The price of everything in the province hinges on this case

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Most of us are familiar with the basics of the case. Oceanex filed an application with the Supreme Court of Canada to conduct a judicial review of commercial rates offered by Marine Atlantic effective April 1, 2016. In its application to the federal court, Oceanex challenges the Terms of Union. If successful, this ruling could potentially eliminate Marine Atlantic’s federal subsidy, something the Canadian Taxpayers Federation (an upper Canada lobby group) would like to see. According to reports, two independent legislative audits by the Auditor General of Canada indicated no problems with the dollar value or legality of Marine Atlantic’s federal subsidies.

Mackerel sky and mare’s tails make tall ships carry low sails

In December, high winds delayed Marine Atlantic sailing about five times, and January weather delayed it at least 12 times. You’ve probably already experienced empty produce shelves in February and March when sea ice, persistent storm warnings, and rolling power outages drive home the fact we live on an inhospitable island in the middle of the North Atlantic. There is no avoiding the fact that—almost like clockwork—equipment damage and/or inclement weather routinely break our already tenuous food supply chain.

While Newfoundlanders aren’t as isolated as the likes of St. Helena or Tristan da Cunha residents, any traveller to the more remote corners of the island knows about the increasing expense of reliable transportation. Hurricane Igor showed us that our infrastructure is precarious, and storms like these seem to be becoming an annual thing. Avocados cost at least $2.50 while they are 25 cents in Montreal; there’s perpetually under-ripe or rotting produce with a short shelf life in every grocery store; and the sheer costs of getting our bodies on and off the island remind us of this precariousness regularly. Thank god the millennials of the province haven’t bought into $10 smashed avocado toast, because they’re going to need that extra money for exorbitant property taxes, electric bills, shipping, and student loan payments for decades to come. If they stay here.

Everything on our fair island comes in one of two ways: boat or plane. Airline transport is mostly reserved for mail, people and pets. Literally every other piece of cha-cha—your phone, computer, all the paper products, food, vehicles, clothing, furniture, walls, shingles, flooring, kitchen stove and fridge, gym equipment, office, all the decorative items (so many decorative items!), medical prescriptions, health care equipment, books, and everything you’ve ever purchased—comes to this overpriced scenic end of the Earth by boat. Either Marine Atlantic (via Port-aux-Basques or Argentia) or Oceanex (via St. John’s) transports this province’s stuff (and eventual garbage) to you. Imagine everything at Walmart, Sears, the Mall, the liquor store, the car dealership, and all the things that make and fill houses, and the buildings and bricks and mortar of the grocery stores as well as the shelves and the food on the shelves—they all have to be shipped to this 108,860 square kilometre piece of rock.

All that oil and gas development? Those industrial materials were shipped in. That new deck for your house this summer? Shipped in. Your baby’s diapers? Shipped in. Your chips and Hallowe’en candy? Your Christmas gifts? All were brought to the island via a freight company. Understand yet? We cannot always rely on Amazon Prime and Canada Post to get stuff to the island. Not to mention getting our limited fishery resources and other exports to national and international markets. Stats Canada says that 10 years ago (2007) Newfoundland and Labrador domestically shipped or received 36,348,000 tonnes of stuff. 10 years ago? We’ve been booming consumerists since then, so it’s probably more like 40 million tonnes now. That’s more shipping than any other province in Canada. Despite our small and declining population, we ship more than every other province in Canada—at least 20 percent more than any of Ontario’s ports, all of Quebec’s dockyards, and the entire British Columbia coastline. Self reliant? Not so much.

When the wind is out of the East, ’tis never good for man nor beast

When a significant number of right whale corpses were found in the shipping lanes of St. Lawrence this past summer the federal government issued a mandate to slow traffic in an effort to prevent further whale deaths. Oceanex—a certified Green Marine operator which says it “manages its interaction with land, water, air and other natural resources in an environmentally sensitive manner”—started charging a temporary maritime protection surcharge of four percent on invoices travelling that shipping lane. The cost of additional fuel and labour was passed on to service users like Consolidated Fastfreight, Clarke Transport, Day and Ross, Armour, and other national freight companies, who in turn passed the 4 percent on to the companies paying to bring products to shelves and tables.

Seeing as how our provincial exports aren’t very significant (due to the decline of the fishery and print media), we’re bringing in literally millions of tonnes of stuff, via Marine Atlantic or Oceanex. Local company Oceanex ships seacans/containers in and out of St. John’s harbour, from Halifax and Montreal. Marine Atlantic picks up roughly 50 percent of freight into/out of the province via North Sydney. And they are just the service providers. The freight companies that ship goods—freight forwarders as they are called—use services based on the best combination of time shipped and costs. There’s only a handful of these freight forwarders who use the services of Oceanex and Marine Atlantic. The market is really quite a niche subset of shipping/transportation trade and logistics, and business is roughly split equally among the two service providers—a nice ‘gentleman’s agreement’ has made shipping to and from the island relatively undramatic until now.

In 2014, Oceanex closed its offices and shipping in Corner Brook, laying off eight part time jobs. It cited a decline in demand—no doubt resulting from the closure of the pulp and paper mill. Captain Sid Hynes, the Chief Executive Officer and chairman of Oceanex made this decision, claiming it was also because Marine Atlantic subsidies were making shipping noncompetitive.

The curious point in the whole case of Oceanex versus Marine Atlantic is that Captain Sid Hynes, the CEO and chairman of Oceanex was previously the chairman and CEO of Marine Atlantic.

Here’s some backstory

From 1999 to 2004 Captain Sid Hynes ran Marine Atlantic. Concurrently, during the 2000-2007 period he was also apparently involved with Ches Penney’s group of companies—Canship Ltd—along with its affiliates Canship Ugland Ltd., Penney Ugland Inc. and Penney Ugland II Inc., which runs crude oil and supplies between oil platforms and the terminals. When Captain Sid Hynes was about to retire from Marine Atlantic (circa 2004-2007) he was headhunted to run the publicly traded conglomerate Oceanex. However, it would seem that working for shareholders was not what Hynes wanted. After he testified on the job that Marine Atlantic was an essential service for the residents of the province, he cobbled together a cool $230 million, retired from Marine Atlantic and bought outright (privatized) the company that wanted to hire him. (I’m sure many of us wish we’d be offered a job, let alone have the resources to buy the company that was offering us the job.)

Red sky at night or red sky in morning?

We all like free and open trade, but in Newfoundland, the Terms of Union state that federal legislation in Canada will provide for special rates on traffic moving into, or out of, the Island. Newfoundland joined Canada in 1949, and as part of that agreement was the miscellaneous provision that Canada assume sole responsibility of the Newfoundland Railway—including steamship and other marine services—necessary for the transportation of people and goods between provinces (internal trade). This relieved the newest Province of Canada from responsibility for the public costs of maintaining a transportation route to the mainland. As part of the Terms of Union agreement Canada took over all responsibilities concerning the Newfoundland Railway, including rights of way, wharves, drydocks, equipment, ships, and other such necessities. The federal government promised to maintain a freight and passenger steamship service between North Sydney and Port aux Basques, and to complete the Trans Canada Highway for the new-fangled motor vehicles.

But we don’t have a train anymore, and Premier Dwight Ball recently commissioned yet another report investigating the feasibility of a fixed link to Labrador (the last one was in 2004). The rumblings of a road network connecting the Island to the rest of Canada via Labrador may threaten the need for ocean freight (and the Terms of Union should probably have already been amended to remove choo-choo trains) but Oceanex’s grievance isn’t with any of these factors—its complaint is that the federal subsidy to Hynes’ previous employer is providing an unfair advantage to Marine Atlantic.

This constitutional challenge is big.

It will affect the amount we pay for freight—a hidden cost in the price we pay for everything we buy on the island.

It may slow the distribution of fresh fish exports to markets and result in fresh produce that could take even longer in transit, yet will more than likely be more expensive.

Products that enter the island via Port aux Basques usually have to travel by road to St. John’s—adding to the traffic and wear and tear on our poorly maintained highways; the price of gas is also a factor in the price of goods we buy everyday. So while it might be cheaper to get products in via Marine Atlantic right now, if Oceanex is successful then the subsidy will be lowered or removed and the cost of freight using Marine Atlantic will likely double (I guess that’s one way to reduce the number of transport trucks driving across the island). It’s anyone’s guess how the case will unfold. But we do know the arguments on which it is based, and it’s important for us to talk about them.

In 2007 Oceanex became a privately owned company headed by the man who used to oversee Marine Atlantic; and thus began an effort to toughen up the competition and fight against the company he once argued was an essential service. Hynes’ Oceanex has won Deloitte’s Gold Standard Best Managed Companies in Canada Award for six consecutive years since 2011 with revenues over $15 million. Hynes was named a top CEO by Atlantic Business in 2012. In 2010, the provincial government intervened in a Port of Montreal labour union dispute arguing that Oceanex was an essential service to the island portion of Newfoundland. So both Marine Atlantic and Oceanex are now essential services.

The freight companies that ship using Marine Atlantic and Oceanex are already paying high fuel surcharges because of our remote location, and because of government taxes. Companies like mine, which use the freight forwarders, are already charged higher than average base rates, additional fuel surcharges, and high taxes. Effective March 1, 2017, an additional provincial government surcharge of one percent was applied to all shipments originating from or delivered to Newfoundland. Mind you, Alberta and British Columbia also have a one percent surcharge, but theirs is a carbon levy. Ours is simply because the provincial government is taxing us to death.

Here’s an example of the fuel surcharge bringing pallets of foodstuff into the province:

You can send something from North Sydney to Northern BC on the national percentage, but because Newfoundland has a boat, we’re charged more (even if it’s just travelling from Halifax to Corner Brook). All these little percentage points add up and get passed on to the customers who pay $2.50 or more for avocados (for example). Everything bought on the island has this hidden cost of freight.

What is Oceanex’s real concern? The cost of shipping for us retail customers? The appropriateness of freight rates for shipping companies? The number of 16-wheelers on our highways? Or their own bottom line?

Because Oceanex is a privately held company their financial records are not in the public domain, and because it’s not a traded company it doesn’t have shares and shareholders to report to. You should maybe email Captain Sid Hynes and ask him what he expects to get out of the judicial review of Marine Atlantic’s subsidy rates, especially considering that the last two Auditor General’s independent reviews reported that the subsidies are in line with the Terms of Union and are not adversely affecting competition. And if Oceanex already has 50 percent (or more) of the market share and reportedly better rates than Marine Atlantic, why don’t they have an aggressive sales team who simply drum up more business? I mean advertising and customer retention is a thing, in the free market, isn’t it?

So are expensive legal actions, it would seem.

Chris Shortall is VP of GJ Shortall Limited. He has a Masters of Science (Medicine) in Health Services Research and co-chairs the St. John’s Food Policy Council.

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