An abrupt decision this week by ship pilots in Galveston and Texas City to drop their request for a controversial rate increase has the shipping industry trying to guess their next move.
“We were surprised they withdrew their application,” Niels Aalund, vice president of maritime affairs for industry trade group West Gulf Maritime Association, said.
“We also understand they could file again any time. It’s really in their court.”
West Gulf Maritime and the 15-member Galveston-Texas City Pilots Association have been at battle stations for months about the proposed rate increase. And just as the five-member Board of Pilot Commissioners was poised Monday to vote on a 5 percent increase in net annual revenues, ship pilots withdrew their request.
Representatives for the pilots, a state-sanctioned monopoly, did not return phone calls.
In May, the pilots, who steer passenger liners, oil tankers and other vessels in and out of island and Texas City ports, filed for multiyear rate increases that would have begun June 1 with an 8 percent hike. The filing also called for an 8 percent increase the following year and 7 percent hikes each of the next three years.
After reviewing evidence, the Board of Pilot Commissioners agreed to consider 5 percent.
Industry groups said the requested increases are more profound when other proposed fee hikes and surcharges are imposed.
In its filing for the rate increase, the pilot association asserted that failure to adjust rates in nine years had created an “illegal subsidy” of pilotage costs to the group. A rate increase was necessary to cover rising expenses brought on by Hurricane Ike, soaring fuel prices and other costs, the pilots argued.
In contentious hearings, industry officials argued a recession was a bad time to raise rates.
“It’s a very difficult time for the maritime industry, and I think that was spelled out clearly and articulated at the hearings,” Aalund said.
Each time pilots request rate increases, their pay becomes a point of contention. Some argue the pilots earn too much.
Last year, the pilots reported revenue of $10.2 million and expenses of $5.9 million, compared with revenue of $9.7 million and expenses of $5.5 million the year before, according to audited financial reports submitted to support the rate increase request.
When the net distributable income is divided among 15 members, each pilot stood to make about $303,000 last year.
A Galveston-Texas City pilot testified at a rate hearing for Lake Charles pilots that reported income for 2007 was $335,000.
Using that figure, Capt. Chris Gutierrez has argued critics never deduct health, life and disability insurance.
Those premiums are paid directly to the insurance companies by the pilot association, he said.
Pilots never receive the cash but are required to report the benefit as income to the Internal Revenue Service.
After insurance expenses are deducted, cash income drops to $307,755, he said.
The pilots purchase disability insurance because they have no sick leave policies, Gutierrez said. The group also does not have a defined benefit pension plan, Gutierrez said.
So pilots can deduct 15 percent of their gross income — a maximum of $45,000 — as contributions to a self-employed plan. When self-employment taxes and required business and professional costs are added, the income for each pilot drops to about $234,719, Gutierrez said.
“We pay federal income tax on this amount,” Gutierrez said.
When harbor pilots complete their apprenticeships, they must “buy in” to the association, paying a share of the value of all the association’s assets, including the building and boats, Gutierrez said.
Had the Board of Pilot Commissioners, made of volunteers, approved a 5 percent increase — neither side was happy with that figure — industry had the option of appealing in court.
Paxton Crew, lawyer for the pilots, said threats of a legal challenge by the West Gulf Maritime Association prompted the withdrawal, according to reports. Crew did not return phone calls.
