Since the decision was taken to approve the 15% temporary surcharge, valid until December 31, 2010, the Authority’s revenues have fallen based on a substantial decline in traffic levels due to the current worldwide economic situation. During this period, the Authority has continued to keep its administrative costs at the lowest possible level. Over 90% of the Authority’s expenses are on pilot salaries and direct operating expenses, and less than 10% are on administrative overheads.

The personnel at headquarters includes nine administrative officers and staff and also eight full-time dispatchers. This number is essential to administer and maintain an efficient pilotage service from Saint-Lambert Lock (Montreal) to Thunder Bay, including multiple ports within the Great Lakes and the St. Lawrence region. As part of its cost-cutting measures to generate savings in 2009 and 2010, the Authority has reduced eight pilot positions by means of an early retirement incentive program for senior pilots. This represents a 15% reduction in pilot numbers and will provide savings of approximately $1.7 million. In addition, it is deferring pilot training and development, deferring staff/management professional development, limiting salary increases and reducing travel and maintenance costs. These measures are expected to create savings of approximately $2.0 million and will contribute substantially to keeping tariff increases as low as possible.

Benefits and costs

The current 6% temporary surcharge brought into effect by SOR/2009-124 on April 23, 2009, is expected to generate approximately $110,800 per month, pro-rated on an annual revenue of $998,000. If the proposed 15% temporary surcharge were to come into effect on October 1, 2009, the Authority would generate an additional $526,500 for the remaining 3 months of 2009. In 2010, the proposed 15% temporary surcharge is expected to generate approximately $2.0 million. It is anticipated this proposed increase would provide the Authority with a positive cash flow in 2010. This positive cash flow will ensure the Authority’s self-sufficiency for 2010 and provide additional funding of approximately $1.7 million that will be allocated to reducing its deficit. The Authority’s savings due to its continuous cost-cutting measures will also have a positive impact on its revenue for 2010.

For an average-sized ship transiting the Seaway between Saint-Lambert Lock (Montreal) and Thunder Bay, the current pilotage charge is $40,000 for a one-way trip. Once the 6% temporary surcharge increases to the proposed 15%, the pilotage charge will be $43,000 for a one-way trip or about $2.00 a ton. The pilotage charge in 2010 will remain at $43,000 for a one-way trip. For a round trip, the above charges would be doubled.

There are presently fewer than 20 companies operating foreign-flag ships within the Great Lakes that employ Authority pilots. For a foreign-flag ship transiting the Great Lakes, its total pilotage costs would represent approximately 3% of its total operating costs. The increase in pilotage costs attributed to the 15% temporary surcharge will represent approximately 0.5% of the ship’s total operating costs. For the few Canadian flag ships that employ Authority pilots, they would experience a similar percentage increase as the foreign-flag ships transiting the Great Lakes.

The Authority’s pilotage costs are approximately 10% less per mile transited with respect to other Canadian pilotage organizations while it provides a safe and efficient pilotage service through multiple Seaway locks and miles of narrow congested waters.

In certain districts within the Authority’s jurisdiction, pilotage is shared equally between Canadian and U.S. pilots on a turn-about basis. The Authority and its U.S. counterpart regularly exchange information concerning pilotage rates. In early 2009, the U.S. pilotage authority increased its tariff rates by 18.98% and it intends to implement a further 9.41% in August 2009. When this occurs, the U.S. rates will be similar to Canadian rates. When the 15% temporary surcharge comes into effect, the Authority’s rates will be 9% higher than those of the U.S. pilotage authority based on a 90-cent dollar. Although this will provide the U.S. pilotage authority with a financial competitive advantage, the impact on international competitiveness is negated by operational principles since pilotage services are shared equally between both countries on a turn-about basis.

The increase in the temporary surcharge from 6% to 15% and the savings taken by the Authority are beneficial in that they will enhance its ability to operate on a self-sustaining financial basis that is both fair and reasonable, while repaying its deficit in accordance with the Special Audit Report of April 2008. The 15% temporary surcharge is also beneficial in that the Authority can continue to provide a safe and efficient pilotage service in accordance with the requirements of the Act.

Strategic environmental analysis

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals of 1999 and the Transport Canada Policy Statement on Strategic Environmental Assessment, a strategic environmental assessment of these amendments was conducted in the form of a preliminary scan. The strategic environmental assessment concluded that the amendments are not likely to have important environmental effects.

Consultation

The Authority met with representatives from the Shipping Federation of Canada (the Federation) on June 11, 2009, and with the Canadian Shipowners Association (the Association) and the Chamber of Maritime Commerce on June 15, 2009, to discuss current and future traffic levels within the Great Lakes and to present its financial position. The Authority indicated that traffic levels since the beginning of the 2009 navigational season were averaging 30% less than normal due to the current worldwide economic recession and pointed out the impact that these levels were having on the Authority’s financial position. To address its concerns, the Authority introduced a proposed amendment to implement a 15% temporary surcharge that would expire at the close of the 2010 navigational season and revoke the existing 6% temporary surcharge. This proposed 15% temporary surcharge would ensure the Authority’s self-sufficiency during these turbulent times and assist in reducing its present $3.6 million accumulated deficit.

The Authority’s major stakeholder is the Federation, which represents the agents/owners of foreign-flag ships that trade within the Great Lakes system and are required to utilize the services of Authority pilots while transiting these waters. These foreign-flag ships represent 95% of the Authority’s business and the remaining 5% pertains to the Canadian domestic fleet represented by the Association. The Association represents approximately 70 Canadian-flag ships and most of these ships do not utilize the services of Authority pilots. Approximately 10 ships in the domestic fleet, however, are Canadian tankers that employ the services of a pilot when transiting certain districts within the Authority’s jurisdiction or when the ship/cargo charterers require the ship to utilize the services of a pilot.

During the Federation’s meeting, its representatives acknowledged the effects of the global recession on the Authority’s reduction in traffic levels and indicated that a slight increase in traffic should be expected in the future, once the economy starts to recover. They realized that without additional, short-term funding, the Authority would have no recourse other than to substantially eliminate some pilot positions that could cause the Federation expensive delays in the future when traffic returns to traditional levels. The Federation recognized that the 15% temporary surcharge would allow the Authority to generate sufficient revenue to be self-sufficient and maintain an adequate number of pilot positions that would be able to service their foreign-flag ships once traffic returns to more normal levels. In sum, the Federation expressed its general support of the 15% temporary surcharge, due to expire on December 31, 2010.

During its meetings with the Association, the Authority explained its financial position and its reduced traffic levels in light of the current worldwide recession and discussed the same proposed amendment as were tabled at the Federation meeting. The Association indicated that it does not support the proposed 15% temporary surcharge and believes that the following actions should be taken:

1. Pilot numbers should be reduced by 12 pilots, not by 6 pilots as the Authority is suggesting.

2. The tariff should be frozen.

3. The Government of Canada should either fund the Authority’s deficit or allow the Authority to finance losses with bank financing.

The Authority also circulated relevant information concerning traffic levels, its financial position and its proposed amendment to various port and Seaway authorities and other stakeholders to solicit their comments.

At the Authority’s Board meeting on June 17, 2009, the Board members concurred with the Authority’s principal stakeholder, the Federation, in believing that the action measures proposed by the Association could jeopardize the long-term efficiency of the Great Lakes system and agreed with the more moderate reduction in pilots as proposed by the Federation and the Authority. The Board remains mindful of the Authority’s need to operate on a self-sustaining financial basis and eliminate its deficit as contained in the directive from Treasury Board and the Auditor General of Canada of April 2008.

Based on the active participation and input during the consultative process with the Federation and the Association and the lack of further comments/response from these representatives and other stakeholders, the Authority is of the opinion that more than 95% of the marine industry is generally supportive of the proposed 15% temporary surcharge viewed as fair and reasonable.

Implementation, enforcement and service standards

Section 45 of the Act provides an enforcement mechanism for these 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 the Act or Regulations is guilty of an offence and liable on summary conviction to a fine not exceeding $5,000.