Running head: Passengers Charters in San Diego: A New Management Strategy 1
Passenger Charters in San Diego: A New Management Strategy
A Capstone Project by Diego de Waegh
California State University Maritime Academy
Passengers Charters in San Diego: A New Management Strategy 2
Abstract
The Port of San Diego has recently been criticized for its ineffective management of illegal passenger charter operations, especially regarding small passenger vessels between 22-75ft in length). Illegal passenger charters are not permitted by the Port, the Coast Guard, or as is often the case, by both organizations. Illegal charters create a safety hazard to unknowing passengers and a loss of revenue to the Port. Currently, the Port of San Diego along with Harbor Police and the United States Coast Guard work in bilateral operations in hopes of decreasing illegal charter activity. Their combined efforts over the past few years, however, show little to no improvement in reducing illegal charter operators. As author of this project, I have firsthand experience with the issues illegal charters can cause. I manage a fleet of bareboat charter boats for Marina Sailing and spend the majority of my time at the docks, meeting passengers before charters and talking to other legal passenger charter operators. Legal charter operators have to jump through bureaucratic hurdles to run their businesses, and often they have to pay high premiums to Port authorized private marinas to pick up passengers. Using a well-structured system to increase legal charters, the Port of San Diego could capitalize on a steady revenue stream, all while increasing the safety of passengers in San Diego Bay by decreasing illegal passenger charters.
Keywords: San Diego Boat Tours, Port of San Diego, illegal passenger charters, USCG
Passengers Charters in San Diego: A New Management Strategy 3
Introduction
The Port of San Diego is a significant contributor to San Diego County’s local economy, with an economic output of roughly $4.4 billion in 2015 (Port of San Diego). The Port serves the local community in several ways:
1.Vastly different than most Ports globally, the Port of San Diego is also a managing
partner of the San Diego International Airport.
2. The Port is a commercial hub for international imports & exports, dealing largely with
imported cars and commodities.
3. The Port also acts as a base for several large military ships, aircraft carriers, and
submarines. This is important since it pertains to national security. While most Ports have
government stakeholders from various branches, in San Diego, the Navy is a top partner.
San Diego is the number one Navy Base for the West coast, home to around 46 U.S.
Navy ships and several other specialty vessels (Naval Technology).
4. In addition, the Port hosts tourists from all over the world by leasing land to popular
waterfront hotels.
5. Furthermore, the Port manages the San Diego Harbor Police, a law enforcement
agency responsible for patrolling: the San Diego International Airport, businesses on the
Port land, and the San Diego Bay waterways.
Passengers Charters in San Diego: A New Management Strategy 4
San Diego is a tourism hub for Southern California, boasting world renowned attractions such as SeaWorld, the convention center, Padres stadium, and seemingly endless miles of sandy beaches. In 2017, 35 million visitors to San Diego spent a total of about $10.8 billion in the local economy (San Diego Tourism Authority). In addition, San Diego is well located to see the whale migration and has excellent pelagic fishing. This influx of tourism has a strong effect on the Port of San Diego operations. The demand for passenger charters in San Diego Bay and cruises leaving out of San Diego increases year after year. The rise of new websites such as Yelp and
TripAdvisor combined with the increasing popularity of social media platforms such as
Instagram, give illegal charter business operators easy and cheap means of marketing their businesses. Since the existing regulatory system imposes barriers to entry and the enforcement of existing laws is inefficient, many boating tour operators prefer to avoid it altogether and run their businesses illegally.
The Port of San Diego funds their operation with various streams of income. While the
Port can successfully collect revenues from its real estate and wharfing operations, it has a harder time collecting fees specifically from small passenger boats on charters. Year after year, the
USCG and Port of San Diego Harbor Police spend resources to decrease the amount of illegal passenger charters operating out of San Diego Bay. Their efforts hardly pay off because of the scale of the problem at hand. The scope of this project will focus on the Port of San Diego’s efforts to regulate passenger charters. The Port has a symbiotic relationship with the USCG; through bilateral operations they can enforce established safety and passenger transport regulations. This paper focuses on steps the Port of San Diego can take to further benefit from their relationship with the USCG and ensure safe waterways. The aim of the paper is to put
Passengers Charters in San Diego: A New Management Strategy 5 forward a viable solution for the Port of San Diego to increase revenues from passenger charters and to incentivize illegal charters to comply with existing Coast Guard and Port regulations. For these goals to be achieved, the Port of San Diego needs to be presented with a realistic alternative to their current regulatory framework and the infrastructure they provide in regards to small vessel passenger charters.
First, the stage will be set with an informative background section, explaining current
USCG passenger regulations and Harbor Police operations, as they are both key in instrumenting a better solution to benefit from passenger charter fees. After the background section, the reader will be presented with current passenger charter issues facing the Port of San Diego. Finally, a proposed solution will be recommended based on well documented research, financial projections, current statistics and on the ground analysis.
Literature Section
There are two important parties responsible for managing passenger charters in San
Diego Bay; the United States Coast Guard and the Port of San Diego. The USCG makes the rules and is largely responsible for regulating commercial boating operations nationwide, including passenger charters. The USCG can be seen regularly in San Diego Bay inspecting vessels for safety equipment, checking mariner credentials, and enforcing their boating code through citations and fines. On the other hand, the Port of San Diego is responsible for giving local marine businesses fair opportunities to operate in the bay. This is not an easy task, as it involves collecting passenger fees and providing adequate infrastructure. Currently, the Port handles small vessel passenger fees through third party businesses who are responsible for providing the
Passengers Charters in San Diego: A New Management Strategy 6 infrastructure and permits. The Port of San Diego also helps the USCG with keeping boating passengers safe through their sponsorship of the San Diego Harbor Police.
Definitions
In order for the reader to gain a better understanding of this paper, below are some of the most commonly used terms and abbreviations.
● 6-Pack: A type of compensated passenger charter with a limit of six passengers.
These are common for small fishing charters, small sailboat instruction, and other
customer boat tours.
● Certificate of Inspection: COI shortened. This certificate is issued by the United
States Coast Guard to vessels carrying passengers for hire. COIs are renewed
yearly and give the operator the opportunity to carry as many passengers as the
vessel can handle safely (United States Coast Guard).
● Passenger Charter: Shortened to Charter: A boating event in which passengers are
paying for a tour. An example of a charter can be a sunset cruise in San Diego
Bay, where passengers are paying an owner or company for a boat tour. Friends
taking other friends out boating on their own vessel does not count as a charter, as
there is no condition of a sale.
● District Code: Short for San Diego Unified Port District Code, the main piece of
regulatory paperwork from the Port of San Diego. This code lays out the rules in
San Diego Bay and Port of San Diego controlled land. This code also sets the
authority of the San Diego Harbor Police.
Passengers Charters in San Diego: A New Management Strategy 7
● Illegal Passenger Charter: Often shortened as ‘Illegal Charter’ in this paper. This
type of charter is not up to code with either the United States Coast Guard, the
Port of San Diego, or any applicable state codes. Therefore, these types of events
are considered running an illegal business operation. For the scope of this paper,
illegal charters are breaking either business permit codes or passenger limit codes.
This paper will not cover legal safety requirements for vessels, such as fire
prevention systems, life jackets, flares, and sound signaling devices.
● Gross-Tons: Shortened as GT: A measurement unit for vessel weight. Used for
classifying boats under United States Coast Guard regulations. For example, a 60
ft keel sailboat would be approximately 21 gross tons, a smaller 34 ft sailboat
would be between 6-9 gross tons.
● OUPV - Operator of an Uninspected Passenger Vessel- This USCG license is
issued to operators limited to six passengers and working on uninspected vessels.
Usually for non-U.S. citizens or small scale operators. This is informally referred
to as the 6-pack license in part because it allows operators to carry up to six
paying passengers and crew on their uninspected craft up to 100 tons.
● USCG: United States Coast Guard: the main authority on the waterways of the
United States.
● UPV - Uninspected Passenger Vessel - A passenger vessel which has not been
formally inspected by the USCG. UPVs don’t have COIs and are therefore limited
in their capacity to carry passengers.
USCG - Current Rules Regarding Passenger Charters
Passengers Charters in San Diego: A New Management Strategy 8
The USCG is the primary regulatory authority when it comes to passenger charters. They are responsible for creating federally recognized passenger charter regulations and are ultimately responsible for enforcement. Below are three applicable types of charters and their corresponding regulations. For the scope of this paper, these regulations apply to small vessel passenger charters only for ships under 300 GTs.:
1. Uninspected Passenger Vessel (UPVs) - Six Passengers Max:
Also known as 6-Pack Charters, these charters can occur only if the vessel has six
or fewer passengers, including one or more paying passengers. The vessel needs to be
captained by a mariner with a Coast Guard issued license. There are no licensing
requirements for deckhands or mates (Summary of Report).
Six-Pack charters are common for small scale sailing tours, fishing tours, and
other small scale boating activities. They are lightly regulated, allowing foreign vessels,
uninspected vessels, and U.S. permanent residents, not citizens, to skipper up to six
passengers with a OUPV (Operator of an Uninspected Passenger Vessel) license issued
by the USCG (MET Staff) .
Note: For U.S vessels over 100 gross tons but below 300, there is a 12 passenger maximum (LANTAREA), again with no limit on crew.
2. Bareboat Charters - Uninspected Passenger Vessel - 12 Passengers Max
Bareboat charters are vessels in which an experienced recreational boater rents
out a privately owned vessel, usually from an agent or company representing the owner.
For the time specified in the contract, the charterer is the vessel’s operator and
responsible for his passengers. There is no need for the skipper of the chartered vessel to
Passengers Charters in San Diego: A New Management Strategy 9
be licensed by the USCG under bareboat regulations. In addition, bareboat vessels cannot
have the owner on board, and the charterer must have picked the captain and crew, not
the owner or owner’s agent (USCG). According to the USCG, if a charter can qualify as a
bareboat charter, it can take up to 12 passengers not including crew (Summary of
Report). Bareboat charter vessels need to be U.S. built, although foreign small passenger
vessels may obtain a MARAD waiver three years from their ship launching date (Weil).
3. Small Passenger Vessels - Inspected Vessels
Small Passenger Vessels are different from Uninspected 6-Pack charters or
Uninspected Bareboat charters in that the vessel is annually inspected by the USCG
(Summary of Report). The vessel owner must fill out form CG3752 annually and have a
physical inspection by USCG personnel (Safety Management Systems). The benefit of
having a COI (Certificate of Inspection) is mainly to carry more passengers on charters.
There is no cost by the USCG for a COI however the inspector might request plans for
the ship’s electrical systems layout, fuel systems, water systems, fire suppression systems
and general plan. These plans are usually done by professionals and can be costly to the
vessel owner applying for a COI.
USCG Regulations - Conclusion
For the three types of charters mentioned above, there are various regulations depending on the number of passengers and type of chartering activity. The regulations are not simple to understand for various reasons:
1. “Passengers who paid consideration” is a subjective term. Under USCG code, even
splitting gas is considered a form of paying if it was a condition for the charter. This
Passengers Charters in San Diego: A New Management Strategy 10
seems confusing, as friends generally also split gas on condition of recreational boat
outings.
2. For the Bareboat regulations, the charterer must have picked the crew and captain without
the vessel’s owner or owner’s agents. Considering that charterers are usually not local to
the area, it is very common for bareboat charter companies, acting as the owner's agent,
to supply the captain and crew if needed. This however goes against the USCG
regulations. Below is a schematic by the USCG which helps operators determine which
type of regulations they fall under:
Passengers Charters in San Diego: A New Management Strategy 11
Figure 1 - Passenger for Hire - USCG
Passengers Charters in San Diego: A New Management Strategy 12
Port of San Diego - Regulations for Passenger Charters
The Port of San Diego is in charge of providing adequate infrastructure for commercial operations in San Diego Bay. The Port provides infrastructure for the cruise lines, cargo vessels, car carriers, and various large passenger vessels such as the Hornblower and Flagship tour boats.
When it comes to small vessel passenger charters however, the Port operates mostly through third party private marinas.
Private Marinas Issuing Commercial Passenger Charter Permits
The Port of San Diego leases all waterfront land in the bay to a variety of businesses, ranging from hotels and restaurants to marinas and shipyards, including two cargo terminals
(Port of San Diego). The Port has subdivided sections of land and designated each marina for a wide variety of purposes. While the cruise ship terminal is run solely by the Port of San Diego, recreational vessels and passenger vessels operate through privately owned marinas. Some marinas in San Diego Bay, besides just being able to rent out recreational vessel slips, have also been granted the ability to host and give permits to passenger charters. The marinas which are allowed to host passenger charters are also responsible for collecting Port passenger fees and are responsible for reporting all passenger manifest data back to the Port (Port of San Diego). These private marinas are also tasked with checking USCG licenses before issuing charter permits.
Although the Port authorizes these marinas to license and collect fees from passenger charters, they do not require the marinas to serve all businesses. This creates a lack of private marinas available for new businesses to conduct their operations.
Passengers Charters in San Diego: A New Management Strategy 13
Passenger Fee Collection System
The Port of San Diego requires passenger fees from all San Diego Bay boating passengers, whether for cruise ships or day cruises. These fees are billed out per passenger or determined by a percentage, usually 4%, of the total charter revenue (Port of San Diego).
Under the current system, 6-Pack tour operators, bareboat charter companies, and small passenger vessels pay privately owned marinas a percentage of revenue. The marina then pays the Port of San Diego the passenger fees due. It is very common for the privately owned marinas to charge a premium to charter companies for their wharfage services (Vanessa Bosinger, personal communication, January 28th, 2019). The Port regulations state that marinas are allowed to charge charter operators 7% and keep 3% as a surplus after paying out the Port’s 4%
Passenger Fee (Port of San Diego). Passenger charter operators are not allowed to pick up passengers from marinas which haven’t been specifically zoned for this purpose by the Port (Port of San Diego). This system essentially means that small passenger charter operators in San
Diego Bay are at the mercy of privately owned entities in order to pick up passengers, or in simpler terms, run a business.
Authorities of Harbor Police Enforcement
The Harbor Police are in charge of enforcing the San Diego Unified Port District Code, short-titled as the Port District Code, these are the regulations put in place by the Port of San
Diego’s Board of Commissioners.
In regards to passenger charters, Harbor Police officers are allowed to check for 6-Pack permits issued by Port of San Diego affiliated marinas under section 4.37 of the District Code
Passengers Charters in San Diego: A New Management Strategy 14
(Port of San Diego). They are also allowed to ask boaters if their vessel is compliant with all government regulations, such as USCG codes.
Harbor Police officers have the authority to enforce any state codes applicable to peace officers in California. This includes the California Code of Regulations, The California Harbors and Navigation Code, California Water Codes and any other applicable state codes. In addition, the Harbor Police can enforce local county codes, such as those made by the City of Coronado for example (Lieutenant Victor Banuelos San Diego Harbor Police, personal communication,
February 21st, 2019).
According to the California Charter Boat Safety Act of 1983, section 773.3 states: “No person shall take or offer to take seven or more passengers on a charter boat unless the vessel is licensed by the United States Coast Guard” (California Boating and Waterways Division). This code in fact gives the San Diego Harbor Police the authority to halt passenger charters with more than six passengers, if the vessel is not licensed by the USCG. They would need to be very familiar with USCG regulations and make sure their involvement is approved by USCG.
Trouble in the Bay
The Port of San Diego provides infrastructure and safety for charter passengers in San
Diego Bay. During the last few years, the Port has come under intensifying scrutiny from media outlets for the high number of illegal passenger charters. Illegal charters are those in which the vessel operator or business owner does not have the right certifications or qualification to operate legally. The largest segment for illegal operators is both power and sailboats in the 25-65ft range, or small passenger vessels according to the USCG. Charters can be illegal by not complying with
Passengers Charters in San Diego: A New Management Strategy 15 either the USCG regulations, California state regulations, or the District Code issued by the Port of San Diego. These illegal charters cause various problems:
1. Illegal charters are not safe for the general public. With the increasing rise of social
media for self marketing purposes, many vessel owner/operators are starting illegal
passenger charters and easily finding customers. Passengers boarding these vessels put
good faith in the owner/operators to be licensed and compliant; unfortunately a lot of the
times that is not the case. Both the Port of San Diego and the USCG are meant to keep
charter passengers safe, doing yearly inspections on vessels, checking for commercial
insurance, and overall looking out for passengers’ safety. While they can easily check the
legal operators, the illegal charters don’t go through USCG inspections or commercial
insurance checks and are therefore not fit for passenger usage.
2. Illegal charters also cause an overall price drop in the market, hindering the legal charter
operators. Since illegal operators have lower overhead running costs, they can afford to
charge cheaper rates. Legal operators however cannot successfully compete at these
lower prices and have a harder time staying financially afloat. “The activities happening on the illegal craft are big business in San Diego”. (Hoffman, KPBS, 2018) This big
business is unfortunately not for the legal operators following the rules. The following
quote from The Log explains further: “Charter boat companies in San Diego are
complaining about hundreds of illegal passenger-for-hire operations popping up in the
bay and taking revenues away from those who offer services legally”. (The Log, 2016)
The article goes on to explain the Port’s involvement with finding a solution: “San
Passengers Charters in San Diego: A New Management Strategy 16
Diego’s Harbor Police acknowledged the problem and seeks to eradicate illegal
operations via education and code enforcement”(The Log, 2016).
3. The Port of San Diego is missing out on a significant revenue stream in the form of small
vessel passenger fees collections. Since illegal charters do not pay passenger fees, but use
Port facilities, they are a strain on the local economy. This potential for revenue should
be an incentive for the Port to back a solution to combat the increase in illegal charters.
“Unauthorized passenger-for-hire activity has also been a growing issue for Harbor
Police officials in San Diego” (The Log, 2017) While the USCG hasn’t received too much outside pressure, the Port of San Diego has been in the spotlight, taking the brunt of criticisms. Below is an excerpt from The Log:
“Illegal charters are a problem in ports throughout the country. Locally, Sector
San Diego of the Coast Guard has put together a joint working group called the ‘Illegal
Charter Working Group’ to address local, illegal charters,” the port district spokesperson
stated. (The Log, 2017)
The quote above shows that both the USCG and Port are making efforts towards stopping the problem. Their efforts surround enforcement strategies, while mitigation strategies would in fact work best. The following recent quote from KPBS shows the lingering problem despite enforcement efforts:
The U.S. Coast Guard and Port of San Diego Harbor Police estimate there are as many as
200 illegal passenger boats for hire operating in San Diego. They can range from fishing
trips to whale-watching tours and party cruises(Hoffman, KPBS, 2018).
Passengers Charters in San Diego: A New Management Strategy 17
Passenger Pick Ups - Where?
As mentioned earlier in the paper, the Port of San Diego has authorized certain private marinas to permit passenger charters and to serve as pick up spots for passengers. This system might work if the private marinas had docking space available for passenger charter operators and if the Port could suggest marinas that are accepting new commercial operators. The complete opposite is presently true however.
The Port website has no information for passenger charter operators other than the downloadable PDF of the District Code, which is not user friendly and encompasses all legal aspects of the Port. The small section of the District Code addressed to passenger charters is just in regards to 6-pack charters and not inspected SPV (Small Passenger Vessel) or bareboat charters. I called the Port to see which passenger pick up spots are currently available and they had no information. Instead they told me to “call Shelter Island Marina”. For readers not familiar with San Diego Bay, Shelter Island Marina is just one of many private marinas, but one of the few allowed by the Port to permit charters. I called Shelter Island Marina, following the Port’s advice, and of course, they have no availability. The same is true for almost all private marinas allowed to house commercial operations. The tricky part for charter operators then becomes finding a marina that can help them and is permitted by the Port, since private marinas are not required by the Port to accept all legal charters. The operator has to find this marina without any help from the Port. This lack of docking space has been plaguing small passenger vessel operators and is a common theme of discussion with the legal charter businesses I interviewed.
Without a place to legally pick up passengers, any new passenger charter business owners will be blocked from competing. Often times, investors buy a boat and get USCG inspections/credentials
Passengers Charters in San Diego: A New Management Strategy 18 just to later realize that picking up passengers is almost impossible. When these operators find out how hard it is to operate legally, they operate illegally as a way to stay financially afloat. One can’t put the blame on the new charter operators for getting blocked by unexpected bureaucratic barriers of entry, especially since most charter operators are hard working true mariners, not office dwellers. If the Port offered more information and suitable alternatives, there wouldn't be such a problem with illegal charters.
JP is the owner of Good Friend, a USCG certified and inspected SPV. He mentioned the hardships of operating legally: “Us legal operators have a hard time competing with illegal charters on small vessels, add to that the monopoly of Hornblower and Flagship charters and we barely scrape by”. (JP, personal communication, January 15th, 2019) Just one dock down from
JP, the Port of San Diego has revitalized the docks for Hornblower Vessels. This makes the docks for the large passenger vessels safe and attractive to potential charters, unlike the neglected dock which JP has to rent. The Hornblower and Flagship companies own large passenger vessels, over 300 GT, and deal directly with the Port, giving them a big financial advantage over small passenger charters which have to deal with private marinas. Unlike Good
Friend, the two large companies at the Hornblower docks have all the amenities and safety precautionary features expected from a Port run passenger pick up spot. Why can’t the Port apply the same amount of foresight to small passenger vessels? I believe the Port favors these companies simply because it is easier. Having to keep track of only two companies, instead of hundreds, makes administration easier for the Port staff. The issue of illegal charters however has grown into a considerable problem for the Port and according to the Lieutenant Sergio Banuelos,
Passengers Charters in San Diego: A New Management Strategy 19 of San Diego Harbor Police, the Port is already making plans to tackle the issue. The problem, however, is that change “has been coming” since 2016, but nothing is there to show for it.
Legal Operators - The Cost to Operate Legally
Private marinas have a stranglehold on small passenger charters in San Diego Bay. Since small passenger vessels have to go through private marinas for Port issued permits, it creates localized monopolies at every marina. Private marinas have no requirements to accept commercial charters; they often say the space is not available to avoid dealing with the extra foot traffic. Also, once a marina accepts a commercial charter, they tend to protect the business by not allowing competitors at their marina, ensuring that the existing business can pay the revenue split and dockage fees. As the fleet manager for Marina Sailing in San Diego, I have often been faced with this issue. Our business runs bareboat charters out of Point Loma Marina; recently, however, our slip rate went up by 25% per foot. This had a big impact on the bottom line and I wanted to find our company another marina. I started looking for availability at marinas half way through 2018 and have been diligent with my search, just to get the same answer all the time: we can’t accept more charter companies. The biggest problem is that marinas will allow a charter boat company into their marina and then protect the existing business from other competitors.
The same is true for 6-Pack charters. The hardest hit are the USCG inspected SPVs, since they have larger boats and big slips are hard to come by. Since there are only a few marinas authorized by the Port to house passenger charters, this localized protectionism means new businesses can’t find a place to operate out of.
“If you ask the Port, they’ll say: ‘Nothing is available’”(JP, Owner of Good Friend,
Interview). This quote by the owner of Good Friend, one of the only SPV charter vessels legally
Passengers Charters in San Diego: A New Management Strategy 20 operating in San Diego Bay, shows the extent of the problem. One interesting fact is how I got in contact with JP. I first tried calling the Port of San Diego for information on docks they own, and how Good Friend had a spot at one of the only public docks (Good Friend is the only SPV boat at Port of San Diego run dock). Instead of giving me an answer, the Port literally told me to call the owner of Good Friend for an answer, which I did. After a long phone conversation I felt the angst of a man that had fought dearly to turn his boat into a business, just to get pushed aside until the Port finally gave in and let him pick up passengers at a public dock. “I pay close to
$3,000 a month for a run down dock without safe ramps” was JP’s final solution from the Port.
He is the only passenger boat on the dock, and it is otherwise used as basic storage for run down lobster traps. It is worth mentioning that throughout my conversation with JP, he was very grateful that the Port gave him this spot, even if it is substandard at best. As the owner of a
USCG inspected 70ft vessel, who hires licensed captains, gets legal liquor licenses, and pays passenger port fees and high dockage fees, one would expect only the best treatment for JP and his efforts. Unfortunately the opposite is true. Also worth mentioning is the ethnicity of JP; he is not an American born citizen and feels humble to operate a business in San Diego. He values what he has and does not want to run the risk of operating illegally to save money. From my experience in the industry, American born boating operators are quicker to go illegal, as they don’t fear repercussions since no one has been penalized for illegal chartering by the Port.
Captain Rus from Green Tour Charters is another good example of a legal operator who is paying the price for being legal. He owns a nice Hunter 33ft sailboat and does 6-Pack sailing tours out of San Diego Bay. To lock in a spot to pick up passengers, Capt. Gus gives 16% of his gross revenue to H&M Landing, which is a private marina authorized to handle commercial
Passengers Charters in San Diego: A New Management Strategy 21 charters (Capt. Gus, Personal Interview, 2019). The marina takes 10% as a commission and claims the other 6% goes to the Port. Although Capt. Gus is unaware of this, H&M Landing is actually not following the Port’s District Code. In the code, marinas are allowed to charge 7% to charter operators, remit 4% to the Port for passenger fees and keep 3% as a surplus for providing the services (District Code). Overcharging from private marinas is common practice and results in a loss of revenue to both legal charter operators, and the Port of San Diego.
There is another option currently available, which still goes through a private marina but does not require the usual commitment of renting a slip for the boat. Without any contractual long term agreements, passenger charter operators can contact the Sheraton Marina Downtown and pay directly to pick up passengers:
You can pick up from private marinas for around $8 to $9 per passenger, if they allow it
during that time. This is on top of the passenger fees for the Port, of around 4% of
revenue. (JP of Good Friend, Personal Interview, 2019)
Again this option is very costly and would greatly affect the bottom line for charter operators, not to mention it is not guaranteed that the marina will allow passenger picks, as everything revolves around their availability. This lack of certainty means that charter operators can’t secure bookings for their customers from those docks.
United States Coast Guard Regulations - Enforcement Confusion The USCG regulations are federally observed, and while they are fair, they can also be confusing for new charter operators figuring out the legality of their business. For SPVs the rules are pretty straight forward; the USCG inspects the boat yearly and sets the passenger/crew limits.
The confusing part of the regulations applies mainly to UPVs, specifically bareboat charters.
Passengers Charters in San Diego: A New Management Strategy 22
Unlike 6-Packs, bareboat charters can carry 12 passengers and an unrestricted amount of unlicensed crew. According to regulations, the charterer has to be in control of who the captain and crew are, and not the boat owner or owner’s agent. This is tricky since the boat is going be known best by the owner’s crew/captain, and therefore from a safety aspect it is the logical choice. Many current illegal operators fall back on the bareboat laws when they are questioned for documentation, or when they want to carry more than six passengers.
These confusing bareboat regulation add to the problem by creating a deeper gray zone for illegal charters. By having up to 12 people legally on an uninspected boat, with no requirements for a licensed captain, it makes enforcing the rules for the USCG less clear cut. If the regulations went from inspected vessels directly to 6-Pack charters, it would make it easier to enforce illegal charters as a whole, since in both cases a licensed captain is needed on board.
Unfortunately however, eliminating the bareboat charter clause would not be fair for all the companies that run legitimate bareboat charter businesses, such as Marina Sailing, and the vessels’ owners who put their boats in charter.
The following PDF issues by the USCG specifically for San Diego explains some regulations, but due to the complexity of the existing laws does not go into much detail, leaving important information behind. This is an example of why new charter boat operators can be confused by the existing USCG regulations.
Passengers Charters in San Diego: A New Management Strategy 23
Figure 6 - USCG Pamphlet which doesn’t show all the necessary information -USCG
Limitation of Harbor Police
The Harbor Police are limited in their enforcement of illegal passenger charters.
Although the Harbor Police have the authority to enforce multiple codes, some of which apply to passenger charters, they still need to have a probable cause in order to board the vessel. What constitutes ‘probable cause’ is not defined in the District Code and would need to be ultimately decided by a court. This varies greatly from the USCG, as they in turn have the ability to board vessels for various reasons (Shelton).
Passengers Charters in San Diego: A New Management Strategy 24
Under California boating law the Harbor Police have the right to penalize vessels carrying more than six passenger without a valid USCG license. This gets tricky however, because only the USCG is deemed capable of enforcing their own regulations, and the Harbor
Police hence don’t have the authority to enforce USCG policies. In general, the USCG is deemed as the only authoritarian power capable of enforcing their codes. An expert in the field, Greg
Shelton, explains this further:
The Coast Guard is our ocean and border water police and patrol force. If that service is
not empowered to enforce the laws of the United States -along our shores and in
boundary waters, those laws are unenforceable [sic], since there is no other agency of this
Government equipped to enforce them. (Shelton, 1993)
This excerpt essentially means that even if Harbor Police Officers are convinced that a boater is breaking the USCG codes in terms of passenger charters, they have no right to penalize the offender, since they are not properly equipped to enforce USCG regulations.
The Harbor Police also face regulatory hurdles from the Port’s own District Code. Under section 0315 of the San Diego Unified Port District Code - Tariffs NO 1G , the code gives
Harbor Police the Right of Inspection on any vessel in San Diego Bay to check the vessel’s cargo or merchandise, to check for environmental compliance and to verify the vessel’s condition in any respect (Port of San Diego). Section 0315 however doesn’t state anything about inspecting in regards to passenger charters. Additionally, section 0320 informs Port tenants to comply with existing government regulations, on a state and federal level. This section however does not specify that Harbor Police officers have the right to enforce these government regulations on the government's behalf, it simply states that tenants should follow government regulations. There is
Passengers Charters in San Diego: A New Management Strategy 25 yet another legal limitation for the Harbor Police in regards to enforcing any laws outside of the
San Diego Unified Port District Code. Section 7 reads as follows:
SECTION NO. 0.07 – POLICE AUTHORITY Nothing in this Code shall be construed to
limit the jurisdiction of the Police Departments of the Cities within the territorial limits of
the “District”. The authority of the Harbor Police, as provided in the San Diego Unified
Port District Act (Stats. 1962, 1st Ex. Sess., c.67, Harbors and Navigation Code
Appendix I) shall be exercised in cooperation with the Chiefs of Police of all cities within
the "District" and in cooperation with Federal, State and County law enforcement
agencies. (Port of San Diego, San Diego Unified Port District Code, Section NO 0.07,
p8)
After reading Section NO 0.07 above, one would assume that Harbor Police are confined in their ability to enforce regulations outside of the San Diego Unified Port District Code without the presence, or cooperation, of the applicable district Chief of Police or government agency.
Section NO 0.07 might be a hindrance to the San Diego Police, as cooperation seems necessary for San Diego Harbor Police to enforce codes.
It is common to see Harbor Police boats with USCG personnel during the busy summer months. They have the USCG on board to help with enforcing various aspects of USCG regulations, including illegal passenger charters. This act confirms that Harbor Police is limited in their ability to single handedly tackle illegal passenger charters.
The following quote found in The Log, a California boating magazine, from a Port of San
Diego spokesperson summarizes well the multiple parties involved with enforcing passenger charter regulations and the difficulties this poses:
Passengers Charters in San Diego: A New Management Strategy 26
The Port of San Diego is a part of that working group along with the Coast Guard,
Customs and Border Protection, the US Attorney’s Office, San Diego City Attorney’s
Office, Sport Fishing Association, and representatives from Mission Bay and Oceanside,”
the spokesperson continued. “Because some activities are either federal, state, local or a
combination, it is critical that all levels are represented in the working group. (Rohit
2017)
Another limitation from the weakly written Port District Code is not defining passenger charters and also leaving out bareboat charter regulations and SPV regulations. This means that there is no Code for the Harbor Police to enforce in the majority of illegal charters. Since they can’t enforce USCG regulations, the Harbor Police are left without a structure of enforcement to combat illegal charters. If the District Code were well written, giving the Harbor Police authorities over passenger commercial activities in the San Diego Bay, at least they would be able make an impact based on the District Code without the coordinated efforts from the USCG.
Illegal Operators Want to be Legal
As the sections above describe, there are various hurdles which make it hard for the Port of San Diego to stop illegal charters. Confusing USCG regulations and limitations for the Harbor
Police make enforcement a weak solution. Instead of focusing on the penalties and enforcement, the Port should focus on listening to new business operators. The hurdles posed by a lack of passenger pick up spots and the unreliable support system from private marinas makes it undesirable to start a legal operation in San Diego Bay. It is my firm belief that if illegal operators had an enlightened path towards being legal operators, the majority would switch over.
Passengers Charters in San Diego: A New Management Strategy 27
Not every business operator can surmount the barriers to entry currently in place, but many more could if the Port broke these down.
Proposed Solutions - A Simple Way Forward
The simplest way forward for the Port to handle illegal passenger charters in San Diego
Bay is to set up a public dock where small passenger vessel charters operators can pick up and drop off passengers.
Location for Public Passenger Charters - Downtown Docks
After research throughout San Diego Bay, the most promising docks to handle the capacity required to tackle this project are the Port owed docks by Grape and Vine Street. These two docks are currently unoccupied, except for one boat, the Good Friend. The Port is not letting any other boats pick up passengers from these docks, in my opinion mainly because they are unsafe from years of neglect. Besides their poor condition, the location is perfect. They are walking distance from downtown and next to the already popular larger passenger vessel and cruise ship terminals. Below are a couple of pictures to show how empty these docks sit:
Figures 2 & 3- Potential Passenger Pick Up Docks from left and right side, respectively.
Author’s photographs.
Passengers Charters in San Diego: A New Management Strategy 28
The pictures above are good example of precious dock space sitting idle, while passenger charters operators scramble for legality. The picture below shows the proximity of these docks to downtown San Diego:
Figure 4 - Proximity to San Diego Downtown from potential passenger pick up docks. Author’s photographs.
The best part of this proposed solution is the simplicity of the task at hand. The Port of San
Diego already has the location and certainly the funds to invest in this cash flow positive operation. The Port would have to invest funds into making these docks safe for pedestrians before allowing public passenger charter pickups. The resulting fees collected could support maintenance and any liability insurance fees.
Port of San Diego - Financial Opportunities by Increasing Passenger Fee Collection
Passengers Charters in San Diego: A New Management Strategy 29
The Port of San Diego is missing out on collecting the full of amount from passenger fees, considering mainly that private marinas take a middleman percentage. In addition, illegal charter operators are not paying passenger fees at all, and therefore their business goes uncollected. The following quote shows the scale of the problem: “Dreher said there are more than 200 potential illegal passenger-for-hire operations in San Diego Bay of which he is aware”
(Drohit, 2016). Assuming that the article is moderately accurate and assuming that passenger charter operators make about $100,000/year in gross revenue, at the current 4% the Port is charging for passenger fees, the Port is losing around $800,000 per year just in uncollected passenger fees from small vessel illegal operations. This estimate however seems conservative, as it is hard to identify just how many charters are illegal. This estimate is also based on the repressive system currently in place, and does show the growth potential of encouraging legal operators. Currently, illegal charter operators have to pick up passengers discreetly from launch ramps, waterfront restaurant docks, after hours at marinas, or anywhere they can do it undercover.
The most viable way to increase passenger fees is to provide a public location for collections. With a centralized point where charter operators can pick up and drop off passengers, the port will also have a better grasp of the volume of passengers on small vessels and will be able to collect fees without going through private middlemen marinas. With the increased capabilities of small operators being able to reach large audiences through social media, the number of independent small vessel operators has risen and will keep rising. Under the current system there are not enough private marinas to handle to demand for small vessel operators and the Port is losing out on passenger fees.
Passengers Charters in San Diego: A New Management Strategy 30
Increase Safety - Localized Enforcement in Passenger Pick Up Spots
Since the public passenger docks would be a hotspot for passenger charter operators, it will make enforcing charters as a whole more manageable for both the USCG and the Harbor
Police. This translates of course into safer boating trips for passengers in the bay.
With a centralized location, the Harbor Police can easily check for crew and passenger sobriety, check for illegal substances, uncontrolled alcohol sales, and various other California
State offences.
The USCG would also benefit from a high concentration of charter operators by efficiently being able to check for mariner credentials, safety components (life jackets, flares,
VHF, sound signaling device), and vessel integrity. The USCG could also be there to warn mariners of local hazards and discourage seafaring charters when the weather picks up.
Implementation - A Fluid Plan for Integration
The Port of San Diego will have to implement these changes in a fluid manner as to not upset current business arrangements between private marinas and legal charters operators. The
Port has been allowing private marinas to regulate the passenger charter industry for decades, so change won’t happen overnight. The new public system must be gradually eased into. Legal operators that are content with their private agreements can be grandfathered at their current docks and submit passenger manifest and pay fees electronically via a Port of San Diego website page. This website page could also house a centralized list of available openings for commercial charters in private marinas so people don’t have to call without avail.
Illegal Operators - Turning Law Bending Charters to Passenger Fee Revenues
Passengers Charters in San Diego: A New Management Strategy 31
The greatest opportunity with a public passenger dock is the chance for the Port of San
Diego to convert illegal charter operators to law abiding businesses. From my research and personal experiences, as well as interviews with legal charter operators, it seems that the biggest problem is the lack of information.
The Port could use the new passenger docks as a hub of information for new passenger charter operators. They could have pamphlets, information on the website, and a small staff to manage the passenger fees collection and paperwork for new applicants. The staff would also be in charge of collecting passenger manifests before the trip and of checking that vessels are commercially insured.
The passenger pick up spot will act as a main hub of information for passenger charter operators and the illegal charters currently operating will now have a chance to turn this around by getting all the information they need to move forwards legally.
Unified Port District Code - Useful Addition Defining Small Passenger Charters & Codes
The Port of San Diego has an obligation to add to the District Code in regards to small vessel passenger charters. Currently, the Port only defines passenger charter regulations for
6-Pack charters and says little about SPV (Inspected Small Passenger Vessels) and bareboat charters.
Defining clearly what constitutes as a passenger charter in the District Code will help with enforcement down the line. Also, if the Port could define the permit carrying regulations, then Harbor Police would have fewer limitations and be backed by the District Code. For example, if the Port stated that all small passenger vessels must clearly display a charter permit, then Harbor Police could under the right circumstances (for example if the vessel looks like a
Passengers Charters in San Diego: A New Management Strategy 32 charter vessel per Code definitions) ask to see their permit. If the vessel is not carrying a permit, then the Harbor Police could fine/penalize strictly on the basis of the District Code, without having to interfere with USCG regulations. Currently however, the lack of regulations also means there is a lack of effective enforcement from Harbor Police.
Summary
The Port of San Diego is currently in the process of finding solutions to fight the increasing amount of illegal passenger charters in San Diego Bay. While they haven’t made public announcements revealing the possible solutions, this project reflects on some viable answers.
After interviews and research on the root problems surrounding the issue, my recommendation to decrease illegal charters is to create a public pick up dock for charter operators. Under the current system boat operators need to set up expensive contracts with Port authorized private marinas to pick up their customers. There is a lack of availability in the private marinas for commercial passenger operations, and since marinas aren’t required to serve all legal charter operators, often times they don’t. A public dock for passenger pick ups for commercial operators would eliminate the need for private marinas, thereby making legal operation easier and cutting out the middlemen with passenger fee collections. Throughout the development of this paper, the biggest challenge was obtaining information about what the Port’s legal requirements are for passenger charters. The USCG regulations are well stated, and although a bit confusing, the information is available for all. With the Port however, I had to finely comb through the Unified Port of San Diego District Code to find relevant charter
Passengers Charters in San Diego: A New Management Strategy 33 regulations, passenger fee amounts, and enforcement procedures. The information I didn’t find however is the most important, and an area where the Port can improve the most. The Port needs to clearly define passenger charters, penalties for operating illegally, and most importantly from where these charters can operate legally. Since the Port has set some enforcement rules in the
District Code, it is their responsibility to provide businesses with information on how to comply.
Again, a public passenger pick up spot would clear the confusion and give new charters businesses a hub of information for filling the correct paperwork.
Measuring Success: Does the Public Passenger Pick Up Dock Work?
It is important for the Port of San Diego to have a way to measure that its efforts are worth the additional resources needed. The following methods can be used to check success of the public dock for small vessel passenger pick ups:
1. Measure the change in passenger fees collected. This would be the most significant
metric. How much more money is coming in? In the first year of operation, the Port can
compare how much was collected in fees by private marinas and how much was
generated through the public dock. Since the 4% of gross revenue asked from the Port is
lower than anything offered by private marinas, it would make financial sense for charter
operators to make the switch over, although this might take longer to observe than one
fiscal year.
2. Hold meetings with established legal operators. Ask the legal operators if they’ve noticed
an increase in prices for charters in the bay. Since illegal operators would now have an
easier time complying, they would also start paying fees and taxes. This means they
Passengers Charters in San Diego: A New Management Strategy 34
would have to increase their charter costs to the costumer, raising the price to its fair
market legal value. Legal operators currently have to compete against illegal operators
who don’t pay passenger fees and don’t pay a premium to private marinas, or commercial
insurance, all of which would change with a public dock.
3. Look for media articles. As mentioned earlier in the paper, the local boating media is hot
on the illegal charter story. They would be the first to write about the changes
implemented by the Port, and their opinion would be worth considering for further
improvements. The local media can also serve as free publicity to show Port stakeholders
that change is actually being made.
4. Ask the USCG for any noticeable changes. Ask if the USCG is seeing more passenger
boat owners requesting COIs (Certificate of Inspection) and if more individuals are
getting captain licenses. Since the USCG boards vessels regularly, they would also notice
any change in passenger charters in terms of permits and licensing.
The four measures above would give the Port of San Diego a good place to start evaluating the success of a public passenger dock. While the project is simple, the stakeholders involved would each have a valuable input to ensure the project increases revenues for the Port while also increasing passenger safety in the bay.
Contingency Plan - Digital Fix
Should the Port of San Diego not have the appropriate resources to invest in the renovation of the downtown docks and add basic infrastructure to collect fees, then there is still a contingency available.
Passengers Charters in San Diego: A New Management Strategy 35
The contingency plan would be for the Port to start issuing chartering permits directly, and to set up a webpage for commercial operators to pay fees online. The Port could use its current headquarters to handle paperwork and new applications, then credentials could be assessed and permits mailed to the operator. Under this system passengers could be picked up from any private marina as long as the vessel is permitted by the USCG and commercially insured. This plan however would be hard on private marinas hosting passengers, since they would have higher janitorial and miscellaneous expenses. Therefore the Port should compensate marinas by giving them a percentage of the passenger fees claimed from their marina (instead of the current system which is the inverse). It would also be crucial that the marinas aren’t blocking certain charter operators, and that their docks are truly for commercial use without protectionism.
Closing Remarks
Overall, the Port of San Diego has various options to start decreasing the amount of illegal passenger charters in the bay. If the Port wants to further research the solutions available,
I suggest doing comparisons with other Ports nationwide. For example, the Port of Seattle handles all commercial permits directly, and has public docks readily available for commercial use. They would be a good source of information to develop a strong project. I also suggest that the Port seeks legal advice for the Harbor Police. They should be able to do more to protect passenger safety, right now they are almost powerless in this regard. In conclusion, this project was eye opening for me. As the manager of a bareboat charter sailboat fleet in San Diego, I never knew what happened behind the scenes after I gave our private marina the monthly 10% gross revenue fee. I can now see where the money flows and understand why new businesses have a
Passengers Charters in San Diego: A New Management Strategy 36 hard time getting legal in terms of the Port. It will be interesting to see how the Port moves forward to tackle this problem.
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