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Shippers sue Coast Guard over ‘runaway’ Great Lakes pilotage fees

Aug 31, 2016 12:26 PM
The bulk carrier M/V Isadora exits the Port of Duluth-Superior. All oceangoing ships operating on the Great Lakes Seaway System must hire local pilots to assist with navigation.

Courtesy Pete Markham/Flickr

The bulk carrier M/V Isadora exits the Port of Duluth-Superior. All oceangoing ships operating on the Great Lakes Seaway System must hire local pilots to assist with navigation.

Following more than a decade of what the American Great Lakes Ports Association calls “runaway costs,” a shipping coalition is suing the U.S. Coast Guard over increasing pilotage fees. 

The AGLPA was joined in May by the Shipping Federation of Canada, the U.S. Great Lakes Shipping Association, Fednav International Ltd., Canfornav Inc., Polish Steamship Co. (Polsteam), Spliethoff Transport, Brochart Shipping and Wagenborg Shipping in filing the complaint in U.S. District Court. The complaint argues the Coast Guard’s proposed 58 percent increase in pilotage fees over 2016 and 2017 violates the Administrative Procedures Act, which requires federal agencies to make decisions based on evidence and research.

“A number of aspects of their decision-making were arbitrary,” said Steve Fisher, executive director of AGLPA. “They lacked a record of evidence to back up the conclusions they reached.”

Among other points, the coalition argues the Coast Guard failed to account for the variable size of vessels in the Great Lakes, overestimated the need for additional pilots and made inaccurate comparisons with the pay scale of Canadian pilots.

Under federal law, all oceangoing vessels operating on the Great Lakes Seaway System must hire local pilots to assist with navigation. The Coast Guard regulates all aspects of pilotage and sets rates annually through a federal rulemaking. In the past decade, pilotage costs have increased 114 percent. 

According to Coast Guard spokeswoman Lt. Katie Braynard, the 2016 rates provide U.S. pilots with compensation that is aligned with Canadian pilot compensation.
“Although the U.S. and Canadian pilotage systems are not an exact match, they do provide a very similar service,” Braynard said. “We determined that the Canadian pilotage provides the best available benchmark for U.S. pilot target compensation.”

The Coast Guard also determined additional pilots are needed to ensure adequate rest between assignments to reduce associated risk and related system delays. 

Fisher said vessel operators fear that if the pilotage fees continue to increase, Great Lakes operators and ports will lose business. 

“Unlike coastal shipping, shipping on the Great Lakes is internal to North America for at least the portion that’s in North America — so a ship leaving Detroit going to Europe for part of the journey is paralleling rail routes and highway routes,” he said. “There are competing modes of transportation that have different cost structures. And so a customer in Detroit could choose to put their cargo on a railroad and take it to New York or Baltimore and then put it on a ship and, if that’s in fact cheaper, they will do that.”

Pilotage fees, averaging $10,000 a day, have now surpassed the $8,000 or $9,000 per day in costs to charter a vessel, Fisher said. 

“It’s more than the cost of the entire ship and crew and that is, I think, a comparison that points out how ludicrous this has all become,” he said. 

Braynard did not say whether the Coast Guard would reduce the pilotage fees expected to take effect in 2017, but indicated the service has begun the 2017 ratemaking review and will seek public and stakeholder comments through a normal ratemaking process. 

“The 2016 rates are already in effect and will remain so until the 2017 rates are established and placed into effect,” she said. 

The coalition argues in its lawsuit that 2016 fees should be reduced by 20 percent. If the courts fail to intervene, the group will have to go to Congress, Fisher said.

“It can’t go on unabated forever,” he said. “And these costs in our mind are runaway costs. They are unconstrained and it’s not sustainable.”

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