The legal battle over 2016 Great Lakes pilotage fees will spill over into 2018 as a shipping industry coalition seeks remedies to a judge’s decision upholding the current rates.
In November, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia ruled that the U.S. Coast Guard acted within its regulatory authority in raising rates in 2016 to a level that would allow the three Great Lakes pilot associations to hire new members, retain existing pilots and improve safety.
However, the judge agreed with the plaintiffs, an industry group led by the American Great Lakes Ports Association (AGLPA), that the Coast Guard’s method of setting the amount of the increase in pilots’ target compensation appeared to be “arbitrary and capricious,” as was the failure to include a “weighting” factor to account for different ship sizes that would have reduced total pilotage costs.
The pilot groups saw the decision as vindication of their push for more personnel with competitive salaries.
“It agrees with everything we were telling the industry (about) having a hard time attracting and retaining qualified American pilots, and so the decision upholding the Coast Guard’s increase verifies all that,” said Capt. George Haynes, vice president of the Lakes Pilots Association.
All foreign vessels operating in the Great Lakes must employ a registered Canadian or American maritime pilot to aid in navigation. Canadian pilots are government employees; U.S. pilots operate independent businesses in three districts covering the Great Lakes. Each year, the Coast Guard sets U.S. pilotage rates to cover salaries and benefits, training, equipment and business operations.
The Coast Guard has reported the Great Lakes system lost 22 percent of its U.S. pilots between 2007 and 2014, contributing to delays during peak periods and making it difficult for the pilots to receive the monthly rest periods recommended by the National Transportation Safety Board.
Since the 2015 season, the Coast Guard has authorized double-digit annual increases in revenue for the pilot associations. Additional increases likely will be included in the proposed rates for the 2018 season, which begins in March. Overall, the cost of American pilotage is $21 million per season, according to Haynes.
The industry coalition sued the Coast Guard in May 2016, saying the rate-setting methodology and fees for the year were “arbitrary and capricious.” Contreras agreed with the Coast Guard’s analysis that greater staffing was needed for safe pilotage on the Great Lakes, and that the pilot associations faced “chronic pilot attraction and retention difficulties” due in part to compensation lower than the industry average.
For 2016, the Coast Guard set target compensation 10 percent above the amount paid to Canadian pilots, federal employees who receive government benefits and don’t have to pay for operating expenses. The Coast Guard did not use a weighting system based on vessel size, which the industry coalition said led to inflated pilotage charges. In setting rates for the 2017 season, the Coast Guard used the weighting factor.
“Those two items caused an overinflation in charges to vessel operators in 2016, and vessel operators paid over $5 million more in pilotage fees than the Coast Guard wished for them (to pay),” said Steve Fisher, executive director of the AGLPA.
Currently there is no procedure to deal with overpayments, so the ports group wants the Coast Guard to include a “truing up” mechanism to account for the differences between projections and actual collections in past years.
The pilot associations say much of the 2016 rate increase went to cover salaries of additional personnel hired. “In my district, they increased the number of pilots from 10 to 15 for 2016, and each of three districts had a substantial increase. The judge ruled in favor of that,” Haynes said.
The plaintiffs plan to respond on the two issues for which Contreras invited additional arguments: the methodology used to determine the 10 percent increase for 2016, and the lack of the weighting factor. “While we’re still trying to figure out the 2016 resolution, 2017 is being litigated and then we’re going to have the proposal for 2018 to look at,” Fisher said.