The American Great Lakes Ports Association (AGLPA) recently released a position paper on U.S. pilotage costs on the Great Lakes Seaway system.
The U.S. Coast Guard is responsible for regulatory oversight of all aspects of Great Lakes marine pilotage, including the setting of rates and charges. The system is structured similar to a regulated monopoly, in which three private companies provide mandatory pilotage services on the U.S. portions of the Great Lakes. Each year, the Coast Guard adjusts rates and charges for their services.
Over the last three years, the U.S. Coast Guard has increased U.S. pilotage costs on the Great Lakes by more than 40 per cent. Great Lakes ports and vessel operators have challenged the Coast Guard, arguing that the agency is harming the competitive position of the Great Lakes Seaway system.
To its credit, the Coast Guard commissioned Martin Associates, an economic consulting firm, to conduct an analysis of the economic impacts of recent pilotage cost increases. While Martin Associates completed its work in late June, 2017, the Coast Guard released the report publicly only recently.
Martin Associates evaluated 3 hypothetical voyage scenarios for a Class 4 vessel (~ 30,000 – 35,000 DWT). Each voyage scenario had 7 variations for a total of 21 variations. The analysis focused on steel and grain impacts. It assumed that U.S. pilots would be used in all areas of the Great Lakes in which that is possible. (Both the Welland Canal, and portions of the St. Lawrence River are exclusively under the jurisdiction of Canadian pilots). The analysis is based on actual pilot cost data from 2016. This information was provided from invoices and receipts from pilot organizations and vessel operators. The study isolates U.S. pilotage costs and assumes all other cost variables are held constant.
Examining these hypothetic voyages, the 2016 increase in pilotage costs was between 53.5 and 90.9 per cent. At these levels, Martin Associates estimates that 585,890 tonnes of export grain was lost to the system and shipped through coastal ports instead. The loss of these grain cargoes would result in the loss of 307 direct, induced and indirect jobs and $25.4 million in business revenue.
The analysis also concludes that with a “steel-in / grain-out” economic model for ocean shipping in the Seaway system, the loss of 585,890 tonnes of grain exports will effect 29 voyage backhauls. The absence of these backhaul cargoes render 29 voyages of inbound steel non-competitive. As a consequence, Martin Associates estimates that 586,000 tons of steel imports to Great Lakes ports did not occur. The loss of these steel cargoes would cause the loss of an additional 4,100 direct, induced and indirect jobs in the regional economy and $609 million in business revenue.
The total binational regional job loss associated with the Coast Guard’s 2016 pilotage rate increase is 4,400 jobs.
The study documents many of the problems that AGLPA and carriers have tried to highlight for the Coast Guard. These include documentation that U.S. Great Lakes pilots are roughly twice as expensive as their Canadian counterparts. The study documents that recent rate increases have negatively impacted the competitiveness of ocean shipping on the Great Lakes. The study also documents that U.S. pilotage constitutes roughly 10 per cent of overall voyage costs.
AGLPA and a coalition of Great Lakes vessel operators challenged the Coast Guard’s 2016 pilotage rate increase in federal court. The litigation is still pending.