Competition in Pilotage: The US Experience - Postado em 18/07/2010 às 19:50

By Captain Michael R. Watson President, International Maritime Pilots’ Association President, American Pilots’ Association June 22, 2007 My position on competition in pilotage is very simple. Competition is incompatible with compulsory pilotage. It is bad for the public, bad for the shipping industry, and bad for the piloting profession. That is not only my opinion, it is also the opinion of the International Maritime Pilots Association and the American Pilots’ Association. In my country, I am pleased to say, it is also the judgment of the government authorities that regulate the pilotage of international trade vessels. I hope that you might find the experiences in the United States with competition in piloting to be of interest. Non-Competitive Pilotage in the United States In the United States, pilotage of international trade vessels is provided by the state pilotage system. Each state has its own compulsory pilotage laws covering the ports and waters of the state, and each state licenses and regulates the pilots operating in its waters. Competition is not a feature of this system. In the United States, either a single pilot group operates in a pilotage area or, in the case of pilotage waters on a boundary between states, two or more pilot groups operate a joint service under a single rotation or divide the work under a formula provided by law. There is currently no place in the United States where state pilots compete with each other. Three states, however, have had some experience within the last 10 or 15 years with competitive pilotage. In the southeast region of Alaska, two groups of pilots formerly operated in genuine competition with each other, largely through contracts with cruise ships, which make up the bulk of their pilotage. That competition was largely the result of several unique pilotage circumstances in that region and was generally regarded as an anomaly. The situation changed, and competition ended, in the fall of 2002 when the members of one of the groups all joined the other. The state pilotage authorities supported the move to one group. It allowed the pilots to avoid the inefficient duplication of expenses and operations and facilitated regulatory oversight. Two other states, Connecticut and Hawaii, took steps to prevent competition by establishing a single state-sponsored rotation system, which divides the work among the pilots on an equitable basis. The practical effect of such a rotation system is to permit two or more separate and independent groups of pilots to operate but to eliminate their competition for piloting assignments. An additional intended effect is to remove most of the incentives for separate pilotage operations. As evidence of that aspect of a rotation system, competition in Hawaii ended in 2000, before the planned rotation system there went into effect, when the remaining independent pilot re-joined the original pilot group in the state. In Connecticut, multiple pilot groups still exist, but the state’s mandatory rotation system is in operation. Every pilot working in Long Island Sound or Connecticut waters under either a New York or Connecticut state pilot license must be part of that rotation. Over 100 years ago, competition in piloting was commonplace in the United States. A number of individual pilots or small groups of pilots would operate in a port. They would typically cruise many miles out to sea in order to be the first to “speak” an incoming vessel. There was no regular, dependable pilot station. A ship might arrive at a port looking for a pilot only to learn that all the pilots were off chasing some other ship, usually one that offered a more lucrative assignment. Port interests and ship operators were dissatisfied with this system. In the 1880’s, a series of violent winter storms hit the east coast of the United States. Many pilots who were far out at sea cruising for piloting work were lost. In response, and at the urging of the shipping community, pilots in each of the various ports began to join together into one association. While remaining independent contractors, the pilots agreed to work under a single rotation system and to pool their pilot boat, dispatching, and billing activities and to share other expenses. Regulatory authorities, in most cases statewide or local pilot commissions, would set the pilotage rates at levels sufficient to sustain the association’s operation. This has been the basic framework of the state pilotage system ever since. Some state laws specifically mandate that all pilots belong to one group or use the pilot boats or training program of a single group. In other places, the one-association structure simply developed by custom and practice with the support, either direct or implicit, of the pilot commission. Every state currently limits the number of pilot licenses that it issues and regulates the rates that pilots may charge and collect for their services. As these features of the state pilotage system developed, the judgment was made that economic regulation and close oversight of pilots’ professional activities would be preferable to competition. Despite the strong U.S. national policy favoring free enterprise and equal opportunity capitalism, governmental authorities have recognized that some activities, particularly those involving public safety or essentially governmental services, are better provided by regulated monopolies. Compulsory pilotage is one such activity. An excellent, current statement of this judgment can be found in a section of the pilotage statute for the State of Florida. A copy of the section is included at the end of this text. The statement begins with the declaration, “Piloting is an essential service of such paramount importance that its continued existence must be secured by the state and not left open to market forces.” Some Reasons Why Competition is Harmful to Compulsory Pilotage The following is a brief summary of several of the reasons often given for favoring economic regulation over competition in compulsory pilotage. Many of these are reflected in the Florida statute. 1. Competition is inconsistent with the nature and function of both compulsory pilotage and comprehensive pilotage regulatory systems. Compulsory state pilotage is not simply a business. In fact, it is significantly different even from other professional services, most of which are normally provided through a private contract with a willing consumer. The United States Supreme Court has said that pilotage is a “unique institution and must be judged as such.”[1] On that basis, the Court has repeatedly held that specific features of state pilotage systems are exempt from many of the laws that govern purely private businesses, including the antitrust laws.[2] Compulsory pilotage is navigation safety regulation. Although the state pilot is typically not a government employee, he or she performs what is, in large measure, a governmental function. A pilot’s primary responsibility is to protect the interests of the state that issues the license and regulates the pilotage operation. In that respect, the principal customer of the pilot’s service is not the ship, the shipowner, or even the port but rather the state and its public interests. [3] State pilotage is provided through a comprehensive regulatory system, which does far more than merely license individuals. In addition to requiring ships to take a pilot, the system seeks to ensure that trained, competent, and physically capable pilots are available 24 hours a day, 365 days a year and that all ships are treated on an equal, non-discriminatory basis. In order to accomplish that, the system requires pilots to be available to service all ships that are compelled to take a pilot, and requires the pilot association to maintain training programs, pilot boats, dispatch services, rotation systems, and all the other types of equipment and support services needed for a modern, efficient, and safe pilotage operation. Competitive private businesses are not held to those types of obligations. 2. Competition compromises safety. A large part of piloting is judgment. A pilot often has to decide between different courses of action, for example whether a ship should proceed with a movement in heavy fog or other unexpected conditions, whether a ship should wait for particular tide or current conditions, whether one route or maneuver should be used rather than another that might take more time, or whether a ship should move at a higher than normal speed in order to keep to its schedule. State pilots are expected to exercise independent judgment in making these types of decisions and to resist any pressures that are inconsistent with the interests of safety. A 1986 study conducted at the request of the legislature of Florida described the impact of competition on this aspect of piloting very well: There is a significant conflict of interest between a vessel owner’s economic needs and the public interest in safe passage. It is in the public’s best interests for the pilot’s judgment to be absolutely free of economic consideration to the shipowner when piloting his vessel. If pilots must compete against one another to win assignments, there is a likelihood that a pilot will compromise safety considerations in order to accommodate the financial interest of the shipowner, for in so doing, he will have a competitive edge over another pilot.[4] This is not merely a matter of academic speculation or theory. The reality is that pilots who compete for work do things that they would refuse to do for safety reasons in a non-competitive setting. Contrary to what proponents of competition in piloting claim, this cannot be prevented by regulatory oversight alone. 3. Competition leads to discriminatory service. Where pilotage is provided on a non-competitive basis through a comprehensive regulatory system, each ship can be assured that it will receive the same level of pilotage service. In a competitive situation, pilots typically prefer and pursue the customers offering the more regular, the higher volume, the more lucrative, or the easiest work. In short, some pilots in those settings “skim the cream.” A ship that arrives at a sea buoy or is ready to leave a berth may find that the pilot it was expecting elected to take a more desirable assignment or to service another ship under an exclusive contract. These potential situations encourage rebates, kickbacks, and other illegal activities as both pilots and ships/agents seek preferential treatment. In the traditional, non-competitive state pilotage operation, pilots are required to be available at all times and to all ships equally. With a single rotation system, each ship gets the next pilot on turn when the ship needs a pilot, not whenever it suits the pilot. In addition, by spreading out the work among the pilots, the rotation provides a greater assurance that the pilot will be sufficiently rested and otherwise physically and mentally prepared for the assignment. Not only pilotage services but administrative and support activities and training can be performed in a regular, orderly fashion. Finally, a rotation system ensures that pilots maintain experience on the full range of different ship types and pilotage jobs. There is no practical way to maintain an availability requirement and a rotation in a competitive setting where ships are able to pick and choose their pilots. 4. Competition discourages necessary investment in a pilotage service. Although piloting is a personal service provided by an individual, pilotage operations are relatively capital intensive. A modern, efficient pilotage operation requires such things as pilot boats and crews, dispatchers, training programs, radios, and increasingly today, sophisticated electronic navigation equipment. It is difficult to make the investment for these and other items if there is no assurance of getting the available work. In this respect, a pilot operation is similar to a public utility. A major difference, however, is that the public utility holding a regulated monopoly typically has thousands or perhaps millions of different customers. A pilot group, on the other hand, usually depends on a few major customers for the majority of its work. Those customers have much greater economic power and a stronger bargaining position than the pilots and can very easily dictate to the pilot group.[5] Experience with the pilotage of coastwise vessels in the United States has shown that competitive pilotage leads to ill-equipped, unstable, marginal operations. Some coastwise ship operators will use part-time federally licensed pilots who operate out of their homes, have no established continuing training program, and have none of the supporting services or equipment expected of a state pilot group. These pilots are considered by their patrons to be good enough - unless the weather is bad, the ship requires some more difficult than usual maneuvering, or an adequate pilot boat is needed. In those cases, the ship operator will turn to the state pilot group. 5. Competition is economically inefficient. In view of the large capital investment required of full service modern pilot operations, when two or more groups operate in a single pilotage area, there is inevitably duplication of many items of expense, such a pilot boats and dispatch services. With a goal of rate regulation being to insure that pilotage fees are no higher than necessary, this duplication of expense is contrary to the public interest. This point was made during a 1993 rate review conducted by the State of Hawaii’s Department of Commerce and Consumer Affairs. The Department’s Division of Consumer Advocacy, a state entity charged with protecting the public interest in regulated rate cases, argued that so long as two pilot groups in the state chose to operate separately, pilotage rates should not reflect the unnecessary duplication of expenses as a result of that decision. According to the Division: “The existence of two pilot organizations results in a very inefficient pilotage system in Hawaii. ... Since they do not share information or resources, there is necessarily a duplication of staffing requirements and an inefficient use of resources.”[6] 6. Competition requires a greater level of regulatory involvement in pilotage. Experience with the few instances of competition in state pilotage has shown that the burdens placed on the regulatory authorities are much greater with competition than without competition, particularly in the areas of licensing, training and rates. In the non-competitive, one-association setting, there is little incentive to shortcut the license or training process in order to add additional pilots quickly or to offer rebates or engage in other types of illegal rate practices. With competition, a greater level of oversight is required in order to monitor the activities of the pilots to prevent these types of abuses. Training is an especially difficult regulatory problem in competitive pilotage. Despite all the recent advances in simulation and classroom instruction, the main ingredient in the training of a pilot is still hands-on training on the bridge of a ship under the direction of a senior pilot. When two separate competing groups operate in one area, often a trainee cannot get the necessary trips on all types of vessels and in all pilotage areas from a single pilot group. Even if it were possible to enforce a requirement that pilots train their future competitors, the cooperative and trusting relationship needed for training cannot be mandated. Pilotage authorities where competition exists have thus found that they have to oversee all the details of training to a degree not required in a one-association, non-competitive setting The pilotage authorities in states that have had competing pilot groups have indicated that the major part of their work was dealing with the effects of competition. In Hawaii and Connecticut, the frustrations and regulatory burdens attributable to the competitive pilotage in those places were cited as a primary reason for each state’s decision to implement a mandatory single rotation as a means of eliminating competition. In Alaska, a past Marine Pilot Coordinator estimated that he and the pilot commission spent more time dealing with the one pilotage region with competition (Southeastern Alaska) than with the other two regions combined. The experience that competition leads to more, not less, regulation contradicts the claim of proponents of competition that when ship operators can select their own pilots, the system will essentially run itself. Conclusion A compulsory pilotage requirement is by far the most effective mechanism available to a government to protect its waters, assure the safety of its people and environment, and to facilitate waterborne commerce. It is effective because it places on the bridge of a ship an individual whose purpose in being there is to protect the public interest. When a pilot has to compete for ship assignments, particularly assignments from a shipowner or other entity that promotes competition, the pilot knows that his or her livelihood depends on acting in the interests not of the government and its people but of the person who controls the selection of the pilot. When a pilot’s role is compromised in this fashion, the purpose of the compulsory pilotage requirement is frustrated. Attachment to “Competition in Pilotage” by Captain Michael Watson, June 22, 2007. Section 310.0015, West’s Florida Statutes Annotated (1997) (1) Piloting is an essential service of such paramount importance that its continued existence must be secured by the state and may not be left open to market forces. (2) Because safety is the primary objective in the regulation of piloting by the state and because of the significant economies of scale in delivering the service, the requirement of a large capital investment in order to provide required service, and the fact that pilots are supplying services that are considered essential to the economy and the public welfare, it is determined that economic regulation, rather than competition in the marketplace, will better serve to protect the public health, safety, and welfare. (3) The rate-setting process, the issuance of licenses only in numbers deemed necessary or prudent by the board, and other aspects of economic regulation of piloting established in this chapter are intended to protect the public from the adverse effects of unrestricted competition which would result from an unlimited number of licensed pilots being allowed to market their services on the basis of lower prices rather than safety concerns. This system of regulation benefits and protects the public interest by maximizing safety, avoiding uneconomic duplication of capital expenses and facilities, and enhancing state regulatory oversight. The system seeks to provide pilots with reasonable revenues, taking into consideration the normal uncertainties of vessel traffic and port usage, sufficient to maintain reliable, stable operations. Pilots have certain restrictions and obligations under this system, including, but not limited to, the following: (a) Pilots may not refuse to provide piloting services to any person or entity that may lawfully request such services, except for justifiable concerns relating to safety, or, in the case of a vessel planning a departure, for nonpayment of pilotage. (b) Pilots may not unilaterally determine the pilotage rates they charge. Such pilotage rates shall instead be determined by the Pilotage Rate Review Board, in the public interest, as set forth in §310.151. (c) Pilots shall maintain or secure adequate pilot boats, office facilities and equipment, dispatch systems, communication equipment and other facilities, and equipment and support services necessary for a modern, dependable piloting operation. (d) The pilot or pilots in a port shall train and compensate all member deputy pilots in that port. Failure to train or compensate such deputy pilots shall constitute a ground for disciplinary action under §310.101. Nothing in this subsection shall be deemed to create an agency or employment relationship between a pilot or deputy pilot and the pilot or pilots in a port. [1] Kotch v. Bd. of River Port Pilot Comrs, 330 US 552, 557-58 (1947). [2] The application of federal and state U.S. antitrust laws to the activities of pilots (as opposed to activities of state authorities, which are exempt from federal antitrust law) is beyond the scope of this discussion. In general, activities of pilots and pilot groups that are undertaken to implement the policies and requirements of a state regulatory system are exempt from the antitrust laws under the “State Action Immunity Doctrine.” Other activities of the pilots are not, and distinguishing between the two types of activities can be difficult. [3] The U.S. Supreme Court has described this aspect of state pilotage as follows: Pilots hold a unique position in the maritime world and have been regulated extensively both by the State and the Federal Government. Some state laws make them public officers, chiefly responsible to the State, not to any private employer. Under law and custom they have an independence wholly incompatible with the general obligations of obedience normally owed by an employee to his employer. Their fees are fixed by law and their charges must not be discriminatory. As a rule no employer, no person can tell them how to perform their pilotage duties. Bisso v. Inland Waterways Corp., 349 U.S. 85, 93-94 (1955). [4] Report by Special Master John J. Upchurch, Florida Senate Economic, Community, and Consumer Affairs Committee, January, 1986, pages 27-28. [5] Economists describe this type of market situation as a “monopsony” and regard it as potentially dangerous and contrary to the public interest. It is one reason for having regulated pilotage rates and other state law measures intended to protect pilots from the superior economic and bargaining power of shipowners. [6] “Division of Consumer Advocacy’s Statement of Position With Respect to the Hawaii Pilot Association’s Amended Petition for Change of Pilotage Rates,” July 9, 1993, page 2.

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