By Brian Dunn

According to the Coasting Trade Act of 1992, only Canadian-flagged vessels (or duty-paid vessels) may carry goods or passengers or conduct commercial activities between two Canadian ports. The exception is if a foreign vessel obtains a coasting trade (cabotage) licence for a specific job that a Canadian vessel cannot perform or is unavailable to perform.

However, Chapter 14 (International Maritime Transport Services) of the Comprehensive Economic and Trade Agreement (CETA) which went into effect on Sept. 21, 2017, creates preferential market access for EU members, allowing EU-registered vessels to perform a number of specific cabotage activities without a coasting trade license, explained Nils Goeteyn, Associate, Borden Ladner Gervais, during BLG’s annual maritime law seminar on December 1. However, CETA vessels must still comply with Canadian safety and pollution prevention requirements.

There are two categories of EU entities that may provide specific cabotage services between two Canadian ports. The first are EU member states, while the second are entities located outside an EU member state if they are owned or controlled by nationals of the EU or Canada. The entities must always use vessels registered by an EU member state and must not be located in the U.S.

Three types of activities no longer require a coasting trade license if performed by EU vessels, namely feeder services between the Ports of Halifax and Montreal, repositioning of empty containers, and dredging services, noted Mr. Goeteyn. For example, a German vessel may pick up containers in Halifax and discharge them in Montreal if the move is one leg of imported goods into Canada.

The CETA agreement should be a major boost for the Canadian economy, suggested Jack Mahoney, President, Maersk Line Canada. The country’s import and export volume is growing faster (12 per cent) than the global growth average of 4.3 per cent, he noted. “That helped drive our interest in the Canadian market which will only be boosted by CETA and why we started a new service between Montreal and the Mediterranean.” The agreement also allowed Maersk to move excess equipment from Montreal to Halifax and St. John’s more efficiently. The same applies to refrigerated equipment.

Commodities with the most potential for growth are wide-ranging and include agriculture, aircraft and parts, chemicals, electronics, machinery and equipment and plastics, noted Mr. Mahoney.

Cyber security was another topic for discussion and it was disclosed that “the ocean freight and freight forwarding industries are ill-prepared for cyber attacks,” according to Chris Smith, Senior Underwriter, West of England P&I. In June, a ransomware attack (malicious software that prevents access to/use of IT resources or data and demands a ransom to restore it) wiped out between $200 million and $300 million from Maersk’s books, he noted. “In terms of contractual liabilities, cyber risks are too big to cover, according to Lloyds. Detection is nearly as important as protection.”

Vulnerabilities include hardware failure, accidental on-board or office loading of malware or deliberate loading of malware by disgruntled crew or office workers. The most common attacks include hacking, phishing (random targeting to deceive people into providing information), spear phishing (targeted attacks), extortion and fraud (to create fraudulent transactions, instruction to banks or misdirect payments). There is also clone phishing to create fake shipping line websites to track cargo, fake cargo websites and fake agency websites. Many insurance policies contain a cyber attack exclusion clause (CL380) which is common in the shipping industry, noted Mr. Smith. “You need to practice cyber hygiene like you do human hygiene.”

The EU has strong data protection laws compared to the U.S. and Canada, according to Eloïse Gratton, Partner, BLG, who noted that almost 80 per cent of security incidents are the result of an employee’s fault and that companies need to implement a breach incident report plan. The new risk facing companies is privacy class action lawsuits, with 61 cases currently underway across Canada with most claims related to employee conduct or misconduct. That compares to just 13 cases in 2013.

In terms of managing security breaches, assessing the situation and legal risks is different for the individual and organizations. Did an individual suffer humiliation or embarrassment or physical or financial harm from the disclosure of personal information? For an organization, did it suffer financial risks, reputational risk or the risk of facing a privacy class action lawsuit?

According to a 2016 data breach study, 26 per cent of businesses were at risk of a security breach in the next 24 months, while 50 per cent of Canadian executives said their businesses were hacked last year, according to IT World Canada.

Autonomous systems and vessels was the third topic of discussion at the seminar, presented by Colin Clark, President, Lloyds Register Applied Technology Group and Leanne O’Loughlin, Claims Director, UK and Americas, Charles Taylor P&I Management. Maritime autonomy is the Fourth Industrial revolution, driven by cost efficiency and skills shortages, according to Mr. Clark. As an example, the 120-TEU YARA Birkeland, under construction, will be the world’s first fully electric and autonomous container ship which is expected to reduce annual operating costs by 90 per cent. It will operate between three ports in Southern Norway.

Among regulation challenges for autonomous ships, it is noted that regulations typically lag technology, but they can safeguard against low cost, low quality competition. Regulations can also reduce perceived risks to investors.

Autonomous ships do not mean the end of the seafarer, according to Mr. Clark. They will just have to be trained differently. “We’ll always need people to monitor and override systems in place during an emergency.”

When are we likely to see autonomous ships operating commercially? Rolls Royce is leading the charge and the company expects a remotely operated vessel for local use with reduced crew and remote support could be operational by 2020, noted Ms. O’Loughlin. And International Group/P&I members will be among the first to embrace the new technology, she added.

A remote-controlled unmanned coastal vessel could be ready by 2025 and a remote-controlled unmanned ocean-going ship could appear five years later. The first autonomous unmanned ocean-going vessel could be a reality by 2035.

“Few insurers know how to insure unmanned ships. How do you rate the risk since 70-80 per cent of marine casualties result from human error? But it’s harder to quantify the number of casualties that have been avoided by human intervention. What about rescue at sea? Will that all be done now by helicopter?”

Other unknowns include what constitutes due diligence at the start of a voyage and how do you ensure a ship’s security against piracy? And who is in control and responsible for the ship?