Fleet Renewal and Cabotage in Canada

Updated 2026-11-10

Fleet Renewal and Cabotage in Canada

Cabotage is the carriage of goods or passengers between two points in the same country. In Canada the rule sits in the Coasting Trade Act, which keeps coastal and inland commercial marine activity open to Canadian-registered, duty-paid ships and lets foreign or non-duty-paid ships work only under a licence. Fleet renewal is the related question of how those domestic ships get replaced, and the two topics are tied together: a protected market shapes what owners build, buy and keep running.

This page describes how the Canadian system works, how it is administered, what is known about the domestic Great Lakes and St. Lawrence fleet, and how the arrangement compares with the United States.

What cabotage means in Canada

Most countries do not allow foreign carriers to move cargo between two of their own ports. Cabotage restrictions began with coastal shipping and later spread to aviation, rail and road. Governments usually justify them on grounds of security, safety or protection of domestic industry, while critics point to higher costs.

Canada's version is written in terms of "coasting trade". Section 2(1) of the Coasting Trade Act defines it as the carriage of goods or passengers by ship between places in Canada, either directly or by way of a foreign place, and also certain other commercial marine activities in Canadian waters. Activities above the continental shelf count when they relate to minerals or other non-living natural resources. Transport Canada summarizes the idea more simply: coasting trade covers commercial marine activity in Canadian waters, and the shelf activities are limited to resource-related work.

The Act sorts ships into three groups. A Canadian ship is one registered in Canada with duties and taxes paid. A non-duty paid ship is registered in Canada but has not had duties and taxes paid. A foreign ship is anything else. Only the first group may work in the coasting trade freely.

The Coasting Trade Act in detail

The statute is S.C. 1992, c. 31. Its main working parts are short enough to list.

The prohibition and its exemptions

Section 3(1) bars a foreign ship or non-duty paid ship from engaging in the coasting trade unless it holds a licence. Section 3 then lists exemptions. Among them:

• certain fishing vessels carrying only goods and passengers needed for fishing;
• ocean research commissioned by Fisheries and Oceans Canada;
• marine scientific research by foreign government ships with ministerial consent;
• seismic activity above the continental shelf;
• salvage, except in Canadian waters;
• pollution response, with the approval of a designated officer;
• the repositioning of empty containers without consideration;
• dredging under conditions tied to ownership and registry, with separate provisions for ships on EU and UK registers;
• a specific feeder arrangement involving Halifax and Montreal;
• operations under the United States Wreckers Act, and some US government supply ships serving Distant Early Warning sites.

Section 3(3) preserves the right of a foreign ship to help ships, aircraft or people in distress in Canadian waters. Section 3(6) adds that exempt foreign ships remain subject to Canadian safety and pollution-prevention law. Transport Canada notes that neither the Minister nor departmental staff can grant case-by-case exemptions beyond those written into the Act.

Licences

A foreign ship receives a licence under section 4(1) from the Minister of Public Safety and Emergency Preparedness, on application by a Canadian resident acting for the ship. The Minister must be satisfied of five things. The Canadian Transportation Agency must have found no suitable and available Canadian or non-duty paid ship. For passenger carriage, the Agency must have found no adequate similar Canadian service. Arrangements must exist to pay customs duties and taxes. The ship's convention certificates must be valid. And the ship must meet Canadian safety and pollution-prevention requirements. Section 5 sets a comparable test for non-duty paid ships, without the certificate and safety conditions.

Under section 6 a licence may carry terms and conditions. For a foreign ship it lasts up to 12 months, or until a relevant certificate expires if that comes first. Non-duty paid ship licences last up to 12 months. The Minister may suspend, cancel or vary a licence in specified cases.

Enforcement

A ship that breaches section 3(1) commits an offence under section 13, with a fine of up to $50,000 on summary conviction, and each day counts separately. Enforcement officers designated by the Minister of Transport may board, search, seize records and issue detention orders.

Section 11 contains a reciprocity clause. If consultations with a foreign government fail to end unfair practices against Canadian ships, the Governor in Council may take action on the recommendation of the Ministers of Transport and Foreign Affairs.

The role of the Canadian Transportation Agency

The Canadian Transportation Agency is an independent quasi-judicial tribunal created under the Canada Transportation Act, which received royal assent in 1996. It resolves complaints, works on accessibility and carries out economic regulation of federally regulated air, rail and marine transportation. In the marine field it shares administration of several statutes, including the Coasting Trade Act.

Section 8(1) gives the Agency the decision on whether a suitable and available Canadian or non-duty paid ship exists. Section 8(2) allows the Governor in Council to set criteria for those decisions by regulation. The Agency can also request information from applicants and from owners of Canadian ships (section 9) and keep records on them (section 10).

How an application proceeds

The Agency's published guidelines describe a fixed sequence.

1. The applicant files a customs form with the Canada Border Services Agency and an application with the Agency at the same time.
2. The Agency posts a notice. The minimum notice period is 30 business days, or 8 for oil tankers.
3. If no Canadian operator offers a ship by the deadline, the file is uncontested and the Agency finds that no suitable Canadian ship is available.
4. If a Canadian operator does offer a ship, the file is contested. The parties exchange written submissions and the Agency decides on the record, generally on a balance of probabilities.
5. After a favourable determination, the Border Services Agency issues a Letter of Determination and collects duties, Transport Canada completes inspections, and the Minister issues the licence.

An Agency determination alone does not authorize any activity. The licence does.

What suitable and available mean

The Act does not define either term, so the Agency applies them case by case. Suitability covers technical and operational fit as well as commercial factors. Higher Canadian crewing costs alone generally do not make an offered ship unsuitable. Availability looks at whether the requested dates are truly necessary, where the ship is, how long repositioning would take and whether the work can be finished in the required period.

The applicant carries the burden of showing that the offered ship is unsuitable or unavailable. If the evidence is enough, the burden moves to the offeror. The offered ship must currently appear in Transport Canada's Canadian Register of Vessels. A foreign ship in the process of registering can be offered only if the evidence clearly shows it will be registered before the work begins.

The Canada Transportation Act generally requires decisions within 120 days. Service standards effective January 6, 2026 target decisions on 80 percent of regular uncontested files within 15 business days, and on 80 percent of regular contested files within 65 business days after pleadings close.

The domestic fleet on the Great Lakes and St. Lawrence

Lake freighters are a distinct ship type. They are designed to work inside the lakes and the Seaway system, and they are typically built for a service life of 45 to 50 years, well beyond the roughly 11-year average age reported for ocean-going bulk carriers in 2023. About 300 lakers worked the lakes in the mid-20th century. Fewer than 140 were active in the early 21st century.

Size is governed by the locks. The Seawaymax standard, the largest vessel that can transit the St. Lawrence Seaway, is 740 feet long and 78 feet wide. The Poe Lock at the Soo Locks is 1,200 feet by 110 feet, which allows far larger vessels above the Welland, though those ships cannot come down to the lower Seaway.

Cargo splits along national lines. US-flagged freighters carry about two-thirds of Great Lakes trade by weight and a large share of iron ore from US mines to US mills. Canadian vessels carry most of the potash and nearly all of the salt and grain, often on smaller ships calling at many small ports.

Recent additions

Renewal on the Canadian side has partly happened abroad. Canada Steamship Lines built the Trillium class, a nine-ship program (later extended to eleven with two acquisitions) of lake freighters, lake bulk carriers and Panamax vessels. Chinese yards built them. The lake freighters arrived in 2012 and 2013 and the lake bulk carriers in 2014. The orders followed the 2010 duty relief described below, along with a strong Canadian dollar and yard availability in China. Algoma Central's Equinox class and the Algoma Mariner, launched in 2011 from a Chinese yard, belong to the same wave of newbuilds.

Imported vessels are generally subject to a 25 percent tariff. The Ferry-Boats, Tankers and Cargo Vessels Remission Order, 2010 (SOR/2010-202), registered on September 23, 2010, remits the duty on tankers and cargo vessels imported on or after January 1, 2010, with claims due within two years of importation. Transport Canada reports that duties are currently waived on cargo vessels, tankers and ferries longer than 129 metres.

Because a ship built abroad but registered in Canada with duties paid counts as a Canadian ship under the Act, foreign construction did not affect cabotage eligibility. The Canadian register, not the place of construction, determines who may trade.

Old ships and new rules

Age has regulatory consequences. Operators of Great Lakes steamships face emissions rules, a topic taken up below for the American side of the lakes.

Fleet renewal programs and incentives

United States: the Great Lakes Steamship Repower Incentive Program

The best-documented incentive on the lakes is American. In a direct final rule published in the Federal Register on January 18, 2012 (document 2012-819), the Environmental Protection Agency simplified a provision for operators of Great Lakes steamships who replace steam plants with diesel engines.

The background is EPA's Category 3 marine rule of April 30, 2010. That rule exempted existing Great Lakes steamships from the sulfur limits that apply in the emission control area, so they could keep burning high-sulfur residual fuel. The exemption would have ended once a ship was repowered with diesel engines. EPA had first offered relief through an economic hardship waiver, decided case by case. The 2012 rule replaced that with an automatic, time-limited allowance.

To qualify, a ship must operate only on the Great Lakes, have been in service on October 30, 2009 and be repowered with a certified Tier 2 or later marine diesel engine. The hull stays intact. The allowance let residual fuel be burned through December 31, 2025. From January 1, 2026, such a ship must use fuel meeting the 1,000 ppm sulfur limit for the Great Lakes. EPA counted thirteen US steamships on the lakes at the 2009 date: twelve oil-fired and one coal-fired.

The rule applies to US-flagged ships. It is an environmental provision that rewards modernization, rather than a subsidy for new tonnage, and it has no Canadian counterpart.

Canada

Canada has no federal program dedicated to renewing the commercial Great Lakes fleet. The tools that shape renewal are indirect: the cabotage regime, the duty remission for imported cargo vessels, and the registration requirements for Canadian ships.

The National Shipbuilding Strategy

The National Shipbuilding Strategy was launched in June 2010 as the National Shipbuilding Procurement Strategy. It has three parts: a combat package, a non-combat package and a smaller vessel package. Irving Shipbuilding holds the combat package, which covers 21 warships for the Royal Canadian Navy and two unarmed Coast Guard variants. Seaspan holds the non-combat package of up to 30 vessels, including icebreakers, joint support ships and science vessels, and Davie was added as a third yard for icebreakers after an agreement in April 2023. The two large packages were first estimated at about $38 billion combined, and spending is now projected to exceed $100 billion.

The strategy covers government vessels for the Navy and the Coast Guard, not commercial lake carriers.

Canada and the United States compared

The US counterpart is Section 27 of the Merchant Marine Act of 1920, known as the Jones Act. Both countries reserve domestic water trade to home-registered ships, but the mechanisms differ.

Two differences stand out. Canada does not require domestic construction, which is why Canadian owners could order lakers in China and still operate them in the coasting trade. And Canada's system is a permanent, application-based gate run by a tribunal, while the American approach relies on a blanket restriction with emergency waivers granted in events such as Hurricane Katrina in 2005 and Hurricane Sandy in 2012.

Frequently asked questions

Who can carry cargo between two Canadian ports?

Ships registered in Canada with customs duties paid may do so without a licence. Foreign ships and non-duty paid ships need a coasting trade licence, unless an exemption in section 3 of the Coasting Trade Act applies. Exemptions cover narrow cases such as certain fishing support, research, salvage, pollution response, dredging and empty container repositioning.

What does the Canadian Transportation Agency decide?

The Agency determines whether a suitable and available Canadian or non-duty paid ship exists to do the work, and for passenger services whether an adequate similar Canadian service exists. It does not issue the licence. After a favourable finding, the Border Services Agency handles duties, Transport Canada inspects the vessel and the Minister of Public Safety issues the licence.

How long does a coasting trade licence last?

A licence for a foreign ship lasts up to 12 months or until a relevant certificate expires, whichever is earlier. A licence for a non-duty paid ship lasts up to 12 months. Section 6 allows terms and conditions, and the Minister may suspend, cancel or vary a licence in specified cases.

Does a ship have to be built in Canada to trade there?

No. The Act ties eligibility to registration and payment of duties, not to the place of construction. This explains why several modern Canadian lake carriers were built in Chinese yards and still operate as Canadian ships. The American Jones Act differs, since it requires US construction.

What is the Great Lakes Steamship Repower Incentive Program?

It is a United States program set out in an EPA direct final rule published on January 18, 2012. It lets eligible Great Lakes-only steamships that repower with a certified Tier 2 or later diesel engine burn residual fuel through December 31, 2025. EPA identified thirteen steamships in service on October 30, 2009.

Does the National Shipbuilding Strategy cover commercial lake ships?

No. It is a program for Royal Canadian Navy and Canadian Coast Guard vessels, built at Irving, Seaspan and Davie.

How does Canadian cabotage compare with the Jones Act?

Both restrict domestic water trade to home-registered ships. The Jones Act also requires US construction, US ownership and mostly US crew, and allows foreign ships only through national defense waivers. The Canadian Act has no build or crew requirement in its licence test and offers an application route based on a suitability finding.