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Wednesday, August 23, 2017

Piloting Choppy Waters

Posted to Global Maritime Analysis with Joseph Keefe (by on May 30, 2017

Uncharted hazards roil the waters for established pilot organizations across the fruited plain. These days, there is never a dull moment for this uniquely American system of piloting deep draft tonnage to and from the ports dotting our 95,000+ miles of coastline.

The U.S. system of marine pilot oversight typically calls for individual states to govern commerce on their own waterways as they see fit. When it comes to deciding who will be trusted to guide large, deep draft tonnage into their blue water ports, the standard business model calls for one association – typically described as ‘state pilots’ – to perform all of this work (at least the registered, foreign flag variety), without outside competition, governed by a local pilot board of one sort or another.

Occasionally, there comes a challenge to the status quo. Lately, there have been more than usual; a trend which is building, and one which reflects users (some operating in depressed business sectors) who increasingly chafe against escalating fees for service providers already making hundreds of thousands of dollars annually. In response; advocates for the system of ‘state pilots’ typically argue that “you can’t put a price on safety.” Actually, that remains to be seen.

In at least five ports or sectors nationwide, the issue(s) of rates, who gets to perform what task and where, and under what conditions they can do it, are very much in dispute. Piloting a deep draft vessel on the water has never been boring. It turns out that navigating the business aspect of that profession is also becoming far more interesting. Spanning all four U.S. coasts – pilot-related news is not in short supply.

  • Great Lakes

Stakeholders who depend on Great Lakes pilots to guide tonnage in three separate districts may be facing ‘sticker shock’ in the near term as the method of determining rates has changed. Previously, the U.S. Coast Guard used the “touchstone baseline” of a local deck officer’s union agreement as the basis for their calculations. Reportedly, however, that data has been made “proprietary” and is no longer available.

As the Coast Guard navigates what could be a sizable increase in local rates, it also added an additional 30 days to the comment period on the supplemental notice of proposed rulemaking for “Great Lakes Pilotage Rates—2017 Annual Review” published in the Federal Register on April 5, 2017. The comment period, which allows the public a venue to comment on the proposed rulemaking, is now open through June 5, 2017.

In a nutshell, the Coast Guard is proposing to modify its calculations for hourly pilotage rates on the Great Lakes by accounting for the “weighting factor,” which is a multiplier that can increase pilotage costs for larger vessels traversing areas in the Great Lakes by a factor of up to 1.45. But, the real fear is that the new rates will follow the national ‘state pilot’ trend of benchmarking against “what everyone else is making.” And, since these rates are reviewed annually, the potential for regular and hefty increases worries shippers.

Like other places, the dispute has (not surprisingly) resulted in a lawsuit – in this case from the shipping companies who operate in this area versus the U.S. Coast Guard.

  • Louisiana

Although a May 25 public hearing – scheduled to be held before a three-member panel appointed by the Louisiana Pilotage Fee Commission – has been delayed, the meeting will take place at a later date, sources told Maritime Logistics Professional last week. The hearing will reportedly consider the Louisiana Maritime Association’s motion seeking an immediate reduction of NOBRA pilotage rates, which they say have resulted in a significant amount in excess of required revenues. Although the hearing was delayed, the motion remains ongoing. Suffice it to say that if shippers and maritime stakeholders are successful, it would be unprecedented in a place where river pilots traditionally wield enormous power.

  • Galveston, TX

An attorney representing federal pilots looking to earn state pilot licenses to guide registered, foreign flag tonnage in and out of Galveston Bay has appealed to Texas Governor Greg Abbott. According to Justin Renshaw, he hasn’t yet heard back from the governor, but his petition to force the local Board of Pilot Commissioners to “implement rules” has to be responded to within 90 days (from 10 May). Failing all of that, he says, the matter is headed to court.

The federal pilots don’t necessarily want to join the existing association; they want to form their own group. Renshaw contends that the local state pilot rules in force in Galveston violate the Texas Constitution, which he says forbids so-called monopolies. These federal pilot hopefuls base their argument for a State Issued license, in part, on the premise that “Perpetuities and monopolies are contrary to the genius of a free government, and shall never be allowed, nor shall the law of primogeniture or entailments ever be in force in this State.

Although a purely local matter for the time being, the spat could take on statewide and national implications because the typical model of “state pilot” monopolies on foreign flag business could ultimately be tested; first here, and then at other ports. Pilot organizations and stakeholders are therefore watching closely from the sidelines. It looks like this one will come to a boil, appropriately enough, mid-summer.

  • Port Canaveral, FL

According to Steve Parrish, a federally licensed pilot based in Port Canaveral, Florida, Southern Federal Pilot has filed suit the Canaveral Pilots Association for Violation of the Florida Antitrust Act and for interference with Southern Federal Pilots’ contract with the Navy. 

According to Parrish, Southern Federal Pilot provides harbor pilot service to the U.S. Military and U.S. Flag Vessels travelling between U.S. ports. It was awarded a contract to provide pilot service to the U.S. Navy at Port Canaveral, a contract that Parrish says has now been terminated. Also according to Parrish, under the contract that was terminated, Southern Federal Pilot was charging a lower rate for its services. As a result of the termination, he says, the Navy will have to pay the higher rate charged by Canaveral Pilots Association which is set by state law.

The dispute is an unusual one whereby the local federal pilot isn’t trying to provide services to registered, foreign flag tonnage. Instead, he just wants to compete in the traditional sectors that federal pilots everywhere make their bread and butter – namely, U.S. Navy work and on board domestic enrolled vessels. Work, by the way, that he has considerable experience in – particularly in the specialized guidance of Navy submarine traffic.

Also according to Parrish, the case will face its first test in August, when a judge will determine whether it can go forward.

  • Seattle, WA

In Seattle, Washington, another bit of drama is playing out. Without a doubt, the Seattle case is an unusual one for no other reason than the decision gave the local pilot system a black eye. That doesn’t happen very often. For his part, and in this very space not too long ago, John McLaurin, president of the Pacific Merchant Shipping Association, asked simply, “Who should pay for a $6 million gender discrimination lawsuit involving a woman who was denied a pilot license in Puget Sound?” As it happens, the answer is … everyone.

According to McLaurin – who provided guidance in this venue on February 17 – the training program for pilot candidates is managed by pilots; assessing and evaluating the trainees. Pilots ultimately provide the key input and recommendations to the Washington State Board of Pilotage Commissioners as to whether to license a pilot candidate or not. In this particular case, the pilots recommended that the Board not issue a pilot’s license, and the Board concurred. In the end, the State lost the gender discrimination lawsuit and paid a $6.1 million settlement. But, stakeholders – shippers and cargo interests – who regularly ante up for what they perceive as a premium rate for pilot services, pushed back on who was to pay the bill. Pilot services are one thing – gender discrimination lawsuits are another.

In the end, Transportation Budget legislation signed by the Governor effectively froze pilot rates until June 30, 2019, although pilots can make more or less depending on workload, number of pilots, expenses and assignment mix (size, type of assignments like shifts, two pilot jobs etc.). Nevertheless, and according to local sources, last year’s individual earnings grew more than $36,000 each despite having only a small tariff increase for the first 6 months (2% equivalent) equaling 1% for the year. Hence, revenue per assignment continues to grow without tariff increases, with larger container vessels and cruise ships a key factor in that metric. 

Local stakeholders argued that industry should not pay (for the discrimination judgment) and that they were not responsible. Ultimately, the legislature decided on an assessment of $16 per assignment plus the rate freeze plus a study of rate setting, workload, governance and other issues. But, that decision only lasts for the biennium (whereas a Senate Bill pushed for the pilots paying the entire amount for 6 years with a 6 year tariff rate freeze and a study – the final was compromise between the House and Senate).  

With respect to the passage of Engrossed Senate Bill 5096 Section 108, the Board of Pilotage Commissioners is appropriated $1,100,000 from the Multimodal Transportation Account solely for self-insurance liability premium expenditures.  This appropriation is contingent upon three stipulated conditions:

(1)   The Puget Sound Pilots shall pay to the Board, from its tariffs, $150,000 annually on July 1, 2017 and July 1, 2018.  These amounts shall be deposited by the Board into the pilotage account and used solely for the expenditure of self-insurance premiums;

(2)   The Board shall maintain the Puget Sound Pilotage District pilotage tariff at the rate which became effective on January 1, 2017; and

(3)   A self-insurance premium surcharge of $16.00 shall be added to each Puget Sound pilotage assignment on all vessels requiring pilotage in the Puget Sound Pilotage District.  The Puget Sound Pilots shall remit the total amount of such surcharges generated to the Board by the 10 of each month.  The surcharge shall be in effect from July 1, 2017 through June 30, 2019.  These amounts shall be in addition to those fees to be paid to the Board pursuant to subsection (1) above and shall be deposited by the Board into the pilotage account solely for the expenditure of self-insurance premiums.

These three directives are in effect beginning May 18, 2017 through June 30, 2019.

  • Looking Ahead: in the Radar

The only thing that is certain in terms of pilot law here in the United States is that challenges are becoming more frequent. The disputes also touch upon many more issues than just rates and fees. How will any or all of these spats play out?  That’s anyone’s guess. That said; there may be no other aspect of the domestic waterfront which regularly provides more entertainment. For the players involved, though, the stakes are high and current events are anything but fun and games.

Millions and millions of dollars hang in the balance. A good friend once told me that finding out the truth simply involves “following the money.” If so, then the collective legal wrangling now underway makes perfect sense. MarPro

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Joseph Keefe is a 1980 (Deck) graduate of the Massachusetts Maritime Academy and lead commentator of MaritimeProfessional.com. Additionally, he is Editor of both Maritime Logistics Professional and MarineNews magazines. He can be reached at jkeefe@maritimeprofessional.com or at Keefe@marinelink.com. MaritimeProfessional.com is the largest business networking site devoted to the marine industry. Each day thousands of industry professionals around the world log on to network, connect, and communicate.

Tags: U.S. Coast Guard state pilots

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