Canadian Marine Pilots’ Association Marine Pilotage in Canada: A Cost Benefit Analysis Prepared by Transportation Economics & Management Systems, Inc. March, 2017 Table of Contents Table of Contents ...................................................................................................................... 1 Executive Summary .................................................................................................................... 2 1. Introduction .......................................................................................................................... 5 1.1 Project Background .......................................................................................................... 6 1.2 Discounting Technique and Time Period ......................................................................... 8 1.3 Approach to the Economic Evaluation ............................................................................. 9 2. The Safety Case for Pilotage: Background and Methodology ........................................... 10 2.1 The Effectiveness of Pilotage in the Great Belt of Denmark ......................................... 11 2.2 The Effectiveness of Escort Tugs in Puget Sound and Vancouver ................................ 17 2.3 Summarizing the Safety Effectiveness of Pilotage ........................................................ 18 3. Safety Cost Benefit Analysis by Vessel Type ................................................................... 23 3.1 Tanker Ship Assessment ................................................................................................ 28 3.2 Cargo Ship Assessment .................................................................................................. 30 3.3 Overall Ship Safety Assessment .................................................................................... 32 4. Productivity Cost Benefit Case Studies ............................................................................. 33 4.1 Pilotage and Larger Vessels ................................................................................................ 34 4.1.1 Case Study 1: Pilotage and Tankers in Vancouver ..................................................... 35 4.1.2 Case Study 2: Larger Container Ships on the West Coast ....................................... 36 4.1.3 Case Study 3: Larger Container Ships at Halifax ..................................................... 42 4.1.4 Case Study 4: Larger Ships on the St. Lawrence to Quebec and Montreal ................ 45 4.2 Winter Navigational Improvements ............................................................................... 51 4.2.1 Case Study 5: Night-time Winter Navigation on the St Lawrence River ................... 51 4.2.2 Case Study 6: Extended Season on the Great Lakes .................................................. 53 4.3 Reducing the Economic Impacts Associated with Accidents ........................................ 62 4.3.1 Case Study 7: Review of a Compulsory Pilotage Area – The Case of Placentia Bay 63 4.3.2 Case Study 8: Maintaining Port Operations – the Example of the Port of Saint John 65 5. Cost Benefit Summary: Safety and Productivity ............................................................... 70 6. Conclusions ........................................................................................................................ 73 Annex ........................................................................................................................................ 75 Executive Summary Introduction In 2014, Canada’s four not-for-profit regional pilotage authorities collected approximately $208 million in pilotage fees, a figure which effectively represents the total annual cost for the provision of pilotage services. The benefit received in return for this expenditure has always been clear in the qualitative sense of promoting safety and efficiency in marine navigation. What has been more elusive is placing a quantitative value on this benefit that can be compared directly to its cost. For the first time since the Pilotage Act was enacted in 1972, this study provides such a cost-benefit analysis of pilotage services in Canada. Methodology The methodology used in this study is based on the standard, generally-accepted approach used by economists when determining cost benefit ratios, not only in the transportation sector but in the economy as a whole. What is unusual about this study is the effort and rigour that has gone into quantifying benefit, both in terms of safety and efficiency. To determine safety benefits, the impact of pilotage on accident occurrence was measured. One of the reasons why this study is ground-breaking is that, typically, the impact on accidents cannot be measured quantitatively, and instead is ascribed a hypothetical, qualitative value. The reason for this is that, generally, there is an absence of reliable comparative data showing the behaviour of marine traffic in the same waters with and without pilotage. In this study, this impediment has been overcome thanks to scientifically-collected data from vessel traffic in the Great Belt of Denmark that allows for an empirically valid statistical analysis. In respect of efficiency, eight specific situations were selected for measurement of benefit, rather than attempting a system-wide assessment. The reason for this was strictly that the scope of a system-wide assessment of efficiency benefits would have been so massive as to be impractical. As a consequence, the result is understated, given that the analysis provides only a partial snapshot of the system-wide efficiency benefits generated. Just as efficiency benefits are understated, the assumptions used in quantifying safety benefits are of the most conservative nature. For example, the actual occurrence rate reported by Denmark that a non-piloted vessel will ground is 9.4%. Rather than using this rate, which sits in the middle of a range starting at 0.3% and going up to 18.5%, the study uses the lowest statistical rate of probability derived from this data i.e., 0.3%, 30 times smaller than the average rate reported. Another conservative assumption relates to the rate used for conversion of US to Canadian dollars where applicable. For the purposes of this study, the currencies were assumed to have equal value, although in the year in question, 2014, the US dollar’s value was actually up to 10% greater than the Canadian dollar’s value. Given that all values in the study are expressed in Canadian dollars, the consequence of assuming an equivalence between the two currencies, when in fact the American currency had a greater value than the Canadian currency, is that the benefits are actually understated. Transportation Economics & Management Systems, Inc. 2 Findings Safety benefits • Pilotage has a relevant and direct role in respect of all incidents in the top two vessel accident categories: collision and power grounding. It also plays an important role in respect of drift grounding accidents. When combined with the use of escort and standby tugs, there is complete and effective coverage of all drift grounding accidents. This level of safety is essential to the social license necessary for shipping operations. • Maritime accidents are very costly. In respect of tankers, environmental clean-up costs alone have been estimated at nearly $10 billion dollars for a west coast oil tanker spill. At the other end of the scale a Puget Sound study estimated the clean-up cost of a Suezmax tanker accident to be approximately $100 million dollar. Assuming only this lower $100 million-dollar accident cost, the safety benefits of pilotage produce a 62.1 to 1 cost benefit ratio for oil tankers. • While the costs of cargo ship accidents, particularly the environmental consequences are nowhere near as large as they are with oil tankers, they remain huge in relation to the avoidance cost of pilotage. A US Coast guard analysis puts the current cost of such an accident at $3.7 million dollars, resulting in a 3.3 to 1 cost benefit ratio. • Overall, given the mix of tanker and cargo traffic, the contribution to safety arising from the provision of pilotage services has a cost benefit ratio of 18.9 to 1. Productivity benefits • Pilots are instrumental in navigation efficiency and in the development of navigational improvements, both of which contribute to the productivity of Canadian ports and shipping. Of the first importance is the benefit to the efficiency of supply chain operations and the near-certainty pilotage provides that access to, and use of, critical marine infrastructure – including ports and busy waterways – will not be compromised. Such supply chain disruptions, as documented in a Port of Saint John case study, extend considerably beyond the direct cost of vessel accidents and their cleanup. • Pilots have developed innovative practices for navigation on the Great Lakes and St Lawrence River without lighted buoys or other normal navigation aids in the winter; thereby extending the operating seasons of both the St. Lawrence Seaway and ports on the St. Lawrence River, especially Montreal. Also, night time navigation during the winter on the St. Lawrence has been greatly enhanced in recent years by the innovative application by pilots of e-Navigation and Portable Pilot Units (PPUs). • The positive impact of an extended navigation season in the Great Lakes Region was substantiated by a case study that demonstrated how it enhances the marine mode’s competitive advantage
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