are unable to exercise a similar level of influence over their contract pilots. Aside from the conditions negotiated in the service contracts with pilot corporations, the pilotage authorities have few levers to provide and enforce direction to contract pilots, and do not have options to engage with alternative service providers.

Furthermore, the pilotage authorities are only able to hire or contract with one group of pilots in each region, making them the exclusive service provider for that area. However, the inability to hire employee and contract pilots simultaneously means that the pilotage authorities must rely solely on pilot corporations for advice and recommendations. As a result, in areas served exclusively by contract arrangements, the pilotage authorities cannot develop in-house expertise on pilotage matters. This creates opportunities for conflicts of interest and leaves some pilotage authorities in disadvantageous positions, and points to a need for greater flexibility in the system.

These difficulties can be minimized by amending the Pilotage Act to allow the pilotage authorities to use the workforce configuration – whether employee pilots, contract pilots, or both – that best meets their needs. This would be managed through a fair and effective dispatching system so that the safety of the pilotage system is maintained.

The final offer selection arbitration model, used between the pilotage authorities and pilot corporations for outstanding issues in contract negotiations, has resulted in some contentious selections. Since the arbitrator must select one offer in its entirety and does not consider other relevant information pertaining to the pilotage authority or pilot corporation, the offer selected may not fully reflect the cost or operational implications.

The pilotage authority’s financial self-sufficiency may be jeopardized if the selected offer is not financially viable or if a corresponding tariff increase to meet these needs is rejected. The Pilotage Act should be amended such that the arbitrator must consider the purpose and principles of the legislation when making arbitration rulings.

There are also concerns that service contracts between the pilotage authorities and pilot corporations may include provisions which overlap with the pilotage authority’s regulations. This circumvents the regulatory process and creates uncertainty around pilotage requirements. Therefore, it must be clear that the Pilotage Act and its regulations have primacy over pilotage service contracts.

As private entities, pilot corporations are not subject to financial disclosure or reporting requirements. Industry users raised concerns about the lack of transparency and accountability placed on pilot corporations. Given the delivery of pilotage services is a compulsory requirement and a federally-regulated monopoly lead to higher expectations for transparency and public scrutiny. All pilot corporations should be made subject to greater levels of transparency and accountability, including the publication of financial statements and service contracts.

Safety

Several issues were reviewed regarding the Pilotage Act’s safety framework, including the scope of regulatory powers, enforcement, risk management, technology, pilotage exemptions, medical requirements, and the Arctic.

The pilotage authorities function as both the regulator and service provider. Internationally, these functions are often separated, with one body, generally the state, regulating the service and another body responsible for service delivery. Stakeholders indicated some support for separating these two functions; however, there were also some concerns about the capacity of Transport Canada to take over regulatory functions.

Additionally, there are significant inconsistencies related to having four regulatory frameworks for marine pilotage in Canada. While this allows for a high degree of local responsiveness, it also limits national standardization across the four pilotage regions.

To address these issues, the Pilotage Act should be amended to provide the minister of transport with the authority to make all regulations pertaining to safety. Further, the government of Canada should provide the necessary resources to develop the pilotage safety regulatory and oversight capacity at Transport Canada.

The Pilotage Act currently has enforcement provisions for contraventions of the legislation, including a summary conviction offense and a fine of $5,000. These provisions are outdated and inconsistent with most other marine transportation legislation. For example, a fine of $5,000 may not be an effective deterrent for proceeding through a compulsory pilotage area without a pilot if the tariffs for that voyage exceed the total amount of the fine. Further, the Pilotage Act provides the pilotage authorities with the power to suspend or revoke pilot licenses, but limits the maximum liability for pilots at $1,000. There are no other sanctions for pilots in the legislation.

The Pilotage Act should be amended to include a compliance scheme and to provide the minister of transport with the appropriate powers to enforce, and delegate the enforcement of, these provisions. Additionally, an administrative monetary penalty scheme should be developed for individuals and companies that contravene pilotage legislation and regulations.

The current risk assessment tool used by the pilotage authorities to determine compulsory pilotage areas is the pilotage risk management methodology. While stakeholders acknowledged that the risk assessment process is inclusive, there were concerns that they are too lengthy, complex, and costly. It was also raised that there is potential for bias in the results.

Additionally, navigation technology has advanced considerably since the Pilotage Act was enacted. Previous reviews of pilotage have noted the lack of adaptation of new technology in the pilotage sector. Some stakeholders have expressed support for an expanded use of technology as a way to reduce the cost of pilotage. Other stakeholders were concerned that technology could have an impact on safety.

To address these concerns, a new risk assessment process should be established through regulation which has a clear methodology, standards, guidelines, and conduct for assessment, and which considers all navigational aspects of risk, including technological advances. The Pilotage Act should also be amended to establish an objective that the pilotage authorities optimize the use of new technologies.

Across the four pilotage authorities, standards and requirements for obtaining pilot licences, certificates, and waivers are inconsistent. Some stakeholders feel that the exemptions systems in each pilotage authority works well, while others wish to see a more standardized approach.

Transport Canada should implement and administer a standardized exemption scheme and stipulate the requirements in a new national regulation. Transport Canada should facilitate and promote a national pilotage certification program for the training and evaluation of ship masters and navigational officers without compromising safety or creating competition within pilotage. Eligibility for pilotage certificates should also be extended to foreign masters and/or to a class of ship in the same company, if applicable.

Current general fitness requirements within the General Pilotage Regulations follow the Marine Personnel Regulations, which sets out medical examination requirements for seafarers. To address regional inconsistencies across the four Pilotage Authorities regarding medical standards, Transport Canada should review the processes for determining medical fitness of pilots and develop a best practice guideline.

Furthermore, vessel traffic in the Arctic is growing due to climate change and the advancement of technology. At present, there is no formalized pilotage authority in the north but ice navigators assist in providing navigation services. Improvements under the Polar Code and formalizing the requirements to become an ice navigator will mitigate the need for Arctic pilotage in the short term. For the longer term, there is potential for pilotage in the north to be developed in conjunction with the Low Impact Shipping Corridors initiatives within the Oceans Protection Plan.

Tariffs and fees

The pilotage authorities receive no appropriations from Parliament. Revenues required to maintain pilotage operations must be generated through tariffs and, to a much lesser extent, other fees. These tariffs and fees must be enacted through regulations under the Pilotage Act. Furthermore, the pilotage authorities must ensure that tariffs are fair and reasonable and will ensure that they can remain financially self-sustaining.

Stakeholders have noted that the regulatory process for changing tariff rates is unresponsive, cumbersome, and lengthy, resulting in inefficient operating deficits or surpluses for pilotage authorities.

One of the main challenges faced by pilotage authorities is the disconnect between the federal regulatory process, which must be followed to enact tariffs, and the annual planning process that the pilotage authorities are required to follow under the Financial Administration Act. Tariffs often become effective long after annual plans have been approved by the Treasury Board, and revenue assumptions made in those plans can be invalidated by delays in the regulatory process.

Consequently, the Pilotage Act should be amended to grant the pilotage authorities complete authority to fix tariffs and other fees. Clear directions and guidelines should be established within the legislation to require proper notice and consultation with stakeholders.

With any changes to the tariff structure, consideration will need to be given to an objection process that ensures the checks and balances of the current system are maintained given the monopoly structure of pilotage.

As currently drafted, the Pilotage Act creates situations in which any person may file objections to tariffs at a point in time when the regulatory process has not yet been completed. Normally, adjudicative bodies consider matters after a final decision has been made by the responsible authority, not during the decision-making and approval process. The Pilotage Act also allows persons who are not materially affected by pilotage tariffs to raise objections to tariffs with the Canadian Transportation Agency.

The grounds for filing a tariff objection with the Canadian Transportation Agency should be limited to compliance by the pilotage authorities with clearly specified statutory criteria and processes, and only those subject to tariff charges, or their representatives and associations, should be able to file objections.

Further, the fee-setting ability of the pilotage authorities is perceived to be too narrow for services beyond marine pilotage. The pilotage authorities should be authorized to fix fees for all other products and services they provide. This will enhance the ability of the pilotage authorities to remain financially self-sustaining while also reducing their reliance on tariffs.

Conclusion

While it is largely agreed upon that the pilotage system in Canada works well, it is time for the legislation to be updated to reflect the realities of today and the possibilities and innovations of the future. This report is the product of a comprehensive examination of the structure and delivery of pilotage services in Canada, and charts the way forward for the modernization of the Pilotage Act.

After months of consultation and careful consideration, recommendations have been proposed to address deficiencies related to five key components of the legislation: its purpose and principles, governance model, labor structure, safety framework, and tariff-setting process. Implementing these recommendations, the corresponding modernization of the Pilotage Act will improve the overall organization and functionality of Canada’s marine pilotage system.

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