Upgrade to North Pacific fishing fleet benefits Puget Sound economy

A major “modernization” of the North Pacific fishing fleet has begun, bringing new jobs to the Puget Sound region and a potential boost of $1.3 billion in total economic activity over the next 10 years, according to a new study.

Fishermen’s Terminal from the Ballard Bridge, Seattle. Photo: Joe Mabel, Wikimedia Commons
Fishermen’s Terminal from the Ballard Bridge, Seattle. // Photo: Joe Mabel, Wikimedia Commons

If economic and environmental conditions allow, 37 new fishing boats and fish-processing vessels over 58 feet long will be built, bringing new efficiencies to fishing and increased safety to those working in the North Pacific — an area off the Alaskan coast. Most North Pacific vessels over 58 feet are home-ported in Puget Sound.

Ship-building companies in the Puget Sound region are expected to be the primary beneficiaries of this modernization, as half of all the new vessels will come out of Washington state, according to predictions in the report. The study was conducted by the McDowell Group, an Alaska-based consulting company hired by the Port of Seattle and Washington Maritime Federation.

Although many factors are in play, a key impetus for this modernization is the development of catch shares — a type of management system that divides the allowable harvest into individual fishing quotas, or IFCs. This management regime, sometimes called fisheries “rationalization,” avoids the wasteful and sometimes dangerous race once seen among fishing vessels, as each crew tries to catch the most fish within a specified time period or before a total quota is reached.

Individual quotas allow each crew to fish when they want, avoiding severe weather conditions and operating with greater safety. Seafood quality has improved, according to the report, because fish processors can schedule a steady supply of fish. Waste is reduced, because the processors can take time to process more parts of the fish, rather than just the high-quality meat. Because the harvest of non-target species has financial penalties, the fishing-boat skippers do their best to harvest at times and in locations with lower bycatch.

Management with catch shares provides more financial predictability for each owner of IFCs. That helps owners, lenders and investors decide whether investments in new vessels and equipment will pay off over time.

Source: National Marine Fisheries Service, 2015
Source: National Marine Fisheries Service, 2015

“Puget Sound is the economic hub of the North Pacific commercial fishing fleet, which produces billions of pounds of sustainably harvested seafood each year,” the report states. “However, to maintain safety, economic viability and a competitive edge in a global market, modernization of the fleet must occur. While this clearly represents a significant economic opportunity for the Puget Sound region, some factors could increase – or decrease – the potential size of the opportunity.”

The North Pacific fishing fleet consists of 414 fishing vessels that are over 58 feet long. Annual gross revenues range from about $2 million for small trawlers operating in the Bering Sea to $16 million for large catcher/processors, some of which exceed 400 feet in length.

Since 2002, 19 North Pacific vessels over 58 feet have been built or significantly modified, according to the report. That’s a little more than one per year on average. Based on economic conditions, the report predicts that vessel construction will increase to an average of three per year between now and 2021. Around 2022, that number could increase to five per year continuing into the foreseeable future.

Depending on the vessel, new construction costs vary widely from about $15 million to $130 million.

About one-third of the construction projects since 2002 occurred in Washington shipyards, a ratio that could increase to half given the right conditions.

Incentives for building a new vessel include increased fuel efficiency and improved processing facilities. Owners of small well-maintained vessels that do no processing may well conclude that the incentives are not great enough to invest in new vessels.

report

One idea that could increase the pace of new construction is for multiple owners to agree to purchase new vessels with a single hull configuration, thus increasing design and construction efficiencies and reducing costs compared to stand-alone designs. Financial institutions are likely to offer better arrangements for a coordinated modernization strategy, according to the report.

The cost of new vessels is a substantial risk to owners and lenders, who must worry about potential fluctuations in seafood markets and environmental changes that could reduce fishing quotas and revenues.

In 2015, nearly 3 billion pounds of seafood, worth $4.3 billion, was harvested off the coast of Alaska, according to the report. Pollock accounted for 32 percent of that value, followed by other groundfish (such as cod, mackerel and rockfish) at 18 percent of the total value. Crab, sablefish and halibut, which are high-value seafoods, accounted for 14 percent of the total value but only 3.3 percent of the total weight. Salmon, herring and all other fish totaled 35 percent of the total value.

In part because of catch shares, the amount of seafood processed versus discarded has increased from 65 percent to 93 percent. Some of that is because more parts of the fish can be processed and sold, such as fish meal. Part is from regulations that limit discards of non-target species.

Recent changes in regulations have allowed for larger ships, because previous rules limiting vessel size and power are no longer justified with individual quotas. Such is the case with the freezer-longline fleet, which catches mainly Pacific cod. These ships typically play out lines about eight miles long with 12,000 baited hooks on each one. Most vessels now have automatic baiters, with the newest equipment able to set 60,000 hooks per day.

One new ship completed this year is the Blue North, built at Dakota Creek Industries in Anacortes for about $36 million. The 191-foot vessel is designed to process 100 percent of its harvest aboard ship.

Consolidation of quotas is underway, with the long-term effect being fewer but more efficient fishing boats operating in the North Pacific.

“Beyond 2026, fleet modernization is anticipated to average between three and five vessels per year,” the report states. “Absent significant increases in seafood prices or TACs (total allowable catches), the number of vessels participating in the various fisheries of the North Pacific is expected to shrink, with some fisheries impacted more than others.

“The primary driver of this consolidation will be transferable quota, which will tend to concentrate in the hands of the most successful companies and therefore require fewer vessels to harvest,” the report states.

One of the uncertainties for the fisheries industry that is the most difficult to predict is the effect of climate change, according to the report. A change in ocean conditions is already affecting fish populations in different ways. Pollock, for example, are expected to decline as the waters grow warmer. The population already appears to be moving north and toward Russia, farther from U.S. fishing grounds.

Pacific cod seem to be moving into deeper, colder waters. Salmon are likely to expand their range, resulting in increased salmon bycatch in the fisheries focused on groundfish, the report says.

“Lenders have expressed some wariness about the short-term implications for crab and, to a somewhat lesser extent, pollock,” the report says. “Beyond that, there appears to be no broadly held consensus on how climate change could affect fleet modernization.”

Can Puget Sound shipyards take advantage of the increased construction in the fishing fleet? Yes, the report says, but regional efforts can improve or impede the growth in construction. Labor costs in Washington are about 30 percent higher than in the Gulf states, driving up the cost of a new vessel.

On the other hand, vessel owners say Puget Sound shipyards produce high-quality work, and Northwest shipbuilders are familiar with the operating conditions in the North Pacific. Many owners see an advantage in maintaining strong relationships with shipyards where their vessels go for maintenance and repair.

The authors of the report recommend regional efforts to preserve Puget Sound’s “working waterfront.” They suggest support for workforce development and collaboration among vessel owners, shipyards and lenders. The Port of Seattle should supply increased dock space for the North Pacific fishing fleet, including an upgrade of Seattle’s Fisherman’s Terminal.

In terms of financing, state or local governments could offer loan guarantees for vessels constructed in Washington along with special moorage rates for locally built ships.

The report, “Modernization of the North Pacific Fishing Fleet,” is one of the more readable reports of its kind that I have seen. While I focused on the report’s key points in this blog post, I learned a lot from reading this document cover to cover — including details about the fishing economy and the effects of fisheries management strategies.

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