41466 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Rules and Regulations 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

46 CFR Parts 401, 403, and 404 

[USCG–2016–0268] 

RIN 1625–AC34 

Great Lakes Pilotage Rates—2017 

Annual Review 

AGENCY: Coast Guard, DHS. 

ACTION: Final rule. 

SUMMARY: In this final rule, the Coast 

Guard is setting new rates for the 2017 

shipping season for pilotage services on 

the Great Lakes. The Coast Guard is also 

updating its methodology for setting 

these rates. These updates to the 

methodology will incorporate the 

income generated from weighting 

factors into the ratemaking methodology 

used to set rates in this and future 

rulemakings. The Coast Guard believes 

that the new rates will continue to 

encourage pilot retention, ensure safe, 

efficient, and reliable pilotage services 

on the Great Lakes, and provide 

adequate funds to upgrade and maintain 

infrastructure. 

DATES: This final rule is effective 

October 2, 2017. 

FOR FURTHER INFORMATION CONTACT: For 

information about this document call or 

email Todd Haviland, Director, Great 

Lakes Pilotage, Coast Guard; telephone 

202–372–2037, email todd.a.haviland@

uscg.mil. 

Executive Summary 

This final rule amends the Coast 

Guard’s Great Lakes pilotage regulations 

by revising the current methodology by 

which the Coast Guard sets base rates 

for U.S. pilotage service on the Great 

Lakes, as well as revises the pilotage 

rates for the remaining portion of the 

2017 shipping season. The new 

methodology adjusts target pilot 

compensation by inflation, incorporates 

revenue derived from weighting factor 

charges into the ratemaking model, and 

eliminates the provision that the hourly 

pilotage rate for designated waters could 

not rise above twice the rate for 

undesignated waters. We believe that 

the new methodology will continue to 

encourage pilot retention, ensure safe, 

efficient, and reliable pilotage services 

on the Great Lakes, and provide 

adequate funds to upgrade and maintain 

infrastructure. 

In addition to the changes in 

ratemaking methodology, this final rule 

makes several other additions to Great 

Lakes Pilotage regulations. It adds new 

language to billing practices for 

cancellation charges, clarifying that the 

minimum charge for canceling the 

request for a pilot is four hours plus 

reasonable travel expenses. The final 

rule also inserts a new mandatory 

change point at the Iroquois Lock point, 

ensuring that pilots are adequately 

rested on this stretch of water. Finally, 

we have made some textual changes to 

the regulations to better convey their 

intent, renaming the ‘‘return on 

investment’’ as ‘‘working capital fund,’’ 

and renaming the 2016 final rule 

staffing model as the ‘‘seasonal staffing 

model.’’ 

Based on comments received, several 

items proposed in the NPRM were not 

adopted in this final rule. The Coast 

Guard has chosen not to adopt the 2107 

NPRM staffing model, based on 

compelling arguments that this model 

did not accurately reflect the 

unpredictable workload of Great Lakes 

pilots. Furthermore, we did not move 

forward on our proposal to move the 

deadline for audited financial reports 

from April to January, based on 

commenters’ arguments that this 

practice would impose hardship out of 

proportion to its benefit. 

Based on updated financial 

information, increased pilot 

compensation, the new weighting factor 

calculations, and other changes to the 

ratemaking methodology, the revised 

Great Lakes pilotage rates are being 

lowered in most areas. We believe that 

this is a needed correction to better 

align our projected revenues with the 

pilot associations’ actual collections, as 

evidence shows that pilotage revenue 

significantly exceeded what was 

projected in 2016, even factoring in 

above-average traffic. The changes in the 

rates are as follows: 

TABLE E–1—CHANGES IN PILOTAGE RATES

Area 

Previous 

pilotage 

charges 

per hour 

($) 

New pilotage 

charges per 

hour 

($) 

Change per 

hour 

($) 

St. Lawrence River ...................................................................................................................... 580 601 +21 

Lake Ontario ................................................................................................................................ 398 408 +10 

Navigable waters from Southeast Shoal to Port Huron, MI ........................................................ 684 580 ¥104 

Lake Erie ...................................................................................................................................... 448 429 ¥19 

St. Mary’s River ........................................................................................................................... 528 514 ¥14 

Lakes Huron, Michigan, and Superior ......................................................................................... 264 218 ¥46 

SUPPLEMENTARY INFORMATION: 

Table of Contents for Preamble 

I. Abbreviations 

II. Regulatory History 

III. Basis and Purpose 

IV. Discussion of Comments and Changes 

V. Regulatory Analyses 

A. Regulatory Planning and Review 

B. Small Entities 

C. Assistance for Small Entities 

D. Collection of Information 

E. Federalism 

F. Unfunded Mandates Reform Act 

G. Taking of Private Property 

H. Civil Justice Reform 

I. Protection of Children 

J. Indian Tribal Governments 

K. Energy Effects 

L. Technical Standards 

M. Environment 

I. Abbreviations 

APA American Pilots Association 

CFR Code of Federal Regulations 

DHS Department of Homeland Security 

FR Federal Register 

GLPA Great Lakes Pilotage Authority 

GLPAC Great Lakes Pilotage Advisory 

Committee 

MM&P International Organization of 

Masters, Mates & Pilots 

MOU Memorandum of Understanding 

NPRM Notice of proposed rulemaking 

RA Regulatory analysis 

§ Section symbol 

SNPRM Supplemental notice of proposed 

rulemaking 

The Act Great Lakes Pilotage Act of 1960 

U.S.C. United States Code 

II. Regulatory History 

The Coast Guard published a notice of 

proposed rulemaking (NPRM) for this 

final rule on October 19, 2016 (81 FR 

72011), covering a range of issues 

including revised operational expenses, 


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1Public Law 86–555, 74 Stat. 259, as amended; 

currently codified as 46 U.S.C. Chapter 93. 

2 ‘‘On register’’ means that the vessel’s certificate 

of documentation has been endorsed with a registry 

endorsement, and therefore, may be employed in 

foreign trade or trade with Guam, American Samoa, 

Wake, Midway, or Kingman Reef. 46 U.S.C. 12105, 

46 CFR 67.17. 

3 46 U.S.C. 9302(a)(1). 

4See 46 U.S.C. 9303(f) for all of the Act’s pilotage 

ratemaking requirements discussed in this 

paragraph. 

5 DHS Delegation No. 0170.1, para. II (92.f). 

6 81 FR 72011 (October 19, 2016). 

7 82 FR 2115 (May 5, 2017). 

8See docket # USCG–2016–0268–0039, p.1. 

9 Docket # USCG–2016–0268–0019, p.1; docket # 

USCG–2016–0268–0020, p.1. 10 Docket # USCG–2016–0268–0034, p.1. 

a proposed new methodology for 

calculating pilotage numbers, the 

addition of a mandatory change point at 

Iroquois Lock, and revised base pilotage 

rates. In response, we received 21 public 

comment letters, covering a diverse 

range of subjects and providing a 

substantial amount of information. 

Subsequently, on April 5, the Coast 

Guard issued a supplemental notice of 

proposed rulemaking (SNPRM) 

proposing to add two additional steps to 

the ratemaking methodology, which 

would incorporate the additional 

revenues collected under 46 CFR 

404.100 (the ‘‘weighting factors’’) into 

the ratemaking model. We received 11 

public comment letters on the SNPRM. 

The Coast Guard received numerous 

comments in response to the issues 

raised in the NPRM and SNPRM. These 

commenters have largely come from 

Great Lakes maritime shipping 

stakeholders—both the pilots that 

perform pilotage services as well as the 

shipping companies that pay the 

pilotage fees—as well as other interested 

parties. We have closely analyzed all of 

the comment letters and have, where 

appropriate, incorporated ideas and 

suggestions from the comments into the 

analysis of our final rule. 

III. Basis and Purpose 

The legal basis of this rulemaking is 

the Great Lakes Pilotage Act of 1960 (the 

Act),1 which requires U.S. vessels 

operating ‘‘on register’’ 2 and foreign 

vessels to use U.S. or Canadian 

registered pilots while transiting the 

U.S. waters of the St. Lawrence Seaway 

and the Great Lakes system.3 For the 

U.S.-registered Great Lakes pilots, the 

Act requires the Secretary to ‘‘prescribe 

by regulation rates and charges for 

pilotage services, giving consideration 

to the public interest and the costs of 

providing the services.’’ 4 We limit the 

allowable costs of providing this service 

by ensuring that all allowable expenses 

are necessary and reasonable for 

providing pilotage services on the Great 

Lakes. We believe the public is best 

served by a safe, efficient, and reliable 

pilotage service. The goal of our 

methodology and billing scheme is to 

generate sufficient revenue for the pilots 

to provide the service we require. The 

Act requires that base rates be 

established by a full ratemaking at least 

once every 5 years, and in years when 

base rates are not established, they must 

be reviewed and, if necessary, adjusted. 

The Secretary has delegated authority 

under the Act to the Coast Guard.5

The purpose of this rule is to change 

our annual Great Lakes pilotage 

ratemaking methodology, set new rates 

using that methodology, authorize a 

temporary hiring and training surcharge, 

and make several other adjustments. For 

more information on the goals and 

proposals in this rulemaking, see the 

discussion section in the NPRM 6 and 

SNPRM.7

IV. Discussion of Comments and 

Changes 

In this section, the Coast Guard 

reviews the comments received, and 

provides responses accordingly. In 

instances where multiple commenters 

provided insight into similar issues, we 

have grouped those comments into 

general categories. Wherever possible, 

we have attempted to provide citations 

to the particular comment referenced, 

and have tried to verify any data 

provided by the commenter. We have 

divided the comments up into four 

general categories: (1) General policy 

issues; (2) Rate calculation issues; (3) 

Incorporation of the weighting factors 

into the ratemaking methodology; and 

(4) Items for future consideration. These 

general categories have been further 

subdivided by issue, as discussed 

below. 

A. General Policy Issues 

The most frequently cited issue, 

raised by numerous commenters, 

concerned the costs of pilotage. In the 

NPRM, we proposed a variety of 

increases in pilotage rates. However, in 

the subsequent SNPRM, we proposed 

accounting for the weighting factor and 

thus lowered hourly pilotage rates 

accordingly. Numerous commenters, 

generally aligned with entities that ship 

goods or pay for shipping on the Great 

Lakes, made statements on the recent 

increases in the cost of pilotage over the 

last several years. For example, one 

commenter 8 stated that the proposed 

increase to U.S. pilotage rates 

constitutes a 15 percent increase, with 

a total increase of 99 percent since 2014, 

and that this is on top of a 94 percent 

increase already imposed on shippers 

since 2006. Other commenters 9 cited 

different, albeit similar figures, stating 

that pilotage costs have increased by 40 

percent over three years, and cited the 

NPRM as saying that pilotage costs now 

constituted 19 percent of total voyage 

costs on the Saint Lawrence Seaway. 

We acknowledge that the some 

pilotage rates have increased in the past 

few years. In our revisions to the 

methodology, we have eliminated 

several ancillary fees and changed the 

billing scheme to meet our goal of 

aligning projected revenues with the 

actual association collections. We agree 

that the total revenues needed by the 3 

U.S. Great Lakes Pilot Associations has 

increased about 40 percent over the past 

three years if we include the temporary 

surcharges, after many years of the pilot 

associations being unable to collect the 

amount of money our projections 

indicated would be appropriate. The 

additional pilots added to ensure 

continued safe, efficient and reliable 

pilotage service are the primary reason 

for the recent rate increases. It is 

important to note, however, that we 

have revised the temporary surcharges 

requirements so the revenues collected 

for the temporary surcharges will be 

removed from the expense base of future 

rates to ensure that the shippers do not 

pay for the same expense twice. After 

carefully considering the comments and 

measuring and assigning values to the 

variables addressed in the ratemaking 

methodology, we believe the resultant 

pilotage rates are fair. 

One commenter 10 argued that high 

pilotage rates were threatening the 

competitiveness of the St. Lawrence 

Seaway and Great Lakes system of 

shipping cargo, and that if the proposed 

rate increases for 2017 were instituted, 

shippers may reach a ‘‘tipping point’’ 

where they choose alternate means to 

ship cargo. The commenter did not 

provide supporting documentation for 

this assertion, and we disagree with this 

statement. Our data indicates that 

demand for pilotage service in 2016 was 

greater than 2015 and that demand for 

pilotage service through June 2017 is 

trending around 20 percent higher than 

the 10-year average for the 2017 

shipping season. 

Other commenters argued that the 

recent increases in pilotage rates were 

necessary. One commenter stated that 

the recent, comparatively large increases 

were needed to correct inadequate 

increases in the past, arguing that 

‘‘recent seemingly disproportionate 

increases [in pilotage rates] would have 

been unnecessary as they could have 


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11 Docket # USCG–2016–0268–0037, p.1. 

12 Docket # USCG–2016–0268–0028, p.2. 

13 Docket # USCG–2016–0268–0033, p.12. 

14 Docket # USCG–2016–0268–0033, p.12, citing 

‘‘Memorandum of Understanding, Great Lakes 

Pilotage, between the United States Coast Guard 

and the Great Lakes Pilotage Authority,’’ Art. 7. 

15 81 FR at 11908 (March 7, 2016). 

16 Docket # USCG–2016–0268–0027. 

17 Docket # USCG–2016–0268–0027, letter from 

Bruce Dunlap, Paul Radtke. 

18 Docket # USCG–2016–0268–0027, letter from 

Karl Hardesty, Rick Montoya. 

19 Docket # USCG–2016–0268–0027, letters from 

the Associated Branch Pilots of New Orleans, 

Association of Maryland Pilots. 

been accommodated over time.’’ 11

Another commenter argued that the 

concern over pilotage costs was 

disingenuous, stating that the vast 

majority of shippers’ pilotage cost 

results from Canadian pilotage, which is 

entirely unaffected by the U.S. pilotage 

rates.12

We agree that the recent increases in 

pilotage rates since 2015 have been 

warranted. We are well aware that for 

many years the Coast Guard’s 

methodology for calculating pilotage 

rates produced rates that failed to raise 

the target revenue. We have had years 

where actual revenue was above the 

target revenue, but below the revenue 

that we would have projected given the 

actual demand. In 2016, revenue was 

higher even than what we would have 

expected given the demand. While 2016 

appears to be an outlier in that regard, 

it is our goal is to develop a 

methodology that aligns our projections 

with the actual amount of revenue the 

pilot associations generate based upon 

the realized demand for pilotage service. 

We believe that the methodology 

outlined in this final rule is a 

substantial improvement that will, on 

average, produce revenues that will 

cover operating expenses, pay for 

infrastructure maintenance and the 

training of new pilots, and offer 

compensation levels and a workload 

that will allow the pilot associations to 

recruit and retain pilots without 

producing excessive revenue to the 

detriment of shippers. We are willing to 

consider future adjustments as 

necessary to ensure revenue alignment. 

As discussed below, we believe that 

compensation levels are currently at a 

level that is effectively enticing pilots to 

join and stay in the workforce, and we 

are not substantially adjusting that in 

this final rule. 

Difference in Pilotage Charges Between 

the United States and Canada 

Several commenters complained that 

the cost of similar pilotage services 

differed depending on whether ships 

were assigned a U.S. or Canadian pilot, 

and that such differences were contrary 

to arrangements between the United 

States and Canada regarding 

cooperation in management of pilotage 

in the Great Lakes system. One 

commenter said that pilotage costs are 

much higher when the vessel is 

assigned a U.S. pilot, stating that ‘‘[f]or 

example, the pilotage expense for a 

Class 4 vessel transiting from Thunder 

Bay to St. Lambert costs $39,490 when 

a Canadian pilot is used, and $29,327 

more when a U.S. pilot provides 

pilotage services.’’ 13 The commenter 

argued that such a disparity is contrary 

to the 2013 Memorandum of 

Understanding (MOU) between the U.S. 

and the Canadian Great Lakes Pilotage 

Authority (GLPA), which states that the 

parties ‘‘intend to arrange for the 

establishment of regulations imposing 

comparable rates and charges.’’ 14

While the Coast Guard acknowledges 

that the rates for pilotage services are 

not identical, our rates for each given 

segment of a voyage are based upon an 

analysis of the historical pilotage hours 

and associated costs necessary to 

provide service on that segment. We 

cannot say how the Canadian GLPA 

determined the charges for 

corresponding voyage segments. We 

note that U.S. and Canadian pilots have 

different funding structures, 

infrastructure obligations, and 

compensation packages. There are other 

instances where U.S. pilotage rates are 

substantially lower than Canadian 

rates—for example, a harbor move on 

Lake Superior for a Class 2 vessel would 

cost $2,616.73 under Canadian rates, 

while the same move would cost only 

$607.20 under U.S. rates (both prices are 

in U.S. dollars). While some may argue 

the pilotage rates should be identical, 

we believe that the rates must primarily 

cover the cost of operating expenses, 

infrastructure maintenance, and fair 

compensation, which is how we have 

developed the current methodology. We 

are not offering an opinion as to how 

differences in infrastructure and 

compensation funding may alter the rate 

calculations by the Canadian 

association. 

Finally, we also note that article 9 

states that the MOU ‘‘is not an 

international agreement and does not 

give rise to any international legal rights 

or obligations.’’ The MOU is a nonbinding agreement on cooperation 

between the Coast Guard and GLPA. 

The primary purpose of this document 

is to ensure an equitable share of work 

between the U.S. and Canadian 

registered pilots and coordinated 

pilotage service throughout the System. 

We interpret comparable rates to mean 

that the Coast Guard and GLPA will 

establish rates to cover costs incurred 

for providing pilotage service in the 

various areas, even though those costs 

may be different due to varying fee 

structures, distribution, labor costs, or 

other factors. For these reasons, while 

we acknowledge there are differences in 

the rates paid by the shipping 

companies, we still believe that basing 

the rates on the methodology described 

in this rulemaking is the most effective 

way to fund the U.S. Great Lakes pilot 

associations and necessary 

infrastructure. 

Recruitment and Retention of Pilots 

One of the main goals of raising 

pilotage fees in recent Coast Guard 

rulemakings has been to reduce pilot 

attrition and attract new pilots to the 

region, ensuring a healthy number of 

mariners capable of handling the 

shipping traffic safely and with minimal 

delays. In the 2016 final rule, we stated 

that, ‘‘the [methodology established in 

the mid-1990s failed] to consider the 

totality of pilot time necessary to 

perform a given pilotage assignment, 

which often includes long transits to 

and from the vessel, resulting in low 

pilot compensation and overloaded 

work assignments.’’ 15

We received numerous comments 

from both pilots and shippers 

concerning pilot retention and attrition. 

Many commenters urged the Coast 

Guard to study pilot recruitment and 

retention factors, including the 

compensation of individual pilots, to 

determine the extent of the pilot 

retention problem and methods for 

combating low pilot retention. In 

response, we note that we have recently 

undertaken a target pilot compensation 

study, which we hope may help inform 

future rulemakings. 

Pilots and pilot associations also 

offered comments pertaining to 

retention and attrition. The Western 

Great Lakes Pilots Association 16

presented a series of letters from pilots, 

including resignation letters and 

previous docket comments, explaining 

why they were resigning from the 

Association. These comments cited 

various reasons, including the risk of a 

downturn in traffic,17 and a lack of 

guaranteed time with their families.18

Similarly, other pilotage associations 

stated that Great Lakes pilots were paid 

substantially less than other U.S. marine 

pilots, and noted that certain pilots had 

left the Great Lakes for less prestigious 

positions in other areas.19

The Coast Guard has recognized the 

pilotage recruitment and retention 


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20 Docket # USCG–2016–0268–0003, p.1. 

21 Docket # USCG–2016–0268–0028, p.6. 

22 Docket # USCG–2016–0268–0028, p.6. 

23 Docket # USCG–2016–0268–0028, p.7. 

24We discuss the issue of the general use of a 10- 

year compensation benchmark in a separate section, 

but the commenter included their comments on the 

specific number for pilot compensation under that 

heading. 

25 Docket # USCG–2016–0268–0033, p.26–27. 

26 Docket # USCG–2016–0268–0033, p.28. 

27 Docket # USCG–2016–0268–0033, p.27. 28 81 FR 72027 (December 19, 2016). 

challenges in the Great Lakes, but 

believes that the changes we have 

implemented in recent rulemakings 

have addressed those concerns. We note 

that while over the preceeding 10 years 

31 pilots in the Great Lakes region 

voluntarily left pilot positions, only one 

pilot has left voluntarily in the past 3 

years, a rate which is comparable to the 

extremely low voluntary quit rate for 

other U.S. pilotage associations. We 

believe that the new compensation 

levels, workload, ratemaking structures, 

and improvements to the billing scheme 

introduced in recent rulemakings have 

reduced attrition, and we are working 

closely with all stakeholders to ensure 

that wages, working conditions, and 

infrastructure concerns are addressed to 

increase the likelihood that well-trained 

pilots will remain with their 

associations until retirement. 

Using Other Pilot Compensation as a 

Benchmark for GL Pilot Compensation 

Many commenters suggested that the 

Coast Guard should be using salaries for 

other U.S. pilots as a benchmark, rather 

than Canadian salaries, and noted that 

U.S. pilots in other areas often make far 

more in compensation. One commenter, 

the President of the Associated Branch 

Pilots for the Port of New Orleans, noted 

that the average pilot compensation for 

a pilot in that association was $459,051, 

and stated that a $312,000 target 

compensation level ‘‘would leave the 

Great Lakes pilots among the lowest 

paid pilots in America.’’ 20 One 

commenter noted that using other U.S. 

pilot groups as a benchmark would 

make a comparison simpler, as the 

target compensation for many American 

pilots is set by state rate commissions 

and is publically available.21 Similarly, 

one commenter stated that the Great 

Lakes pilot associations compete with 

other American associations for recruits, 

and thus those associations would be a 

more appropriate benchmark for 

compensation.22 Several commenters 23

provided figures on the total 

compensation of pilots in some other 

American systems, stating that those 

figures were often significantly over 

$400,000 annually per pilot, which is 

higher than the compensation target the 

Coast Guard has set for Great Lakes 

pilots. 

Conversely, the Great Lakes Shippers 

Association argued that the Coast Guard 

should not use the compensation of 

other American pilots as a basis for 

computing target compensation. The 

shipping association, as part of its 

comments on the use of a compensation 

benchmark,24 stated that the Coast 

Guard should not equalize pilot 

compensation across disparate 

geographies.25 The commenter argued 

that shipping is an inherently local 

affair, and that pilots are experts in 

particular bodies of water, so a 

comparison to other pilotage association 

would not necessarily be accurate. The 

commenter stated that Great Lakes 

pilotage ‘‘differs significantly from 

pilotage anywhere else in the United 

States as it includes vast stretches of 

open, unobstructed water that require 

little or no pilot input, as well as being 

subject to an abbreviated, rather than 

year-round, shipping season.’’ 26 The 

commenter also stated that there are 

both historical and practical reasons 

that local pilotage boards and 

commissions set rates locally, and that 

given differing barriers to entry, 

differing duration and intensity of 

pilotage duties, and other local factors 

means that ‘‘the value and cost of 

pilotage services in one location differs 

significantly in degree and kind from 

the value and cost of pilotage services 

in another location.’’ 27

We recognize that there are a wide 

variety of factors that could be used for 

justifying both more and less 

compensation than pilots in other U.S. 

jurisdictions or Canadian pilots. While 

we believe, at this time, that a 

comparison with Canadian Great Lakes 

pilots offers the closest analogue, we are 

fully aware that there are still significant 

differences in the U.S. and Canadian 

compensation work schedules and 

compensation schemes, and as such, we 

intend to undertake a compensation 

study to better understand the wide 

array of factors at work. While that 

study should inform a future 

ratemaking, we believe that the current 

compensation target is a reasonable and 

comparable level because it is based on 

pilots that do substantially similar work 

on the same bodies of water. Our goal 

is to establish a target pilot 

compensation benchmark that promotes 

recruitment and retention without 

posing undue financial burden on 

shipping companies. We will ensure 

that we maintain transparency in our 

processes and calculations to establish 

and refine this benchmark. 

10-Year Compensation Benchmark 

One item addressed in the NPRM was 

new language in § 404.104 that would 

allow the Director to set compensation 

to a benchmark for a 10-year period. We 

stated that, when setting the 

compensation benchmark, we would set 

it based on the most relevant available 

non-proprietary information such as 

wage and benefit information from other 

pilotage groups (in the current case, 

based on Canadian Great Lakes pilot 

compensation cited in the 2016 NPRM). 

Subsequently, for a period of up to 10 

years, the target compensation number 

would simply be adjusted for inflation. 

We noted that this would promote target 

compensation stability and rate 

predictability. As seen in the NPRM, 

where the Coast Guard noted a 

significant change in the relative value 

of the Canadian dollar that could have 

changed the target compensation figure 

significantly, resetting the compensation 

benchmark repeatedly could lead to 

large swings in year-to-year targets and 

have negative effects on the stability of 

pilot earnings. 

Having reviewed the various 

comments on this issue as well as 

considered the ratemaking methodology 

generally, we believe that using a 

compensation benchmark to establish 

annual adjustments in target 

compensation is an efficient means to 

ensure rate stability. We believe that, at 

any time after a compensation 

benchmark is established, there may be 

grounds to review it. Use of a 

compensation benchmark promotes rate 

and compensation stability, while 

providing the Coast Guard with the 

flexibility to make improvements over 

time based on market conditions. For 

this reason, we are finalizing the 

proposed language in § 404.104. 

Several commenters mentioned the 

compensation benchmark, but instead of 

discussing the use of a compensation 

benchmark generally, they discussed the 

inputs into the current compensation 

benchmark. One commenter argued that 

the Coast Guard should not base the 

compensation benchmark on the 

average compensation for other U.S. 

pilots. We note that this was never the 

proposal, and we merely proposed to 

use a benchmark. In the NPRM, we 

wrote that ‘‘the compensation 

benchmark would be based on the most 

relevant available non-propriety 

information such as wage and benefit 

information from other pilotage groups’’ 

[emphasis added].28 We note that 

despite the use of that example of what 

a particular compensation benchmark 


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29See, e.g., docket # USCG–2016–0268–0019, p. 

2; Docket # USCG–2016–0268–0020, p. 2. 30 Docket # USCG–2016–0268–0033, p. 25. 

31 Docket # USCG–2016–0268–0033, p. 24. 

32 Docket # USCG–2016–0268–0033, p. 25. 

could be, we did not propose to use 

another U.S. pilot group outside of the 

Great Lakes to establish target pilot 

compensation in our rulemaking. In the 

2017 NPRM, the Coast Guard did not 

propose to set a new compensation 

benchmark, but instead merely 

proposed continuing to use the 2016 

target compensation figure in its 

calculations, which was based on the 

comparison with Canadian salaries. 

As discussed in the NPRM, we believe 

that the use of a compensation 

benchmark is a better method for 

starting the calculation for the 

compensation of pilots, as opposed to 

undertaking a complete re-evaluation of 

the compensation structure for U.S. 

pilots each year. The primary rationale 

is the promotion of workforce stability, 

which is necessary for the system to 

provide safe, efficient, and reliable 

pilotage. The Great Lakes pilotage 

system needs target pilot compensation 

stability to achieve and maintain 

workforce stability. As is common 

practice in many sectors of employment, 

levels of compensation that are highly 

volatile can lead to difficulty attracting 

and retaining qualified employees. 

Given the high skill levels and lengthy 

training requirements required of Great 

Lakes pilots, as well as the dynamic 

nature of the commodities trade that 

makes up much of the shipping traffic 

in the area, we do not believe that a full 

re-evaluation of compensation every 

year is conducive to maintaining a 

system of safe and reliable pilotage. 

Request To Study Additional Items 

Many commenters,29 citing the high 

cost of pilotage, requested that the Coast 

Guard undertake additional studies of 

various related issues. Specifically, 

these commenters almost uniformly 

requested that the Coast Guard conduct 

additional research into (1) pilot 

recruitment and retention factors; (2) the 

role of pilotage rates on modal shift and 

Seaway competitiveness; and (3) 

efficiencies that can be achieved by 

streamlining the pilotage system. 

The Coast Guard realizes that these 

issues are important, and may warrant 

more in-depth study. To that effect, the 

Coast Guard has commissioned a 

compensation study and an economic 

impact study to better inform our 

ratemaking process. Until these studies 

are completed, we are proceeding with 

the ratemaking methodology we 

describe in this final rule. We remain 

open to persons providing information 

about these important issues, and note 

that such information can always be 

provided to the Coast Guard or to the 

Great Lakes Pilotage Advisory 

Committee (GLPAC) outside the context 

of a particular ratemaking action. 

Audit Deadline 

Another item the Coast Guard 

discussed in its NPRM was a proposal 

to adjust § 403.300(c) to require 

submission of an unqualified audit by 

January 31 of each year, rather than the 

existing requirement that it be 

submitted on April 1. Our goal was to 

expedite the availability of audit 

information so it could be used in the 

publication of the NPRM by the next 

summer. The net result would be to 

reduce the delay between the actual 

expenses and their recoupment from 3 

to 2 years. We requested comment on 

whether such a deadline would be 

feasible. 

One commenter 30 supported the 

proposal, stating that they ‘‘favor any 

measures that reduce the lag between 

receipt of actual revenue and expense 

data and rate-setting decisions.’’ The 

commenter stated the Coast Guard 

should use the most recently available 

data to determine the target revenue. 

They argued that the Coast Guard 

should set up systems to document the 

invoices and source forms sent in 

throughout the shipping season, and 

then tally this information and use it as 

a point of validation when setting the 

target revenue in the following year’s 

NPRM. The commenter also stated that 

the pilots have indicated they can 

produce monthly revenue reports for 

Coast Guard use, and that this 

information can be used to inform the 

Coast Guard’s decision to terminate a 

surcharge or to revise rates to account 

for an over-generation of revenue. 

However, most comments, including 

those from the 3 U.S. Great Lakes pilot 

associations on this issue, took the 

opposite stance. These comments were 

unanimously opposed to the proposed 

January 31 deadline stating that 

preparing audited financial statements 

by that date would be infeasible due to 

the tight time constraints, or if required, 

would be extremely expensive. 

Commenters noted that the requirement 

to provide numbers by this earlier date 

would require extensive effort and 

significantly increase costs, and we did 

not receive any recommendations for an 

alternate date. 

Based on the feedback we received, 

we are not making any changes to the 

audit deadline at this time. We agree 

that we would like to reduce the lag 

time between the revenue and expense 

audits and the information we use for 

our rulemakings. However, based upon 

the comments from the pilot 

associations, at this time we do not 

believe that the reported costs of 

accelerating the reporting date to 

January 31 would be worth the reported 

increase in expense. We do note, 

however, that we will seek further input 

on this topic at a future GLPAC meeting. 

Surcharge Shutoff Provision 

In the NPRM, the Coast Guard 

proposed adding a requirement to the 

surcharge regulation in § 401.401. We 

proposed that once a pilot association 

collects the amount of money allowable 

for recoupment, the pilot association’s 

authorization to collect that surcharge 

would terminate for the remainder of 

the shipping season. We proposed this 

to prevent surcharge receipts from 

exceeding the target amount, which will 

eliminate the need to make subsequent 

adjustments to the operating expenses 

for the following year. 

One commenter 31 stated that the 

‘‘Industry Commenters support this 

proposal.’’ The commenter suggested 

the Coast Guard should verify that the 

surcharge funds are only used for the 

purposes as outlined by the Coast 

Guard. The commenter stated that the 

ratepayers ‘‘paid over $667,000 in 

excessive training fees collected by the 

pilot associations’’ in 2015. They also 

stated it is in the ratepayers’ interests 

that the Coast Guard not allow excessive 

fees, as there is no mechanism currently 

in place to repay these funds to the 

ratepayers. The commenter also 

recommended that the Coast Guard 

verify that the training fees are properly 

applied to training new pilots in each 

District,32 and suggested the Coast 

Guard could achieve this by requiring 

the inclusion of the training fee 

information as a separate line item in 

the financial statements. 

Based on the comments we received, 

we are finalizing the additions to the 

surcharge provision in § 401.401. We 

also note that the existing audit 

requirements for operating expenses 

include a line item for training 

expenses, so that it is clear how much 

money is expended for that purpose. 

Because of the three-year delay in the 

use of audited expenses, the training 

costs, which were introduced in the 

2015 ratemaking for the Saint Lawrence 

Seaway Pilots Association, will be 

incorporated into, and adjusted for, the 

operating expenses for the 2018 

ratemaking. The surcharge was 

expanded to the Lake Pilots Association 

and Western Great Lakes Pilots 


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33These reports are available in the docket for 

this rulemaking, see Docket # USCG–2016–0268– 

0056 through 0058. 

34 Docket # USCG–2016–0268–0037, p. 2. 

Association in 2016. Therefore, these 

expenses will not be addressed until the 

2019 Annual Rulemaking for these two 

associations. 

Iroquois Lock 

Finally, in the NPRM, we proposed 

adding a mandatory change point at the 

Iroquois Lock. While we did receive 

comments as to how this would affect 

the total number of pilots needed for the 

rate-setting calculations (which is 

discussed below), we did not receive 

any comments on the merits of the idea 

itself. We are therefore finalizing this 

provision without change in this final 

rule. 

B. Rate Calculation Issues 

In this section, we discuss the 

comments related to the specific 

ratemaking at issue for 2017, as well as 

lay out the method by which we arrived 

at the final 2017 rates. The ratemaking 

process is specified in 46 CFR 404, 101 

through 110. Each section below 

corresponds to one of the sections in the 

CFR. 

1. Recognition of Operating Expenses 

Step 1 in our ratemaking methodology 

requires that the Coast Guard review 

and recognize the previous year’s 

operating expenses (§ 404.101). We 

reviewed the independent accountant’s 

financial reports for each association’s 

2014 expenses and revenues.33 In the 

NPRM, we accepted the final findings 

on the 2014 audit of association 

expenses, and presented the recognized 

expenses for each District. 

We received information with regard 

to lobbying expenses associated with 

American Pilots Association (APA) 

dues. We attributed 15 percent of APA 

dues to legal fees in the NPRM. This 

should have been 5 percent.34 We have 

adjusted the operating expenses to 

reflect this change. 

We received comments from the three 

U.S. Great Lakes Pilot Associations 

regarding the exclusion of legal fees 

from recognized operating expenses. 

Specifically, in our review of the 2014 

operating expenses, we did not 

recognize certain legal expenses from 

K&L Gates, totaling $47,256. The 

commenters stated that they did not 

understand why these expenses were 

not recognized and requested that we 

reclassify these expenses as allowable 

fees. We disagree that these K&L Gates 

legal fees should be included. We 

disallowed the fees for K&L Gates 

because we could not determine 

whether or not these funds were used 

for lobbying or legal services. Per the 

requirements in paragraph 404.2(b)(6), 

lobbying fees are not allowable expenses 

for reimbursement. We contacted the 

pilot associations to request additional 

documentation that these fees were 

associated with legal services and not 

lobbying, but we did not receive any 

documentation to show which costs 

were attributable to legal services, and 

which were attributable to lobbying 

work. 

In addition, the three pilot 

associations requested that we recognize 

legal expenses in the amount of $75,049 

incurred in their litigation against the 

Coast Guard regarding the 2014 final 

rule. This amount represents the 

difference between legal fees incurred 

and the amount the Coast Guard paid in 

its settlement with the pilot 

associations. Pursuant to § 404.2(6), 

expenses incurred against the United 

States are not recoupable as recognized 

operating expenses. The pilots argue 

that this section of the regulations was 

improperly adopted in the 2016 final 

rule. We do not believe that the 2017 

Annual Rulemaking is the appropriate 

venue to address the procedural aspects 

of the 2016 final rule. 

A commenter from the Lakes Pilots 

Association noted that certain operating 

expenses, relating to the payment of 

applicant pilot salaries, had been 

omitted from the operating expenses of 

District Two. Specifically, the 

commenter noted that payment of 

training salaries should be considered as 

an operating expense instead of treated 

as pilot compensation. We agree that as 

applicant pilots are not counted as 

pilots for the purposes of calculating 

general pilot compensation, and this 

occurred prior to the use of surcharges 

to pay for applicant pilot salaries, these 

salaries should be recognized as an 

operating expense. The surcharge 

provision for funding applicant pilots 

did not impact rates until 2015 and the 

2014 Annual Rulemaking did not 

provide funding for this activity. 

Therefore, we added the amount, 

$281,588, to the operating expenses of 

District Two to recoup the 2014 expense 

incurred in training applicant pilots that 

year. 

The recognized expenses for the 

various Districts are as follows: 

TABLE 1—RECOGNIZED EXPENSES FOR DISTRICT ONE

Reported expenses for 2014 

District One 

Total Designated Undesignated 

St. Lawrence 

River Lake Ontario 

Operating Expenses: 

Other Pilotage Costs: 

Pilot subsistence/travel ......................................................................................................... $302,547 $228,222 $530,769 

Applicant Pilot subsistence/travel ......................................................................................... 0 12,996 12,996 

License insurance ................................................................................................................. 20,231 22,480 42,711 

Applicant Pilot license insurance .......................................................................................... 0 1,760 1,760 

Payroll taxes ......................................................................................................................... 78,067 64,130 142,197 

Applicant Pilot payroll taxes ................................................................................................. 0 0 0 

Other ..................................................................................................................................... 479 378 857 

Total other pilotage costs .............................................................................................. 401,324 329,966 731,290 

Pilot Boat and Dispatch Costs: 

Pilot boat expense ................................................................................................................ 130,741 103,173 233,914 

Dispatch expense ................................................................................................................. 0 0 0 

Payroll taxes ......................................................................................................................... 9,797 7,732 17,529 


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TABLE 1—RECOGNIZED EXPENSES FOR DISTRICT ONE—Continued 

Reported expenses for 2014 

District One 

Total Designated Undesignated 

St. Lawrence 

River Lake Ontario 

Total pilot and dispatch costs ....................................................................................... 140,538 110,905 251,443 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 2,173 1,505 3,678 

Legal—shared counsel (K&L Gates) .................................................................................... 8,783 6,932 15,715 

Legal—Coast Guard litigation .............................................................................................. 12,794 10,098 22,892 

Insurance .............................................................................................................................. 21,829 17,226 39,055 

Employee benefits ................................................................................................................ 7,570 5,974 13,544 

Payroll taxes ......................................................................................................................... 5,281 4,167 9,448 

Other taxes ........................................................................................................................... 7,262 5,731 12,993 

Travel .................................................................................................................................... 648 512 1,160 

Depreciation/auto leasing/other ............................................................................................ 48,094 31,820 79,914 

Interest .................................................................................................................................. 13,713 10,821 24,534 

APA Dues ............................................................................................................................. 12,444 11,996 24,440 

Utilities .................................................................................................................................. 8,916 418 9,334 

Salaries ................................................................................................................................. 52,121 41,130 93,251 

Accounting/Professional fees ............................................................................................... 5,142 4,058 9,200 

Pilot Training ......................................................................................................................... 6,427 5,074 11,501 

Applicant Pilot training .......................................................................................................... 0 0 0 

Other ..................................................................................................................................... 8,866 6,546 15,412 

Total Administrative Expenses ...................................................................................... 222,063 164,008 386,071 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... 763,925 604,879 1,368,804 

Proposed Adjustments (Independent CPA): 

Pilot subsistence/travel ......................................................................................................... ¥15,712 ¥12,401 ¥28,113 

Payroll taxes ......................................................................................................................... ¥87 ¥68 ¥155 

Applicant Pilot payroll taxes ................................................................................................. 0 2,347 2,347 

Total CPA Adjustments ................................................................................................. ¥15,799 ¥10,122 ¥25,921 

Proposed Adjustments (Director): 

APA Dues ............................................................................................................................. ¥622 ¥600 ¥1,222 

2015 Surcharge Adjustment * ............................................................................................... ¥92,766 ¥72,887 ¥165,653 

Legal—shared counsel (K&L Gates) .................................................................................... ¥8,783 ¥6,932 ¥15,715 

Legal—Coast Guard litigation .............................................................................................. ¥12,794 ¥10,098 ¥22,892 

Total Director’s Adjustments ......................................................................................... ¥114,965 ¥90,517 ¥205,482 

Total Operating Expenses (OpEx + Adjustments) ................................................. 633,161 504,240 1,137,401 

* District One collected $493,682 with an authorized 10 percent surcharge in 2015. The adjustment represents the difference between the collected amount and the authorized amount of $328,029 authorized in the 2015 final rule. 

TABLE 2—RECOGNIZED EXPENSES FOR DISTRICT TWO

Reported expenses for 2014 

District Two 

Undesignated Total Designated 

Lake Erie 

SES to 

Port Huron 

Operating Expenses: 

Other Pilotage Costs: 

Applicant pilot salaries .......................................................................................................... $112,635 $168,953 $281,588 

Pilot subsistence/travel ......................................................................................................... 148,424 222,635 371,059 

Applicant Pilot subsistence/travel ......................................................................................... 9,440 14,160 23,600 

License insurance ................................................................................................................. 52,888 79,333 132,221 

Applicant Pilot license insurance .......................................................................................... 5,738 8,608 14,346 

Payroll taxes ......................................................................................................................... 76,903 115,354 192,257 

Applicant Pilot payroll taxes ................................................................................................. 8,344 12,516 20,860 

Other ..................................................................................................................................... 1,053 1,579 2,632 

Total other pilotage costs .............................................................................................. 415,425 623,138 1,038,563 

Pilot Boat and Dispatch Costs: 

Pilot boat expense ................................................................................................................ 173,145 259,718 432,863 

Dispatch expense ................................................................................................................. 10,080 15,120 25,200 

Employee benefits ................................................................................................................ 72,662 108,992 181,654 

Payroll taxes ......................................................................................................................... 8,472 12,707 21,179 


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TABLE 2—RECOGNIZED EXPENSES FOR DISTRICT TWO—Continued 

Reported expenses for 2014 

District Two 

Undesignated Total Designated 

Lake Erie 

SES to 

Port Huron 

Total pilot and dispatch costs ....................................................................................... 264,359 396,537 660,896 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 2,680 4,020 6,700 

Legal—shared counsel (K&L Gates) .................................................................................... 4,984 7,476 12,460 

Legal—Coast Guard litigation .............................................................................................. 8,371 12,557 20,928 

Office rent ............................................................................................................................. 26,275 39,413 65,688 

Insurance .............................................................................................................................. 9,909 14,863 24,772 

Employee benefits ................................................................................................................ 23,002 34,504 57,506 

Payroll taxes ......................................................................................................................... 5,001 7,501 12,502 

Other taxes ........................................................................................................................... 21,179 31,769 52,948 

Depreciation/auto leasing/other ............................................................................................ 17,784 26,677 44,461 

Interest .................................................................................................................................. 3,298 4,948 8,246 

APA Dues ............................................................................................................................. 8,664 12,996 21,660 

Utilities .................................................................................................................................. 15,429 23,144 38,573 

Salaries ................................................................................................................................. 46,008 69,013 115,021 

Accounting/Professional fees ............................................................................................... 9,410 14,115 23,525 

Pilot Training ......................................................................................................................... 0 0 0 

Other ..................................................................................................................................... 11,343 17,012 28,355 

Total Administrative Expenses ...................................................................................... 213,337 320,008 533,345 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... 893,121 1,339,683 2,232,804 

Proposed Adjustments (Independent CPA): 

Depreciation/auto leasing/other ............................................................................................ 3,322 4,982 8,304 

Total CPA Adjustments ................................................................................................. 3,322 4,982 8,304 

Proposed Adjustments (Director): 

APA Dues ............................................................................................................................. ¥433 ¥650 ¥1,083 

2015 Surcharge Adjustment * ............................................................................................... ¥85,782 ¥128,672 ¥214,454 

Legal—shared counsel (K&L Gates) .................................................................................... ¥4,984 ¥7,476 ¥12,460 

Legal—Coast Guard litigation .............................................................................................. ¥8,371 ¥12,557 ¥20,928 

Total Director’s Adjustments ......................................................................................... ¥99,570 ¥149,355 ¥248,926 

Total Operating Expenses (OpEx + Adjustments) ................................................. 796,873 1,195,310 1,992,183 

* D2 collected $540,284 with an authorized 10 percent surcharge in 2015. The adjustment represents the difference between the collected 

amount and the authorized amount of $325,830 authorized in the 2015 final rule. 

TABLE 3—RECOGNIZED EXPENSES FOR DISTRICT THREE

Reported expenses for 2014 

District Three 

Total 

Undesignated Designated 

Lakes Huron, 

Michigan and 

Superior 

St. Mary’s 

River 

Operating Expenses: 

Other Pilotage Costs: 

Pilot subsistence/travel ......................................................................................................... $424,935 $141,645 $566,580 

Applicant pilot subsistence/travel ......................................................................................... 24,608 8,203 32,811 

License insurance ................................................................................................................. 14,304 4,768 19,072 

Payroll taxes ......................................................................................................................... 110,567 36,856 147,423 

Applicant pilot payroll taxes .................................................................................................. 9,082 3,027 12,109 

Other ..................................................................................................................................... 12,268 4,090 16,358 

Total other pilotage costs .............................................................................................. 595,764 198,589 794,353 

Pilot Boat and Dispatch Costs: 

Pilot boat costs ..................................................................................................................... 593,360 197,787 791,147 

Dispatch costs ...................................................................................................................... 133,787 44,596 178,383 

Payroll taxes ......................................................................................................................... 31,432 10,477 41,909 

Total pilot and dispatch costs ....................................................................................... 758,579 252,860 1,011,439 

Administrative Expenses: 

Legal—general counsel ........................................................................................................ 15,386 5,129 20,515 

Legal—shared counsel (K&L Gates) .................................................................................... 15,900 5,300 21,200 

Legal—Coast Guard litigation .............................................................................................. 23,422 7,807 31,229 


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35Available at https://www.bls.gov/regions/ 

midwest/data/consumerpriceindexhistorical_

midwest_table.pdf. 

36Available at https://www.federalreserve.gov/ 

monetarypolicy/fomcprojtabl20160316.htm. 

TABLE 3—RECOGNIZED EXPENSES FOR DISTRICT THREE—Continued 

Reported expenses for 2014 

District Three 

Total 

Undesignated Designated 

Lakes Huron, 

Michigan and 

Superior 

St. Mary’s 

River 

Office rent ............................................................................................................................. 7,425 2,475 9,900 

Insurance .............................................................................................................................. 11,050 3,683 14,733 

Employee benefits ................................................................................................................ 113,890 37,964 151,854 

Other taxes ........................................................................................................................... 129 43 172 

Depreciation/auto leasing/other ............................................................................................ 28,802 9,601 38,403 

Interest .................................................................................................................................. 2,858 953 3,811 

APA Dues ............................................................................................................................. 20,235 6,745 26,980 

Dues and subscriptions ........................................................................................................ 3,975 1,325 5,300 

Utilities .................................................................................................................................. 33,083 11,028 44,111 

Salaries ................................................................................................................................. 95,577 31,859 127,436 

Accounting/Professional fees ............................................................................................... 27,492 9,164 36,656 

Pilot Training ......................................................................................................................... 0 0 0 

Other ..................................................................................................................................... 9,318 3,106 12,424 

Total Administrative Expenses ...................................................................................... 408,542 136,182 544,727 

Total Operating Expenses (Other Costs + Pilot Boats + Admin) .......................... 1,762,885 587,631 2,350,516 

Proposed Adjustments (Independent CPA): 

Pilot subsistence/Travel ........................................................................................................ ¥15,595 ¥5,198 ¥20,793 

Payroll taxes ......................................................................................................................... 5,949 1,983 7,932 

Pilot boat costs ..................................................................................................................... ¥62,748 ¥20,916 ¥83,664 

Legal—shared counsel (K&L Gates) .................................................................................... ¥1,590 ¥530 ¥2,120 

Dues and subscriptions ........................................................................................................ ¥3,975 ¥1,325 ¥5,300 

Other expenses .................................................................................................................... ¥375 ¥125 ¥500 

Total CPA Adjustments ................................................................................................. ¥78,334 ¥26,111 ¥104,445 

Proposed Adjustments (Director): 

APA Dues ............................................................................................................................. ¥1,012 ¥1,012 ¥2,024 

Surcharge Adjustment * ........................................................................................................ ¥216,734 ¥72,245 ¥288,979 

Legal—shared counsel (K&L Gates) .................................................................................... ¥14,310 ¥4,770 ¥19,080 

Legal—Coast Guard litigation .............................................................................................. ¥23,422 ¥7,807 ¥31,229 

Total Director’s Adjustments ......................................................................................... ¥255,478 ¥85,834 ¥341,312 

Total Operating Expenses (OpEx + Adjustments) ................................................. 1,429,073 475,687 1,904,760 

* D3 collected $615,929 with an authorized 10 percent surcharge in 2015. The adjustment represents the difference between the collected 

amount and the authorized amount of $326,950 authorized in the 2015 final rule. 

2. Projection of Operating Expenses 

Step 2 in our ratemaking methodology 

requires that the Coast Guard project 

next year’s operating expenses, and 

adjust for inflation or deflation 

(§ 404.102). In the NPRM, we adjusted 

for inflation and projected expenses for 

2017 using the Bureau of Labor 

Statistics’ data from the Consumer Price 

Index for the Midwest Region of the 

United States 35 and reports from the 

Federal Reserve.36 We did not receive 

any comments on this step and thus are 

adjusting operating expenses for 

inflation as described in § 404.102. We 

do note that, based on updated 

information from the Bureau of Labor 

Statistics, the 2016 inflation 

modification has been adjusted to 0.8%. 

TABLE 4—CALCULATION OF PROJECTED EXPENSES

District One Area 2 

(Undesignated) 

Area 1 

(Designated) Total 

Total Operating Expenses (Step 1) ................................................................................. $633,161 $504,240 $1,137,401 

2015 Inflation Modification (@¥0.5%) ............................................................................ ¥3,166 ¥2,521 ¥5,687 

2016 Inflation Modification (@0.8%) ............................................................................... 5,040 4,014 9,054 

2017 Inflation Modification (@2.1%) ............................................................................... 13,336 10,620 23,956 

Adjusted 2016 Operating Expenses ......................................................................... 648,371 516,353 1,164,724 


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37We note that commenters often refer to these 

models as the ‘‘peak’’ and ‘‘average’’ staffing 

models, although we feel such nomenclature is 

imprecise, as both models are designed to 

accommodate traffic at higher-than-average demand 

periods. 

38The Average-Through Transit Time is the 

number of hours it takes for a vessel to fully transit 

through an area. 

39 Docket #USCG–2016–0268–0033, p. 14. 

40 81 FR 72016 (December 19, 2016). 

District Two Area 4 

(Undesignated) 

Area 5 

(Designated) Total 

Total Operating Expenses (Step 1) ................................................................................. 796,874 1,195,310 1,992,183 

2015 Inflation Modification (@¥0.5%) ............................................................................ ¥3,984 ¥5,977 ¥9,961 

2016 Inflation Modification (@0.8%) ............................................................................... 6,343 9,515 15,858 

2017 Inflation Modification (@2.1%) ............................................................................... 16,784 25,176 41,960 

Adjusted 2016 Operating Expenses ......................................................................... 816,016 1,224,024 2,040,040 

District Three Areas 6 and 8 

(Undesignated) 

Area 7 

(Designated) Total 

Total Operating Expenses (Step 1) ................................................................................. 1,429,073 475,687 1,904,760 

2015 Inflation Modification (@¥0.5%) ............................................................................ ¥7,145 ¥2,378 ¥9,523 

2016 Inflation Modification (@0.8%) ............................................................................... 11,375 3,786 15,162 

2017 Inflation Modification (@2.1%) ............................................................................... 30,099 10,019 40,118 

Adjusted 2016 Operating Expenses ......................................................................... 1,463,402 487,114 1,950,516 

3. Calculation of Number of Pilots 

Step 3 in our ratemaking methodology 

requires that the Coast Guard determine 

the number of pilots needed to complete 

all assignments (§ 404.103). In the 

NPRM, we proposed to modify our 

pilotage demand calculation to focus on 

the pilot work cycle, including elements 

such as travel, rest, pilot boat time, and 

other items in addition to the time spent 

on the bridge of a ship. Based on the 

comments received, we have 

determined that transitioning to this 

model, in which all traffic is treated 

equally for the purpose of determining 

the number of pilots needed, would 

result in traffic delays, overwork of 

pilots, and possible compromises to 

safety on the Great Lakes. For these 

reasons, we are not finalizing the 

proposed changes to § 404.103. 

It is important to note that Step 3 

produces two different sets of numbers 

associated with the respective sections 

of § 404.103. The first number, 

described in paragraphs (a) through (c), 

is used to establish the number of pilots 

the Coast Guard believes are needed to 

provide safe and efficient pilotage 

service in each area. This number 

provides guidance to pilot associations 

and the Director of Great Lakes Pilotage 

in making determinations about hiring 

decisions and the authorization of new 

pilots. The second number, described in 

paragraph (d), is based on the number 

of persons applying for pilot positions 

under 46 CFR 401. For purposes of 

setting Great Lakes pilotage rates in 

§ 401.405, only the number derived 

from the 404.103(d) analysis is used in 

the ratemaking calculations. 

Most commenters provided comments 

on the model used to determine the 

number of pilots needed. In the NPRM, 

the Coast Guard proposed replacing the 

existing staffing model, which we call 

the 2016 final rule staffing model, with 

a model that analyzed shipping traffic 

throughout the entire shipping season, 

and which we are calling the 2017 

NPRM staffing model.37 We stated that 

we were proposing to modify the 

pilotage demand calculation to 

incorporate the ‘‘number of assignments 

we reasonably expect pilots to be able 

to complete during the 9-month 

shipping season instead of during peak 

pilotage demand.’’ (See 81 FR 72014–5). 

While we recognized that during the 

opening and closing of the season, there 

are significant spikes in traffic that 

necessitate far more pilotage services, 

the Coast Guard believed that this 

seasonal peak would be adequately 

covered by the fact that pilots would 

work an extra 10 days (30 percent) per 

month during those months to cover the 

increased traffic. 

The functional result of the proposed 

change to the staffing model was to 

reduce the total number of pilots needed 

to service the Great Lakes system by 5, 

from a total of 54 under the previous 

staffing model to a total of 49 under the 

proposed new staffing model. We 

received a large number of comments, 

especially from pilots, regarding how 

this change in modeling could affect 

their workload, lifestyle, stress levels, 

and overall retention rates, as discussed 

below. 

The 2017 NPRM staffing model had a 

number of substeps and we received 

comment on nearly all of these substeps. 

The substeps and associated comments 

are discussed below. 

Substep 1: Calculate Pilot Cycle 

The first step of the process is to 

determine how long it takes for a pilot 

to undertake a full piloting cycle, that is, 

to board a ship, provide pilotage 

services, disembark, rest, travel back to 

a port location, and complete any 

administrative tasks associated with 

providing pilotage service. We used the 

‘‘Average-Through Transit Time’’ 

between change points 38 for an area or 

assignment segment that is impacted by 

a mandatory change point, and then 

added additional time for travel, delay, 

administrative needs, and mandatory 

rest, to come up with the total amount 

of time for a ‘‘Pilot Cycle.’’ 

One commenter 39 suggested that the 

Coast Guard had made an error in its 

calculation of the number of pilots 

needed as a result of the addition of the 

Iroquois Lock. As noted, in the NPRM, 

the Coast Guard proposed to add a 

mandatory change point to District One, 

Area 1, at the Iroquois Lock. We 

proposed this additional change point to 

enhance safety on long segments, noting 

that the transit time between Snell Lock 

and Cape Vincent takes about 11 hours 

under ideal circumstances, and that we 

wanted to limit a U.S.-registered pilot’s 

assignment time to 8 hours in 

designated waters to mitigate fatigue.40

As a result of adding this change point, 

we modified how we calculated the 

number of pilots for the Designated 

Waters of District One (St. Lawrence 

River). 

The commenter noted that while the 

Coast Guard had increased the number 

of pilot assignments to account for the 

mandatory change point at Iroquois 

Lock, it had not adjusted the AverageThrough Transit Time to account for the 

shorter trips due to the change point. 

The commenter asserted that instead of 

using a figure of 10.8 hours, the Coast 

Guard should replace that figure with a 

transit time of 6 hours. This change 


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41 Docket #USCG–2016–0268–0033, p. 17. 

42 Docket #USCG–2016–0268–0033, p. 17. 

43This number is based on a 270-day shipping 

season, with an allowed 10 days off each non-peak 

month. 

44Available in the docket, see Docket #USCG– 

2016–0268–0059. 

45 Docket #USCG–2016–0268–0037, p. 3. 

46 Docket #USCG–2016–0268–0033, p. 19. 

would have the effect of lowering the 

Pilot Cycle to 20.0 hours (from the 

current 25.2) and the number of 

additional pilots needed from 3.4 to 2.7. 

The commenter recommended this new 

figure be incorporated into the Coast 

Guard’s calculations. 

We believe that this comment is 

justified, and that under conditions 

where we are calculating transit through 

times for a single pilot, this would be a 

reasonable change. However, we are not 

adopting the 2017 NPRM staffing model, 

but we are retaining the 2016 final rule 

staffing model. In such a model, we 

calculate transit through the Iroquois 

Lock using double pilotage, where the 

fatigue issue is mitigated by a second 

pilot. For that reason, under double 

pilotage, pilots do not have to change at 

the Iroquois Lock, and we can continue 

to use the full 10.8 hour average through 

transit time. 

One commenter 41 stated the NPRM 

inconsistently relied on bridge hours 

and cycle time in determining the 

number of pilots needed in each 

District, and that instead of using the 

Average-Through Transit Time as a 

basis for the pilot cycle, we should use 

an average trip time. The commenter 

gave an example for District Two Area 

4. The NPRM uses cycle time analysis 

to determine that District Two, Area 4 

needs seven pilots to handle the historic 

average assignments in this area. These 

seven pilots should complete an average 

of 73 assignments with an AverageThrough Transit Time of 17 hours each. 

The commenter stated the total time on 

task for this District would be 8,687 

hours. However, this figure would differ 

from the Coast Guard’s calculation of 

average traffic, used to calculate 

revenue, which found the average time 

on task as 5,174 hours per year using the 

average number of bridge hours from 

2007 to 2015. The commenter stated 

that the Coast Guard’s ‘‘inconsistent 

reliance on bridge hours raises the 

hourly rate in the undesignated waters 

of District Two from $319 to $537.’’ 42

The commenter stated that the Coast 

Guard cannot rely on cycle time to 

increase the projected number of pilots 

needed and then use the bridge hours to 

calculate the hourly rate. 

We acknowledge that we use different 

bridge hour inputs when calculating the 

Average-Through Transit Time and the 

calculation for the expected traffic. For 

staffing purposes, we are assuming that 

each assignment will go between the 

mandatory change points in a given 

pilotage district to ensure that we have 

enough pilots to handle traffic. This is 

a situation where efficiency and safety 

are in conflict. We believe the safety 

concerns associated with having too few 

pilots outweigh the financial burden on 

the rate payers. The methodology 

established in the 1990s used a similar 

bridge hour standard in multiple steps 

throughout the ratemaking process. This 

caused problems with recruitment and 

retention, revenue shortfalls, lack of 

training, and a resistance to 

infrastructure investment and 

maintenance. We intentionally decided 

to only include a historic bridge hour 

input in determining the hourly rate for 

services and use the number of 

assignments (assuming that each 

assignment would be average maximum 

time between two change points) for 

staffing. 

However, we realize that this system 

of basing the pilot cycle on the transit 

through time, as opposed to the average 

trip time, is better suited to the 2016 

final rule staffing model, rather than the 

2017 NPRM staffing model. As we 

stated in the 2016 final rule, it makes 

sense to use the full transit through time 

for conditions at the opening and close 

of the season, as a high percentage of 

trips during that time are through transit 

trips to ensure the pilot associations are 

sufficiently staffed to provide 

adequately rested pilots during the time 

of the season when the conditions are 

most challenging. Conversely, when 

calculating the total revenues we expect 

the associations to collect, we use the 

historic traffic data, which provides a 

more accurate accounting of revenue. 

Unlike the issue of staffing of vessels, it 

does not make a difference when 

revenue is collected during the shipping 

season. 

As the commenter points out, the 

transition from 2016 final rule staffing 

model to the 2017 NPRM staffing model, 

without reevaluating the full ratemaking 

methodology, can cause these types of 

logical discrepancies. This is one reason 

that we are not adopting the 2017 NPRM 

staffing model in the final rule, and are 

instead relying on the 2016 final rule 

staffing model to determine an adequate 

capacity. 

Substep 2: Calculate Maximum Number 

of Assignments per Pilot 

In the next part of the 2017 NPRM 

staffing model, we divided the Seasonal 

Availability (the total amount of time 

which we expect a pilot to be available, 

which is 4,800 hours, or 200 days 43) by 

the Pilot Cycle to calculate a theoretical 

maximum number of assignments per 

pilot. We realize that this number is 

highly theoretical, and assumes no 

shipping delays, inclement weather 

conditions, traffic, administrative 

issues, and that a new ship is readily 

available each time a pilot arrives at 

port. As seen below, the number of 

actual assignments a pilot can perform 

during the shipping season is much 

lower. 

Substep 3: Calculate Estimated Number 

of Assignments per Pilot 

In the third step, we multiplied the 

theoretical maximum number of 

assignments per pilot by an ‘‘efficiency 

factor’’ of 50 percent, which is based 

upon the Coast Guard’s 2013 ‘‘Bridge 

Hour and Methodology Study Final 

Report,’’ 44 to arrive at a total number of 

projected assignments per pilot. 

We received comments criticizing the 

efficiency factors from a variety of 

sources. One commenter stated that it 

was ‘‘nothing more than a placeholder 

number from a study rejected by both 

pilots and industry at GLPAC.’’ 45 The 

commenter requested that the Coast 

Guard abandon its existing methodology 

for determining the number of pilots 

needed in an area. In its place, the 

commenter suggested the Coast Guard 

determine the number of pilots needed 

by either directly using the recent 

average number of assignments per 

pilot, or by increasing the efficiency 

ratio in each District to bring the 

anticipated number of assignments up 

to average levels. The commenter did 

not specify what the ‘‘recent average 

number of assignments per pilot’’ was, 

or what change to the efficiency ratio 

would be needed to achieve this. 

However, the commenter suggested that 

the Coast Guard could gather 

information that would allow us to more 

directly determine average pilot 

assignments by using invoices and 

source forms provided by pilots.46

While we understand the concept of 

this proposal, we do not agree that the 

historic average of assignments is a 

useful tool for the following reasons. 

The mid-1990s methodology excluded 

many of the pilot assignment cycle time 

inputs to determine a seasonal 

workload. Additionally, the goal of 

providing 10 days of recuperative rest 

for 7 months of the season was 

introduced in the 2016 Annual 

Rulemaking, in response to National 

Transportation Safety Board 

recommendations, letters from Congress 

asking us to address recruitment and 


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47 Docket #USCG–2016–0268–0033, p. 16. 48 Docket #USCG–2016–0268–0033, p. 16. 

49 Docket #USCG–2016–0268–0033, p. 15, 

footnote 7. 

50 Docket #USCG–2016–0268–0033, p. 14. 

51 81 FR at 72015–6. 

retention, and a recommendation from 

the July 2014 GLPAC meeting. For these 

reasons, we do not expect the historical 

average of assignments per pilot to be an 

accurate reflection of the estimated 

future counts based on the current 

staffing model. We may consider using 

historical data in a future rulemaking if 

we compile sufficient data to make an 

accurate comparison. 

We believe the efficiency factor of 0.5 

is supported by the Bridge Hour and 

Methodology Study Final Report. In 

response to concerns about the 

methodology used to calculate shipping 

rates, GLPAC unanimously 

recommended that an independent 

party conduct a comprehensive review 

of the methodology established in the 

mid-1990s to calculate pilotage rates. 

GLPAC reviewed the scope of the study, 

entitled ‘‘Bridge Hour and Methodology 

Study Final Report,’’ expanded the 

study’s scope, and unanimously 

approved the scope of the study. This 

included one-on-one meetings with all 

of the stakeholders, two focus groups, 

and additional GLPAC meetings. Based 

on the study’s findings, the Coast Guard 

developed the efficiency factor. The 

study recommended that we consider an 

efficiency factor between 0.4 and 0.6 for 

staffing. However, we provided 

additional guidance with regard to 

mandatory change points and required 

rest between assignments in 2014, 

incorporated changes based upon 

recommendations from the National 

Transportation Safety Board in 2015, 

and implemented significant changes to 

the methodology in 2016 Annual 

Rulemaking. 

While the various stakeholders 

rejected the final recommendations of 

the study for different reasons, none of 

the criticisms of the study accused its 

final recommendations of being a 

‘‘placeholder.’’ One group did not think 

the study went far enough to 

recommend changes that were outside 

of the scope of the study. Another group 

did not think the study went far enough 

to guarantee time off for the pilots or 

establish an acceptable compensation 

standard. While we are not using the 

efficiency factor in this final rule, we 

continue to believe that a 0.5 efficiency 

factor would be reasonable if it were 

being used in a staffing model. 

One commenter 47 stated that the 

Coast Guard had used incorrect 

assumptions regarding efficiency, cycle 

time, recuperative rest, and transition 

planning in calculating the total average 

time it takes for a pilot to complete an 

assignment. Using as an example the 

Coast Guard’s calculations for District 

Three Area 2 (which in the NPRM is 

listed as ‘‘Area 7’’), in which the Coast 

Guard calculated that the number of 

projected assignments per pilot was 112, 

the commenter said that ‘‘assuming that 

these pilots can only take one 

assignment per day (based on the 

estimated 21.5 hour shipping time), 

each pilot in [Area 7] will only work 41 

percent of a 270-day shipping season. 

This figure is unrealistically low.’’ 48

We disagree with the assertions that 

we used incorrect assumptions that 

resulted in an unrealistically low value. 

Even though the shipping season is 270 

days, we only expect the pilots to be on 

the tour-de-role for 200 days a season 

(noting that they receive 10 days off per 

month for seven of the nine months of 

the season) so the correct comparison 

would be the number of days worked to 

the number of days available for 

assignment which is 56 percent (112 

assignments/200 days). This does not 

seem unrealistically low, as the total 

cycle time is often over one day. 

Furthermore, we know that the demand 

for pilot services is not spread 

uniformly across the entire season, and 

there will be times when a pilot is idle 

for substantial periods of time between 

assignments. It is quite rare that a pilot 

returns after an assignment and is 

immediately able to start a new 

assignment, and that usually only 

occurs when there is a backlog of ships 

awaiting pilots. Simply put, all of this 

represents inherent inefficiencies in the 

system and, for these reasons, an 

efficiency factor of 50 percent is 

appropriate. 

Substep 4: Calculate Total Number of 

Pilots Needed per Area 

Having determined the number of 

assignments that a pilot can reasonably 

be expected to handle in a shipping 

season, we move to calculate how many 

pilots are needed to handle the amount 

of traffic. To do this, we divided the 

measured number of actual assignments 

(averaged over a 10-year period) by the 

estimated number of assignments per 

pilot to estimate the total number of 

pilots needed for a segment within an 

area. This produces a figure of how 

many pilots are needed to handle the 

total amount of traffic in an area. 

Because of the detailed manner in 

which calculations of pilots are carried 

out, the raw calculations often end up 

suggesting a fractional number of pilots. 

In the NPRM, we stated that, ‘‘when the 

calculation [of total pilots needed] 

results in a fraction of a pilot, we round 

pilot numbers up to the nearest whole 

pilot. We do this to avoid shortening our 

demand calculation and also to 

compensate for the role of the district 

presidents as both working pilots and 

representatives of their associations. We 

believe the rounding is justified to meet 

the needs of the staffing model and also 

to ensure the presidents of the pilot 

associations are able to effectively 

engage in meetings and communications 

with stakeholders throughout the Great 

Lakes region and the Coast Guard.’’ (81 

FR 72016–7). 

Several commenters argued that our 

rounding convention, in which we 

rounded up to the nearest whole 

number rather than rounding up or 

down, unnecessarily increased the 

number of pilots. One commenter 

argued that the Coast Guard’s stated 

rationale in the 2017 NPRM for 

rounding up in all situations is flawed. 

The commenter suggested that the Coast 

Guard should not build in time for 

meetings and outreach activities into the 

pilot numbers, and stated that if the 

pilot associations believe those are 

essential elements of officer functions, 

they should instead adjust their 

distribution practices to encourage those 

functions.49 The commenter also stated 

that other aspects of the staffing model 

already ensure that association officers 

have time for other duties, citing the 

efficiency adjustment of 50 percent. 

We disagree that the efficiency factor 

is the proper forum in which to address 

a pilot’s ancillary duties, such as acting 

as an association president. The ability 

of a pilot president to engage in the 

running of the association, respond to 

Coast Guard inquiries, and attend 

necessary meetings further takes away 

from his ability to provide pilotage 

service. The efficiency factor adjustment 

is designed to determine how efficiently 

a pilot can undertake piloting activities, 

and does not address these other 

required activities. 

The commenter also argued that the 

method by which the Coast Guard 

rounded up pilot numbers in the 2017 

NPRM deviates from the 2016 NPRM.50

In the 2017 NPRM, we proposed to 

round up ‘‘when the calculations 

resulted in a fractional pilot.’’ 51 We 

agree that the 2017 NPRM staffing 

model is different from that used in 

2016. In 2016, we established the 

standard to round the number of pilots 

up or down, ‘‘as seems most 

reasonable,’’ using a demand number 

that generally allocated more pilots than 

needed at times of lesser traffic. This is 

because, under the 2016 Final Rule 


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52 Docket #USCG–2016–0268–0033, page 15. 

53 81 FR at 72017 (December 19, 2016). 54 Docket #USCG–2016–0268–0021, p. 1. 

Staffing Model, there was less of a safety 

concern of rounding down by a 

fractional pilot. We proposed a different 

staffing model in the 2017 NPRM, using 

the pilot assignment cycle to determine 

the actual number of pilots needed for 

the duration of the shipping season. 

Under this model, rounding down 

would be more likely to result in an 

inadequate number of properly-rested 

pilots available, and could result in 

safety concerns and traffic delays. 

However, as stated above, we believe 

that in maintaining the 2016 final rule 

staffing model, this issue with the 

rounding can be resolved. 

The Coast Guard also received a 

comment that it had applied 

unnecessary rounding to the Iroquois 

Lock calculation, resulting in an 

overestimate of the number of pilots 

needed. The commenter wrote, 

‘‘According to GPLO calculations, 

without rounding, District One would 

need a total of 9.11 pilots to handle 

anticipated demand in District One, 

Area 1. With rounding, GLPO proposes 

that 11 pilots are needed.’’ 52

We believe the coalition’s calculations 

are incorrect. In the NPRM, we 

calculated that District One, Area 1, 

would need a total of 9.11 pilots (3.4 + 

5.71), for the increased number of 

assignments due to the mandatory 

change point at Iroquois Lock. However, 

this was rounded up to 10 not 11. This 

is shown in Table 9 of the NPRM, where 

we stated that the total number of pilots 

required for the designated waters of 

District One, Area 1, is 10.53

In evaluating this comment, however, 

we did discover one issue with our 

rounding convention. While the text of 

paragraph 404.103(c) reads, in part, 

‘‘[t]he number of pilots needed in each 

district is calculated by totaling the area 

results by district and rounding them to 

the nearest whole integer,’’ the Coast 

Guard made an error in its rounding 

calculations by rounding the number of 

pilots in each area, rather than in each 

district. There are circumstances where 

this could have resulted in an increase 

of an extra pilot (if, for example, two 

areas required 0.7 pilots). We have 

corrected this mistake in the final rule 

and are rounding by district. 

Reasons To Abandon 2017 NPRM 

Staffing Model 

Several commenters discussed the 

proposed change from 2016 final rule 

staffing model to the 2017 NPRM 

staffing model in general terms, without 

referring to specific portions of the 

calculations. 

One commenter, a Great Lakes pilot, 

argued that the number of pilots 

proposed in the 2017 calculations 

would fall short of what is needed to 

provide safe, efficient, and reliable 

pilotage.54 The commenter stated that 

reviewing bridge hours worked in 

District Three over the course of the 

2016 shipping season would show that 

pilots there had worked extra hours to 

keep ships moving. Furthermore, the 

commenter suggested that cruise ships, 

which are run on a much tighter 

schedule than cargo ships, might 

abandon the area if a lack of pilots 

caused persistent delays. However, the 

commenter did not provide specific 

recommendations on how we should 

modify the staffing model’s 

methodology or suggest different inputs. 

We received comments from the 

Western Great Lakes Pilot Association 

President which suggested that using an 

average staffing model, as proposed in 

the 2017 NPRM, would result in 

unacceptable delays for cruise ships. We 

recognize that the various types of 

vessels that employ U.S. and Canadian 

registered pilots have different 

tolerances for delays due to the lack of 

pilot availability. One method to 

address the varying tolerance for delays 

is through adjusting the regulations that 

deal with dispatching. The current 

system is to strictly assign pilots on a 

first-come, first-serve basis. We plan to 

discuss this issue during the next 

GLPAC meeting to investigate whether 

that standard should be modified, and 

the potential implications such 

modifications would have on the 

System and hourly pilotage rates. 

For many of the reasons the 

commenters described above, we realize 

that there are flaws with the 2017 NPRM 

staffing model. Based upon the 

comments received, particularly those 

that highlighted the variations in traffic 

throughout the season and the 

inconsistencies in the use of average 

trips vs. through time, we have 

concluded that our data does not 

support using the 2017 NPRM staffing 

model. For those reasons, we have 

decided to not to adopt the 2017 NPRM 

staffing model, and continue to use the 

2016 final rule staffing model. 

We note, however, that in the NPRM, 

we proposed to adjust the wording of 46 

CFR 404.104 by replacing the word 

‘‘peak’’ with the word ‘‘seasonal.’’ While 

we are not adopting the proposed new 

staffing model, we believe that 

‘‘seasonal’’ is a more appropriate term to 

use, as instances of high demand often 

occur at various points in the seasons, 

and so are maintaining that textual 

change in the final rule. 

We agree with both shippers and 

pilots that the proposed 2017 NPRM 

staffing model may not achieve the 

required goals of promoting safe and 

efficient pilotage, and that averaging 

traffic through an entire season may not 

adequately account for mid-season 

variations in demand. In this final rule, 

we maintain the staffing model we 

adopted in the 2016 final rule. Even 

though we have used the label ‘‘peak 

demand’’ for the 2016 staffing model, 

we believe some have misinterpreted 

this label. This model uses the pilot 

assignment cycle and average lateseasonal traffic demand over the past 10 

shipping seasons to establish the 

number of pilots necessary to move that 

traffic. We did not establish staffing 

levels to eliminate delays throughout 

the season by reviewing 10 years of 

historic traffic and ensuring that 

sufficient pilots would be on the tourde-role throughout the season to 

eliminate delays. We believe our 

approach provides sufficient pilots to 

deal with the opening of the Seaway 

and the late season rush, in addition to 

other high-traffic periods, in a safe and 

reliable manner while also accounting 

for mid-season demand variations and 

providing the pilots with sufficient 

opportunity to achieve 10 days of 

recuperative rest during 7 months of the 

season. We are willing to evaluate 

potential adjustments to this model in 

the future if we receive specific delay 

tolerances from those stakeholders 

concerned about this issue. We 

discussed staffing during the previous 

GLPAC meeting and plan to discuss 

staffing and delay tolerance during 

future meetings. 

Calculation of Pilotage Need Under the 

2016 Final Rule Staffing Model 

Using the 2016 final rule model, we 

have recalculated the number of pilots 

needed for each district. First, we note 

that use of this model considers the 

extensive use of double pilotage during 

the opening and closing of the shipping 

season. This is because, during the 

opening and closing of the season, the 

aids to navigation may not be in place, 

the weather can be volatile and extreme, 

sea smoke and fog appear with little 

notice, and ice conditions routinely 

present unique challenges to navigation. 

It is also during these periods that the 

pilots are working diligently to ensure 

all vessels exit the system before the 

locks close. For these reasons, we tend 

to authorize double pilotage during the 

opening and closing in designated 

waters for District One and District Two. 

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time only navigation on the St. Marys 

River in lieu of utilizing two pilots. 

Double pilot usage in District Three 

occurs about 30 percent of the time 

during the opening and closing of the 

System. Our staffing model is designed 

to move the average amount of ships 

(calculated using a 10-year average 

model) into and out of the system 

during these times. 

Additionally, we note that the use of 

double pilotage avoids concern about 

how the proposed rule’s modeling 

system dealt with the inclusion of the 

new mandatory change point at the 

Iroquois Lock. Several commenters had 

noted that while the Coast Guard had 

mandated the change, it had not 

updated its models to account for a 

shorter average transit through time the 

change would produce. However, 

during periods of double pilotage, 

because there are two pilots onboard 

that can share the duty, there is no need 

to do a pilot change at the Iroquois 

Lock. 

Substep 1: Determine the Pilot Cycle 

Time 

Similar to the 2017 NPRM staffing 

model, we start the 2016 final rule 

staffing model by calculating the pilot 

cycle time, as shown the tables below: 

TABLE 5a—CALCULATION OF PILOT ASSIGNMENT CYCLE, DISTRICT ONE

District One Area 1 Area 2 

Time on Bridge or Available (hrs) ................................................................................................................... 10.8 11 

Travel and Pilot Boat Transit (hrs) .................................................................................................................. 3.2 4.6 

Delay (hrs) ....................................................................................................................................................... .7 .9 

Admin (hrs) ...................................................................................................................................................... .5 .5 

Mandatory Rest ............................................................................................................................................... 10 10 

Total Pilot Assignment Cycle (hrs) ........................................................................................................... 25.2 27.0 

District Two is unique in the fact that 

the mandatory change points do not 

align with the border of designated and 

undesignated waters. The mandatory 

change point is located at Detroit, but 

the boundary for designated and 

undesignated waters occurs at the 

Southeast Shoal of Lake Erie. We based 

the average through transit for each of 

these segments, as follows: 

TABLE 5b—CALCULATION OF PILOT ASSIGNMENT CYCLE, DISTRICT TWO

District Two Between Area 4 

and Detroit 

Between Detroit 

and Port Huron 

Time on Bridge or Available (hrs) ................................................................................................................... 17 6.5 

Travel and Pilot Boat Transit (hrs) .................................................................................................................. 4.6 3.2 

Delay (hrs) ....................................................................................................................................................... .7 .4 

Admin (hrs) ...................................................................................................................................................... .5 .5 

Mandatory Rest ............................................................................................................................................... 10 10 

Total Pilot Assignment Cycle (hrs) ........................................................................................................... 32.8 20.6 

District Three is unique in that steelimporting vessels transit to Chicago/ 

Burns Harbor while grain-exporting 

vessels depart from Duluth and Thunder 

Bay. During the opening and closing of 

the shipping season, the System 

experiences numerous vessels that make 

an inbound or outbound transit in 

ballast. 

TABLE 5c—CALCULATION OF PILOT ASSIGNMENT CYCLE, DISTRICT THREE

District Three Area 6 Area 7 Area 8 

Time on Bridge or Available (hrs) ................................................................................... 22.5 7.1 21.6 

Travel and Pilot Boat Transit (hrs) .................................................................................. 2.4 3.6 3.7 

Delay (hrs) ....................................................................................................................... 1 0.3 3.3 

Admin (hrs) ...................................................................................................................... 0.5 0.5 0.5 

Mandatory Rest ............................................................................................................... 10 10 10 

Total Pilot Assignment Cycle (hrs) ........................................................................... 36.4 21.5 39.1 

Substep 2: Determination of Average 

Late Season Demand 

We then determine the average lateseason traffic demand over the base 

period, as shown in table 6. This 

number is derived by dividing the 

number of assignments by the number 

of days in the corresponding pilot cycle. 

Numbers for designated areas are 

doubled due to the need for double 

pilotage during late peak seasonal 

period, as described above. Table 6 also 

shows the number of pilots that would 

be authorized using the traffic 

information from 2007–2016. 


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55 District Three prefers day-time navigation only 

during the opening and closing of the System and 

these pilots use double pilotage approximately 30 

percent of the time at the opening and closing of 

the season. 56 Docket #USCG–2016–0268–0033, p. 18. 

TABLE 6—10-YEAR AVERAGE OF TRAFFIC DEMAND AND PILOT REQUIREMENTS AT THE CLOSING OF THE SEASON, 

2007–2016 

District One Area 1 

(designated) 

Area 2 

(undesignated) 

Average late-season assignments per day ..................................................................................................... 5 6 

Average Pilot Cycle Time (hours) ................................................................................................................... 25.2 27.0 

Total Hours Needed (Assignments * Cycle Time) .......................................................................................... 126 162 

Total Hours Needed for double pilotage transit (designated only) ................................................................. 252 ............................

Number of pilots needed to meet the average seasonal demand (total hours/24) ........................................ 10.5 6.8 

Pilots Needed for total district .................................................................................................................. (252 + 162)/24 = 17.25 = 17 

(rounded) 

District Two 

Area 4 to Detroit 

(designated and 

undesignated) 

Area 5 Between 

Detroit and Port 

Huron 

Average late-season assignments per day ..................................................................................................... 5 5 

Average Pilot Cycle Time (hours) ................................................................................................................... 32.8 20.6 

Total Hours Needed (Assignments * Cycle Time) .......................................................................................... 164 103 

Total Hours Needed for double pilotage transit (designated only) ................................................................. N/A 206 

Number of pilots needed to meet the average seasonal demand (total hours/24) ........................................ 6.8 8.6 

Pilots Needed for total district .................................................................................................................. (164 + 206)/24 = 15.41 = 15 

(rounded) 

District Three Area 6 

(undesignated) 

Area 7 

(designated) 

Area 8 

(undesignated) 

Average late-season assignments per day ..................................................................... 5 5 5 

Average Pilot Cycle Time (hours) ................................................................................... 36.4 21.5 39.1 

Total Hours Needed (Assignments * Cycle Time) .......................................................... 182 107.5 195.5 

Total Hours Needed for double pilotage transit (designated only) ................................. N/A 55 139.75 N/A 

Number of pilots needed to meet the average seasonal demand (total hours/24) ........ 7.6 5.8 8.1 

Pilots Needed ........................................................................................................... (182 + 139.75 + 195.5)/24 = 21.55 = 22 (rounded) 

Based on the above analysis, we have 

determined that there is a need for a 

total of 54 pilots. The breakdown, as 

shown in the above table, is 17 pilots in 

District One, 15 pilots in District Two, 

and 22 pilots in District Three. The 

Coast Guard will keep these numbers in 

mind in future regulatory actions. 

Calculation of Projected Pilot Numbers 

As stated above, paragraph 404.103(d) 

produces a separate number of pilots, 

which is used for the Great Lakes 

pilotage ratemaking procedure. That 

section requires the Director of Great 

Lakes Pilotage to determine the number 

of pilots expected to be fully working 

and compensated based on the number 

of persons applying become U.S. Great 

Lakes registered pilots, and on 

information provided by the district’s 

pilotage association. In the NPRM, the 

Coast Guard projected that there would 

be 17 pilots in District One, 13 pilots in 

District Two, and 15 pilots in District 

Three, for a total of 45 pilots. 

In the NPRM, after determining the 

number of pilots needed in each district 

in Step 3, the Coast Guard proposed 

adding additional applicant pilots in 

District Two and District Three. The 

Coast Guard believes these applicant 

pilots are necessary to prepare for future 

retirements, given the long training 

periods associated with new pilots. 

Currently, 4 of the pilots in District Two 

are over 62 years of age, and 6 of the 

pilots in District Three are over 61 years 

of age. These pilots represent nearly 30 

percent of the pilot strength in each of 

these districts. Waiting until these pilots 

retire to replace them will result in 

significant delays and may denigrate 

safety, because the pilot association will 

be short-staffed. These pilots are needed 

in addition to the existing shortage of 

pilots (District Two is one pilot short of 

the needed number, while District Three 

is seven pilots short). Therefore, the 

Coast Guard proposed authorizing a 

surcharge in 2017 to fund these 

additional applicant pilots. 

We received several comments on this 

issue. One commenter 56 stated that the 

‘‘NPRM arbitrarily introduces pilot age 

as a reason to justify the addition of 

more pilots than required by its 

calculations.’’ The commenter stated 

that the Coast Guard proposes adding 1 

additional pilot in District Two and 4 

additional pilots in District Three, but 

the Coast Guard does not impose age 

limitations on pilots. The commenter 

stated the Coast Guard also does not 

specify the retirement commitments of 

the current pilots within the next 2 

years. The commenter recommended 

that instead of speculating about the age 

impacts on pilot rosters, the Coast 

Guard should train additional pilots 

based on the retirement transition plans. 

We disagree. The regulations allow a 

registered pilot to work until the age of 

70. Just because a pilot can keep his full 

registration until age 70, doesn’t mean 

that all of the pilots will work until that 

age. In the past several years, a number 

of pilots have retired prior to age 70. 

While we are in close contact with the 

US pilot associations to plan for future 

retirements, we do not feel it is prudent 

to assume that all of the current pilots 

will work until age 70. 


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57 Docket #USCG–2016–0268–0035, p. 1. 

58 Docket #USCG–2016–0268–0031, p. 1. 

59 Docket #USCG–2016–0268–0033, p.20. 

60 Docket #USCG–2016–0268–0028, p. 6–7. 

61These sources include information from the 

Great Lakes Pilotage Authority as well as 

information regarding compensation submitted by 

other U.S. pilotage associations. 62 Docket #USCG–2016–0268–0028, p. 2–3. 

Once commenter 57 stated that the 

‘‘Lakes Pilots Association agrees with 

the number of pilots in the proposed 

rates of 13 working pilots and 2 training 

pilots.’’ The commenter stated the Lakes 

Pilot Association will require 15 pilots 

to service future traffic and provide 

adequate rest in the future. The Lakes 

Pilot Association noted in 2018, that it 

will look for 14 full time pilots and 1 

trainee and will be at 15 full time pilots 

in 2019. We agree with the assessment 

that there is a need for 13 working pilots 

and 2 training pilots for the 2017 

shipping season. We cannot comment 

on 2018 and 2019 at this time. 

Based on our analysis of the pilotage 

numbers and the comments received, 

we have not modified the number of 

working pilots for 2017. Both the 2017 

NPRM staffing model and the 2016 final 

rule staffing model produce more pilots 

than the 3 U.S. pilot associations have 

fully trained. Therefore, when we 

established 45 working pilots in the 

NPRM, we knew that the system needed 

more time to acquire and train the 

additional pilots. We will continue to 

monitor and work with the pilot 

associations to ensure that the 

associations continue to make progress 

toward our staffing goals. The final 

numbers for the 2017 Step 3 

calculations are 17 pilots for District 

One, 13 pilots for District Two, and 15 

pilots for District Three, for a total of 45 

pilots. Pursuant to 46 CFR 404.104, 

these are the numbers we will be using 

in our rate calculations. 

4. Calculation of Target Compensation 

Step 4 in our ratemaking methodology 

requires that the Coast Guard determine 

the target pilot compensation 

(§ 404.104). In the 2016 final rule, the 

Coast Guard used the Canadian pilot 

compensation as the benchmark for the 

U.S. pilot compensation, and then made 

an adjustment for foreign exchange 

differences and inflation. The Coast 

Guard then increased the U.S. target 

pilot compensation by 10 percent over 

the projected GLPA figure to account for 

the differences in the status of U.S. and 

Canadian pilots and the different 

compensation systems in place in the 

two countries. In the 2017 NPRM, the 

Coast Guard proposed keeping the target 

pilot compensation at the 2016 levels. 

In this section, we discuss comments 

relating to our calculations to get to the 

target compensation as discussed in the 

2016 final rule and the 2017 NPRM, 

which uses the Canadian salary plus 10 

percent as the target. In the section 

regarding setting a compensation 

benchmark above, we separately 

discussed the issue of using different 

compensation benchmarks, such as the 

compensation packages for pilots in 

other U.S. Associations or salaries of 

first mates or other crewmembers. For 

the reasons described in that section, we 

continue to believe that the benchmark 

established in the 2016 final rule, based 

on Canadian pilot salaries plus a 10 

percent differential to calculate the 

value of certain benefits, is an 

appropriate level of compensation. In 

this section, we discuss the specific 

comments related to the calculation of 

the compensation benchmark. 

Several commenters suggested that 

the use of Canadian pilot salaries was an 

inappropriate yardstick by which to 

base U.S. salaries. One commenter 

argued that it was inappropriate because 

U.S. and Canadian pilot associations 

cannot recruit workers from the same 

pool of individuals.58 Another 

commenter suggested that the older way 

in which the Coast Guard determined 

compensation, by basing its estimate on 

the wages paid to U.S. Masters and 

Mates, was more appropriate, asserting 

that the functions of these personnel are 

essentially the same as U.S. pilots, and 

that using this system avoids the 

complications of comparing 

compensation across national 

boundaries.59

Several pilot associations argued that 

the Coast Guard should base Great Lakes 

compensation figures on the salaries 

earned by other U.S. pilot associations. 

Several commenters provided figures, 

noting that in other areas, U.S. pilots 

earned upwards of $450,000 per year. 

One commenter 60 provided figures 

showing the projected compensation for 

pilots in various U.S. pilot associations, 

which ranged from a low of $399,708 

per year to a high of $493,692. Other 

commenters echoed the argument that 

the Great Lakes pilots are among the 

lowest-paid U.S. pilots. 

In some regions governed by local 

pilotage associations, compensation 

figures appear to be much higher than 

those proposed by the Coast Guard. It is 

unclear why some U.S. pilot 

associations receive compensation 

levels much higher than that of 

Canadian pilots or U.S. masters and 

mates, based on the alternative sources 

of information that we have.61 As many 

organizations that set pilotage rates do 

not make public what methodology they 

are using to derive pilotage rates, we do 

not have sufficient information or a 

basis to raise pilotage rates on the Great 

Lakes to determine if these levels of 

compensation are appropriate for Great 

Lakes pilotage. We note, again, that we 

are undertaking a compensation study 

to better determine an appropriate 

compensation benchmark, and will 

present the results of such a study in a 

public forum should it provide a better 

basis for setting compensation levels. 

Even for those commenters who 

agreed that the comparison between 

U.S. and Canadian Great Lakes pilots 

was the most apt, we received 

comments that our calculations erred in 

a variety of ways. Many commenters 

offered statements regarding the 

calculations of Canadian pilots’ average 

total compensation, arguing that in 

certain areas, the Coast Guard had 

overestimated or underestimated the 

total amount, or made errors in its 

conversion of the value of Canadian 

compensation to American currency. In 

the NPRM, we recognized that the most 

challenging portion of our target 

compensation analysis was the 

conversion of Canadian benefits into 

equivalent United States benefits, and 

many commenters argued that we had 

underestimated total compensation in a 

variety of ways. 

One commenter argued that the Coast 

Guard underestimated Canadian 

compensation by averaging the 

compensation of four contract and three 

apprentice pilots, along with 49 fulltime, regular Canadian pilots, into the 

compensation total.62 That commenter 

stated that the compensation for U.S. 

full-time, regular pilots should be based 

on the salaries of Canadian full-time, 

regular pilots only. By excluding those 

contract and apprentice pilots, the 

commenter calculated that the base 

compensation should have been 

$291,035, rather than the $268,552 used 

in the NPRM, meaning that the Coast 

Guard should increase the total 

compensation target by over 8 percent. 

While we agree with the commenter 

that contract and apprentice pilots 

should not have been included in the 

calculations of pilot salaries, we 

disagree with the commenter’s assertion 

that they were included in our 

calculations. The Coast Guard did not 

base its calculations on the annual 

report the commenter cited, but 

received information from the GLPA 

directly. When the GLPA provided the 

Coast Guard with the information 

regarding Canadian compensation, it 

did not include these contract and 

apprentice pilots. 


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63 Docket #USCG–2016–0268–0038, p. 4. 

64 Docket #USCG–2016–0268–0033, p. 20. 

65 Docket #USCG–2016–0268–0033, p. 21. 66See https://www.irs.gov/individuals/ 

international-taxpayers/yearly-average-currencyexchange-rates. 67 Docket #USCG–2016–0268–0028, p. 4. 68 Docket #USCG–2016–0268–0028, p. 4. 69 Docket #USCG–2016–0268–0028. p. 4. 70 Docket #USCG–2016–0268–0028, p. 5. 

Another commenter 63 argued that 

U.S. pilots should be paid substantially 

more than Canadian pilots due to 

working more days per year. This 

commenter stated that that the Canadian 

Great Lakes Pilot Association’s work 

schedule is 178 days per year, and that 

the U.S. pilot compensation needs to be 

adjusted to reflect an additional 12.4 

percent difference in time on duty. We 

disagree that target pilot compensation 

needs to be adjusted by 12.4 percent. 

While our staffing model assumes that 

the pilots will be on the tour-de-role for 

200 days of the season, we do not make 

a 1-to-1 comparison between time spent 

on duty in the Canadian sector and time 

spent on the tour-de-role. Our 

methodology was designed to 

approximate the annual average 

compensation for Canadian pilots, not 

an attempt to match their hourly pay 

rate. 

One issue that arose regarding 

compensation figures is the conversion 

from Canadian to U.S. currency. 

Comments from the Great Lakes 

Shippers Association requested the 

Coast Guard to recalculate the baseline 

compensation figure using updated 

exchange rate figures. The commenter 

stated that the Coast Guard’s ‘‘decision 

in the 2017 NPRM to disregard 

fluctuations in the U.S./Canadian 

exchange rate is inconsistent with the 

2016 NPRM.’’ 64 The commenter 

requested that the Coast Guard provide 

analysis and reasoning for this change 

from the past practice. The commenter 

also stated that if the exchange rates are 

relevant in one direction the exchange 

rates should be relevant in the other 

direction, arguing that not including 

this fluctuation in the exchange rate 

‘‘fails to reconcile the emphasis on 

perceived parity between U.S. and 

Canadian pilot compensation with the 

negative impact of increased U.S. dollar 

strength on Canadian pilots.’’ Shipping 

industry comments requested that 

exchange rates be used to recalculate 

compensation on a regular basis. The 

comment suggested that the Coast Guard 

should adhere to this methodology if the 

Coast Guard chooses to use Canadian 

compensation as the benchmark. 

The shipping association comments 

requested that, given the decline in 

exchange rates between the U.S. and 

Canadian dollars, the Coast Guard 

dramatically lower the target 

compensation. The commenter stated 

that ‘‘assuming a 1.329 average 

exchange rate and 2 percent inflation 

per year, U.S. pilot compensation in 

2017 would be $240,149’’.65 The 

commenter stated that this 

compensation figure is 3.4 percent 

higher than the 2015 projected 

compensation levels in designated 

waters of $232,237, which was the last 

year the Coast Guard used U.S. Mates 

and Masters as the U.S. target pilot 

compensation. 

We acknowledge that the exchange 

rate had changed substantially, and that 

our original translation of Canadian 

benefits to U.S. dollars is based on the 

2014 exchange rate. This rate has 

fluctuated significantly in recent years, 

for example, changing from 1.149 CAD:1 

USD in 2014 to 1.329 CAD:1 USD in 

2015.66 If the goal of the Coast Guard 

were to have U.S. pilot salaries mirror, 

as closely as possible, the value of 

Canadian pilots’ salaries each year, it 

would make sense to re-baseline the 

compensation figure using updated 

exchange rates each year. One downside 

of this approach, however, would be 

tremendous volatility in pilot 

compensation as the currency fluctuated 

from year to year. As we noted in our 

discussion of why we proposed a 

compensation benchmark in the NPRM, 

large swings in compensation, based on 

external factors such as currency 

fluctuations, are something the Coast 

Guard believes are highly detrimental to 

retaining talented pilots and 

maintaining safe and efficient pilotage. 

Other commenters wanted the Coast 

Guard to revisit its calculation of 

compensation and increase it, citing a 

number of factors. One commenter 67

argued that the 10 percent factor used to 

adjust the Canadian pilot compensation 

to American pilot target compensation 

is too low. The commenter identified 10 

ways that the Canadian pilot positions 

differ from American pilot positions, 

and argued that each of these identified 

differences works to the disadvantage of 

the American pilots with respect to 

compensation. The commenter 

suggested setting U.S. pilot 

compensation at Canadian 

compensation plus 25 percent, rather 

than 10 percent, but then stated that this 

would still be too low given the 

differences. 

The commenter 68 further stated the 

difference in healthcare and pension 

costs alone exceeds the 10 percent factor 

and supports the need for at least a 25 

percent factor.69 The commenter stated 

the pension compensation between the 

American and Canadian pilots is 

different: The Canadian pilots are 

government employees who contribute 

to a defined benefit pension plan that is 

subsidized by the Canadian government, 

but the American pilots have no defined 

government plans and must cover the 

costs of retirement themselves. The 

commenter submitted data on the 

annual pension contributions from a 

randomly selected group of GLPA 

pilots. The commenter did note that the 

typical Canadian pilot contributes an 

average of $10,000–16,000 annually to a 

pension plan, while an American pilot 

might contribute ‘‘multiple times that 

amount, receiving no contribution from 

his government, and not being eligible 

for any similar lifetime governmentsponsored defined pension plan.’’ The 

commenter stated the difference an 

American pilot would need to 

contribute to a pension alone requires a 

factor greater than 10 percent to adjust 

target compensation. They also stated 

that data from the International 

Organization of Masters, Mates & Pilots 

(MM&P) American labor union indicates 

the pension contribution for a pilot 

would be $61,992 annually for a plan 

similar to the Canadian defined benefit 

pension plan. 

The same commenter also stated the 

healthcare compensation is different 

between American and Canadian pilots, 

and further supports a factor higher than 

10 percent. The commenter noted a 

Canadian pilot pays no out-of-pocket 

expenses for dental or general 

healthcare coverage, while an American 

pilot typically pays $25,000 annually for 

a reasonably comprehensive healthcare 

plan. The commenter cited that the 

MM&P Pilot Membership Health plan 

annual cost is $28,965 and an American 

pilot association includes $30,000 

annually per pilot for healthcare. 

Further, American pilots must pay for 

long-term disability insurance while 

Canadian pilots have no out-of-pocket 

costs for long-term disability coverage. 

For these reasons, the commenter 

requested ‘‘the Coast Guard to revise its 

factor to at least 25 percent and perhaps 

more in order to achieve its goal of 

equivalency’’.70

Despite the importance of these 

issues, this information does not relate 

to an issue that the Coast Guard 

proposed to address in the 2017 

ratemaking process. In 2016, the Coast 

Guard conducted a substantial rebaselining of the compensation 

benchmark, and considered these issues 

closely, arriving at the $326,114 annual 

compensation figure. In the 2017 

ratemaking, it was not our intention to 


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71 81 FR 72014–5. 

72Based on Moody’s AAA corporate bonds, 

which can be found at: http://

research.stlouisfed.org/fred2/series/AAA/ 

downloaddata?cid=119. 

73 Docket #USCG–2016–0268–0033, p. 23. 74 Docket #USCG–2016–0268–0033, p. 23. 

reanalyze all of these issues, and we did 

not propose a change in the value we 

established in 2016. Much like 

recalculating U.S. pilot salaries on the 

fluctuating U.S.-Canada exchange rate, 

recalculating these issues on an annual 

basis could produce an extraordinary 

amount of volatility in both the 

shipping rates and the overall 

compensation levels, which is why we 

proposed using a 10-year compensation 

benchmark rather than recalculating the 

target compensation on an annual basis. 

As we stated in the NPRM, we do not 

believe it is in the public interest to 

introduce such volatility into the market 

based on these difficult-to-calculate and 

predict forces. We believe that the 

system needs target pilot compensation 

stability in order to achieve and 

maintain workforce stability, and that 

this concern strongly supports using a 

consistent compensation benchmark. 

For that reason, while we consider all of 

these factors to be valid concerns, we 

are not utilizing them in this 

rulemaking. 

We did receive one comment on the 

compensation figure that did not 

involve re-examining the benchmark. 

This commenter suggested that the 2016 

figure should be adjusted for inflation so 

that pilots would continue to receive the 

same income in real terms. We agree 

with this commenter. To remain stable 

in real terms, such a benchmark would 

need be adjusted for inflation on an 

annual basis. This will achieve the 

Coast Guard’s goal of maintaining 

stability in real (as opposed to nominal) 

compensation. For this reason, we are 

adjusting the 2017 target compensation 

by the Midwest Consumer Price Index 

of 2.1 percent, for a total figure of 

$332,963 per year. We intend to adjust 

the compensation figure for inflation 

annually in future ratemaking actions, 

the same way that operating expenses 

are adjusted for inflation. 

Based on the analysis, the 

calculations for step 4 are as follows: 

TABLE 7—CALCULATIONS OF TOTAL COMPENSATION

District One Area 2 

(undesignated) 

Area 1 

(designated) Total 

Target Pilot Compensation .............................................................................................. $332,963 $332,963 $332,963 

Number of Pilots (step 3) ................................................................................................ 10 7 17 

Total pilot compensation .......................................................................................... $3,329,630 $2,330,741 $5,660,371 

District Two Area 4 

(undesignated) 

Area 5 

(designated) Total 

Target Pilot Compensation .............................................................................................. $332,963 $332,963 $332,963 

Number of Pilots (step 3) ................................................................................................ 6 7 13

Total pilot compensation .......................................................................................... $1,997,778 $2,330,741 $4,328,519 

District Three Area 

(undesignated) 

Area 

(designated) Total 

Target Pilot Compensation .............................................................................................. $332,963 $332,963 $332,963 

Number of Pilots (step 3) ................................................................................................ 11 4 15 

Total pilot compensation .......................................................................................... $3,662,593 $1,331,852 $4,994,445 

5. Working Capital Fund 

Step 5 in our ratemaking methodology 

requires that the Coast Guard determine 

the working capital fund (proposed 

§ 404.105). In the NPRM, we proposed 

changing the term for this step from 

‘‘Project return on investment’’ to 

‘‘Determine working capital fund.’’ Even 

though we proposed changing the name 

of the step, we did not propose changing 

the calculation. 

The Coast Guard described the 

calculation of the working capital fund 

in the NPRM.71 We calculated the 

working capital fund by multiplying the 

2014 average rate of return for new 

issues of high-grade corporate securities, 

using the Moody’s AAA bond rate 

information to determine the average 

annual rate of return for new issues of 

high-grade corporate securities, and 

Total Expenses from step 4 of the 

ratemaking analysis. The 2014 average 

annual rate of return for new issues of 

high-grade corporate securities was 4.16 

percent.72 This figure is added to the 

total revenue needed in the next stage. 

One commenter stated the Coast 

Guard is not using the working capital 

fund to attract capital, and that this fund 

is better described as ‘‘cash reserves for 

operating expenses.’’ Similarly, the 

commenter 73 stated the Coast Guard 

failed to address why the pilotage 

should cover any expenses beyond 

direct expenses. The commenter stated 

that working capital fund is 

inappropriate under conventional 

regulatory ratemaking principles, and 

the rate payers should only pay for all 

operating expenses via the rates and 

surcharges. The commenter requested 

the Coast Guard eliminate the working 

capital fund. In its place, the Coast 

Guard should review and approve 

projects for funding with surcharges, 

‘‘assuming surcharges are structured in 

a manner that permits close preapproved scrutiny to ensure the 

expenditure adds value to pilotage 

services and the surcharge is terminated 

when the specific need is met.’’ 74 The 

commenter stated he or she prefers the 

use of surcharges as it provides more 

clarity in the use of the funds than a 

working capital fund. 

We disagree that the working capital 

fund should be abolished and that 

infrastructure improvements should 

only be paid for with surcharges. We 

believe that surcharges are a poor 

method for paying for infrastructure 

projects, which are often capitalintensive, with large upfront costs. It 

would be risky to try and recover these 

large upfront costs through surcharges 

due to general volatility in shipping 

levels, which might not cover the fixed 

costs of infrastructure. Using surcharges 


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for infrastructure projects would also 

increase volatility in shipping charges, 

which is not desirable. That is why the 

working capital fund is not structured to 

be a ‘‘cash reserve’’ for infrastructure 

projects. Instead, it is structured so that 

the pilot associations can demonstrate 

credit worthiness when seeking funds 

from a financial institution for needed 

infrastructure projects, and those 

projects can produce a return on 

investment at a rate commensurate to 

repay a financial institution. While we 

acknowledge that, currently, capital 

improvements are funded via 

surcharges, it is our belief that the 

working capital fund should allow us to 

limit the need for surcharges in the 

future. 

TABLE 8—WORKING CAPITAL FUND CALCULATION

District One Area 2 

(undesignated) 

Area 1 

(designated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... $648,371 $516,353 $1,164,724 

Total Target Pilot Compensation (Step 4) ............................................................... 3,329,630 2,330,741 5,660,371 

Total 2017 Expenses (lines 1+2) ..................................................................................... 3,978,001 2,847,094 6,825,095 

Multiply by Moody’ High Grade Security Rate (4.16%) .................................................. 165,485 118,439 283,924 

District Two Area 4 

(undesignated) 

Area 5 

(designated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... 816,016 1,224,024 2,040,040 

Total Target Pilot Compensation (Step 4) ....................................................................... 1,997,778 2,330,741 4,328,519 

Total 2017 Expenses (lines 1+2) ............................................................................. 2,813,794 3,554,765 6,368,559 

Multiply by Moody’ High Grade Security Rate (4.16%) .................................................. 117,054 147,878 264,932 

District Three Areas 6 and 8 

(undesignated) 

Area 7 

(designated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... 1,463,402 487,114 1,950,516 

Total Target Pilot Compensation (Step 4) ....................................................................... 3,662,593 1,331,852 4,994,445 

Total 2017 Expenses (lines 1+2) ............................................................................. 5,125,995 1,818,966 6,944,961 

Multiply by Moody’ High Grade Security Rate (4.16%) .................................................. 213,241 75,669 288,910 

6. Calculation of Needed Revenue 

Step 6 in our ratemaking methodology 

requires that the Coast Guard determine 

the projected revenue for the next year 

(§ 404.106). The needed revenue is 

determined by adding the proposed 

§ 404.102 operating expense, the 

proposed § 404.104 total target 

compensation, and the proposed 

§ 404.105 working capital fund. We did 

not receive any comments related to this 

step. 

TABLE 9—CALCULATION OF NEEDED REVENUE

District One Area 1 

(designated) 

Area 2 

(undesignated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... $648,371 $516,353 $1,164,724 

Total Target Pilot Compensation (Step 4) ....................................................................... 3,329,630 2,330,741 5,660,371 

Working Capital Fund (Step 5) ........................................................................................ 165,485 118,439 283,924 

Total Revenue Needed ............................................................................................ 4,143,486 2,965,533 7,109,019 

District Two Area 4 

(undesignated) 

Area 5 

(designated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... 816,016 1,224,024 2,040,040 

Total Target Pilot Compensation (Step 4) ....................................................................... 1,997,778 2,330,741 4,328,519 

Working Capital Fund (Step 5) ........................................................................................ 117,054 147,878 264,932 

Total Revenue Needed ............................................................................................ 2,930,848 3,702,643 6,633,491 

District Three Areas 6 and 8 

(undesignated) 

Area 7 

(designated) Total 

Adjusted Operating Expenses (Step 2) ........................................................................... 1,463,402 487,114 1,950,516 

Total Target Pilot Compensation (Step 4) ....................................................................... 3,662,593 1,331,852 4,994,445 

Working Capital Fund (Step 5) ........................................................................................ 213,241 75,669 288,910 

Total Revenue Needed ............................................................................................ 5,339,236 1,894,635 7,233,871 

7. Projection of Future Revenue and 

Calculation of Initial Base Rates 

Step 7 in our ratemaking methodology 

requires that the Coast Guard make the 

initial base rate calculations. To make 

our initial base rate calculations, we 

first establish a multi-year base period 

from which we can draw available and 

reliable data on actual pilot hours 

worked in each district’s designated and 

undesignated waters. In the NPRM, we 

proposed using data covering 2007 


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through 2015. We then calculated the 

new rates by dividing each association’s 

projected needed revenue, from 

§ 404.106, by the average number of 

bridge hours and rounding to the 

nearest whole number. We did not 

receive comments on this step. 

TABLE 10a—CALCULATION OF AVERAGE TRAFFIC

District One Area 2 

(undesignated) 

Area 1 

(designated) 

2016 ................................................................................................................................................................. ............................ ............................

2015 ................................................................................................................................................................. 6,667 5,743 

2014 ................................................................................................................................................................. 6,853 6,810 

2013 ................................................................................................................................................................. 5,529 5,864 

2012 ................................................................................................................................................................. 5,121 4,771 

2011 ................................................................................................................................................................. 5,377 5,045 

2010 ................................................................................................................................................................. 5,649 4,839 

2009 ................................................................................................................................................................. 3,947 3,511 

2008 ................................................................................................................................................................. 5,298 5,829 

2007 ................................................................................................................................................................. 5,929 6,099 

Average ........................................................................................................................................................ 5,597 5,390 

District Two Area 4 

(undesignated) 

Area 5 

(designated) 

2016 ................................................................................................................................................................. ............................ ............................

2015 ................................................................................................................................................................. 6,535 5,967 

2014 ................................................................................................................................................................. 7,856 7,001 

2013 ................................................................................................................................................................. 4,603 4,750 

2012 ................................................................................................................................................................. 3,848 3,922 

2011 ................................................................................................................................................................. 3,708 3,680 

2010 ................................................................................................................................................................. 5,565 5,235 

2009 ................................................................................................................................................................. 3,386 3,017 

2008 ................................................................................................................................................................. 4,844 3,956 

2007 ................................................................................................................................................................. 6,223 6,049 

Average ........................................................................................................................................................ 5,174 4,842 

District Three Areas 6 and 8 

(undesignated) 

Area 7 

(designated) 

2016 ................................................................................................................................................................. ............................ ............................

2015 ................................................................................................................................................................. 22,824 2,696 

2014 ................................................................................................................................................................. 25,833 3,835 

2013 ................................................................................................................................................................. 17,115 2,631 

2012 ................................................................................................................................................................. 15,906 2,163 

2011 ................................................................................................................................................................. 16,012 1,678 

2010 ................................................................................................................................................................. 20,211 2,461 

2009 ................................................................................................................................................................. 12,520 1,820 

2008 ................................................................................................................................................................. 14,287 2,286 

2007 ................................................................................................................................................................. 24,811 5,944 

Average ........................................................................................................................................................ 18,835 2,835 

TABLE 10b—CALCULATION OF INITIAL BASE RATES

District One Area 2 

(undesignated) 

Area 1 

(designated) 

Revenue Needed (Step 6) ............................................................................................................................... $2,965,533 $4,143,486 

Average traffic .................................................................................................................................................. 5,597 5,390 

Initial hourly rate .............................................................................................................................................. $530 $769 

District Two Area 4 

(undesignated) 

Area 5 

(designated) 

Revenue Needed (Step 6) ............................................................................................................................... $2,930,848 $3,702,643 

Average traffic .................................................................................................................................................. 5,174 4,842 

Initial hourly rate .............................................................................................................................................. $566 $765 

District Three Areas 6 and 8 

(undesignated) 

Area 7 

(designated) 

Revenue Needed (Step 6) ............................................................................................................................... $5,339,236 $1,894,635 

Average traffic .................................................................................................................................................. 18,835 2,835 

Initial hourly rate .............................................................................................................................................. $283 $668 


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75 82 FR 16542, April 5, 2017. 

76 Docket #USCG–2016–0268–0028, p. 9. 

77 Docket #USCG–2016–0268–0033, p. 29. 

78 Docket #USCG–2016–0268–0033, Exhibit I, 

Weighting Factor Data. 

79 Docket #USCG–2016–0268–0033, p. 31. 

80 District 1 had 920 hours of non-compulsory 

pilotage that generated $619,218. Removing those 

hours and revenues leaves 98 percent of projected 

pilotage service and 122 percent of projected 

revenues. District 2 had 1,920 hours of noncompulsory pilotage that generated $1,674,256. 

Removing those hours and revenues leaves 101 

percent of projected pilotage service and 133 

percent of projected revenues. District 3 had 2,745 

hours of non-compulsory pilotage that generated 

$1,030,570. Removing those hours and revenues 

leaves 111 percent of projected pilotage service and 

135 percent of projected revenues. Based on this 

analysis, we do not believe the non-compulsory 

pilotage significantly altered the measured disparity 

between traffic and revenue. 

8. Calculation of an Average Weighting 

Factor 

In the NPRM, the Coast Guard sought 

public comment on how we should 

handle weighting factors in 46 CFR 

401.400, which outlines the calculations 

for determining the weighting factors for 

a vessel subject to compulsory pilotage. 

This calculation determines which 

multiplication factor will be applied to 

the pilotage fees. The Coast Guard 

presented three options and requested 

public comment on which option 

should be implemented for future 

ratemakings. After receiving public 

comments on the NPRM, the Coast 

Guard decided to seek additional 

comments on this issue in a 

Supplemental Notice of Proposed 

Rulemaking.75

The first option was to maintain the 

status quo. This would maintain the 

collection of the current weighting 

factors and continue to exclude this 

revenue from the ratemaking 

calculation. 

The second option was to remove 

weighting factors completely from the 

regulations and charge every vessel 

equally for pilotage service because a 

ship’s dimensions have little impact on 

the experience and skill level of the 

pilot providing the service. We note that 

this option could mean simply charging 

every vessel the current ‘‘base rate,’’ or 

it could mean adjusting the rates for 

vessels so all vessels pay the current 

average weighted rate. 

The third option was to incorporate 

weighting factors into the ratemaking 

through an additional step that 

examines and projects their impact on 

the revenues of the pilot associations. 

This might enable us to better forecast 

revenue, but it would add another 

variable to the projections in the 

ratemaking methodology. 

One commenter said that they 

‘‘strongly urge the Coast Guard to 

maintain the status quo on weighting 

factors, at least until actual data suggest 

that changes are necessary and 

appropriate.’’ 76 The commenter stated 

that the pilots have consistently failed 

to reach the target pilot compensation 

over the last decade, with the weighting 

factors included, and therefore changing 

the weighting factors would risk further 

contributing to the difficulty attracting 

and retaining pilots. 

One commenter 77 stated that the 

Coast Guard’s revenue projections 

would not be accurate if we did not 

include weighting factors to reflect 

vessel size. The commenter suggested 

that since the rates in the NPRM do not 

reflect weighting factors, the Coast 

Guard overstates the rates needed to 

generate the pilotage revenue. The 

actual pilotage charges include a 

weighting factor multiplier and 

additional charges. If the actual traffic is 

equal to the expected demand, then the 

pilot associations would receive 

revenue above the target revenue. The 

commenter provided an example using 

a 1.25 weighting factor, which is close 

to the 1.26 average weighting factor 

provided in GLPA data.78 The 

commenter argued that if an average 

weighting factor of 1.25 for all traffic 

were applied for the 2017 shipping 

season, the pilot associations would 

receive pilotage rates sufficient to reach 

the $20.4 million target revenue, plus an 

additional 25 percent in weighting 

factor revenue, plus any additional 

amount charged to vessel operators.79

The commenter stated that they 

support the Coast Guard’s proposed 

third alternative for weighting factors, 

and suggested we use an average 

weighting factor from either the current 

navigation season or the last full year of 

available data in order to project 

revenues for the next ratemaking. The 

commenter suggested we use an average 

weighting factor between 1.2 and 1.3. 

The argument that not including the 

revenue from the weighting factors into 

our calculation of total revenue would 

throw off the calculations made 

intrinsic sense. Under the new 

methodology introduced in 2016, 

pilotage is billed on an hourly basis, and 

if actual revenues were approximately 

25 percent higher than traffic would 

suggest they should be, then the 

weighting factors would appear to be 

the cause of that discrepancy. Under its 

own initiative, the Coast Guard 

examined the initial revenue reports 

from the 2016 shipping season from all 

three districts, and compared that to an 

average of weighting factor charges 

collected through the Great Lakes 

Pilotage Management System. The 

resulting comparison showed that the 

actual revenues were substantially 

higher than predicted—even given the 

higher-than-average traffic in 2016. The 

difference in expected revenue tracked 

closely, but not exactly, with the 

calculated average weighting factor in 

each District. This meant that shippers 

were paying approximately $5 million 

more annually in shipping charges than 

the needed revenue figure would 

suggest. It is important to note that noncompulsory pilotage did not 

significantly change the disparity 

between projected and collected 

revenues. Even though the three pilot 

associations generated in excess of $3 

million for providing non-compulsory 

service, once we removed the bridge 

hours for those efforts, the revenues still 

revealed a $5 million difference.80

With this new information, the Coast 

Guard decided that there was an urgent 

need to address the extra revenues being 

brought in by the weighting factors in 

the 2017 ratemaking. To that end, we 

issued an SNPRM to address the 

weighting factors and to propose a 

modification to the methodology. Our 

intention, as stated in the SNPRM, is to 

establish a methodology that aligns 

projected revenues with actual 

collections. 

In the SNPRM, we proposed a twostep process for accounting for the fees 

generated by the weighting factors. First, 

in a step we proposed to designate Step 

8, we would calculate the average actual 

weighting factor in each area by using 

a weighted average of each class of 

vessels. We would create a rolling 

multi-year average of that number 

beginning with 2014, the year the 

weighting factors were set to current 

levels. Then, in Step 9, we would divide 

the initial base rate for each area, 

calculated in Step 7, by the weighting 

factor derived in Step 8, to produce a 

final shipping rate. This would have the 

effect of incorporating the additional 

revenues brought in by the weighting 

factors into the revenue model used to 

set rates. As expected, this led to 

significant reductions in pilotage fees, 

between the NPRM and SNPRM, across 

all three districts, as expressed in the 

table below. 


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TABLE 11—COMPARISON OF HOURLY PILOTAGE RATES

Area 

Pilotage charges 

per hour 

(per 2016 final 

rule) 

NPRM proposed 

charges per hour 

SNPRM proposed 

charges per hour 

St. Lawrence River .................................................................................................... $580 $757 $601 

Lake Ontario .............................................................................................................. 398 522 408 

Navigable waters from Southeast Shoal to Port Huron, MI ...................................... 684 720 580 

Lake Erie .................................................................................................................... 448 537 429 

St. Mary’s River ......................................................................................................... 528 661 514 

Lakes Huron, Michigan, and Superior ....................................................................... 264 280 218 

We solicited comments on this 

revision of methodology, and received 

an additional nine comment letters on 

this issue, which are addressed below. 

Several commenters expressed concern 

that pilot salaries on the Great Lakes 

were already too low, and that by 

incorporating the weighting factors into 

the revenue analysis, we would 

jeopardize safety on the Great Lakes as 

more pilots would leave the system. We 

respectfully disagree with this analysis. 

As explained in great detail in the 

NPRM and this final rule, we have 

significantly raised pilot compensation 

in recent years. In 2016, we raised target 

pilot compensation to $326,114 

annually. Despite proposing no change 

in the 2017 NPRM, we have agreed with 

commenters who argued that this 

should be increased by inflation, to a 

total of $332,963. For the reasons 

described above, we believe this salary 

has been shown to dramatically reduce 

the recruitment and retention problems 

the Great Lakes pilots experienced in 

the past. Incorporating the revenue 

generated by the weighting factors into 

our analysis allows the Coast Guard to 

set a pilotage rate that achieves that 

outcome. 

Several commenters made the 

argument that the Coast Guard’s 

analysis was procedurally defective as a 

matter of law due to the way we 

undertook them. These commenters 

suggested that the Coast Guard used 

unaudited revenue figures to arrive at 

the revised analysis in the SNPRM, and 

that the use of those figures violated the 

requirement in 46 CFR 404.1(b), which 

states that annual reviews of pilotage 

association expenses and revenue will 

be based on audited data, and that data 

from completed reviews will be used in 

ratemaking. 

We disagree with the commenters, 

and believe that they have 

fundamentally misinterpreted how the 

Coast Guard arrived at the SNPRM’s 

proposal to adjust weighting factors. As 

described above, the Coast Guard’s 

analysis of the weighting factors was not 

the result of the over-generation of 

revenue by the pilot associations. 

Rather, we were spurred to examine 

them by the commenters’ logical 

arguments that the weighting factor 

produces revenue that goes to the pilot 

associations, and that by not accounting 

for that revenue, our ratemaking model 

was flawed. Mathematical logic 

suggested that if the weighting factors 

added, on average, 28 percent to the 

total fees collected that were not 

accounted for in the ratemaking model, 

then the pilot associations would be 

collecting 28 percent more revenues 

than would be expected given the 

amount of traffic measured. 

We are aware that the commenters 

had made this argument in past years, 

but we had not accepted it. What was 

different this year is that it was the first 

year where the pilotage rates had been 

set under the new ratemaking model, 

adopted in the 2016 final rule. In 

previous years, where the old 

ratemaking model was used, data had 

always shown that actual revenues fell 

short of anticipated revenues. However, 

for the first time in 2017 there was 

data—the preliminary 2016 revenue 

numbers—that could be used to 

determine a rough estimate of the 

magnitude of any revenue surplus. 

When we compared the preliminary 

revenue numbers from 2016 to see if 

they bore out this hypothesis, we found 

that the numbers were similar. We are 

cognizant that traffic on the Great Lakes 

experienced a sharp rise in 2016, and 

that there would be a commensurate 

increase in revenues, but as expected, 

the increase in revenues far outpaced 

the increase in traffic. 

We noted, however, that there were 

still some discrepancies in the figures. 

While the mathematics of the weighting 

factor would indicate that revenues 

would run approximately 28 percent 

higher, the revenue figures showed 

slightly lower numbers. We requested 

comments on this discrepancy in the 

SNPRM, but did not receive comments 

that would explain or correct it. 

Whatever the cause, we did not base the 

weighting factor reduction proposed in 

the SNPRM on those unaudited 

numbers. Doing so would have resulted 

in a slightly lower reduction than what 

was proposed, but on the actual 

calculated average of the billed 

weighting factors. We did not base the 

reduction on the preliminary, unaudited 

revenues provided by the pilot 

associations precisely because they were 

preliminary and unaudited. 

Given the comments received, the 

Coast Guard does not see any reason to 

deviate from the weighting factors 

analysis in this final rule. We used the 

same multi-year rolling average 

standard for this calculation as we used 

for historic pilotage demand. Since the 

current weighting factors came into 

place in 2014, we used the data between 

2014 and 2016 and will expand this 

data set until we reach our 10-year goal. 

They are calculated as follows: 

TABLE 12—CALCULATION OF AVERAGE WEIGHTING FACTORS

Vessel class Number of 

transits 

Weighting 

factor Multiplier 

District One: Undesignated (Area 2): 

Class 1 .................................................................................................................................. 71 1.00 71 

Class 2 .................................................................................................................................. 670 1.15 770.5 

Class 3 .................................................................................................................................. 130 1.30 169 

Class 4 .................................................................................................................................. 780 1.45 1,131 


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TABLE 12—CALCULATION OF AVERAGE WEIGHTING FACTORS—Continued 

Vessel class Number of 

transits 

Weighting 

factor Multiplier 

Total Transits ................................................................................................................. 1,651 ........................ 2,141.5 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.30 

District One: Designated (Area 1): 

Class 1 .................................................................................................................................. 103 1.00 103 

Class 2 .................................................................................................................................. 765 1.15 879.75 

Class 3 .................................................................................................................................. 128 1.30 166.4 

Class 4 .................................................................................................................................. 736 1.45 1,067.2 

Total Transits ................................................................................................................. 1,732 ........................ 2,216.35 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.28 

District Two: Undesignated (Area 4): 

Class 1 .................................................................................................................................. 63 1.00 63 

Class 2 .................................................................................................................................. 678 1.15 779.7 

Class 3 .................................................................................................................................. 20 1.30 26 

Class 4 .................................................................................................................................. 980 1.45 1,421 

Total Transits ................................................................................................................. 1,741 ........................ 2,289.7 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.32 

District Two: Designated (Area 5): 

Class 1 .................................................................................................................................. 98 1.00 98 

Class 2 .................................................................................................................................. 1,090 1.15 1,253.5 

Class 3 .................................................................................................................................. 29 1.30 37.7 

Class 4 .................................................................................................................................. 1,664 1.45 2,412.8 

Total Transits ................................................................................................................. 2,881 ........................ 3,802 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.32 

District Three: Undesignated (Areas 6 and 8): 

Class 1 .................................................................................................................................. 244 1.00 244 

Class 2 .................................................................................................................................. 1,237 1.15 1,422.55 

Class 3 .................................................................................................................................. 43 1.30 55.9 

Class 4 .................................................................................................................................. 1,801 1.45 2,611.45 

Total Transits ................................................................................................................. 3,325 ........................ 4,333.9 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.30 

District Three: Designated (Area 7): 

Class 1 .................................................................................................................................. 105 1.00 105 

Class 2 .................................................................................................................................. 540 1.15 621 

Class 3 .................................................................................................................................. 10 1.30 13 

Class 4 .................................................................................................................................. 757 1.45 1,097.65 

Total Transits ................................................................................................................. 1,412 ........................ 1,836.65 

Average Weighting Factor ............................................................................................. ........................ ........................ 1.30 

Step 9: Calculation of Revised Rate 

In this penultimate step, we calculate 

the revised rate by incorporating the 

average weighting factor into the initial 

rate. The revised rate is calculated as 

follows: 

TABLE 13—CALCULATION OF REVISED RATE

Initial rate 

(Step 7) 

Average 

weighting 

factor 

(Step 8) 

Revised rate 

(Step 9) 

District One 

District One Designated ............................................................................................................... $769 1.28 $601 

District One Undesignated ........................................................................................................... 530 1.30 408 

District Two 

District Two Designated ............................................................................................................... 765 1.32 580 

District Two Undesignated ........................................................................................................... 566 1.32 429 

District Three 

District Three Designated ............................................................................................................ 668 1.30 514 

District Three Undesignated ........................................................................................................ 283 1.30 218 


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81 Docket #USCG–2016–0268–0031. 82 Docket #USCG–2016–0268–0032. 

Step 10: Review and Finalize Rates 

Section 401.10, often known as 

‘‘Director’s discretion,’’ allows the Coast 

Guard to adjust rates to ensure they 

meet the goal of providing safe and 

reliable pilotage. In the NPRM, we did 

not propose to use this discretion in our 

ratemaking, and we are not using it in 

this ratemaking. While we received 

comments suggesting we add language 

limiting the use of our discretion, we do 

not feel such language is necessary or 

appropriate to include in this final rule 

as the current methodology provides a 

fair and transparent means to meet the 

goals outlined in 46 CFR 404.1(a). 

Surcharge Calculation 

After the pilotage rates have been 

determined, the Coast Guard can 

authorize the pilot associations to 

impose a surcharge. In the NPRM, we 

proposed a 5 percent surcharge for 

District Two and a 15 percent surcharge 

for District Three to cover training 

expenses for nine applicant pilots. We 

proposed this number based on 

historical pilot costs, stipends, per 

diems, and training costs, which are 

approximately $150,000 per pilot per 

shipping season. We continue to find 

that allowing associations to recoup 

necessary and reasonable training 

expenses, both to help achieve a full 

complement of needed pilots and to 

ensure skill maintenance and 

development for current pilots, will 

facilitate safe, efficient, and reliable 

pilotage. Thus we are imposing a 

necessary and reasonable temporary 

surcharge, as authorized by 46 CFR 

401.401. Based upon our records and 

communications with the various pilot 

associations, for 2017, we anticipate that 

there will be two applicant pilots in 

District Two, and seven applicant pilots 

in District Three. 

We received one comment on this 

subject, stating that the surcharge 

adjustment of $150,000 was not enough 

for District Two, and that the amount for 

that district should be set instead at 

$250,000 to properly recover costs.81

The same commenter, in a separate 

comment, also wrote that the 2014 

applicant pilot salaries were 

$281,588.00 and the benefits were 

$96,613.00.82 However, we were unable 

to confirm these assertions, because the 

commenter did not provide sufficient 

documentation with the comment. Any 

difference between the actual and 

assumed cost may be included in a 

future rulemaking. Again, we will 

determine which incurred expenses are 

necessary and reasonable, and ensure 

that the shippers are not double-charged 

for these same expenses. 

Based on historic pilot costs, the 

stipend, per diem, and training costs, 

we continue to believe that the total 

costs for each applicant pilot are 

approximately $150,000 per shipping 

season. Thus, we estimate that the 

training expenses that each association 

will incur will be approximately 

$300,000 in District Two and $1,050,000 

in District Three. Table 14 derives the 

proposed percentage surcharge for each 

district by comparing this estimate to 

each district’s projected needed 

revenue. 

TABLE 14—SURCHARGE CALCULATIONS

District Two 

Projected Needed Revenue (§ 404.106) ............................................................................................................................................. $6,663,002 

Anticipated Training Expenses ............................................................................................................................................................ $300,000 

Surcharge Needed * ............................................................................................................................................................................. 5% 

District Three 

Projected Needed Revenue (§ 404.106) ............................................................................................................................................. $7,262,089 

Anticipated Training Expenses ............................................................................................................................................................ $1,050,000 

Surcharge Needed * ............................................................................................................................................................................. 15% 

* Surcharge rounded up to the nearest whole percent. 

V. Regulatory Analyses 

We developed this final rule after 

considering numerous statutes and 

Executive orders related to rulemaking. 

Below we summarize our analyses 

based on these statutes or Executive 

orders. 

A. Regulatory Planning and Review 

Executive Orders 12866 (‘‘Regulatory 

Planning and Review’’) and 13563 

(‘‘Improving Regulation and Regulatory 

Review’’) direct agencies to assess the 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Order 13771 (‘‘Reducing Regulation and 

Controlling Regulatory Costs’’), directs 

agencies to reduce regulation and 

control regulatory costs and provides 

that ‘‘for every one new regulation 

issued, at least two prior regulations be 

identified for elimination, and that the 

cost of planned regulations be prudently 

managed and controlled through a 

budgeting process.’’ 

The Office of Management and Budget 

(OMB) has not designated this rule a 

significant regulatory action under 

section 3(f) of Executive Order 12866. 

Accordingly, OMB has not reviewed it. 

As this rule is not a significant 

regulatory action, this rule is exempt 

from the requirements of Executive 

Order 13771. See OMB’s Memorandum 

‘‘Guidance Implementing Executive 

Order 13771, Titled ‘Reducing 

Regulation and Controlling Regulatory 

Costs’ ’’ (April 5, 2017). A regulatory 

analysis (RA) follows. 

We developed an analysis of the costs 

and benefits of the rule to ascertain its 

probable impacts on industry. 

Table 15 summarizes the regulatory 

changes that are expected to have no 

costs, and any qualitative benefits 

associated with them. The table also 

includes changes that affect portions of 

the methodology for calculating the base 

pilotage rates. 


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TABLE 15—REGULATORY CHANGES WITH NO COST OR COSTS CAPTURED IN THE RATE CHANGE

Changes Description Basis for no costs Benefits 

Mandatory change point on the 

Saint Lawrence River between 

Iroquois Lock and the area of 

Ogdensburg, NY.

Mandatory change point on the 

Saint Lawrence River between 

Iroquois Lock and the area of 

Ogdensburg, NY, that would 

become effective with the implementation of this final rule.

The addition of the change point 

will not require capital expenses. The only cost is for the 

new pilots, who are accounted 

for in the base pilotage rates 

and training surcharges.

Staffing additional pilots will help 

meet the increased demand for 

pilots to handle the additional 

assignments anticipated to be 

caused by the new change 

point. Additional pilots due to 

this change point should also 

serve to mitigate any potential 

delays and any potential fatigue 

that would occur from high pilotage demand without them. 

Cancellation charges ..................... Amending the cancellation charge 

provision in § 401.120(b) to ensure it explicitly states that the 

minimum charge for a cancellation is 4 hours plus necessary 

and reasonable travel expenses 

for the travel that occurs.

Clarification of existing text and 

current practice.

—Clarifies the current language to 

eliminate any potential confusion on the minimum charge for 

cancellations. 

—Clarification of the minimum 

charge ensures the recognition 

of pilots as a limited resource 

and encourages efficient use. 

Surcharge provision ....................... Adding a requirement to the surcharge regulation in § 401.401 

to stop collecting funds once 

the assigned value has been 

recovered for the season.

Ensures the goal surcharge 

amount built into the year’s 

rulemaking will not be surpassed, and prevents additional 

costs on industry.

Prevents excess amounts from 

being recouped from industry 

via the following year’s rule. 

Rename Return on Investment ...... Renaming Return on Investment 

as Working Capital Fund.

Clarifies the intent of the fund but 

does not change the method of 

calculation. Costs are included 

in the total revenues.

Clarifies the intent of this fund. 

Set Pilot compensation for a 10- 

year period.

Addition of new language in 

§ 404.104 that allows the Director to set compensation for a 

10-year period to a compensation benchmark.

Pilot staffing costs are accounted 

for in the base pilotage rates.

Promotes target compensation 

stability and rate predictability. 

Weighting Factors .......................... Additional step in the ratemaking 

that accounts for the weighting 

factors.

Impacts the base pilotage rates, 

but does not impact the revenue projections.

Factors the impact of extra revenue generated by the 

weighting factors into the ratemaking analysis. 

Table 16 summarizes the affected 

population, costs, and benefits of the 

regulatory requirements that are 

expected to have associated costs as a 

result of the rate change. 

TABLE 16—REGULATORY ECONOMIC IMPACTS OF RATE CHANGE

Change Description Affected population Costs Benefits 

Rate Changes ..... Under the Great Lakes Pilotage 

Act of 1960, the Coast Guard is 

required to review and adjust 

base pilotage rates annually.

Owners and operators of 230 

vessels journeying the Great 

Lakes system annually.

$3,222,703 —New rates cover an association’s necessary and reasonable operating expenses. 

—Provides fair compensation, 

adequate training, and sufficient rest periods for pilots. 

—Ensures the association makes 

enough money to fund future 

improvements. 

The Coast Guard is required to review 

and adjust pilotage rates on the Great 

Lakes annually. See Sections II and III 

of this preamble for detailed discussions 

of the Coast Guard’s legal basis and 

purpose for this rulemaking and for 

background information on Great Lakes 

pilotage ratemaking. Based on our 

annual review for this rulemaking, we 

are adjusting the pilotage rates for the 

2017 shipping season to generate 

sufficient revenues for each district to 

reimburse their necessary and 

reasonable operating expenses, fairly 

compensate trained and rested pilots, 

and provide an appropriate working 

capital fund to use for improvements. 

The rate changes in this rule will lead 

to an increase in the cost per unit of 

service to shippers in all three districts, 

and result in an estimated annual cost 

increase to shippers. 

In addition to the increase in 

payments that would be incurred by 

shippers in all three districts from the 

previous year as a result of the rate 

changes, we propose authorizing a 

temporary surcharge to allow the 

pilotage associations to recover training 

expenses that would be incurred in 

2017. For 2017, we anticipate that there 


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83Total payments across all three districts are 

equal to the increase in payments incurred by 

shippers as a result of the rate changes plus the 

temporary surcharges applied to traffic in Districts 

One, Two, and Three. 

84Some vessels entered the Great Lakes multiple 

years, affecting the average number of unique 

vessels utilizing pilotage services in any given year. 

will be no applicant pilots in District 

One, two applicant pilots in District 

Two, and seven applicant pilots in 

District Three. With a training cost of 

$150,000 per pilot, we estimate that 

Districts Two and Three will incur 

$300,000 and $1,050,000 in training 

expenses, respectively. These temporary 

surcharges would generate a combined 

$1,350,000 in revenue for the pilotage 

associations. Therefore, after accounting 

for the implementation of the temporary 

surcharges across all three districts, the 

payments made by shippers during the 

2017 shipping season are estimated to 

be approximately $3,222,703 more than 

the payments that were estimated in 

2016 (table 18).83

The purpose of this rulemaking is to 

propose new base pilotage rates and 

surcharges for training. The last full 

ratemaking was concluded in 2016. 

Table 17 summarizes the changes in the 

RA from the NPRM to the final rule. 

These changes were the result of public 

comments received after publication of 

the NPRM and SNPRM. 

TABLE 17—SUMMARY OF CHANGES FROM NPRM TO FINAL RULE

Element of the 

analysis NPRM Final rule Resulting change in RA 

Target Pilot Compensation.$326,114 ............................................... $332,963 ............................................... Data indirectly affects the calculation of 

projected revenues. 

Operating expenses Incorrectly omitted payment of applicant pilot salaries from D2 operating 

expenses.

Corrected for this error, added amount 

of $281,588 to operating expenses 

in District Two.

Data indirectly affects the calculation of 

projected revenues. 

Staffing Model ........ Proposed to modify 46 CFR 404.103 to 

change the calculation to focus on 

pilot work cycle. Staffing model 

found 54 pilots are needed in the 

Great Lakes system.

Leaving 46 CFR 404.103 as is. Staffing model found 49 pilots are needed in the Great Lakes system.No impact on RA. Revenue is based 

on the expected 45 working pilots 

that will be working during the 2017 

season, which is less than the projected needed pilots. 

APA dues ............... Attributed 15% of APA dues to legal 

fees.

Corrected to attribute 5% of APA dues 

to legal fees.

Data directly affects operating expenses, which indirectly affects the 

calculation of projected revenues. 

Weighting factors ... Did not account for weighting factors ... Incorporates weighting factors into 

base rates.

No impact on RA. Affects the calculation of the base rates, but not the 

projected revenues. 

Affected Population 

The shippers affected by these rate 

changes are those owners and operators 

of domestic vessels operating on register 

(employed in foreign trade) and owners 

and operators of foreign vessels on 

routes within the Great Lakes system. 

These owners and operators must have 

pilots or pilotage service as required by 

46 U.S.C. 9302. There is no minimum 

tonnage limit or exemption for these 

vessels. The statute applies only to 

commercial vessels and not to 

recreational vessels. U.S.-flagged vessels 

not operating on register and Canadian 

‘‘lakers,’’ which account for most 

commercial shipping on the Great 

Lakes, are not required to have pilots by 

46 U.S.C. 9302. However, these U.S.- 

and Canadian-flagged lakers may 

voluntarily choose to have a pilot. 

We used 2013 through 2015 billing 

information from the Great Lakes 

Pilotage Management System (GLPMS) 

to estimate the average annual number 

of vessels affected by the rate 

adjustment. The GLPMS tracks data 

related to managing and coordinating 

the dispatch of pilots on the Great Lakes 

and billing in accordance with the 

services. Using that period, we found 

that a total of 407 unique vessels used 

pilotage services over the years 2013 

through 2015. These vessels had a pilot 

dispatched to the vessel and billing 

information was recorded in the 

GLPMS. The number of invoices per 

vessel ranged from a minimum of 1 

invoice per year to a maximum of 65 

invoices per year. Of these vessels, 383 

were foreign-flagged vessels and 24 

were U.S.-flagged. The U.S.-flagged 

vessels were not operating on register 

and are not required to have a pilot per 

46 U.S.C. 9302, but they can voluntarily 

choose to have a pilot. U.S.-flagged 

vessels may opt to have a pilot for 

varying reasons such as unfamiliarity 

with designated waters and ports, or for 

insurance purposes. 

Vessel traffic is affected by numerous 

factors and varies from year to year. 

Therefore, rather than the total number 

of vessels over the time period, an 

average of the unique vessels using 

pilotage services from 2013 through 

2015 is the best representation of vessels 

estimated to be affected by this rule’s 

rate. From 2013 through 2015, an 

average of 230 vessels used pilotage 

services annually.84 On average, 219 of 

these vessels are foreign-flagged vessels 

and 11 are U.S.-flagged vessels that 

voluntarily opt into the pilotage service. 

Costs 

The rate changes would generate costs 

on industry in the form of higher 

payments for shippers. We calculate the 

cost in two ways in this RA, as the total 

cost to shippers and as a percentage of 

vessel operating costs. 

Total Cost to Shippers 

We estimate the effect of the rate 

changes on shippers by comparing the 

total projected revenues needed to cover 

costs in 2016 with the total projected 

revenues to cover costs in 2017, 

including any temporary surcharges 

authorized by the Coast Guard. The 

Coast Guard sets pilotage rates so that 

the pilot associations receive enough 

revenue to cover their necessary and 

reasonable expenses. The shippers pay 

these rates when they have a pilot as 

required by 46 U.S.C. 9302, or when 

U.S.-flagged vessels not operating on 

register voluntarily choose to have a 

pilot. Therefore, the aggregate payments 

of the shippers to the pilot associations 

are equal to the projected necessary 

revenues for the pilot associations. The 

revenues each year represent the total 

costs that shippers must pay for pilotage 

services, and the change in the revenues 

from the previous year is the additional 

cost to shippers from this rulemaking. 


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85 2016 projected revenues are from the 2016 

rulemaking, 81 FR 11937, Figures 31 and 32. 

86The 2016 projected revenues are from the 2016 

rulemaking, 81 FR 11934, Figures 24 and 28. The 

2017 projected revenues are from Table 106 of this 

NPRM. 

The effect of the rate changes on 

shippers is estimated from the district 

pilotage projected revenues and the 

surcharges described in this preamble. 

We estimate that for the 2017 shipping 

season, the projected revenue needed 

for all three districts is $20,976,381. 

Temporary surcharges on traffic in 

District Two and District Three would 

be applied for the duration of the 2017 

season in order for the pilotage 

associations to recover training 

expenses incurred for applicant pilots. 

We estimate that the pilotage 

associations require an additional 

$300,000 and $1,050,000 in revenue for 

applicant training expenses in Districts 

Two and Three, respectively. This is an 

additional cost to shippers of $1,350,000 

during the 2017 shipping season. 

Adding the projected revenue to the 

surcharges, we estimate the pilotage 

associations’ total projected needed 

revenue for 2017 would be $22,326,381. 

The 2017 projected revenues for the 

districts are from table 9 of this 

preamble. To estimate the additional 

cost to shippers from this rule, we 

compare the 2017 total projected 

revenues to the 2016 projected 

revenues. In the 2016 rulemaking,85 we 

estimated the total projected revenue 

needed for 2016, including surcharges, 

is $19,103,678. This is the best 

approximation of 2016 revenues as, at 

the time of this publication, we do not 

have audited data available for the 2016 

shipping season to revise these 

projections. Table 18 shows the revenue 

projections for 2016 and 2017 and 

details the additional cost increases to 

shippers by area and district as a result 

of the rate changes and temporary 

surcharges on traffic in Districts One, 

Two, and Three. 

TABLE 18—EFFECT OF THE RULE BY AREA AND DISTRICT

[$U.S.; Non-discounted] 

Area 

Revenue 

needed in 

2016 

2016 

temporary 

surcharge 

Total 2016 

projected 

revenue 

Revenue 

needed in 

2017 

2017 

Temporary 

surcharge 

Total 2017 

projected 

revenue 

Additional 

costs of this 

rule 

Total, District One ........ $5,354,945 $450,000 $5,804,945 $7,109,019 $0 $7,109,019 $1,304,074 

Total, District Two ........ 5,629,641 300,000 5,929,641 6,633,491 300,000 6,933,491 1,003,850 

Total, District Three ..... 6,469,092 900,000 7,369,092 7,233,871 1,050,000 8,283,871 914,779 

System Total ......... 17,453,678 1,650,000 19,103,678 20,976,381 1,350,000 22,326,381 3,222,703 

The resulting difference between the 

projected revenue in 2016 and the 

projected revenue in 2017 is the annual 

change in payments from shippers to 

pilots as a result of the rate change 

imposed by this rule. The effect of the 

rate change in this rule on shippers 

varies by area and district. The rate 

changes, after taking into account the 

increase in pilotage rates and the 

addition of temporary surcharges, 

would lead to affected shippers 

operating in District One, District Two, 

and District Three experiencing an 

increase in payments of $1,304,074, 

$1,003,850, and $914,779, respectively, 

from the previous year. The overall 

adjustment in payments would be an 

increase in payments by shippers of 

$3,222,703 across all three districts (a 17 

percent increase over 2016, including 

surcharges). Because the Coast Guard 

must review and prescribe rates for 

Great Lakes Pilotage annually, the 

effects are estimated as single year costs 

rather than annualized over a 10-year 

period. 

Table 19 shows the difference in 

revenue by component from 2016 to 

2017.86 The majority of the increase in 

revenue is due to the addition of 8 pilots 

that were authorized in the 2016 rule. 

These eight pilots trained during 2016 

are full-time working pilots during the 

2017 shipping season. These pilots will 

be compensated at the target 

compensation established in the 2016 

final rule, plus inflation ($332,963 per 

pilot). The addition of these pilots to 

full working status accounts for 

$2,663,704 of the increase. The 

remaining amount is attributed to 

inflation of operating expenses, working 

capital fund, and differences in the 

surcharges from 2016. 

TABLE 19—DIFFERENCE IN REVENUE BY COMPONENT

Revenue component Revenue needed 

in 2016 

Revenue needed 

in 2017 

Difference 

(2017 revenue 

¥2016 Revenue) 

Adjusted Operating Expenses ................................................................................... $4,677,518 $5,155,280 $477,762 

Total Target Pilot Compensation ............................................................................... 12,066,226 14,983,335 2,917,109 

Working Capital Fund ................................................................................................ 709,934 837,766 127,832 

Total Revenue Needed, without Surcharge ....................................................... 17,453,678 20,976,381 3,522,703 

Surcharge .................................................................................................................. 1,650,000 1,350,000 ¥300,000 

Total Revenue Needed, with Surcharge ............................................................ 19,103,678 22,326,381 3,222,703

Pilotage Rates as a Percentage of Vessel 

Operating Costs 

To estimate the impact of U.S. 

pilotage costs on the foreign vessels 

affected by the rate adjustment, we 

looked at the pilotage costs as a 

percentage of a vessel’s costs for an 

entire voyage. The part of the trip on the 

Great Lakes using a pilot is only a 

portion of the whole trip. The affected 

vessels are often traveling from a foreign 

port, and the days without a pilot on the 

total trip often exceed the days a pilot 

is needed. 


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87 ‘‘Ship operating costs: Current and future 

trends,’’ Richard Grenier, Moore Stephens LLP, 

December 2015. The 2015 weighted average 

operating cost is estimated at $5,191 for a handysize 

bulker, $5,771 for a handymax bulker, and $7,879 

for a product tanker. These costs include only the 

costs of operating and do not include any fixed 

costs of the vessels, such as amortization of vessel 

construction costs. The operating costs include 

crew wages, provisions, other crew costs, 

lubricating oils and store costs, spares, repair and 

maintenance, P&I insurance, marine insurance, 

registration costs, management fees, and sundry 

expenses. 

88The average percentage changes in the rates for 

2013–2016, were 1.87 percent, 2.5 percent, 10 

percent, and 12 percent, respectively. 

89For the random sample of 50 arrivals, the 

average of the pilotage costs as a percentage of the 

total operating costs was 16.9 percent. The 

percentages ranged from a low of 3.2 percent to a 

high of 35.2 percent. 

90 19.6 percent of total operating costs in 2017 

¥16.9 percent of total operating costs in 2016 = 2.7 

percent incremental increase of pilotage costs as a 

percentage of total operating costs. 

91See http://www.manta.com/. 

92See http://resource.referenceusa.com/. 

93Source: https://www.sba.gov/contracting/ 

getting-started-contractor/make-sure-you-meet-sbasize-standards/table-small-business-size-standards. 

SBA has established a Table of Small Business Size 

Standards, which is matched to NAICS industries. 

A size standard, which is usually stated in number 

of employees or average annual receipts 

(‘‘revenues’’), represents the largest size that a 

business (including its subsidiaries and affiliates) 

may be considered in order to remain classified as 

a small business for SBA and Federal contracting 

programs. 

To estimate this impact, we used 2013 

through 2015 vessel arrival data from 

the Coast Guard’s Ship Arrival 

Notification System and pilotage billing 

data from the GLPMS. A random sample 

of 50 arrivals was taken from GLPMS 

data. To estimate the impact of pilotage 

costs on the costs of an entire trip, we 

estimated the length of each one-way 

trip. We used the vessel name and the 

date of the arrival to find the last port 

of call before entering the Great Lakes 

system. The date of the departure from 

this port was used as the start date of 

the trip. To find the end date of the trip 

we used GLPMS data to find all the 

pilotage charges associated with this 

vessel during this trip in the Great Lakes 

system. The last pilotage charge before 

beginning the trip to exit the system was 

used as the end date of the one-way trip. 

We estimated the total operating cost by 

multiplying the number of days for each 

trip by the 2015 average daily operating 

cost and added this to the total pilotage 

costs from GLPMS for each trip. In 2015 

the average daily operating costs, 

excluding fixed costs, for Great Lakes 

bulkers and tankers ranged roughly from 

$5,191 to $7,879.87 The total pilotage 

charges for each trip were updated to 

the 2016 rates using the average rate 

increases in the Great Lakes Pilotage 

Rates 2013–2016 Annual Review and 

Adjustments final rules.88 The total 

updated pilotage charges for each trip 

were then divided by the total operating 

cost of the trip. We found that for a 

vessel’s one-way trips, the U.S. pilotage 

costs could account for approximately 

16.9 percent 89 of the total operating 

costs for a foreign vessel’s voyage using 

2016 rates. 

We also estimated the impact of the 

rate increase in this rule. We took the 

same 50 trips and updated the pilotage 

costs to the 2017 rates, an average 

increase of 20 percent, excluding 

surcharges. With this rule’s rates for 

2017, pilotage costs are estimated to 

account for 19.6 percent of total 

operating costs, or a 2.7 percentage 

point increase 90 over the current cost. 

The total operating costs do not include 

the fixed costs of the vessels. If these 

costs were included in the total costs, 

the pilotage rates as a percentage of total 

costs would be lower. 

Benefits 

This rule allows the Coast Guard to 

meet the requirements in 46 U.S.C. 9303 

to review the rates for pilotage services 

on the Great Lakes. The rate changes 

will promote safe, efficient, and reliable 

pilotage service on the Great Lakes by 

ensuring rates cover an association’s 

operating expenses; provide fair pilot 

compensation, adequate training, and 

sufficient rest periods for pilots; and 

ensures the association makes enough 

money to fund future improvements. 

The rate changes will also help recruit 

and retain pilots, which will ensure a 

sufficient number of pilots to meet peak 

shipping demand, which would help 

reduce delays caused by pilot shortages. 

The amendment of the cancellation 

charge in § 401.120(b) will prevent 

confusion and help ensure that it 

explicitly states that the minimum 

charge for a cancellation is 4 hours. The 

limitation to the surcharge regulation in 

§ 401.401 would prevent excess 

amounts from being recouped via the 

following year’s rule. The changes to 

§ 404.104 will promote target 

compensation stability and rate 

predictability. 

B. Small Entities 

Under the Regulatory Flexibility Act, 

5 U.S.C. 601–612, we have considered 

whether this rule would have a 

significant economic effect on a 

substantial number of small entities. 

The term ‘‘small entities’’ comprises 

small businesses, not-for-profit 

organizations that are independently 

owned and operated and are not 

dominant in their fields, and 

governmental jurisdictions with 

populations of less than 50,000 people. 

For the rule, we reviewed recent 

company size and ownership data for 

the vessels identified in GLPMS and we 

reviewed business revenue and size data 

provided by publicly available sources 

such as MANTA 91 and 

ReferenceUSA.92 As described in 

Section VI.A of this preamble, 

Regulatory Planning and Review, we 

found that a total of 407 unique vessels 

used pilotage services from 2013 

through 2015. These vessels are owned 

by 119 entities. We found that of the 119 

entities that own or operate vessels 

engaged in trade on the Great Lakes 

affected by this rule, 104 are foreign 

entities that operate primarily outside of 

the United States. The remaining 15 

entities are U.S. entities. We compared 

the revenue and employee data found in 

the company search to the Small 

Business Administration’s (SBA) Table 

of Small Business Size Standards 93 to 

determine how many of these 

companies are small entities. Table 20 

shows the NAICS codes of the U.S. 

entities and the small entity standard 

size established by the SBA. 

TABLE 20—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS

NAICS Description Small business 

size standard 

238910 ...................................... Site Preparation Contractors ..................................................................................................... $15 million. 

441222 ...................................... Boat Dealers .............................................................................................................................. $32.5 million. 

483113 ...................................... Coastal & Great Lakes Freight Transportation ......................................................................... 750 employees. 

483211 ...................................... Inland Water Freight Transportation .......................................................................................... 750 employees. 

483212 ...................................... Inland Water Passenger Transportation .................................................................................... 500 employees. 

487210 ...................................... Scenic & Sightseeing Transportation, Water ............................................................................ $7.5 million. 

488320 ...................................... Marine Cargo Handling .............................................................................................................. $38.5 million. 


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TABLE 20—NAICS CODES AND SMALL ENTITIES SIZE STANDARDS—Continued 

NAICS Description Small business 

size standard 

488330 ...................................... Navigational Services to Shipping ............................................................................................. $38.5 million. 

488510 ...................................... Freight Transportation Arrangement ......................................................................................... $15 million. 

The entities all exceed the SBA’s 

small business standards for small 

businesses. Further, these U.S. entities 

operate U.S.-flagged vessels and are not 

required to have pilots as required by 46 

U.S.C. 9302, because they are not 

engaged in foreign commerce. 

In addition to the owners and 

operators of vessels affected by this rule, 

there are three U.S. entities affected by 

the rule that receive revenue from 

pilotage services. These are the three 

pilot associations that provide and 

manage pilotage services within the 

Great Lakes districts. Two of the 

associations operate as partnerships and 

one operates as a corporation. These 

associations are designated with the 

same NAICS industry classification and 

small-entity size standards described 

above, but they have fewer than 500 

employees; combined, they have 

approximately 65 employees. We expect 

no adverse effect to these entities from 

this rule because all associations receive 

enough revenue to balance the projected 

expenses associated with the projected 

number of bridge hours and pilots. 

We did not find any small not-forprofit organizations that are 

independently owned and operated and 

are not dominant in their fields. We did 

not find any small governmental 

jurisdictions with populations of fewer 

than 50,000 people. Based on this 

analysis, we found this rulemaking, if 

promulgated, would not affect a 

substantial number of small entities. 

Therefore, the Coast Guard certifies 

under 5 U.S.C. 605(b) that this rule will 

not have a significant economic impact 

on a substantial number of small 

entities. 

C. Assistance for Small Entities 

Under section 213(a) of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, Public Law 104– 

121, we want to assist small entities in 

understanding this rule so that they can 

better evaluate its effects on them and 

participate in the rulemaking. If the rule 

would affect your small business, 

organization, or governmental 

jurisdiction and you have questions 

concerning its provisions or options for 

compliance, please consult Mr. Todd 

Haviland, Director, Great Lakes Pilotage, 

Commandant (CG–WWM–2), Coast 

Guard; telephone 202–372–2037, email 

Todd.A.Haviland@uscg.mil, or fax 202– 

372–1914. The Coast Guard will not 

retaliate against small entities that 

question or complain about this rule or 

any policy or action of the Coast Guard. 

Small businesses may send comments 

on the actions of Federal employees 

who enforce, or otherwise determine 

compliance with, Federal regulations to 

the Small Business and Agriculture 

Regulatory Enforcement Ombudsman 

and the Regional Small Business 

Regulatory Fairness Boards. The 

Ombudsman evaluates these actions 

annually and rates each agency’s 

responsiveness to small business. If you 

wish to comment on actions by 

employees of the Coast Guard, call 1– 

888–REG–FAIR (1–888–734–3247). 

D. Collection of Information 

This rule will call for no new 

collection of information under the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501–3520). This rule will not 

change the burden in the collection 

currently approved by OMB under OMB 

Control Number 1625–0086, Great Lakes 

Pilotage Methodology. 

E. Federalism 

A rule has implications for federalism 

under Executive Order 13132 

(‘‘Federalism’’) if it has a substantial 

direct effect on the States, on the 

relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. We have analyzed 

this rule under that order and have 

determined that it is consistent with the 

fundamental federalism principles and 

preemption requirements described in 

Executive Order 13132. Our analysis 

follows. 

Congress directed the Coast Guard to 

establish ‘‘rates and charges for pilotage 

services.’’ (See 46 U.S.C. 9303(f).) This 

regulation is issued pursuant to that 

statute and is preemptive of state law as 

specified in 46 U.S.C. 9306. Under 46 

U.S.C. 9306, a ‘‘State or political 

subdivision of a State may not regulate 

or impose any requirement on pilotage 

on the Great Lakes.’’ As a result, States 

or local governments are expressly 

prohibited from regulating within this 

category. Therefore, the rule is 

consistent with the principles of 

federalism and preemption 

requirements in Executive Order 13132. 

While it is well settled that States may 

not regulate in categories in which 

Congress intended the Coast Guard to be 

the sole source of a vessel’s obligations, 

the Coast Guard recognizes the key role 

that State and local governments may 

have in making regulatory 

determinations. Additionally, for rules 

with implications and preemptive 

effect, Executive Order 13132 

specifically directs agencies to consult 

with State and local governments during 

the rulemaking process. If you believe 

this rule has implications for federalism 

under Executive Order 13132, please 

contact the person listed in the FOR

FURTHER INFORMATION section of this 

preamble. 

F. Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995, 2 U.S.C. 1531–1538, requires 

Federal agencies to assess the effects of 

their discretionary regulatory actions. In 

particular, the Act addresses actions 

that may result in the expenditure by a 

State, local, or tribal government, in the 

aggregate, or by the private sector of 

$100,000,000 (adjusted for inflation) or 

more in any one year. Though this rule 

will not result in such an expenditure, 

we do discuss the effects of this rule 

elsewhere in this preamble. 

G. Taking of Private Property 

This rule will not cause a taking of 

private property or otherwise have 

taking implications under Executive 

Order 12630 (‘‘Governmental Actions 

and Interference with Constitutionally 

Protected Property Rights’’). 

H. Civil Justice Reform 

This rule meets applicable standards 

in sections 3(a) and 3(b)(2) of Executive 

Order 12988, (‘‘Civil Justice Reform’’), to 

minimize litigation, eliminate 

ambiguity, and reduce burden. 

I. Protection of Children 

We have analyzed this rule under 

Executive Order 13045 (‘‘Protection of 

Children from Environmental Health 

Risks and Safety Risks’’). This rule is 

not an economically significant rule and 

will not create an environmental risk to 

health or risk to safety that might 

disproportionately affect children. 


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J. Indian Tribal Governments 

This rule does not have tribal 

implications under Executive Order 

13175 (‘‘Consultation and Coordination 

with Indian Tribal Governments’’) 

because it would not have a substantial 

direct effect on one or more Indian 

tribes, on the relationship between the 

Federal Government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

Government and Indian tribes. 

K. Energy Effects 

We have analyzed this rule under 

Executive Order 13211 (‘‘Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

Distribution, or Use’’). We have 

determined that it is not a ‘‘significant 

energy action’’ under that order because 

it is not a ‘‘significant regulatory action’’ 

under Executive Order 12866 and is not 

likely to have a significant adverse effect 

on the supply, distribution, or use of 

energy. 

L. Technical Standards 

The National Technology Transfer 

and Advancement Act, codified as a 

note to 15 U.S.C. 272, directs agencies 

to use voluntary consensus standards in 

their regulatory activities unless the 

agency provides Congress, through 

OMB, with an explanation of why using 

these standards would be inconsistent 

with applicable law or otherwise 

impractical. Voluntary consensus 

standards are technical standards (e.g., 

specifications of materials, performance, 

design, or operation; test methods; 

sampling procedures; and related 

management systems practices) that are 

developed or adopted by voluntary 

consensus standards bodies. This rule 

does not use technical standards. 

Therefore, we did not consider the use 

of voluntary consensus standards. 

M. Environment 

We have analyzed this rule under 

Department of Homeland Security 

Management Directive 023–01 and 

Commandant Instruction M16475.lD, 

which guide the Coast Guard in 

complying with the National 

Environmental Policy Act of 1969 (42 

U.S.C. 4321–4370f), and have 

determined that it is one of a category 

of actions that do not individually or 

cumulatively have a significant effect on 

the human environment. A Record of 

Environmental Consideration 

supporting this determination is 

available in the docket where indicated 

in the ADDRESSES section of this 

preamble. This rule is categorically 

excluded under paragraphs 34(a), 

regulations which are editorial or 

procedural, of the Coast Guard’s NEPA 

Implementing Procedures and Policy for 

Considering Environmental Impacts, 

COMDTINST M16475.1D. 

List of Subjects 

46 CFR Part 401 

Administrative practice and 

procedure, Great Lakes, Navigation 

(water), Penalties, Reporting and 

recordkeeping requirements, Seamen. 

46 CFR Part 404 

Great Lakes, Navigation (water), 

Seamen. 

For the reasons discussed in the 

preamble, the Coast Guard amends 46 

CFR parts 401 and 404 as follows: 

PART 401—GREAT LAKES PILOTAGE 

REGULATIONS 

■ 1. The authority citation for part 401 

continues to read as follows: 

Authority: 46 U.S.C. 2103, 2104(a), 6101, 

7701, 8105, 9303, 9304; Department of 

Homeland Security Delegation No. 

0170.1(II)(92.a), (92.d), (92.e), (92.f). 

■ 2. Revise § 401.401 to read as follows: 

§ 401.401 Surcharges. 

To facilitate safe, efficient, and 

reliable pilotage, and for good cause, the 

Director may authorize surcharges on 

any rate or charge authorized by this 

subpart. Surcharges must be proposed 

for prior public comment and may not 

be authorized for more than 1 year. 

Once the approved amount has been 

received, the pilot association is not 

authorized to collect any additional 

funds under the surcharge authority and 

must cease such collections for the 

remainder of that shipping season. 

■ 3. Revise § 401.405 to read as follows: 

§ 401.405 Pilotage rates and charges. 

(a) The hourly rate for pilotage service 

on— 

(1) The St. Lawrence River is $601; 

(2) Lake Ontario is $408; 

(3) Lake Erie is $429; 

(4) The navigable waters from 

Southeast Shoal to Port Huron, MI is 

$580; 

(5) Lakes Huron, Michigan, and 

Superior is $218; and 

(6) The St. Mary’s River is $514. 

* * * * * 

■ 4. Revise § 401.420 to read as follows: 

§ 401.420 Cancellation, delay, or 

interruption in rendition of services. 

* * * * * 

(b) When an order for a U.S. pilot’s 

service is cancelled, the vessel can be 

charged for the pilot’s reasonable travel 

expenses for travel that occurred to and 

from the pilot’s base, and the greater 

of— 

(1) Four hours; or 

(2) The time of cancellation and the 

time of the pilot’s scheduled arrival, or 

the pilot’s reporting for duty as ordered, 

whichever is later. 

* * * * * 

■ 5. Revise § 401.450 as follows: 

■ a. Redesignate paragraphs (b) through 

(j) as paragraphs (c) through (k), 

respectively; and 

■ b. Add new paragraph (b) to read as 

follows: 

§ 401.450 Pilotage change points. 

* * * * * 

(b) The Saint Lawrence River between 

Iroquois Lock and the area of 

Ogdensburg, NY, beginning October 2, 

2017; 

PART 404—GREAT LAKES PILOTAGE 

RATEMAKING 

■ 6. The authority citation for part 404 

continues to read as follows: 

Authority: 46 U.S.C. 2103, 2104(a), 9303, 

9304; Department of Homeland Security 

Delegation No. 0170.1(II)(92.a), (92.f). 

■ 7. Amend § 404.101(a) as follows: 

§ 404.100 Ratemaking and annual reviews 

in general. 

(a) The Director establishes base 

pilotage rates by a full ratemaking 

pursuant to § 404.101–404.110 of this 

part, conducted at least once every 5 

years and completed by March 1 of the 

first year for which the base rates will 

be in effect. Base rates will be set to 

meet the goal specified in § 404.1(a) of 

this part. 

■ 8. Amend § 404.103 as follows: 

■ a. In paragraph (a), following the 

words ‘‘dividing each area’s’’ remove 

the word ‘‘peak’’ and add, in its place, 

the word ‘‘seasonal’’; and 

■ b. Revise paragraph (b) to read as 

follows: 

§ 404.103 Ratemaking step 3: Determine 

number of pilots needed. 

* * * * * 

(b) Pilotage demand and the base 

seasonal work standard are based on 

available and reliable data, as so 

deemed by the Director, for a multi-year 

base period. The multi-year period is 

the 10 most recent full shipping 

seasons, and the data source is a system 

approved under 46 CFR 403.300. Where 

such data are not available or reliable, 

the Director also may use data, from 

additional past full shipping seasons or 

other sources, that the Director 

determines to be available and reliable. 

* * * * * 

■ 9. Revise § 404.104 to read as follows: 


asabaliauskas on DSKBBXCHB2PROD with RULES
41496 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Rules and Regulations 

§ 404.104 Ratemaking step 4: Determine 

target pilot compensation benchmark. 

At least once every 10 years, the 

Director will set a base target pilot 

compensation benchmark using the 

most relevant available non-proprietary 

information. In years in which a base 

compensation benchmark is not set, 

target pilot compensation will be 

adjusted for inflation using the CPI for 

the Midwest region or a published 

predetermined amount. The Director 

determines each pilotage association’s 

total target pilot compensation by 

multiplying individual target pilot 

compensation by the number of pilots 

projected under § 404.103(d) of this 

part. 

§ 404.105 [Amended] 

■ 10. In the section heading of 

§ 404.105, remove the words ‘‘return on 

investment’’ and add, in their place, the 

words ‘‘working capital fund.’’ 

■ 11. In the first sentence of § 404.105, 

remove the words ‘‘return on 

investment’’ and add, in their place, the 

words ‘‘working capital fund.’’ 

■ 12. Revise § 404.107 to read as 

follows: 

§ 404.107 Ratemaking step 7: Initially 

calculate base rates. 

The Director initially calculates base 

hourly rates by dividing the projected 

needed revenue from § 404.106 of this 

part by averages of past hours worked in 

each district’s designated and 

undesignated waters, using available 

and reliable data for a multi-year period 

set in accordance with § 404.103(b) of 

this part. 

■ 13. Revise § 404.108 to read as 

follows: 

§ 404.108 Ratemaking step 8: Calculate 

average weighting factors by Area. 

The Director calculates the average 

weighting factor for each area by 

computing the 10-year rolling average of 

weighting factors applied in that area, 

beginning with the year 2014. If less 

than 10 years of data are available, the 

Director calculates the average 

weighting factor using data from each 

year beginning with 2014. 

■ 14. Add new § 404.109 to read as 

follows: 

§ 404.109 Ratemaking step 9: Calculate 

revised base rates. 

The Director calculates revised base 

rates for each area by dividing the initial 

base rate (from Step 7) by the average 

weighting factor (from Step 8) to 

produce a revised base rate for each 

area. 

■ 15. Add new § 404.110 to read as 

follows: 

§ 404.110 Ratemaking step 10: Review and 

finalize rates. 

The Director reviews the base pilotage 

rates calculated in § 404.109 of this part 

to ensure they meet the goal set in 

§ 404.1(a) of this part, and either 

finalizes them or first makes necessary 

and reasonable adjustments to them 

based on requirements of Great Lakes 

pilotage agreements between the United 

States and Canada, or other supportable 

circumstances. 

Dated: August 24, 2017. 

Michael D. Emerson, 

Director, Marine Transportation Systems, 

U.S. Coast Guard. 

[FR Doc. 2017–18411 Filed 8–30–17; 8:45 am] 

BILLING CODE 9110–04–P 


asabaliauskas on DSKBBXCHB2PROD with RULES