Briefing Report: California's Oldest Enterprise and the Future of West Coast Shipping

Wednesday, March 16, 2011

San Francisco, Open Your Golden Gate

The Senate Committee on Governmental Organization (G.O.) has jurisdiction over a wide portfolio of issues. When people think of Senate G.O., however, most likely they have visions of card games and casinos, spirits and slot-machines, wine, beer, and betting on the "ponies". Interestingly enough, Senate G.O. also considers legislation dealing with the Harbors and Navigation Code and the harbor pilots who assist in navigating ships into port through the often precarious waters of San Francisco Bay. Several bills relating to the bar pilots have been introduced this year, including measures modifying the training system and definition of "inland pilot". Also, there may be a bill seeking to authorize a rate increase for pilotage services.

There are few natural harbors in the world that can compare in beauty with San Francisco Bay. With 1,000 miles of shoreline and more than 90 percent of California's coastal marshland, these waters make up the largest estuary on the West Coast of North and South America. World travelers rank it as one of the top three most spectacular ports or natural harbors in the world1. More than 8,500 vessels pass each year through the San Francisco Bay system. Yet, despite its natural beauty, the waters of San Francisco Bay are regarded as some of the most dangerous pilotage areas in the country. The shallow "San Francisco Bay Bar," better known as the "Potato-Patch," surrounds the outside entrance of the Golden Gate Bridge and becomes very dangerous during large swell conditions2. Considering that thousands of vessels negotiate these waters each year, while most are of foreign registry and manned by multinational crews, there are remarkably few incidents - especially when factoring that many ships carry hazardous and toxic cargoes.

Since before the California Gold Rush, wise ship masters understood the importance of employing the assistance of individuals with local knowledge of the Bay waters, shoals, currents, tides, and winds to safely pilot these ships through the Golden Gate. These local experts became known as the "San Francisco Bar Pilots" and constitute the oldest continuously operating private enterprise in California. Captain William Richardson, for whom Richardson Bay is named (located north of Sausalito and west of Belvedere in Marin County), started the Bar Pilots in 1835. The term "bar pilots" came about because these local experts would wait for incoming ships at the sand bar off the Golden Gate. They would board the incoming ships, often under perilous conditions, and assist the captain by "piloting" the vessels through dangerous shifting sand bars in the Bay.

One of the first acts of the California Legislature of 1850 (also known as the "Legislature of a Thousand Drinks"3) was to give administrative sanction to bar pilots and put them under state authority. In 1984, the Legislature mandated that inland and river pilots join with the San Francisco Bar Pilots, providing a unified system. This system, encompassing the entire Bay Area up to and including Stockton and Sacramento, expanded the number of available pilots and standardized their training. In 2003, Monterey Bay was included in the jurisdiction of the San Francisco Bar Pilots.

Well, of Course They are Regulated...

The job of bar pilot is a very specialized profession that requires years of training and licensure by both Federal and State authorities. It is a dangerous profession that can impact the lives and property of many people. There are rarely more than 60 harbor pilots licensed on the San Francisco Bay System (including Monterey Bay) at any one time. Licensing, discipline and oversight for the San Francisco Bar Pilots are provided by the State Board of Pilot Commissioners (Board) and the United States Coast Guard. Bar pilots are independent contractors, not state employees, but contracted for service by the Board after completing an arduous training.

When a vessel approaches the "SF buoy" 12 miles west of the Golden Gate Bridge, State law requires a State-licensed bar pilot to board the ship and take navigational control. Federally owned ships, such as naval vessels, are exempt and can be docked by their captains. However, for the most part, they, too, welcome the assistance of a pilot on the bridge. It becomes the pilot's responsibility to guide the ship to its berth. The bar pilots provide service to all types of vessels, from 100-foot tugs to 1000-foot cruise liners. This requirement does not apply to the Ports of Los Angeles-Long Beach (the biggest in the nation), San Diego, and other smaller ports in the State; although local ordinances and port rules generally require shipping companies employ local harbor pilots as independent contractors for approach and docking advice.

The Board, which also sets pilotage fees, includes two members of the shipping industry, three members of the public and two pilots, all appointed by the Governor and confirmed by the Senate. It is supported by tariffs assessed on each ship. The Department of Business Transportation and Housing (BT&H) oversees the Board's operations. Current law provides that pilotage rates shall be $8.11 per draft foot of the vessel's deepest draft (area beneath the ship's waterline) and fractions of a foot pro rata, and an additional charge of 80.55 mills per high gross registered ton (the measurement of the vessel's revenue-generating interior volume). The minimum charge for bar pilotage is $662 for each vessel piloted. These rates are negotiated with the shippers and ratified by the Legislature. Rates were last increased in 2006. Furthermore, noncommercial vessels that are maritime academy training vessels, such as the T.S. Golden Bear belonging to the California Maritime Academy in Vallejo, and those owned and operated by nonprofit museums or foundations, such as the National Liberty Ship Memorial SS Jeremiah O'Brien, to receive pilotage services at no charge. Ships of less than 750 gross registered tons are exempted from mandatory pilotage laws.

For Those in Peril On the Sea...

Bar pilots have jobs when shippers send their ships to Bay Area ports. The continuing economic recession, emissions controls, taxes and fees have proven to be significant challenges to the health of the industries. When a container ship arrives at the Port of Oakland, for instance, its cargo is unloaded and placed on trucks and trains for transport to their final destinations. Ship and rail traffic have both declined in recent years. Last year, the Port of Oakland had to lay off 86 employees when it found itself facing a $1.5 billion debt.4 Air quality standards have forced ports to undertake drastic measures to reduce emissions, not only from ships tying up, but also from the truck and train movements necessary within the port facilities to shift and redeploy cargo. California ports are spending significant sums on reducing pollution, leading one industry analyst to opine that, despite job losses, fewer ships and less port activity will help ports achieve greater air quality compliance5. West Coast ports in British Columbia, Washington State, Baja California, and elsewhere in Mexico, are making significant infrastructure investments, offering lower rates, and reducing regulations in order to siphon California's container volume away.

Adding to the cost of tying up in California is the potential increased pilotage fees in San Francisco Bay. Legislation may be floated this year authorizing the Board to raise fees thus making it more expensive for every ship arriving or departing. This gives shippers further incentive to use port facilities elsewhere.

Panama Pacific 2: Post-Panamax

Since the golden age of discovery inaugurated by Columbus, the quest for an all-water way from Europe to the Far East, across the Atlantic and Pacific Oceans, was a world obsession. On May 4, 1904, the government of the United States took possession of a strip of land 10 miles wide running across the Isthmus of Panama known as the "Canal Zone". Ten years later, on August 15, 1914, the Panama Canal was opened to commerce6. Almost 100 years to the day since the Panama Canal opened for business, a second set of locks, capable of handling much larger ships, will commence operations. Panamanian voters approved a referendum in 2006 to expand the capacity of the 48-mile long canal which is scheduled for completion in July, 2014. With these larger locks, a greater share of Asian mega container-ships can sail directly to the eastern United States, bypassing California ports entirely.

"Panamax" is the term used to describe the size limits for ships traveling through the existing Panama Canal. Ship size is limited by the width and length of the available lock chambers, by the depth of the water in the canal and by the height of the Bridge of the Americas. Consequently, larger ships are called "Post Panamax." The opening of the new system of locks will allow ships that exceed 1,200 feet in length, and carry three times the cargo as Panamax ships, to sail directly from the far-east to U.S. Gulf Coast and East Coast ports. This has set off a frenzy of new projects amongst competing U.S. ports with the most heated expansion centered on the Gulf Coast.

Currently, the fastest way to get cargo containers from China to the U.S. East Coast is by ship and rail. It takes a minimum of 12 days for a ship to travel from China to the U.S. West Coast, where the cargo is unloaded and put on trains. It takes at least another six days for cargo to go by rail to the U.S. East Coast for a total of 18 days. China direct to the U.S. East Coast via the Panama Canal takes between 22 and 25 days7. However, a post-Panamax ship carries as much as 16 trains. Despite the added time, increased capacity and reduced transfers of cargo from one mode of transport to another will make it more cost effective for Asian commodities exporters to use the new canal instead. The cost per ton per mile will be considerably less. High-value, time-sensitive goods, such as electronics, likely will still use West Coast ports and rail. Nonetheless, the Canal expansion could take another 35 percent of current West Coast freight8. Competition between ports all along the West Coast will intensify.

Sitting On the Dock of the Bay

A hundred years ago, the Port of San Francisco was the West Coast's major port. The opening of the Panama Canal brought new prosperity to San Francisco Bay as an international center of commerce. Today however, market conditions, trading patterns, laws, taxes, regulations, the development of Asia in the world economy and the new, larger Panama Canal provide challenges unlike those in 1914. The market will adjust, as markets do, California's oldest enterprise will continue, and the Senate G.O. Committee will be there too: ♫ "Watching the ships roll in; And then a watch 'em roll away again, yeah..." ♪

 

For more information on this report or other Senate G.O. issues , contact Richard Paul, Senate Republican Office of Policy at 916/651-1501.

 

1 Touropia - The Travelers' Website: http://www.touropia.com/beautiful-bays-in-the-world/
2 "Safe Boating for the San Francisco Bay," California Department of Boating and Waterways.
3 Hubert Howe Bancroft, "History of California Volume XXIV".
4 "Struggling Port of Oakland Considers Drastic Solutions," KTVU TV, March 23, 2010.
5 "Panama Canal Expansion Impact," Lilly & Associates International.
6 "Official handbook of the Panama Canal, 1915"
7 USDA, Impact of Panama Canal Expansion on the U.S. Intermodal System, January 2010.
8 World Trade 100, "Trade in the Americas: Expanding the Panama Canal for the 21st Century."