Written by Duncan McPherson, Sharon Singh and David Little
The broad and extensive marine transportation and logistics sector has been adapting quickly in the face of the COVID-19 pandemic. An essential part of supply chains, ports and other marine terminals have remained open for business, with enhanced health and safety measures, maintaining vital links to the world for North American truck and rail transport networks.
In order to keep Canadian ports open to international trade, the federal government has exempted marine sector workers from its international travel restrictions, allowing marine crew and other key workers to board international flights destined to Canada to perform their duties, provided they are not symptomatic. Shore leave for seafarers arriving at Canadian ports has however been subject to significant new restrictions.
While adapting to new operational realities, the marine transportation and logistics sector, as with many other sectors, is addressing considerable business environment uncertainties. We survey in this blog relevant near-term and longer term issues of importance arising in the time of COVID-19.
Maintaining Cash Flow and Finances
To maintain cash flow, Canadian marine transportation and logistics operators considering payroll reductions may wish to access the Canada Emergency Wage Subsidy (CEWS), if eligible. For further details please see COVID-19 Relief for Employers: The Canada Emergency Wage Subsidy is Approved.
For those requiring access to capital, there are a variety of government programs that are now available through private lenders.
One option is the Canada Emergency Bank Account (CEBA) which provides credit interest-free up to $40,000 for immediate operating costs such as payroll, rent, utilities, insurance, property tax, or debt service. It is available to Canadian employers with between $20,000 to $1.5 million in total payroll in 2019, and operating as of March 1, 2020. If the loan is repaid by December 31, 2022, 25 percent (up to $10,000) will be forgiven. If the loan is not repaid by December 31, 2022, the remaining balance will be converted to a three-year term loan at 5%interest.
A second option is a loan guarantee program run by the Export Development Corporation (EDC) available from lenders. It allows financial institutions to issue operating credit and cash flow term loans of up to $6.25 million to existing clients, with 80 percent guaranteed by EDC. This money is to be used for operational expenses, not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt.
Finally, there is also a program run by the Business Development Corporation (BDC). This program provides term loans for operational and liquidity needs of businesses, which could include interest payments on existing debt. Loans would be interest-only for the first 12 months, with a 10-year repayment period. The program is designed in three segments to target support to different business sizes.
- Loans of up to $312,500 to businesses with revenues of less than $1 million.
- Up to $3.125 million for businesses with revenues between $1 million and $50 million.
- Up to $6.25 million for businesses with revenues in excess of $50 million.
The Department of Finance and the Canada Revenue Agency have also extended several federal tax filing, payment and remittance deadlines for businesses. Further details on these initiatives are available in Extended Federal Tax Filing, Payment and Remittance Deadlines Amid COVID-19 and Canada's COVID-19 Economic Response Plan.
Canadian regulators are also selectively reducing administrative burdens, which may facilitate operational savings for marine operators. For example, the federal government has recently relaxed certain requirements applicable to the transportation of hand sanitizer, including by vessel: New Exemptions and Specific Requirements for Producing and Transporting Hand Sanitizer During COVID-19. Where regulatory obligations are creating challenges at this time, operators are recommended to seek advice and consider asking for relaxations.
As challenges arise in maintaining critical supply chains, protecting employees, and planning for an uncertain future, particular attention should be paid to community and stakeholder communications. Key recommendations for organizations relating to stakeholders and communities in responding to COVID-19 are set out here: COVID-19—Partnerships, Communities, Suppliers and Stakeholders.
In particular the unique regulatory structure, responsibilities and obligations of port authorities present additional considerations for port tenants, users and the port authorities themselves. Some terminals are under current planning, development or construction, which will continue to be the case in the future. In addition to the same challenges the whole construction industry is facing with COVID-19, managing capital projects in the context of port authority relations will likely create unique challenges for ports and terminal operators.
As difficult choices may face boards of marine logistics and transportation bodies around the allocation of scarce resources and managing unprecedented risks, consider renewed attention to directors' duties as explained here: COVID-19 Considerations for Directors.
Understanding the Emergent Trade and Investment Environment
As Canada's commercial gateways to the world, the long-term prospects for growth for Canada's ports and marine terminals will depend on robust international trading relationships. The COVID-19 pandemic has already had, and will continue to have, far-reaching effects on international trade, and given its heavy reliance on trade, the Canadian economy.
In the months that have followed the initial outbreak of COVID-19, a variety of customs, export control, and trade negotiations issues have arisen impacting the flow of goods to Canada, which raise new considerations for facilities contemplating expansions or other new business. For further details on the impacts of COVID-19 on trade, please see: Trade Implications of COVID-19 from a Canadian Perspective.
In addition, the federal government has recently announced that it will particularly scrutinize both controlling and non-controlling foreign investments of any value in Canadian businesses related to public health or involved in the supply of critical goods and services to Canadians or to the government. Please see Foreign Investment to Face Enhanced Scrutiny Under Investment Canada Act During COVID-19 Pandemic for further details.
Bennett Jones is committed to helping our clients navigate the rapidly changing environment during these unprecedented times. If you have any questions regarding the information in this blog post, please contact a member of the Bennett Jones team. In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.