When hearings before the Galveston-Texas City Pilotage Commission concluded last month, maritime industry users in the Houston area, including the West Gulf Maritime Association, the ports of Galveston and Texas City and the cruise lines Royal Caribbean and Carnival, thought they knew what to expect: an across-the-board 5 percent increase to the Gal-Tex pilot's 2007 tariff, as seconded and approved by the commission.
Thus, the industry side was shocked last week when it received a draft pilotage rate proposal sent out by the commission that kept Gal-Tex draft charges and many fees and surcharges at 2007 levels but included a 21.64 percent hike in per-unit charges. It also changed some pilot requirements and other aspects of the tariff.
The Gal-Tex pilots had based this version of the rate proposal on their audited total revenue for the fiscal year ending May 31, 2008, which was $10,210,945 for the 15-pilot group (2009 revenue for the same period has not been audited yet but is expected to be lower, according to the pilot's business manager Ron Ritter). The pilots added five percent to that to get $10,721,492, and this became the number that their changes to the tariff were designed to reach.
Ultimately, after a Monday meeting, the Pilotage Commission decided to take a third route and impose an increase of slightly more than 7 percent on almost all elements of the 2007 tariff. The commission, said chairman Vandy Anderson, had always intended to increase pilot gross revenue by 5 percent. However, that turned out to require increasing the actual tariff by more.
Losing half a pilot
Logically, increasing the tariff by some percent should result in increasing gross revenue by the exact same percent, Anderson said Monday (most of this meeting and the earlier hearings were recorded by and are available online at Guidry News Service). The devil, of course, is in the details. One in particular: the commission wanted to help the pilots compensate for income that will be lost because of a concession they granted the cruise industry during this year's hearings.
The Gal-Tex pilots require a second pilot on all vessels over 120,000 deadweight tons or longer than 850 feet overall. During the extremely contentious 2007 rate hearings they agreed to charge industry only half price for this second pilot. Last month, after strong pressure from the cruise lines Royal Caribbean and Carnival, both of which call Galveston, and an affiliated cruise industry association, they agreed to waive the requirement for a second pilot on cruise ships less than 1025 feet long.
Because no cruise ships longer than 1025 feet currently call Galveston, the port is now essentially exempt from the second pilot requirement. However, the requirement for a second pilot on other vessels over 850 feet LOA or 120,000 dwt, most typically tankers calling at the Port of Texas City, remains in place. This second pilot is still paid half the normal pilot fee.
Commission chairman Anderson said that because the commission's intention was to increase pilot revenue by five percent overall, the commission must compensate for the lost second-pilot income in the tariff. That is why they increased the tariff to 7.14 percent on draft charges and amounts varying from 7.05 percent to 7.5 percent on other aspects of the tariff (the WGMA estimates the overall increase at 7.126 percent).
Doing the math
According to information supplied by the pilots during the Monday meeting, cutting the second cruise ship pilot will cost Gal-Tex about $217,183 annually. (The industry side claims, however, that payments for the second pilot on cruise ships have been closer to $192,000.) Dividing $217,183 by the pilot's FY May 31 income of $10,210,945 yields about .0213. Presumably, this or a similar calculation is the source of the additional percentage.
Nathan Wesely, in-house counsel for WGMA, testified for the maritime industry side during the July rate hearings. The transcript shows that the commission's actual motion was to increase the tariff rate, not gross revenues, by five percent, Wesely said. Thus, after the motion was seconded and approved he took a copy of the 2007 tariff and multiplied everything on it by 1.05, thinking that that was what had been agreed to.
On the Monday following the July hearings, Wesely emailed typed copies of the 'x1.05' tariff proposal to the commissioners and the pilots. It was not posted by the commission, however. Instead, the commission eventually posted the pilots' version of the tariff that surprised industry by increasing unit charges by 21.64 percent. Wesely said the WGMA and others on the industry side did not receive copies of this proposal before it was posted by the commission.
During this week's meeting, Anderson said that Wesely's proposed tariff, the 'x1.05' version, increased the rate across the board by five percent but did not take into account the revenue lost to pilots due to the agreement with the cruise lines. The board wanted an across-the-board increase but "clearly […] intended that the rate should make up for that lost revenue," Anderson said. The commission's 'x1.07+' version addressed the question, he said. A final version of the tariff should be presented at a commission meeting scheduled for August 24.
Chance of appeals
The WGMA and other industry objectors plan to wait until the commissioner's meeting to see the final tariff. "We hope they adopt what we understood was previously approved (the 5 percent increase)," said Niels Aalund, the association's vice president for maritime affairs. "If not, look for the possibility for multiple parties to appeal." However, no appeals can be filed until the tariff is finalized.
Galveston's previously filed objections to the rate increase still stand, said Tony Brown, the port's attorney, noting that although the pilots will be "working less," i.e. there will be only one pilot on the cruise ships instead of two, "they will be getting the same revenue" under the commission's proposed tariff.
What would an appeal mean? "Our research indicates that a court would look at the whole rate issue all over again," Wesely said. "What really matters in an appeal is the tariff. […] An appeal could go back to zero, the tariff could be increased, decreased, anything."
Contact Janet Nodar at email@example.com.