By Brian Dunn
Does the Port of Montreal have a future? That was one of the panel discussions during Borden Ladner Gervais’ 27th Annual Maritime Law Seminar in Montreal on December 4.
Not an unreasonable question, considering Montreal’s severe winters, heavy ice conditions and the bigger ships being put into service that can’t negotiate the narrow channels around Montreal, giving deep water ports an advantage, suggested BLG Senior Partner and moderator Jeremy Bolger.
But the port has a bright future, according to Michael Fratianni, CEO of Montreal Gateway Terminals Partnership, despite the move towards mega capacity ships and mega investments. “Is operating a string of vessels in the 4,000-6,000 TEU range no longer viable? We don’t share that view. The one size fits all is not necessarily the right business model. You have to match capacity with demand and in some cases today, small is the new big.”
In fact, the port of Montreal is one of the best kept secrets, according to Tony Boemi, Vice-President, Growth and Development, Montreal Port Authority. “We’re open 365 days of the year. A lot of people confuse us with the Seaway which is closed for three months of the year.” One challenge is how to attract more activity to the port. The port of Savannah is a great model to follow, with its 41 million square feet of storage and distribution capacity, noted Mr. Fratianni, and Montreal is looking to develop more of its own distribution centres. However, the Canada-European Trade Agreement is not expected to be a major boost for the port, more likely a 1.5 per cent increase in business, according to some projections, he added.
The port can promote its efficiency, dependability and consistency with an average dwell time of three days, although 90 per cent of vessels using Montreal are on their way to their next destination within 48 hours, said Mr. Fratianni. “It’s also a very balanced port with 48 per cent of trade in exports and 52 per cent in imports, whereas some U.S. east coast ports lack export cargo.”
With two Class I rail companies, Montreal is also known as the natural gateway to the U.S. Midwest, Mr. Boemi pointed out. “We had a record last year (2014) of handling 30.2 million tonnes. This year, we’re projected to handle similar volumes.”
It was noted earlier by Mr. Bolger that Montreal now attracts close to 100,000 cruise ship passengers a year, up from 34,000 just a few years ago. One of the major projects at the port is the construction of a new $78 million cruise terminal to be completed by 2017 to coincide with the 375th Anniversary of the founding of Montreal.
There has been a lot of re-thinking if megaships are the way to go, said Mr. Boemi, as he showed a slide with the heading: Does Montreal Have a Future? Underneath were several newspaper headlines with titles including: Megaships are worsening overcapacity in the container market; Congestion persists at NY/NJ port; Virginia Port Authority faces a bottleneck of problems; Container Shipping Today: Mega-Ships and Mega-Problems.
“Those headlines don’t exist in Montreal. Over the last eight years at the Trans-Pacific Maritime Conference, the major topic has been the lack of infrastructure and trucks to handle megaships. There is tremendous overcapacity and so many ships are laid up.”
Another presentation looked at The Challenges and Realities Associated with the Ever Competitive Shipping Insurance Market, where rates are falling and earnings are down, according to Simon Swallow, CEO, The Shipowners’ Club, London. “It’s not the fun place to work in like when I first joined the Shipowners’ P&I Club over 24 years ago. We’re suffering from too many rules and regulations and internal audits and not enough time to market our business.” There was a time when small ships produced small claims, but today claims are increasing substantially which begs the question what the commercial fixed premium markets see in small ships in terms of profit when challenged purely on price, Mr. Swallow wondered. The number of claims is not increasing, but they are more expensive, citing an incident in 2011 in the Middle East when a offshore tug struck an oil platform, resulting in a claim of over $100 million.
“Limitation values have increased. The Clubs appear to be taking a wait and see attitude. The role of Reinsurance in softening the peaks and troughs will become ever more important but does an appetite remain for the P&I risk among reinsurers? Some of the large traditional reinsurers such as Munich, Swiss and Hannover Re are looking carefully at the P&I system…assessing the increasing cost of claims which could result in the Clubs having to retain more risk. ”
Another topic of concern is the low cost of oil. While the cost of bunker fuel is down, there has been about $1 trillion of offshore contracts cancelled by the major oil companies this year, which has had a negative impact on the offshore market, noted Mr. Swallow. Rates are expected to remain low and competition will be fierce for the foreseeable future, Mr. Swallow predicted. Capacity will also increase and increased capacity means increased competition which translates into rate reductions, he added.
“The impact of a weak freight market and the law of supply and demand is placing additional contractual liabilities on vessel operators for liabilities wider than the traditional knock for knock and finally, there is the vexing issue of sanctions, especially in Russia and Iran. Only last week I met owners in Dubai all with their foot on the gas pedal, ready to get into Iran when the sanctions are lifted.”
Another panel discussed Insolvencies and Bankruptcies from a Maritime Law perspective, with the Canadian view presented by Peter Pamel, Partner at BLG who explained the difference between the Federal Court and bankruptcy courts, and noted most claims are handled by the superior court in each province sitting in bankruptcy. He went on to explain the difference between secured and unsecured claims under the Federal Courts Act and Canadian Maritime Law and in the case of a secured claim, the Federal Court often maintains in rem jurisdiction over the vessel or other marine property in the event of bankruptcy or a restructuring.
He gave the example of The Brussels cargo ship being seized in Halifax by U.S. Stevedores who claimed to have a lien on the vessel following the bankruptcy of the ship’s owners in Belgium. It was argued that “matters before the Federal Court in relation to a ship arrest, default proceedings, sale of the ship and determination of a claim by a secured creditor are not proceedings in bankruptcy but rather of maritime law falling within the jurisdiction of the Federal Court.” And while “Canadian courts recognize different jurisdictions may have legitimate and concurrent interests in any international bankruptcy, it does not mean that a Canadian court must be subordinated to a foreign bankruptcy regime.”
If there has been any uncertainty on which court should handle which claim, Mr. Pamel said following his presentation that the courts in the last two or three years have done a good job in setting out the rules of play. “In other words, what issues should be properly dealt with in the greater context of bankruptcy by way of the bankruptcy courts and what issues are probably best left to the Federal Court exercising its in rem jurisdiction (a lawsuit against an item of property and not against a person) and dealing with the priority in ranking liens of a maritime nature.”
Gillian Grant, Senior Counsel at Transport Canada, discussed the Countdown to the Polar Code and other Maritime Law Initiatives. At the international level, she noted there was very little activity in polar shipping, although the International Maritime Organization (IMO) is developing a Polar Code that is expected to take effect in 2017, more than three years behind schedule. But there is much debate how to enforce the Code. “The Code will be given legal effect by being incorporated into SOLAS (Safety of Life at Sea) and MARPOL (International Convention for the prevention of Pollution from Ships) Conventions using the tacit acceptance procedure in each convention.” While the Polar Code seeks to reduce risks to safety, the Canadian regime seeks to limit pollution by ensuring vessels accept zero discharge in Canadian territorial waters, Ms. Grant added. She said the Polar Code gives Canada the opportunity to modernize its own regime.
Implementation of the Polar Code should have little impact on Canada’s north, as the safety provisions are risk-based and will only apply to SOLAS certified vessels, while the pollution prevention requirements are similar to those already in place in Canada, noted Ms. Grant. It may have some impact on occasional vessels in polar waters such as those involved in the Churchill grain trade.
Shipowners and operators may struggle how to comply with the Code, because it’s unclear and current technology may not enable them to meet the Code’s requirements, suggested Mr. Pamel during a discussion panel following Ms. Grant’s presentation. While the Code will have limited impact on Canadian shipping, there will be some initial flexibility in implementing it as some other jurisdictions may be challenged to comply with the code, Ms. Grant concluded.
As for Canada’s preparedness and response for oil spills and hazardous and noxious substances (HNS) in the Arctic, Ottawa released its second report from the Tanker Safety Expert Panel on April 8, 2015. The Panel made 25 recommendations for the Arctic and 17 for HNS. Among the 25 Arctic recommendations, the best way for Canada to counter ship-source pollution is through spill prevention with investments in aids to navigation, charting, ice navigation systems and ice navigator requirements. Ottawa should also bump up investments in the Canadian Coast Guard to better address Arctic spills. As for HNS recommendations, one suggested Transport Canada should develop requirements for vessels that carry HNS to have HNS response plans. Those plans should go further than existing IMO Conventions, by requiring both vessels and shore facilities to develop response scenarios and identify response resources that can be called upon.
Ms. Grant noted that on Nov. 13, the Prime Minister’s Office published mandate letters setting out the expectations for each new cabinet member, including some of interest to the marine industry. They include increased investment in transportation corridors and ports; improve marine safety; increase the proportion of Canada’s marine and coastal areas that are protected to five per cent by 2017 and 10 per cent by 2020; renew a commitment to protect the Great Lakes and St. Lawrence River basin. The most controversial mandate letter was to formalize a moratorium on crude oil tanker traffic on British Columbia’s North Coast.