Decision No. 450-W-2009

October 28, 2009

File Nos. W9125/L28/09-1
W9125/L28/09-2

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APPLICATION

[1] McAsphalt Marine Transportation Limited (MMTL) applied, through its Canadian representative, for two licences to use the "VICTORIOUS", a Canadian non-duty paid tug, and the "JOHN J. CARRICK", a barge engineered to work with the "VICTORIOUS". MMTL intends to use the vessels to transport asphalt and/or other black oil products to/from various ports in the Great Lakes, in the St. Lawrence Seaway, and on the Canadian east coast.

[2] The application originally reflected that the period of operation was to commence on or about August 31, 2009 and end on or about August 30, 2010. It was subsequently modified by MMTL to reflect a new commencement date of September 10, 2009.

[3] The "VICTORIOUS" and the "JOHN J. CARRICK" are capable of carrying 70,000 barrels of asphalt and/or other black oil products. Both vessels are in full compliance with the United States Oil Pollution Act of 1990 and all Transport Canada regulations.

[4] The primary proposed activity is transportation of asphalt (80 percent) and the secondary activity is the transportation of heavy black oil products (20 percent) between various ports in the Great Lakes and St. Lawrence Seaway.

ISSUE

[5] On application by a person resident in Canada acting on behalf of a non-duty paid ship, the Coasting Trade Act requires the Canadian Transportation Agency (Agency) to determine if there is a suitable Canadian ship available to perform the activity described in the application.

NOTICE AND OFFERS

[6] On August 6, 2009, Agency staff gave notice of the application to the relevant portion of the Canadian marine industry. Algoma Tankers Limited (Algoma) offered a number of comparable cargo vessels for carrying black oil products. Petro-Nav Inc. (Petro-Nav) offered the "THALASSA DESGAGNES", a Canadian duty paid asphalt/oil tanker.

[7] On August 25, 2009, MMTL provided its comments on the offers and forwarded the comments to both Algoma and Petro-Nav.

[8] The Agency was subsequently advised by Algoma that it never received MMTL's comments. It was established that there was a technical problem with communication and Algoma was allowed to submit its late response on August 31, 2009.

[9] On September 11, 2009, the Agency sent an interrogatory letter to the parties requiring them to provide further submissions, including a direct request to MMTL to comment on the issue of the splitting of the activity.

[10] On September 14, 2009, the Agency granted MMTL's request to extend the deadline to file its submission until September 15, 2009.

DECISION

[11] For the reasons outlined below, the Agency has determined that there are two separate and distinct activities and that there are suitable Canadian ships available to perform the activities.

PRELIMINARY MATTER

[12] In Decision No. LET-W-145-2009, the Agency indicated that it was of the opinion that the proposed service involves two separate and distinct activities and invited comments on whether the activities should be split.

[13] To support its position that the proposed activity should not be split, MMTL indicates that the transportation of asphalt represents 80 percent of the proposed activity and the transportation of black oil products only 20 percent, most of which (2/3) relates to MMTL own intercompany movements.

[14] MMTL also advises that the "VICTORIOUS" and the "JOHN J. CARRICK" are unique as they are designed to work as a composite unit, but are also interchangeable within the MMTL's current fleet of vessels.

[15] MMTL argues that the splitting of the activity of asphalt and black oil cargo transportation would defeat the unique ability of the "JOHN J. CARRICK" and the "VICTORIOUS" to provide dual service without imposing additional costs on MMTL, while reducing the transportation time for cargo shippers.

[16] Algoma submits that although its vessels cannot carry asphalt, they can carry black oil products. It argues that the unique ability of the "JOHN J. CARRICK" and the "VICTORIOUS" to provide backhaul transportation of black oil products has no bearing on the determination of whether there exists Canadian duty paid tonnage to perform the services.

[17] Petro-Nav asserts that the "THALASSA DESGAGNES" is capable of transporting both black oil products and asphalt in the Great Lakes and on the East Coast for the period specified in the application. Petro-Nav has taken no position on splitting the activity.

[18] With respect to the issue of defining the activity, the Agency has previously ruled that where there is an offer from a Canadian ship to partly perform the proposed activities, it is the responsibility of the applicant to demonstrate that the activities cannot be split or that they have to be performed using the same vessel (Decision No. 326-W-2009).

[19] In this case, the activities are similar, but one of the offers of Canadian duty paid vessels is restricted to carrying out only one of the activities, namely the transport of black oil products.

[20] Although MMTL argues that the particular activity of transporting black oil products is minor relative to the combined transport activities to be carried out by the "JOHN J. CARRICK" and the "VICTORIOUS", the Agency is of the opinion that the minor role of an activity is not relevant in the determination of whether a Canadian duty paid vessel is suitable and available to perform the activity. The issue is more properly whether MMTL has demonstrated that the activity (the transportation and backhauling of black oil products) has to be performed using the same vessels ("JOHN J. CARRICK" and "VICTORIOUS") which are to be used for the transportation of asphalt.

[21] In this case, unless MMTL can demonstrate that the loss of one of the combined activities (i.e., the transportation of black oil products) to Canadian duty paid vessels would cause the loss or a severe impairment to its entire business opportunity, and, accordingly, the activities cannot and should not be split, the Agency is of the opinion that the activities should be treated as separate and distinct.

[22] MMTL's position that the transportation of black oil products comprises only a minor part of the combined activity indicates, in and of itself, that there are no significant financial concerns or constraints in splitting off the transportation of black oil products for separate consideration with respect to offers of Canadian duty paid vessels for that activity. MMTL has not provided any evidence to the contrary.

[23] Accordingly, although MMTL's submissions did provide information as to the unique ability of the "JOHN J. CARRICK" and the "VICTORIOUS" to perform both activities and their economic advantage in carrying out both activities, the Agency is of the opinion that MMTL has not met its burden of proof as to why the activities cannot and should not be split. The Agency therefore finds that the transportation of asphalt and the transportation of black oil products are two separate and distinct activities and should be assessed separately.

SUBMISSIONS

Petro-Nav/MMTL

[24] Petro-Nav has offered a 33-year-old Canadian duty paid tanker, the "THALASSA DESGAGNES", with a cargo capacity of 60,000 barrels.

[25] MMTL argues that as the "JOHN J. CARRICK" has a cargo capacity of 70,000 barrels, the "THALASSA DESGAGNES" would require two voyages to carry the same amount of asphalt or black oil cargo that the "JOHN J. CARRICK" can carry in one voyage. MMTL estimates that the "THALASSA DESGAGNES" would require ten days to complete two voyages, causing a five-day delay that is likely to result in significant financial expenses (estimated by MMTL at $313,000 per each extra load) to MMTL and loss of business opportunity.

[26] Petro-Nav has not specified the draught of the "THALASSA DESGAGNES", but MMTL submits that the vessel is subject to draught limitations that may significantly impede the performance of the activity.

[27] MMTL also raised an issue of availability of the "THALASSA DESGAGNES" during the winter season. MMTL argues that as the "THALASSA DESGAGNES" is docked in Montréal during the winter season when the St. Lawrence Seaway is closed, this could significantly restrict her movement and relocation to a specific port on time, resulting in lengthy repositioning delays.

[28] On September 22, 2009, the Agency forwarded an interrogatory letter to the parties and specifically required Petro-Nav to submit information regarding the availability of the "THALASSA DESGAGNES" to perform the activity during the winter season when the St. Lawrence Seaway is closed. Petro-Nav submitted that the vessel is available to perform the activity during the winter season and could be located inside the Great Lakes or outside the St. Lawrence Seaway, and on the Canadian east coast (where part of the activity is to be performed) if requested.

[29] MMTL also raises an issue with the age of the "THALASSA DESGAGNES". MMTL argues that the ship is subject to significant docking restrictions throughout major Canadian ports. For example, Irving Oil has an age restriction policy for vessels that are more than 20 years old. In addition, MMTL insists that the Port of Sarnia, along with draught restrictions, also has a defined age restriction vetting policy on tankers that are more than 25 years old.

[30] MMTL has not provided any trip or cargo movement schedules, nor specifics of how many or which movements in the course of the activity period from September 10, 2009 to August 30, 2010 would require full load shipments or be directly affected by draught restrictions, seasonal availability and/or ship age restrictions.

Algoma/MMTL

[31] Algoma offered six vessels, four of which are currently involved in trading and two are available immediately.

[32] Algoma maintains that even though its vessels cannot transport asphalt, they are capable of carrying black oil products. Algoma adds that its vessels are comparable in size to the "JOHN J. CARRICK" barge and can serve most of the ports serviced by MMTL.

[33] MMTL argues that the vessels offered by Algoma are designated primarily to transport light oil cargo and not black oil cargo. MMTL states that it is mandatory to wash vessels to go from light oil cargo to black and vice versa, and estimates the approximate cost of washing at $300,000 per load.

[34] Algoma states that it is not able to assess the need for washing procedures and the related costs as no information is available as to when and what black cargo transportation is required. Algoma estimates, if washing is required, that the process would take approximately two days, and advises that the costs would be passed on to the charterer.

[35] MMTL further asserts that it requires full cargo (70,000 barrels) and a maximum draught of 22ft (7m) at its terminals. MMTL argues that Algoma's vessels are deep draught tankers and cannot meet MMTL draught restrictions.

[36] Algoma has provided technical specifications of all its vessels, but has provided no details as to what ships specifically are available to perform the activity. Algoma argues that it cannot provide such information at this time as it does not have sufficient information about the proposed activity and time for performance, including schedules, frequency, etc. Algoma also argues that it is MMTL's obligation to provide this information and MMTL failed to do so. MMTL advises that no such information is available at this time.

ANALYSIS AND FINDINGS

[37] One of the main purposes of the Coasting Trade Act is to protect owners and operators of Canadian- registered vessels. The legislation is designed to allow foreign vessels into the Canadian coasting trade only in those situations where Canadian operators do not have vessels that are suitable and available to carry out the designated activities.

[38] The Agency has adopted the following criteria for suitability and availability (Decision No. 315-W-1998, confirmed in Decision No. 285-W-2007):

With respect to the availability, the issue to be addressed is whether there are Canadian vessels available to provide the service or perform the activity described in the application during the period specified by the applicant.

With respect to the suitability, the Agency must examine technical, economic and commercial issues, in order to determine whether the Canadian vessels offered are technically suited to perform the activity described in an application, whether the cost of using a Canadian vessel is reasonable and reflects industry norms, and whether the use of a Canadian vessel has any overall impact on the commercial viability of the applicant.

[39] In its Decision No. 285-W-2007, the Agency also articulated that an offered Canadian-registered ship need not be identical to the foreign ship proposed in the application. The suitability of the Canadian-registered ship is not assessed in relation to the foreign ship, but rather in relation to the requirements of the activity and to whether the Canadian-registered ship is capable of performing the activity.

[40] In Decision No. 500-W-2002, the Agency also stated:

[...] the Agency is of the view that the words "the service or [...] the activity described in the application" must be read so that they only refer to the actual task. This interpretation is necessary to ensure the purpose of the Act by preventing applicants from circumventing the Act by imposing artificial conditions on the work in their applications. Having said that, the Agency recognizes that restrictions with respect to deadlines for completion of the work, specific equipment that is needed, etc. are often legitimate requirements for the task that needs to be completed. The onus is on the applicant to prove to the Agency, however, that any such requirement is necessary for the work. Where the applicant is able to convince the Agency that such requirements are necessary, the Agency will take them into account in determining whether an offered Canadian vessel is suitable and available. This approach is consistent with the purpose and scheme of the Act. It is also consistent with previous decisions where the Agency was convinced of the necessity of such requirements [...]

[41] With respect to the issue of additional costs, the Agency has previously ruled that "to claim that the cost of using a Canadian ship would be higher is not sufficient to show that a Canadian ship is not suitable; rather, the onus is on the applicant to demonstrate that the project would be uneconomic or commercially unviable using the Canadian ship"(Decision No. 352-W-2005). In the same Decision, the Agency referred to Decision No. 427-W-2003, in which the Agency ruled that "[...] where the applicant is arguing that the use of the Canadian vessel offered would impose an unacceptable financial burden on it, it is up to the applicant to provide the financial information that would prove these allegations".

[42] With respect to the burden of proof, the Agency has been consistent in its opinion that while the offering party has the responsibility to establish, in response to allegations to the contrary made by the applicant, that its vessels are suitable and available to perform the activity, the ultimate burden of proof rests, on a balance of probabilities, with the applicant to demonstrate that the offered vessels are not suitable and available.

[43] To make its determinations on suitability and availability, taking into account the above criteria, it is essential that the Agency be provided with full and complete information. Considering the burden of proof ultimately lies with the applicant, it is especially critical for an applicant to provide detailed information about the proposed activity so that potential Canadian operators know whether any vessel to be offered by them meets the criteria to be assessed by the Agency to determine the necessary suitability and availability for such vessel.

[44] In this case, based on the application being for a period of approximately 12 months, for an unstated number of trips, without designation of specific trip origins/destinations, no trip dates and no trip cargo load information, the Agency is of the opinion that MMTL has not provided the necessary information about the activities to enable Canadian operators to make fully comprehensive offers of Canadian duty paid vessels to carry out the activities. On that basis alone, if an objection had been raised as to the adequacy of the application, the Agency may have made a preliminary determination that the application was deficient and rejected it without proceeding with any determination as to the availability or suitability of Canadian duty paid ships. Alternatively, the Agency may have required further particulars from MMTL and republished a revised notice of application. However, the Agency notes that Petro-Nav and Algoma, notwithstanding the lack of information in the application, have made offers indicating that their vessels may well be suitable and available for the activities proposed by MMTL. Accordingly, the Agency will address those offers.

Availability

[45] MMTL challenged the availability of the "THALASSA DESGAGNES" during the winter season without providing any information as to a planned winter season trip schedule. Petro-Nav countered by confirming that the "THALASSA DESGAGNES" could be located wherever necessary to carry out the activities during the winter season, if so requested. The issue is not that the "THALASSA DESGAGNES" is not available, but rather the lack of information as to where the "THALASSA DESGAGNES" will be required to be available, which is a matter for MMTL to determine and declare. Accordingly, the Agency is therefore satisfied, on a balance of probabilities, that the "THALASSA DESGAGNES" is available throughout the period of time designated in the application for both activities, namely the transportation of black oil products and the transportation of asphalt.

[46] With respect to Algoma, it too has advised that its vessels are available, but is unable to confirm to MMTL which specific vessels would be used for specific trips without information as to specific cargo shipping requirements. Again, the issue is not that Algoma vessels are not available, but rather the lack of information as to when and for what cargo the Algoma vessels will be required, which is a matter for MMTL to determine and declare. Accordingly, as with Petro-Nav, the Agency is therefore satisfied, on a balance of probabilities, that the Algoma vessels are available throughout the period of time designated in the application for the transportation of black oil products.

Suitability

[47] With respect to suitability, there are a number of issues.

Capacity and draught

[48] MMTL argues that the "THALASSA DESGAGNES" has a smaller capacity and has draught limitations compared to the "JOHN J. CARRICK". However, MMTL has not provided evidence as to what trips, if any, would be impacted by those limitations. Conversely, taking into account the information available, it is not unreasonable for Petro-Nav to assume that there may be trips not requiring full capacity loads, which would address those potential capacity and draught limitations and make the "THALASSA DESGAGNES" suitable for both the transportation of black oil and asphalt products.

[49] There were no issues raised by MMTL with respect to the capacity of Algoma vessels, but MMTL presented arguments about draught limitations. Algoma argued that some of its vessels are considered to be of shallow draught and would meet the required criteria, but is not prepared to confirm which of its vessels would be used for specific trips until specific trips are known. Faced with general comments from MMTL about potential draught restrictions, the issue for the Agency to assess is whether Algoma is ready to respond to specific service requirements, when determined, of the activities. Algoma submits it is and the Agency accepts that submission.

[50] Accordingly, and again based on the evidence and the burden of a balance of probabilities imposed on MMTL, the Agency is satisfied that the "THALASSA DESGAGNES" offered by Petro-Nav for the transportation of black oil and asphalt products and the vessels offered by Algoma for the transportation of black oil products are suitable with respect to capacity and draught, for those respective activities.

Age

[51] With respect to the age of the "THALASSA DESGAGNES", MMTL submitted comments about selected terminal facilities and ports which would either bar or restrict access to the "THALASSA DESGAGNES" because of its age. Petro-Nav has challenged those comments. In any event, MMTL has not provided a trip schedule to enable the Agency to assess whether the age restrictions, if any, would materially affect the suitability of the "THALASSA DESGAGNES" for the proposed activities. Again, the Agency notes that the burden of proof rests with MMTL, and, based on the evidence, the Agency is not convinced, on a balance of probabilities, that the age of the "THALASSA DESGAGNES" would disqualify it as a suitable vessel for the proposed activities.

Washing service costs and delay

[52] MMTL also raised the special washing services which may be required for Algoma vessels in order to become suitable for the transportation of black oil products. MMTL indicated that the washing costs would have a great financial impact on MMTL. Algoma has countered this submission by stating that the requirement for washing depends on the circumstances of each trip and may be avoided with proper planning and coordination when a routing schedule is available. Again, the Agency is not able to determine, on the evidence presented by MMTL, whether this may constitute a valid economic or commercial reason to find that the Algoma vessels are not suitable for the transportation of black oil products. Accordingly, the Agency finds that MMTL has not met its burden of proof on this issue.

Summary as to Availability and Suitability

[53] In summary, the Agency is of the opinion that the application submitted by MMTL was lacking necessary information to enable Canadian operators to make fully comprehensive offers of Canadian duty paid vessels to carry out the activities. However, the Agency notes that offers were made by Petro-Nav and Algoma and, in an assessment of those offers, the Agency finds that MMTL did not prove on the balance of probabilities that Canadian vessels are not available and suitable for the activities.

CONCLUSION

[54] Primary activity: asphalt transportation. Based on the facts and evidence provided, the Agency has determined pursuant to paragraph 4(1)(a) and subsection 8(1) of the Coasting Trade Act that there are suitable Canadian ships available to perform the transportation of asphalt as described in the application.

[55] Secondary activity: black oil products transportation. Based on the facts and evidence provided, the Agency has determined pursuant to paragraph 4(1)(a) and subsection 8(1) of the Coasting Trade Act that there are suitable Canadian ships available to perform the transportation of black oil products as described in the application.

[56] It is also noted by the Agency that when MMTL is able to designate specific transportation activities, including origin and destination points, dates of the activities, cargo loads and particular technical specifications, there may be instances where a suitable Canadian ship is not available. In any such instance, MMTL is not precluded by this Decision from applying for a coasting trade licence to use a non-duty paid vessel for any such specific activities.

Members

• Jean-Denis Pelletier, P. Eng.
• John Scott