Past Session:

Proceedings of the Standing Senate Committee on
Transport and Communications

Issue 12 - Evidence

OTTAWA, Wednesday, September 19, 2001

The Standing Senate Committee on Transport and Communications, to which was referred Bill C-14, respecting shipping and navigation and to amend the Shipping Conferences Exemption Act, 1987 and other acts, met this day at 5:35 p.m. to give consideration to the bill.

Senator Lise Bacon (Chairman) in the Chair.

[English]

The Chairman: I wish to inform you that Senator Forrestall is resigning as vice-chair of this committee. We are sorry to see you leave, Senator Forrestall, and we thank you for the magnificent contribution you have made to the committee and the subcommittee for transport security.

In consideration of the events that happened last week, we must read again the report that you tabled for your subcommittee. I hope that a copy will be sent to the Minister of Transport and ask that he act on the recommendations of the subcommittee. We thank you, Senator Forrestall, for your work, your cooperation and your advice on behalf of the committee and its members.

I am also informed that Senator Oliver would consider the position of vice-chair.

Senator Eyton: I move the nomination of Senator Oliver.

We realize it will be difficult to replace someone in the position of Senator Forrestall, but I spoke at length with Senator Oliver this afternoon, and it appears that he has the qualifications to be the vice-chair. Thus, I am pleased to move his nomination.

The Chairman: Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

The Chairman: Congratulations, Senator Oliver. I am certain that you will bring your experience, as a member of this committee and as the Chair of the Transport Committee a few years ago, forward to this session. We will put you to work as soon as we finish today's meeting. We will have a steering committee with Senator Callbeck to prepare for the next meeting. We have ahead not only Bill C-14 but also several other bills waiting in the wings for us.

I welcome our first witness, Mr. James E. Gould, President of the Canadian Maritime Law Association.

As you know, we will hear from you first. All the members have copies of the presentation, and we will ask questions that are necessary to know more about your dossier later.

Mr. James E. Gould, President, Canadian Maritime Law Association: I am a practising maritime lawyer from Halifax, and currently the president of the Canadian Maritime Law Association, which is celebrating its 50th anniversary this year. The association was founded in 1951 by Canadians interested in Canadian and international maritime law. Our mandate is to promote effective, modern maritime laws within Canada and internationally.

We are Canada's representative association to the Comité Maritime Internationale, a private non-governmental international organization founded in Belgium in 1897. The main purpose of that organization is the promotion of uniformity and unification of international maritime law.

As I have said in my submission, we have two types of members in the CMLA - individual and constituent. We have a very broad membership base, and it is not a lobby group for any special interests. We have about 300 individual members who represent every facet of the Canadian marine industry, and we have 19 constituent member associations with particular but varying interests in maritime matters. I notice that one of them is here tonight, the Canadian International Freight Forwarders Association, and there are others, including the Shipping Federation of Canada, that have made presentations to you.

Since the commencement of the Canada Shipping Act reform process for a number of years, the CMLA has been actively involved in consultation with government representatives. In January 1997, we established our own CSA reform committee, which worked closely with the government officials and with representatives of Canadian maritime industry. We have had many meetings with Transport Canada, the Department of Fisheries and Oceans and the Department of Justice representatives regarding Bill C-14 as well as its predecessor, Bill C-35, as well as the draft Canada Shipping Act that was presented.

We have had a very frank dialogue with government officials, which has been refreshing and beneficial. We commend the to the Government of Canada and this committee the work that has been done by Transport Canada in this important policy initiative of revising this old but very necessary act to reflect current standards and needs.

We are not in full agreement with all the provisions in Bill C-14, but, as a result of our ongoing dialogue, by the time Bill C-14 came out of the House of Commons Standing Committee on Transport and Government Operations, most of our express concerns had already been addressed. The remaining differences mostly relate to policy at this stage.

We have made our written submissions, and you have indicated, Madam Chair, that you have them. In that, we draw to your attention our long-standing concern relating to provisions already incorporated in the stage one amendments to the Canada Shipping Act, the ones that permit incorporation of guidelines and standards by reference, and confer certain powers on public officials.

These guidelines, standards and forms are deemed not to be regulations. Therefore, they are exempt from the operation of the Statutory Instruments Act and its safeguards. We caution now, as we have done before, that Parliament may need to revisit the concept of incorporation of standards by reference to ensure that Canadian public interest is protected. I will say no more about it here except to note that there is a summary of our concerns in our written submission.

We wish to commend to this committee the written submission made to the committee, dated June 12, 2001, that was presented by our constituent member, the Shipping Federation of Canada.

At this point, we wish to address three general areas of concern relating to the Canada Shipping Act. We take no position with respect to the amendments relating to the Shipping Conferences Exemption Act. We are most concerned about Bill C-14's enforcement provisions.

The principal new enforcement initiative is a scheme with administrative penalties intended to be available as an alternative but not to entirely replace criminal or quasi-criminal prosecutions in the event of violations. Highlights to the initiative are summarized in our written submission.

I would note here particularly that in the event of a violation of a relevant provision, Transport Canada would have discretion, as an alternative to prosecution, to assess an administrative penalty, requiring the payment of a prescribed amount. The person against whom the penalty is assessed would then have 30 days to either pay the assessment or request a review. The review would take place before an appointed official called an adjudicator.

I submit that it is very significant that a civil, as opposed to criminal, burden of proof is imposed on Transport Canada in review proceedings, by subsection 232(2). This would be proof by a balance of probabilities rather than beyond a reasonable doubt.

The consensus of our committee that reviewed the enforcement provisions of Bill C-14 is that this is a particularly objectionable feature. Transport Canada would have discretion whether to proceed administratively or by way of prosecution. There should be no substantive advantage to the department in the event it chooses to proceed administratively, thus reducing the threshold burden of proof protections available to prosecutions.

I know that this particular concern has been reflected in other submissions, including that of the Shipping Federation of Canada. We are aware of strong industry opposition to adoption of the administrative enforcement initiative, including the opposition of a number of our valued constituent members. Thus, we simply express concern about the adoption of an enforcement system for which no need has been demonstrated.

Other enforcement initiatives in Bill C-14 are controversial as well. As just noted, criminal prosecution remains an available enforcement option in all cases. Procedurally in almost all cases, Bill C-14 provides for prosecution by summary conviction. However, the maximum fine amounts that may be imposed in the event of summary conviction are significantly high throughout this bill. Others have commented on the level of fines, and I will not make any further comment on that.

The minister would be given broad discretion to refuse to issue or to suspend, cancel or refuse to renew Canadian maritime documents - CMDs - under section 20. Our committee has two objections to this specific initiative.

First, the language of the relevant subsections is considered somewhat vague and imprecise, leaving open the possibility of sanctions being imposed against CMD holders on arbitrary grounds.

Second, the possibility of CMD sanctions being employed for penal as opposed to safety assurance purposes, imposes an additional jeopardy on persons alleged to have committed violations. The CMLA considers this to be unfair, inappropriate and illegitimate use of the personnel certification process.

I have also noted in the written submission that section 149, is revised before the House of Commons, empowers the minister to appoint formal inquires into deaths on board Canadian ships is felt to potentially conflict with the Canadian Accident Investigation and Safety Board Act. In any case, it does not adequately protect witnesses against possible self-incrimination in the event of compulsory testimony before any such inquiry.

We do not consider that harmonization of enforcement methods between transportation modes by itself would justify introduction of an administrative enforcement scheme to the maritime shipping industry. We are not aware that there has been any independent risk analysis or risk management study that would demonstrate that the existing enforcement system is inadequate or does not protect or address safety deficiencies.

Once again, I would refer to the Shipping Federation of Canada brief of June 12, 2001 as it addresses its specific concerns with respect to the enforcement provisions with which the CMLA is in general agreement.

The second topic that I would like to address briefly is pollution prevention and response. Initially we had recommended that a provision be incorporated to prevent double jeopardy, stating that where an offence is prosecuted under the Canada Shipping Act 2001, no charges for the same offence could be laid under any other federal statute.

The government did not act on this suggestion, so we wish to comment on it again, particularly with respect to the overlapping of various potential criminal liabilities for ship source pollutions.

Section 12 of the Criminal Code states that an accused is not liable to be punished more than once for the same offence, regardless of the number of acts of Parliament under which proceedings might be taken. Similar protection exists at common law and in the Charter of Rights and Freedoms.

However, notwithstanding this, water pollution has recently given rise to charges being laid with respect to a single circumstance under several different pieces of federal legislation. With the adoption of the Canadian Environmental Protection Act, 1999, the list will presumably be lengthened. At present, in addition to the Canada Shipping Act and the Arctic Waters Pollution Prevention Act, section 40 of the Fisheries Act and section 13 of the Migratory Birds Convention Act, 1994, may be used to lay penal charges arising out of exactly the same events.

Prosecutors, of course, may elect to proceed under any one of these pieces of legislation, but the CMLA submits that a provision in Bill C-14 giving priority to prosecutions initiated under the Canada Shipping Act and stating that additional charges should not be laid under any other federal statutes, would be appropriate and that part nine should be amended accordingly.

I have mentioned already investigations inquiring into causes of death, and this is provided in sections 219, and 149. As originally presented, section 149 made inquiry mandatory in the case of death on-board a Canadian ship. Section 219 had already provided the minister with the power to investigate the cause of death on-board a ship.

The CMLA's concern with the mandatory nature of section 149, as originally drafted, could lead to conflict with the mandate of the Canadian Transportation Accident Investigation Safety Board (CTAISB) and could provide the potential for unnecessary duplication of investigative efforts. For deaths on-board ships in internal waters, provincial coroners would also have jurisdiction. We recommended that the provisions of section 149 not be mandatory, but rather that they be permissive.

This was accepted in part, and it was amended to now read that if a person dies on-board a Canadian vessel, on the vessel's arrival at a port in Canada, the minister is to endeavour to ascertain the cause of death and for that purpose may hold an inquiry. At this time, we are not certain that this fully addresses or eliminates the possibility of duplication of effort or inconsistency with the provisions of the CTAISB.

The Chairman: My understanding is that your major concern is the introduction of administrative penalties. The stated reason for using them is that they have a better safety effect, and this appears to have worked in the air mode. Which do you believe would have the better safety effect in the marine mode - judicial penalties or the proposed administrative penalties?

Mr. Gould: I believe that the present system is adequate. There are few prosecutions under the Canada Shipping Act. Most of them relate to ships or soil pollution. There are, of course, a few others but, for the most part, there are no prosecutions. We see this as having the potential to support a large bureaucracy that really may have very little to do.

I am not aware of any need to have a ticketing-type of system, where there are administrative penalties imposed - and the levels are very high. I cannot comment in-depth, but it seems that some of the penalties are quite high.

The Chairman: Penalties could be appealed to the courts if you are not happy with the results of a review. There could be an appeal to the proposed transportation appeal tribunal. Might that allay any fears you might have?

Mr. Gould: It is wasteful because it involves an extra step. Our concerns are that some of these penalties may be used to sanction CMD holders and others who have to get on with business.

The Chairman: On page three, you caution us that we may need to revisit the concept of incorporation of standards by reference, while acknowledging the difficulty Transport Canada has experienced in the past. What do you propose?

Mr. Gould: We have proposed in the past, some form of periodic statutory review to ensure that the Canadian interest is being observed. We do not necessarily disagree with what is being done, but rather it is just the method of keeping a check on it.

There are international standards relating to manning, certification and things of that nature. When the standards are amended in another country and then amended accordingly here, there may be some Canadian issues that are not addressed. That is our concern - that Canadian interests be protected in the course of this process.

The Chairman: You take no position on the changes to the Shipping Conferences Exemption Act at this stage. You must note that this is the last stage of the legislative process, and so I ask if you wish to participate in the SCEA?

Mr. Gould: No, not at any stage. We make no representations with respect to SCEA.

Senator Callbeck: Mr. Gould, you mentioned duplication. There could be duplication of effort in investigations if there is a death. You have had many discussions with government officials, according to information in your brief. What have government officials said to you when you raised this matter?

Mr. Gould: They were appreciative that it had been raised with them, and that was the reason that section 149 was changed before the House of Commons. Our only point now is that it seems that it works pretty well, but we are not certain that there is not the possibility of some overlap of jurisdiction between the minister and his investigations under the Canada Shipping Act 2001 and under the Canadian Transportation Accident Investigation Safety Board Act.

Senator Callbeck: I would like to enquire about double jeopardy. Under the Criminal Code, as you said, you cannot charge an offender twice for the same act. Can you give me an example?

Mr. Gould: There is a system that has worked fairly well for many years relating to alleged oil pollution from ships. A ship itself may be charged under the act, and then security is provided to permit the ship to depart Canada - security for the amount of any fine that might be imposed. Recently, Transport Canada and, I believe, Environment Canada had begun charging the ship under the Canada Shipping Act and oil pollution prevention regulations, and the master of the ship was charged under the Migratory Birds Convention Act. That puts the master of the ship at quite a disadvantage, because he no provision for his personal security. As well, his offence is the same offence with which the ship is being charged under the Canada Shipping Act.

We believe that the government has the choice of which horse to ride. However, if it chooses to ride any horse, it should be the Canada Shipping Act. If it does, then that act should prevail and there should be no charges under other legislation. It is just not fair.

Senator Oliver: On that point, I do not know why you could not raise a plea of res judicata, or failing that, why you could not raise a defence of section 12 of the Criminal Code to say that this matter has already been judged upon. Why would you not succeed?

Mr. Gould: I would agree with that, Senator Oliver. However, they charge coincidentally, so that the result is two parallel prosecutions. Certainly, if you were convicted of one, you could plead res judicata. I believe that section 12 precludes you from being convicted in respect of two statutes, but it does not seem to prevent the government from laying charges under various statutes.

Senator Oliver: Could you not apply for a stay for one on the basis of that? If one is successful, you could make an application under section 12 and say res judicata?

Mr. Gould: My preliminary view of that is that in most cases it is the ship itself that is charged under the Canada Shipping Act. It may be the owner, a company or the master in many cases, an individual, who is charged under the Migratory Birds Convention Act. I do not think that you could apply for a stay in those circumstances.

Senator Oliver: I have one other question that relates to what I think is your substantive argument dealing with enforcement. As I understand it, your main concern is about the burden of proof. In criminal law the burden is beyond a reasonable doubt, and in civil law, it is on a balance of probabilities.

However, under section 232(2), it says, "the burden on the minister is to establish on the balance of probabilities." The courts have interpreted the balance of probabilities to mean that you must prove it on a "preponderance of credible evidence."

Therefore, if the department has a preponderance of credible evidence, in what way are you going to be prejudiced by that? That is in itself a pretty high burden. In other words, they cannot make it up and just lay a charge for the sake of it.

Mr. Gould: I would agree with you. Obviously, a preponderance of credible evidence is the ultimate test. That is something better than a 50 per cent belief, I presume, in the truth of the facts being asserted.

However, the criminal burden of proof is beyond a reasonable doubt. Every element of the offence must be established beyond a reasonable doubt. In that difference I would submit that there is quite a significant variance in the burden of proof.

A burden of proof that requires the establishment of all facts beyond a reasonable doubt is significantly higher than that of a preponderance of credible evidence.

Senator Oliver: Section 232 says that person shall not be compelled to give evidence, but if there is to be a test, it goes on to say that there can be a repeal or a review if requested. Thus, all of the normal legal protections are there. If you are dissatisfied there can be a review.

You went on in your brief to say that you do not know if they are review procedures because they will probably come by way of regulations, and you do not know what the regulations are. However, we never know the regulations until after the statute is passed.

You will have a chance to speak about the regulations later on. What is wrong when the statute itself permits a review?

Mr. Gould: There is nothing wrong with the fact that it permits a review. However, the threshold burden is one that can be selected at the minister's discretion. You might say that we could prosecute these people, but we would have to prove it beyond a reasonable doubt. Let us just go with the administrative route where we only have to establish it on a balance of probabilities.

I submit that that is inconsistent with the way that it should be, the way it should be operating. That same burden of proof should apply to administrative processes as to prosecutions themselves.

Senator Oliver: Do I gather both from your brief and from your statement in support of your brief that this is not such a serious matter that you would be asking anyone to make an amendment? It is something that you wanted to point out that the government should be concerned about. The government might have a minor edge by not having to prove something to a reasonable doubt standard.

Mr. Gould: It is a reflex ion of the concerns expressed to me by members of my organization, including our constituent members.

Senator Oliver: You are not asking for an amendment or anything like that?

Mr. Gould: I do not think that I could. I am simply putting forward the argument that that is something that should be considered.

Senator Oliver: Is there anything else that you feel that the committee should know about, apart from the three points you have raised in your brief? Is there any thing about the overhaul of the statute?

Mr. Gould: I do not think so at this stage. It was very comprehensively reviewed. Even in cases of omissions by mistake, those were corrected. It has been a good exercise, and I think that it is basically a very good piece of legislation, as a result.

Senator Kenny: I am curious, sir, as to who actually enforces this. Who do you see laying the charges?

Mr. Gould: Transport Canada.

Senator Kenny: Who in Transport Canada?

Mr. Gould: They have inspectors and investigators, who are designated under the act, and they then may make inspections and lay charges.

Senator Kenny: It is not a police function?

Mr. Gould: No, it is not. It is an administrative function.

The Chairman: Any other questions, senators? No?

Our next witnesses are from the Canadian International Freight Forwarders Association Inc. Mr. Tony Young is President and Mr. H. J. Kuhn is Executive Director.

We all have copies of the association's presentation. We will hear from you first and then the senators will ask questions.

Mr. H. J. (George) Kuhn, Executive Director, Canadian International Freight Forwarders Association Inc.: Thank you for having us here tonight. We appreciate having a chance to present to you some point of views with regards specifically to the Canadian International Freight Forwarders Association.

As you have already mentioned, Madam Chair, I have with me Tony Young. He is also the chairman of our seafreight committee. I am the executive director of the association.

I have been in the industry for a good 40 years. I started my career in Switzerland. I continued it in England, then in France, then in Europe, then in Tokyo, and finally I came here to Canada. As you can see, I enjoyed it so much that I became Canadian and stayed put. I must say that I do love this country, ladies and gentlemen.

Our association has a little more than 150 member companies. We have more than 100 associate member companies. These are sort of suppliers to our industry. Our member companies have about 500 offices across Canada.

What is an international freight forwarder, you may ask? We are operators in each of the modes of transport - sea, air, rail and truck. In a sense, our member companies and our people are specialists in each mode of transport.

We are trans-modal and certainly also trans-global because we dabble in the world on a daily basis. We serve both the Canadian exporter, the Canadian importer when they want to take their goods to other markets or bring goods to the market here in Canada. We are familiar with the world, and we are also very much associated with all the international organizations that govern issues of transport on an international basis.

We, Madam Chair, realize that much has changed in the liner shipping trade since 1987, when the current act came into force. Shipping lines have grown larger, with ever more capacity and more frequency of service. Our industry has also grown alongside, certainly. In 1997, we had 100 member companies. Today, we have over 150.

Although our association does not keep statistics of revenue or tonnage handled by our members, we estimate that our membership accounts for a greater percentage of Canada's transport dollar today than it did in the 1987. The trend is still growing.

Beginning in the 1990s, many of our members have expanded a scope of services beyond multi-modal transport and into warehousing and distribution, in what is known as the logistics and supply chain management business and sector. All of you have heard how good supply chain management enhances competitiveness and gives the individual company an advantage over those that do not practise that so well.

However, many companies do not necessarily have the size or the capacity to manage a supply chain. The international trade forwarder has been an ideal sort of intermediary to provide to smaller and medium-sized importer or exporter in Canada. It allows the ability to manage the supply chain better and more efficiently.

Not only do we look after Canadian importers' and exporters' transportation needs, we also look after their inventories, thus alleviating their need for costly warehousing operations and drastically improving their distribution efficiency and product costs.

Our members play a vital role in industry. Indeed, we are strategic partners of manufacturers, importers, exporters, and the shipping lines. The recent development in the logistics trade is not unique to Canada; it is part of a global trend as many of our members are part of multinational companies.

As multi-modal transport operators, we are buyers of modal transportation services so it is natural that we are constantly looking for lower costs in order to remain competitive as well as to make a profit.

On the other hand, as suppliers of transportation services to Canadian shippers, we need a good selection of reliable modal services in truck, rail, air, and liner shipping.

Good quality modal services cannot be had unless the modal operators are able to earn sufficient revenues to update and upkeep their fleets. As the saying goes, we find ourselves between a rock and a hard place.

If we take a look at what has happened in the totally deregulated airline and trucking industries over the last 20 years, we see that while freight rates have indeed come down somewhat, so did the level of service and the choice of carriers as the bigger carriers muscled out the smaller ones through mergers, acquisitions or bankruptcies, following the law of the jungle.

We do not believe, however, that the regulatory environment has any correlation with quality of service. We believe that it is part and parcel of the whole package. The answer lies somewhere between totally deregulated and a regulated environment.

Turning specifically to the subject of liner shipping, we believe that some antitrust immunity should continue to be extended to that industry. An international container shipping line represents an investment in the order of hundreds of millions, if not billions, of dollars. It is not a service where new players or new ships come and go as supply and demands dictate.

As we have seen in the airline industry, a free-for-all, totally deregulated environment, in our opinion, will result in a short-term decline in rates. However, in the long run, a deterioration of services, reduction in choice of services, and inevitably a rise in rates will result when the few fittest ones manage to survive.

That is not to say, however, that an antitrust immune cartel has a free hand to flagrantly charge the shipping public whatever they like under the protection of the law. Since the SCEA came into force in 1987, we have seen a continuous decline in rates yet increased capacity in the trans-Pacific trade where the traditional freight conference disbanded into a so-called "discussion group." The disintegration of the trans-Pacific freight conference was itself caused by the forces of competition due to overcapacity in spite of the antitrust immunity.

This is empirical evidence that the natural force of competition does not simply disappear because of an anti-trust immunity. Competition exists even among members of a cartel.

The discussion group, called the Transpacific Stabilization Agreement, does not set specific commodity rates but suggests certain levels and timing of across-the-board rate increases, surcharges and voluntary space capacity reductions. Individual carriers within the discussion group are free to enter into private and confidential service contracts with individual shippers and freight forwarders.

In effect, their purpose is to maintain a certain bottom line for their member carriers to ensure their collective survival in the container shipping trade, while allowing free competition to a point. We believe that such a voluntary mechanism has proven to work well and to the benefit of all parties.

In the North Atlantic and Mediterranean trades, however, the freight conferences have held strong under the SCEA. The conferences set specific rates for each commodity and service contracts are possible only with the conference as a whole and not with individual carriers. Thus, free market competition is restrained as contract rates are known to all members of the conference, as well as shippers of the same commodity.

We believe that the Canadian conferences in the Atlantic trade have not disintegrated from market pressure as they did in the trans-Pacific trade because of the relatively small number of carriers, the smaller ships and the lack of a direct U.S. market influence.

The U.S. Ocean Shipping Reform act of 1998 has changed all of that. The OSRA was a piece of legislation enacted partly to satisfy domestic U.S. interests to keep the flow of U.S. cargo - particularly those of the Midwest - moving through U.S. ports and away from the port of Montreal. Interestingly enough, it did not seem to have succeeded in doing so.

Nevertheless, there is currently a distinct legislative advantage for U.S. shippers over Canadian shippers of the same commodity because, under the OSRA, U.S. shippers are able to enjoy private and confidential service contracts with individual carriers. Canadian shippers cannot do that.

Moreover, the OSRA has extraterritorial provisions that permit U.S. shippers to enter into confidential service contracts with carriers for goods originating from or destined to Canada via U.S. ports and even for shipments between two foreign countries that do not even involve, believe it or not, U.S. ports or U.S. goods.

We had pointed this out in our submission to Transport Canada in August 1999 and, indeed, the extraterritorial practice in total disregard of our SCEA has been confirmed in the Federal Maritime Commission's (FMC), interim status report of June 2000, which is posted at its Web site.

The same FMC report states that over 46,000 new service contracts were filed under OSRA in its first year of implementation as of May 2000. The FMC also reports that not all service contracts were completely private and confidential. The degree of confidentiality ranged from free disclosure, to partial disclosure, to full confidentiality, depending on the terms of the contract.

As stated earlier, CIFFA made its submission to Transport Canada in August 1999. In our position paper, we concurred with Transport Canada's option 4, which we are pleased to see has resulted in the present bill. We are, however, disappointed that the term "shipper," which is undefined under the act, continues to remain undefined in the bill. In the United States, under OSRA, the term "shipper" is precisely defined and includes intermediaries who act in their own name.

As stated at the outset, freight forwarders are, in fact, "shippers" to the conference carriers when contracting in their own name. Yet, certain carriers arbitrarily define "shipper" as a "party having beneficial interest in the cargo." In other words, the owner of the cargo, thereby denying freight forwarders the right to enter into service contracts for specific commodities.

We would have preferred the term "shipper" to be included in Bill C-14, and therefore, we would suggest that an appropriate definition would be the one found in the recently enacted Marine Liability Act, under schedule 4, the Hamburg Rules, which states:

"Shipper" means any person by whom or in whose name or on whose behalf a contract of carriage of goods by sea has been concluded with a carrier, or any person by whom or in whose name or on whose behalf the goods are actually delivered to the carrier in relation to the contract of carriage by sea."

That is the definition in the Hamburg Rules and we would have liked to see that.

By legally recognizing freight forwarders as shippers, our members can negotiate confidential service contracts with individual members of a shipping conference. The interests of the small- and medium-size exporters and importers can thus be protected against the commercial clout of the big, multinational shippers, because the individual volumes of the SMEs can be pooled together by a freight forwarder to negotiate a more advantageous rate. Otherwise, the smaller shipper on his own could be at a disadvantage against a big shipper. OSRA, in the United States, has such a proviso for small shippers.

As we know, the small entrepreneurial enterprises are the heart and soul of our country and our economy. In this respect, Mr. Young and I would have both liked to see an inclusion in respect of shipper definition.

In conclusion, Madam Chair, the Canadian International Freight Forwarders Association applauds Transport Canada and the government for taking a proactive role in ensuring Canada's competitiveness in international shipping, as well as the well- being of our nation's liner shipping industry. We thank the committee for listening to our concerns, and we would like to add that, on balance, certainly we support passage of this bill.

The Chairman: You favour continuation of antitrust immunity, but you support the ability of shippers to have confidential contracts with individual carriers. Is that correct?

Mr. Kuhn: May I refer that question to Mr. Young?

Mr. Tony Young, Chairman, Seafreight Committee, Canadian International Freight Forwarders Association Inc.: For record, I am the Vice-President of the Canadian International Freight Forwarders Association, and the Chairman of the Seafreight Committee.

In answer to your question, we are happy to see Bill C-14 adopting provisions that are found in OSRA. There is a misunderstanding that OSRA provides for total confidentiality of all service contracts. In fact, that is not so. It allows for it, but it does not force parties to keep their terms of contract completely confidential.

To our understanding, Bill C-14 will allow for the same in that, where the parties choose to, they may disclose details of that contract. We believe that to be an important provision in respect of the antitrust immunity that has been granted to the liner shipping industry. If mandatory confidentiality is enforced, in fact, you do not have antitrust immunity, because one carrier would not know what the other is doing. Thus, it becomes, in essence, free market competition.

The fact that confidentiality may be allowed would give carriers the option to disclose contents in sensitive areas. For example, a good percentage of their vessel is under one commodity, and it cannot afford to lose that because their entire volume goes to another carrier, and then back and forth playing one off the other, thus eroding the rate, to their detriment. We believe that the option that confidentiality exists is what is important and not mandatory.

The Chairman: As you see, the benefits of competition in the Pacific trades, would you support the sunset clause on antitrust immunity in the bill? Such a clause would set a date, a number of years from now, when the immunity would automatically expire.

Mr. Young: Madam Chair, if a sunset clause is included, and the sun never really stops setting, and it is renewed every 10 years for another 10 years, I do not have any concern. On the other hand, if it is to be a definitive sunset clause, I believe that Canada should consider it in concert with the rest of the world. Our understanding is that you cannot have elimination of antitrust immunity in one country, while it exists in another country. Freight can be prepaid or collect, so if Canada were to exclude antitrust immunity, everything would be prepaid. Thus, buyers here would have no idea what the freight cost is, because it would be built into the price. That can only be addressed at an international forum, perhaps through a diplomatic conference. One country alone cannot make that decision. I believe it is a subject for the OACD, where shipper interests are looking for that. However, to our knowledge, most of the countries continue to support some degree of antitrust immunity.

The Chairman: You pointed out to Transport Canada the extraterritoriality of the U.S.'s legislation of the Ocean Shipping Reform Act. What was Transport Canada's response?

Mr. Young: When the OSRA first came out, we studied the provisions closely, and although it is not in the shipping act itself, the FMC has interpreted its application. In answer to some of the shippers' inquiries, the FMC confirmed, in their dockets, that shippers can, in fact, include traffic that is non-U.S. in a contract. They call it a "global service contract provision." We looked at FMC's interim report after its first year of implementation, and, in fact, they have confirmed that certain shippers have included global applications to it.

That is to say, non-U.S. original destination and non-U.S. goods - goods from any two countries - could have included. It could have been piggybacked on the volume of the U.S. We saw that when OSRA first came out as a potential threat to Canada. As long as Canada maintains its conferences, it could have been circumvented through the global service contract provision in the United States. We thought that was an extraterritorial application of U.S. law over Canadian law.

However, I think that Bill C-14 now addresses that.

The Chairman: Would you explain in more detail your concerns in regard to exceptions regarding service contracts, your reference section 4, subsection 3.1?

Mr. Young: Madam Chair, we issued an advance copy of our proposed statement, perhaps too hastily and prematurely. We do not want to ask for changes that would affect this bill at this stage and possibly cause it to be sent back to the drawing board. We are quite happy with it. We think that that is a minor thing because the law will not stipulate these details and it is now thrown back to the commercial court between a freight forwarder and a carrier under the provisions of a confidential or private service contract to negotiate such things.

In our position paper, we had wanted to see more details, similar to those in the U.S. law, which spelled out exactly what an intermediary is and what it can do. However, we were under the impression that we could ask for changes but at this point we really do not want to do that.

We will issue a correction to that, or I would ask the committee to ignore the previous submission and go by the oral testimony.

The Chairman: That is why I want to know your answer here.

Senator Oliver: I have a follow-up to Madam Chair's questions to you about "shippers." I know that you appeared before Transport Canada. Did you go before the House of Commons committee?

Mr. Young: No, we did not.

Mr. Kuhn: We did not. We were not invited, unfortunately.

Senator Oliver: Therefore, the only place that you have come to express your concern about the omission a definition of the word "shippers" in the act, is here?

Mr. Young: Yes. We had inquired into that with Transport Canada, and we were told that the act does not define "shipper." Therefore, we concluded that in absence of a definition of "shipper" in the act, we would go to Webster's and open up under S. It says shipper that "shipper" means one who ships.

Senator Oliver: It does not include an intermediary.

Mr. Young: We will go on that premise, and each one of us will do our best. If the conference was to disband into a discussion group, then everything will be probably similar to what is in existence today with the trans-Pacific trade, where the definition of shipper is not in question. We think that it is a moot point.

Senator Oliver: Even though you have raised it, I think I understand pretty clearly that it is not something you want to raise now because you do not want to send this back.

Mr. Kuhn: That is correct.

Senator Callbeck: Madam Chair, just one question regarding the definition of shipper. You say that because it is not in the act, freight forwarders cannot enter into contracts for some specific commodities. What specific commodities?

Mr. Young: For example, in the Far East trade, freight forwarders dominate the multi-modal transport. We are talking mostly imports - garments, footwear, toys, and electronics. Nearly everything that we purchase is in one way or another handled by freight forwarders.

Freight forwarders add the different segments of transport and put it together under one contract of carriage. There are hundreds of containers of the same commodity that a freight forwarder would control, and he has a contract with a shipping line of his choice at privately negotiated rates.

Senator Gustafson: I am about 1500 miles from water, both east and west. I pay high freight prices on grain. You made a statement that to a point prices are constrained, or does the free market dominate in the world situation when it comes to hauling grain, oil or whatever?

Mr. Kuhn: There is no doubt in my mind that it is definitely a free market environment for bulk commodities like grain. It is fundamentally a supply and demand issue. Certainly it could be influenced by political happenings and certain dealings. It could therefore temporarily be out of order for any one reason. That may certainly influence pricing and rates but generally speaking it is pretty much the free market that dominates the marketplace.

Senator Gustafson: In the case of a product such as oil, which has a possible risk of pollution, would you get more money for shipping oil than you do for shipping wheat?

Mr. Kuhn: We do not operate ships. Oil, for example, is a commercial fleet. It is not a liner trade or anything like this. It is an in-house kind of fleet. The Exxons or Shells of this world all have their own ships with which they do operate their own supply, et cetera. It is not really a market commodity.

Others do charter whole ships - small companies and so on - to level out the oil supply. Internationally, certain ships are chartered on a time-charter or voyage-charter basis, but it does not work with commercial rates.

Senator Kenny: Is there not a levy on oil being shipped that is accumulated per barrel to clean up spills? Has that legislation not been in place for some time?

Mr. Kuhn: I do not know. It is a very good point question.

Mr. Young: Freight forwarders are not involved in shipping of oil.

Senator Gustafson: It is not addressed in this bill?

Mr. Kuhn: It is not addressed.

Senator Kenny: There is a levy. I did not hear the mention of a levy in the response to the question about the difference between shipping wheat and oil.

Mr. Young: We generally do not concern ourselves with bulk commodities. Our domain is anything that is containerized, what we call multi-modal transport.

Senator Gustafson: I would like to make one point here. As grain growers, we are price takers, we take what we get - we do not set prices. That puts us in a rather negative position at times.

Senator LaPierre: On page two of your presentation, you say that if we take a look at what happened in a totally deregulated airline and the trucking industries over the last 20 years, following the law of the jungle and so forth. Then you say do not believe that the regulated environment has any correlation with quality services either.

Therefore, the answer lies somewhat between the totally deregulated and a regulated environment. Thus, a regulated environment is necessary, but not necessarily a regulated environment. Are you telling me that you can have your cake and eat it too?

Mr. Kuhn: We were afraid you might trip us up on that.

Mr. Young: We saw the results of totally deregulated trucking last summer, where there were disruptions at the port of Montreal relating to the unhappiness of the owner-operators. They were happy initially to become a trucking company overnight simply by owning or leasing a rig. On the other hand, that owner-operator was then subjected to the process of making his best deal with the clients, who would rather cost it out at an amount per load, rather than an amount per hour.

With the economy booming and the number of containers increasing, while the size of the port was not, there was a bottleneck situation. For a trucking company to have made a deal of, perhaps, in the port of Montreal typically $150, and to have spent four hours in line, the owner-operator cannot make a living. Therefore, we believe that a totally deregulated environment is not necessarily good.

On the other hand, going back 30 years to a time when we had the tariff bureaux that had all kinds of rates established. It was so profitable that they would not allow other people to become truckers. There was an environment where they controlled the supply in order to get the best market share for themselves.

We think that the answer is - as you say, to have your cake and eat it, too - by allowing free competition, but at the same time, by pulling the reins where that free competition might cause personal harm. When we compare that to Bill C-14, we think that, yes, they should have the freedom of contract, but they should be exempt from antitrust immunity, so they can talk to each other before they destroy each other's business.

Many in our industry - for example the freight forwarders - do not have such a luxury. If I talk with my competitor about what to charge the market, that would be called "price fixing." However, we do not really have assets invested to the tune of hundreds of millions of dollars to worry about either. So, we are of the opinion that this bill has a good balance.

Senator LaPierre: You do not own any ships, you do not own any trucks, you do not own any trains and you do not own any planes. You are an agent. I want to ship 100 million pounds of the Debates of the House of Commons, so I hire you as my agent to put it all together and to find a plane. Is that what you do?

Mr. Young: We are not agents in this respect. As agents, freight forwarders only make arrangements between a carrier and a shipper.

Senator LaPierre: I see.

Mr. Young: Increasingly, the freight forwarder today assumes the role of the contracting carrier, so that a shipper who has something to ship to a far off place does not have to contact all the different carriers that can bring it there for him. He contacts one company - a freight forwarding company that will issue a contract of carriage for whatever he wants to ship at one agreed price. He then sub-contracts through his network of agents to the actual modal carriers - rail, truck or shipping line.

Senator LaPierre: At the end of the day my shipment arrives.

Senator Oliver: They also put shipments in warehouses and distribution centres.

Mr. Young: Senator Oliver is correct. We do not own the modes of transport, but we operate from a base, which is a warehouse or distribution centre.

Senator LaPierre: I understand. I have always been fascinated by the fact that it appears that the very people who believe in free enterprise and competition go out of their way to limit competition and create cartels. How can free enterprise survive? Now, you want to extend cartels to include shippers. Is that free enterprise?

Mr. Young: I am glad you brought that up, Senator LaPierre. We are an industry of small- and medium-sized business owners who are assuming the role of contracting carriers. We deal with multinational mega carriers, but we are the front line with the shipper, or the importer or exporter. It is a service that is essential and we are looked upon as professionals who can get the job done.

While the actual carriers concentrate more on their own core businesses, we have to put it together. Unfortunately, competition is fierce and our industry is finding itself in the position where we are literally destroying the market to get the business - we are killing each other.

As I said earlier, the shipping lines can sit together and determine the bottom line that nobody can go below. In our industry, we cannot do that. There are people who, for very silly reasons, will go below cost to get a customer. When one does that the domino effect takes over and everyone does it.

The pressure is then on the actual providers of the service. We then go to the shipping line and say "that is too high, because we have already made a commitment and you must go lower." That, in turn, creates a domino effect in their circle as massive volumes move from one carrier to another - carriers race to compete.

We are not asking for the right to make cartels, but this kind of problem does exist, and there is the law of the jungle in our industry, too. Companies come and go every day.

Senator LaPierre: Is that not free enterprise?

Mr. Young: That is free enterprise and that is the protection for the shipper. If we were in collusion with the shipping lines as agents, then we become like brokers - we do not have a risk. However, by taking a risk we have no free antitrust immunity. In most cases, the shippers deal with members of our industry. Therefore, they have a great amount of free enterprise protection, because we act as the bulwark.

Senator LaPierre: If there is a definition of "shipper," then you will have immunity to create all the cartels that you want?

Mr. Young: No, sir, it simply allows us to negotiate with shipping lines, as clients. Traditionally, shipping lines identify us as agents. In fact, we used to be strictly agents in the old, great bulk days. We were agents for the shipping lines. In those days, an "agent" simply prepared the documents. That is what a "freight forwarder" was.

With inter-modalism - bringing freight from point A to point B by combining different modes - someone had to stick his neck out and claim that contract for himself and not produce a series of contracts. Therefore, the freight forwarder became a "carrier" by law. As interpreted by court judges, freight forwarders were no longer able to claim as agents, and they were deemed carriers when they acted as carriers. Yet, we have no antitrust immunity, unlike the shipping lines.

Shippers do, in fact, have protection, in that sense.

Senator LaPierre: As you know, after the tragic events of last week we are talking a great deal about security. How vulnerable are you to acts of terrorism, with the use of your warehouses, containers, et cetera? Have you had discussions with the authorities about this? Do you see yourself vulnerable? How do you prevent this?

Mr. Kuhn: Yes, indeed, we do see ourselves as vulnerable, and we take it exceptionally seriously.

All of our member companies are bombarding me with issues of security. How are we going to protect ourselves? How are we going to make sure that nothing happens through our activity? We must remember that each mode of transport has different issues. We are certainly primarily concerned with the sea, as well as the air, because these are really our most important venues.

Senator LaPierre: I am concerned about your containers, warehouses, ships and the other things.

Mr. Kuhn: We have had cases in the past of issues such as drug smuggling, for example. The same could happen for any other thing that is brought in illegally.

We have had issues where shippers would declare cargo incorrectly, throw it into a consolidated box, and retrieve it. Thus, it would be brought in illegally. It was then through the RCMP that we were advised of it. They would come and try to take care of it.

On the air side, for example, many of the airlines have brought in the 36-hour rule. They may not accept any shipments from anyone they do not know. They recommend that we do the same thing.

As well, certain airlines, like Lufthansa, are asking people to sign a declaration that you have held the cargo for 36 hours in your own protected environment prior to tendering it to the carrier.

Senator LaPierre: Do you like that? Do you think we should have that?

Mr. Kuhn: We think, yes. We are not necessarily saying that the 36-hour rule is the right rule. However, fundamentally, we support that 100 per cent.

Unfortunately, the government, in our opinion, has not come forward in a proactive manner about that. I have been in touch with the security side of Transport Canada and so on. I have been in proactive touch with Air Canada, trying to formulate a uniform type of policy because it would be so much better for everyone.

From a perspective of competitiveness, the same parameters for conditions that would apply to every single forwarding agent or shipper. Such common parameters would assist with service levels as well. The shipper does not perceive that suddenly one freight forwarding company is not as good as the other one because the other one ignores certain things.

We would have liked to see Transport Canada come forward in a proactive manner and make recommendations. The same goes for Air Canada. I have told them that in many ways I am very disappointed because we have developed certain recommendations, but it is not up to an association to do that.

We cannot legislate; we cannot do anything like this. This is a government function, and ideally speaking, should have been on the table by the government. The French did it. The Germans did it. Many other Europeans did it.

Senator Gustafson: I gather from what you have been saying that Canada's regulations are not as tight as some other countries'?

Mr. Kuhn: When it comes to security, definitely not.

Senator Gustafson: You are also saying that you think that there should be some changes?

Mr. Kuhn: Yes.

Senator Gustafson: You indicated that Europeans are much tighter in their regulations?

Mr. Kuhn: Absolutely. It starts at the airport. Look at the calibre of people who check us. Then, check the security in an airport in Europe. There is a major difference.

Mr. Young: Madam Chair, may I just add to what Mr. Kuhn has said in response to the senator's questions.

The freight forwarders could in fact become a very valuable bulwark for security. If someone delivers a package to an airport counter or a container to a container yard for shipping, the shipping line, as a common carrier, must accept those goods.

Typically today, these places have all downsized. In some cases, when you call up a shipping line to make a booking, you call an 800 number in the United States. The person doing the booking does not know the clients; they only know that someone has something to ship. They give a booking number that entitles the person who to pick up an empty container and load it.

The freight forwarder, on the other hand, solicits business. They go to shippers. They know the customer. Unless they are deceived into believing that the shipper is engaged in a business that is a "front," chances are that the freight forwarder knows what he is shipping, what is being loaded, and who the customer is.

The other advantage is that the freight forwarder does not know how the shipment will be made. He does not operate the vehicles. He does not know which particular shipping line will be used or which airline will be flown. The customer knows nothing of the shipping path.

Sometimes that is a source of complaint. However, from the security point of view, the person shipping has no idea because he is an intermediary. He will ship it the best way he knows how. If people ask too many questions about exactly which airline and which flight number, that becomes a source of report.

I would suggest that the freight forwarding industry be marshalled to examine these issues. Our association is perfectly suited to do this. In fact, our association is going to be looking to the government for self-licensing. We would not have anyone setting up shop and calling themselves freight forwarders unless they pass new, certain rigid criteria through our association and, in fact, become licensed. It would be similar to having the local police checking everything before things go further.

Senator Kenny: Madam Chair, I assume that we have moved off the legislation and we are just taking advantage of witnesses who are here? Is that fair?

The Chairman: I would like to have the information they are giving us.

Senator Kenny: If I can proceed along those lines briefly?

The Chairman: Yes, but briefly.

Senator Kenny: I was curious about the 36-hour holding that you mentioned. What is the advantage of that?

Mr. Kuhn: Timing devices go for 24 hours. The other reason is that any flight, inclusive of preparing shipments for flights, flying time and transit time, even into the farthest corner of the world, generally speaking does not exceed 36 hours. Even if a timing device were constructed that would go as long as 36 hours, if you keep it back for 36 hours, it will go off in your warehouse rather than on the plane.

Senator Kenny: Typically, the trigger device for an aircraft would be a pressure sensitive device that would have nothing to do with the time.

Mr. Kuhn: Absolutely.

Senator Kenny: You have described to me something that slows down a shipment for 36 hours. I do not see the benefit.

Mr. Kuhn: That is like the plastic knife issue from the FAA. What is the big difference?

Senator Kenny: You were recommending that as a good idea.

Mr. Kuhn: We say that certain airlines have instituted the rule. Generally speaking, it has been instituted before when we have had these scares, and it worked well.

Senator Kenny: You have just told us that it would not work at all with pressure devices.

Mr. Kuhn: I am not an engineer; let us make that clear. How would a pressure device work? If you put your cargo into a uniform loading device (ULD), which the airlines make available to you, and you structure it in whatever way you choose, how can you trigger that device?

Senator Kenny: It triggers when the plane hits a certain height.

Mr. Kuhn: Altitude is a factor.

Senator Kenny: That is right. Do you look into each container for which you take responsibility?

Mr. Young: The freight forwarder has typically a warehouse, or has subcontracted a warehouse, that will receive these goods. We believe the 36-hour waiting period is probably more psychological than practical, as you pointed out. If there were a pressure device, it would not matter how long it sat. However, if it is sitting somewhere for a certain period of time, it might mean that there is a chance for discovery by a bomb-sniffing dog or an x-rayed, for example.

Senator Kenny: Do you look into each container?

Mr. Young: We do not look inside the packagers. We will load the containers, but we do not have the right to open the packages.

Senator Kenny: What about on ships, do you look into those containers?

Mr. Young: No, we do not.

Senator Kenny: Do you have any idea what is in each ship that comes into the harbour?

Mr. Young: We have no idea.

Senator Kenny: You do not know what is in most of the packages that you freight forward.

Mr. Young: That is right.

Senator Kenny: You are proposing to this committee that you take on the responsibility for this.

Mr. Young: No, we are not proposing that we take on the responsibility for that. We are saying that, by the nature of our business, we know who is shipping what and who the clients are.

Whereas, a ship or an airline does not know that information. Someone can show up with a package and claim to be from so-and-so; it is not the same as the freight forwarder going to a shipper's warehouse to pick up the goods. The freight forwarder may have met the owner of the company, established credit terms, established what business they are in and gotten to know the client. When an airline or shipping line receives cargo from a freight forwarder, it has already been checked by the freight forwarder.

Senator Kenny: I understood, and I thought I followed the logic of the lottery aspect of people not knowing exactly how things were being shipped if it is going through a freight forwarder. That is an interesting concept.

I was intrigued that you appeared to be putting your association forward as being a useful security agency. I was simply curious that you were interested in taking on that responsibility and the liabilities that would be related to it. It is a curious offer but I am intrigued by the fact that you are making it.

Mr. Young: My company has received phone calls from CSIS. They would ask if we knew anything about a certain importer.

The Chairman: Please excuse the interruption, but we have proceeded far enough on that subject. This is something that should be discussed in camera and not at an open meeting. We do not need those answers for the bill.

[Translation]

Senator Gill: You mention on the first page of your brief that the members of your association have no statistics or information on the tonnage of the containers. Practically speaking, you do not have any information. I find this curious because generally speaking, associations try to get information on their members. Why do you have not any information?

Mr. Young: We carry out our operations based on the concept of free trade. We try to keep quiet about the number of clients we have as well as our turnover. These are secrets. The association does not keep statistics on volume, weight, the number of containers or on turnover. It is confidential. We do know however that the bulk of every transport dollar spent by a shipper is determined by the freight forwarder.

Senator Gill: How do your clients go about their business? I imagine there are calls for tender. There must be information about you that is available at some point.

Mr. Young: Within our association, there are big companies and these companies publish their sales figures, such as publicly traded companies. On the other hand, most of our members are small or medium-sized businesses. Even amongst themselves, they do not know how many tons of goods are shipped.

[English]

The Chairman: Thank you, Mr. Young and Mr. Kuhn.

The committee adjourned.

Transport and Communications

Proceedings of the Standing Senate Committee on Transport and Communications

Issue 12 - Evidence

Proceedings of the Standing Senate Committee on
Transport and Communications