A dispute between the City of Portland, Maine, and the U.S. Customs and Border Protection is threatening to end the Yarmouth, N.S., ferry service to Portland next year.

U.S. Customs and Border Protection says Portland's international ferry terminal does not meet federal standards so it will no longer provide entry and exit customs screening at the Gateway Ocean Terminal in 2018.

Security concerns

"Currently, as there are no plans to provide CBP with a fully compliant facility, we are unable to continue to provide service beyond the 2017 ferry season at this location as we must maintain the highest level of national security at all of our ports of entry," spokesman Sean Smith told CBC News in an emailed statement Tuesday.

The City of Portland, which owns the facility, has balked at spending the $6 million US to $7 million US it says is needed to deliver the upgrades or new facility the federal agency is seeking, according to the Bangor Daily News report.

Portland said U.S. Customs and Border Protection wants a new office building, holding cells, radon detectors and equipment to read licence plates for disembarking vehicles.

Bay Ferries hopeful

Bay Ferries operates the heavily subsidized Cat high-speed ferry between Yarmouth and Portland.

President Mark MacDonald said his company is "working with both parties to attempt to identify appropriate solutions to this issue."

"As a company, we face serious regulatory issues, like this one, on a fairly regular basis. We take these issues very seriously, as we do this one. Usually we are able to work with the parties and identify mutually acceptable solutions," MacDonald said in an emailed statement to CBC News Tuesday.

Mark MacDonald is the CEO of Bay Ferries Ltd. (CBC)

A spokesperson for the Nova Scotia Department of Transportation and Infrastructure Renewal, Brian Taylor, issued a statement in response to the Portland customs dispute.

He said Bay Ferries routinely navigates regulatory issues on both sides of the border.

"The province is aware of ongoing discussions between the operator and U.S. officials around border crossing, and they have been working to identify appropriate solutions to the issues. Any possible solution will take into the account the best interests of Nova Scotians," Taylor said.

What about Bar Harbor?

Earlier this month, MacDonald said his company was looking at the possibility of a ferry run to Bar Harbor, Maine.

On Tuesday, he said the customs facility at Bar Harbor poses the same challenges as Portland's.

"It hasn't been studied in detail but we certainly know that it will not be in compliance as the facility has been inactive for a number of years," MacDonald said.

The Nova Scotia government has provided $32 million in subsidies since ferry service was restarted in 2015.

Bay Ferries has been trying to rebuild the traffic.

In 2017, the Cat carried 41,623 passengers, which is up from 35,551 in 2016.