As a coalition of Great Lakes shipping companies, port operators and maritime trade groups awaits the outcome of a lawsuit arguing that a pilotage fee increase in 2016 was excessive, the U.S. Coast Guard has proposed another increase for 2017.
The proposal, announced in October, aims to raise pilotage fees by 14 percent, following increases of 20 percent in 2015 and 24 percent in 2016. The proposed 2017 increase would cost shippers an additional $2.6 million, most of which would be used to compensate eight pilots-in-training who would begin full-time work at a new pay level early this year.
After the most recent increase took effect in April, the shipping coalition filed a lawsuit against the Coast Guard, describing the agency’s actions as “arbitrary and capricious and an abuse of discretion.” The litigation is still pending, and some say that for this reason another proposed rate increase is inappropriate.
“Many of the new aspects of the methodology (to set rates) are being challenged in our court case,” said Steve Fisher, executive director of the American Great Lakes Ports Association, a plaintiff in the lawsuit. “For that reason, we think it’s wrong of the agency to again want to use those new methodologies in establishing the 2017 rate adjustment when in fact those methodologies are the current subject of challenge in court.”
According to the Coast Guard, the increases for 2016 and 2017 reflect the cost to train and hire additional pilots to allow for adequate rest between assignments and to replace pilots nearing retirement. The 2016 final rule included a revenue increase of $3.5 million and an increase in target pilot compensation to $326,000 annually from $235,000, an update the Coast Guard said was necessary to address an industry shortage and attract qualified pilots.
The lawsuit argues the Coast Guard failed to follow procedure and exceeded its authority by setting the new compensation level without providing sufficient evidence. The suit also argues that the service overestimated the amount of revenue needed by underestimating the average size of ships. Pilotage fees increase with a vessel’s size and navigation difficulty, a factor the Coast Guard omitted in its ratemaking, even though the coalition argues the service has considered it in the past.
Capt. Dan Gallagher, president of the Lakes Pilots Association, said the higher rates address deficiencies that have been problematic for the past decade. The Coast Guard cited his research in its 2016 final rule, estimating that the three Great Lakes pilotage organizations fell short of revenue projections by $20 million between 2005 and 2014.
Gallagher said increasing pilot compensation is critical as the pool of qualified candidates shrinks and other opportunities become more appealing amid lagging wages and benefits.
“Had the Coast Guard not been taking the position they have for the last couple years with the rates, we would be in a position right now where we wouldn’t have pilots and the system would be shut down basically,” he said, noting that in the past 20 years, 31 pilots from the three Lakes districts have left to pursue more lucrative opportunities. “These increases are needed No. 1 to replace the manpower and to add to our infrastructure.”
The Coast Guard indicated in its proposed rule that it plans to pursue a third-party compensation study, given the difficulty it faced in recent ratemaking that used Canadian pilot pay as a benchmark. The service will continue to use the schedule based on that analysis in the meantime, however.
A decision is expected by early March and the final rule will go into effect 30 days after publication.