Newfoundland shipper challenges federal ferry subsidies: ‘That’s not fair’

ST. JOHN’S, N.L. – A marine shipping dispute is challenging the country’s constitutional obligation to its youngest province, as a newly released report finds federal subsidies for Marine Atlantic ferries are pricing private carriers out of the market.

Marine Atlantic, a Crown corporation operating ferries between Newfoundland and Nova Scotia, uses federal tax dollars to provide shipping at less than half its true cost, according to a Transport Canada report prepared by CPCS Transcom.

The subsidies create a “market distortion and entry barrier” for private-sector players, the report said, noting that Marine Atlantic would have to double its prices or cut its operating costs in half to level the playing field.

“In dollar terms the government of Canada provides live loads (driver-accompanied trucks) and drop trailers travelling on the Port Aux Basques routes with a subsidy of roughly $800 per direction,” the CPCS report said.

The report was obtained by Oceanex Inc., a private marine shipper which is fighting Marine Atlantic in court, through an Access to Information request.

“We’re not looking for a special deal. We just want a level playing field,” Oceanex executive chairman Capt. Sid Hynes said in an interview. “They’ve got a lot of money to play with and we’re saying that’s not fair.”

When Newfoundland joined Confederation in 1949, Ottawa promised a freight and passenger service between Port Aux Basques, N.L., and North Sydney, N.S.

The CPCS report said the obligation is to provide a service that is priced “fairly and reasonably,” but Marine Atlantic rates are some of the lowest among Canadian operators.

While Ottawa has an obligation to ensure affordable freight and ferry service, Hynes said the terms of union under the Newfoundland Act doesn’t say the service must be heavily discounted.

Marine Atlantic has roughly 55 per cent of Newfoundland’s surface freight transportation market share, while Oceanex, which provides intermodal freight transportation between Newfoundland and terminals in Halifax and Montreal, has about 45 per cent, according to the report.

The Crown corporation “doesn’t even cover 50 per cent of its full economic costs with its current pricing” an internal Oceanex briefing summary said.

“With the aid of the subsidy, (Marine Atlantic) is pricing Oceanex out of the market, threatening Oceanex’s operational sustainability and affecting the livelihood of our close to 1,000 employees throughout Eastern Canada,” the briefing said.

Marine Atlantic’s 2015-2016 annual report said the federal Crown Corporation “receives a significant annual subsidy” that totalled $337.9 million that year, three-quarters of its $444.9 million in spending.

Darrell Mercer of Marine Atlantic noted in an email Tuesday that much of the federal spending that year — about $235 million — was a one-time capital investment, including $212 million for the purchase of two ferries. Its operating subsidy in 2015-16 was about $102 million, with cost recovery of 65.8 percent, he said.

“Marine Atlantic … does not agree with many of the conclusions and characterizations contained in this report,” Mercer said in an email. “Marine Atlantic asserts that its rates have been established appropriately and is vigorously contesting the Oceanex court challenge (and Oceanex’s attempt to cause those rates to be significantly increased).”

In addition to sizable capital and operating subsidies, the Oceanex briefing noted that Marine Atlantic also receives aid in the form of waived taxes, wharfage fees, and harbour duties.

Oceanex has filed an application for judicial review of Marine Atlantic’s rates for commercial freight services. A judge is expected to hear the case on Oct. 23 in St. John’s, N.L.

— By Brett Bundale in Halifax