The Battle of Back Creek

The big guys wanted a piece of the water taxi business…but they wouldn't fight fair.

DRAMATIS PERSONAE Al Bembe, Tim Peregoy, Barry German, Gerald Donovan, Cheryl Phipps: water taxi operators petitioning to stay in operation

John Fewer, William Lakowski: water taxi customers

Rodney Ord, Owen Siler: water taxi newcomers

Experts, attorneys, and bureaucrats

The backdrop is the Chesapeake waterfront. Picture the launches cutting through the choppy waters, and hear the wail of boat whistles. There is no need to imagine with gliding white gulls or the fawn-colored ducks, for this story is about waterfront people. It is a courtroom drama without a courtroom—only a hearing room in a Maryland state bureau. There is no sentence in which someone's life is at stake, for their is no sentence—only a Public Service Commission ruling that determines whether some dozen men and women may continue their livelihoods.

It is a story of how two new companies get into the water taxi service in the Annapolis area. One of them acquires a monopoly on the use of the Annapolis city docks—then they both try to have oldtimers on Back Creek either shut down or forced to set their prices in harmony with the newcomers'. It is the never-ending story of the use of government by some business owners against others.

Driving east across the sweeping Bay Bridge from Annapolis, one can see, on the right, many ships at anchor. This is the Annapolis anchorage. When crew members seek a liberty, or when customs officials or ship's agents need to get on board the offshore freighters, they turn to the waterfront's launch operators who make their living providing the water taxi service that ferries people across the harbor to and from the anchored ships.

For a decade, Captain Al Bembe had that field to himself. "My grandparents were watermen," says Bembe, a 67-year-old gentleman with a proper captain's visage and nautical beard. "My father and my two uncles were watermen. My brother and I are watermen, and my two sons are watermen. The whole family has done nothing but make a living on the water—oystering, crabbing, fishing. And running the launch service."

The Annapolis anchorage that Bembe services runs for several miles from near Thomas Point up to the Bay Bridge that Bembe helped build. He operated one of the boats that carried engineers, inspectors, and surveyors to and from the construction many years ago. "After that, I went strictly into the launch service business," he says. "It's set up as a family affair. My wife answers the telephone and radio as a dispatcher at home. My sons and myself, we operate the boat. She relays any and all messages back and forth for us. We're on call 24 hours a day, seven days a week."

There wasn't much business in the early days. Then the energy crisis spawned a coal boom, and suddenly the water taxi service began to attract newcomers, but Bembe never objected to the competition. In fact, he actually prefers to let others handle the crew liberties: taking oftentimes drunken sailors back to their ships isn't his favorite part of the maritime trade, anyway. But Al Bembe was still the grandfather of them all. He had the skill, the experience, and the reputation.

After a while, as the number of competitors swelled, so did Bembe's workload. From 1973 to 1978, when the Bembe family had a virtual monopoly, they made an average of 20 trips per month. But between 1978 and 1980, the average rose to 30–35 trips per month.

Tim Peregoy was the Bembes' first competitor, and he ran his business similarly to theirs. A native of Baltimore, he had gone down to the Gulf of Mexico to work on the oil rigs, getting the maritime experience he now employs as a launch operator. He towed oil rigs, dropped off passengers to them, and handled freight for them.

Peregoy found things slow in Chesapeake Bay when he first started. Some customers preferred to stay with the more-experienced Bembe family, but Bembe would refer overflow business to Peregoy, especially the crew liberties he would rather avoid. Peregoy, too, has now begun to acquire a solid reputation, and since the end of the coal strike his business has been picking up. He has two launches and estimates current traffic at six trips daily. Like Bembe, he makes himself available 24 hours a day, seven days a week. Asked if he ever takes a vacation, he replied, "I went skiing two days."

In October of 1980, Gerald Donovan started a third launch service. Owner of a large marina in the bay, Donovan saw himself as a small business entrepreneur, and he left the management of his launch operation completely in the hands of his pilot, Cheryl Phipps. "The captain of our vessel in Annapolis is a lady, and she is a young lady," said Donovan. "She never had a minute's problem from 6:00 in the morning until 2:00 or 3:00 in the morning" handling the crew liberties that his service specialized in.

Captain Phipps, a believer in taking proper precautions, noted that she would occasionally double her crew. "When I know I'm going to have more than one nationality on the boat at a time, late at night—say, 2:00 in the morning—I feel sometimes it is best to carry a crew of two," she explained.

Donovan observed that, despite the boom, which he expected to continue, the business is a cyclical one. "Obviously, there are different agencies, and different people are investing millions of dollars in upgrading facilities to facilitate coal. I believe it is here, but there are going to be fluctuations. We're going to have good months and slow months, and we're going to have ice and bad weather."

Last year, Barry German joined the field with the fourth water taxi service in the area. He started his operation on the Back Creek, within a stone's throw of the Bembe and Peregoy operations. His background is like theirs.

"I've lived on the water, I guess, 30 years," he recalls. "I bought my first boat when I was 12 years old. I have owned a boat ever since. I've worked as a sailing instructor in Annapolis and the various yacht clubs. After college, I worked for two years as a professional yacht captain running boats up and down the East Coast and over to the islands. I sailed in the America's Cup and crossed the Atlantic in a 35-foot sail boat."

Then, after German, came two more entrants to this field. Rodney Ord, owner of International Marine Transport Service, had relatively little maritime experience when he decided to get into the action. He had been an administrator for the IIT Research Institute, a position with no connection to the maritime industry. On the other hand, Owen Siler, who headed the Annapolis Bay Launch Co. (sometimes called Ann-Bay), did have nautical background as a former commandant of the Coast Guard. Ord and Siler's companies shared dispatcher service and communications. More important, the two newcomers also shared an interest in acquiring from the city government a monopoly on water taxi use of the Annapolis city docks.

It was in the process of preparing to place bids for the exclusive use of the pier (Siler eventually won it) that they discovered that water taxi operators needed approval from the Maryland Public Service Commission.

Bembe and their other predecessors had been quite unaware of this. The earlier businesses had sprung up spontaneously in response to demand for service by the maritime community, and they did not know that the PSC claimed the right to license their operations. But they soon found out. Once the would-be monopolists Ord and Siler had obtained PSC authorization to operate, they protested to the commission that the old-timers were operating without official approval.

The response of the established operators was to seek belated licensing from the PSC, but Ord and Siler proceeded to challenge their applications on a number of grounds. For example, Siler was quoted in the Washington Star as saying, "The economic need at this time is not there" for so many launch operations. Yet Star reporter Tom Ken worthy in the same article quoted the original PSC application of Siler's own company as claiming, "There is adequate demand for service that several launch services can compete…[and] such competition would be in the public interest."

On the first day of PSC hearings on the Back Creek operators' applications, Evans North, the attorney for Siler's Ann-Bay and Ord's International Marine, insisted that his clients "do not take any firm position objectively opposing any operator" for not meeting the public-interest test. Yet he reminded the commission that "under the law, it is required of each applicant to show this commission that there is a need for this additional service." Over the two days of the hearings, little doubt was left on just what that need was.

John Fewer has a unique perspective on the water taxi service in the Chesapeake Bay. As vice-president of a Baltimore launch service and general manager of the Baltimore office of Norton-Lilly, a large steamship agency, he understands the business as both supplier and customer. Steamship agencies like Norton-Lilly are hired by vessel owners, especially foreign ones, to handle problems of dealing with unfamiliar ports. The agencies in turn hire launch operators to carry customs agents, transfer documents and currency, carry ships' chandlers (merchants of store items responsible for food, spare parts,and other such items the captain and crew might require), and sometimes carry the owners of the ship.

Despite the fact that Norton-Lilly had set up its own launch operation, Fewer was as eager as Bembe and the other three applicants to see the market for water taxi service unrestricted. Fewer explained the urgent need that ships' agents have for an abundant supply of launch operators: "Many of those ships arrive either prior to their cargo being ready or prior to their berth being ready, because there are other ships in the berths and only so many berths available.

"They also might arrive ahead of time to do repairs prior to loading. Since the berths cost money, it is cheaper for an owner of a vessel or a charterer of a vessel to anchor the ship in an area away from these more expensive berths."

Vessels must be boarded by customs officials within certain time periods after their arrival, and sometimes there are medical emergencies. When ships are leased, they must be tendered to the lessee promptly, or enormous demurrage charges are incurred—up to $15,000 per day. None of the launch customers want to be at the mercy of a monopoly under these conditions. "At Norton-Lilly, I cannot wait for anybody," Fewer explains. "I have to represent my principal, and if A Launch Service is busy, I will then call Launch Service B. Whoever is available quickest to meet my needs is the one I'm going to use."

The PSC was presented with letters from launch service customers praising the applicants and declaring the need for additional service. Some customers even appeared in person to testify. Moreover, when Ord of International Marine finally testified, he also conceded the need for additional services, prompting Fewer's attorney, Geoffrey Tobias, to exclaim, "It almost seems as though, had we heard that yesterday morning, we wouldn't have had to spend these two stuffy days here."

Not quite. Ann-Bay and International Marine also insisted that all the operators' prices should be set by the PSC. Donovan and other Back Creek operators suggested that the real reason Ord and Siler were so intent on price fixing is that their launches, designed to service offshore rigs, were inappropriate for the water taxi service and simply couldn't compete in an unrestricted market. Peregoy noted that his own launch, designed for water taxi service, "burns approximately five or six gallons an hour." International Marine's Sinbad, by Ord's own account, burns 18 to 20 gallons per hour.

The customers, who had enjoyed the freedom to negotiate rates with the operators, were displeased at the prospect of having to pay fixed prices. Richard Foster, the operating manager for one steamship agency, made no effort to hide his outrage. "The only thing I hate to see—I think I very openly told Rod Ord that I would hate to see—that everybody is regulated to charge the same fee, because quite obviously, the Bembe operation, being a ma-and-pa operation, can be run a lot cheaper than Rod Ord's operation when he has all outside personnel, even though it is he and his wife who are involved in it."

William Lakowski of another steamship agency also believes the unrestricted market works to the customer's advantage. He cited the example of the taxi service run by Cheryl Phipps. "Cheryl's rate structure suits us fine, where it is so much a person," he said. "When they first started out, it was kind of high, but it was dropped down to accommodate."

The customers feared that fixed rates would be set high by the PSC to protect International Marine's large capital investment. Ord, on the other hand, maintained that if rates were set by the PSC, it would protect the customers. "If the Public Service Commission determines that my rate is too high or unjust," Ord said, "that is my problem:" Ord also insisted his motivations were altruistic. "I am trying to give the agent a fair shake on knowing the dollars and cents that he has to expend for my services," he claimed.

Geoffrey Tobias, the attorney for Norton-Lilly, didn't see it that way. "I think it is patently obvious, at least to [us] and some others, that Ann-Bay and International are Johnny-come-latelies in this business and decided to jump in on what appeared to be a good thing," he said. "They found that they couldn't cut it and came and attempted to use the good offices of this commission to present them with a virtually exclusive franchise."

Donovan, who owned Annapolis's third water taxi service, put it more bluntly. "I actually think that the reason we are here [before the commission] is that somebody didn't think that they were getting their slice of the pie. And they figured through the PSC regulating, looking at their expenses versus, say, my expenses, their share of the pie was going to be increased.

"I'm not Shell Oil or Exxon," Donovan continued. "The government quit telling them what to charge. I'm a little businessman. I don't think the state of Maryland has any business whatsoever telling me what to charge to run my business. This whole situation, frankly, is disgusting."

The attorney for waterman Barry German noted that, as far as could be determined, Maryland would be the first state to regulate launches, and concluded, "It seems ludicrous that the state really is regulating this almost family business, at least the ones in Annapolis are. The Back Creek Crowd, we call them."

An excerpt from an exchange during the hearings between Ord and Fred Frank, the attorney for Back Creek operator Tim Peregoy, is telling.

FRANK: I don't think the Ord operation is one that is run in the manner that is equal to the people who were in business before he was.…I think his operating costs are too high.

ORD: That is my problem, Mr. Frank.

FRANK: He keeps saying it is his problem, but it has brought us all down to Baltimore yesterday and today.

That wasn't the end of the "problem," either. Ord and Siler were not only appealing to the PSC to establish compulsory price fixing. They also insisted that the Coast Guard restrictions that applied to their large boats be imposed on the smaller craft that some of the applicants use. The applicants in turn protested that they met and, in most cases, far exceeded the Coast Guard requirements for their respective launches. George Meese, a naval architect, testified to the sufficiency of the existing Coast Guard regulations on small craft and to the inapplicability of regulations for large craft to launches carrying six or less passengers. And so it went.

The whole sordid case actually has a mostly happy ending. On October 25, 1981, the Maryland Public Service Commission ruled in favor of granting licenses to the Back Creek applicants and against the Ann-Bay and International Marine requests for government fixing of prices. The PSC also ruled that the Coast Guard safety regulations for small vessels, which the applicants were already observing, were sufficient. Best of all, the governor of Maryland signed a bill in May that exempts all launch services from any PSC regulation, and the Annapolis city government has abolished its monopoly franchise on the city pier. (Now, all water taxi services who want to use it can do so.)

Unfortunately, the Back Creek Crowd did not escape the PSC trauma completely unscathed. They lost valuable time from their businesses (equal to all of Tim Peregoy's vacation time), and they have had to come up with thousands of dollars in attorneys' fees. Their business was also severely hurt by a coal strike, and Donovan's water taxi service subsequently went under.

Even if Donovan was ultimately not able to keep afloat, he was faithful to the idea of sinking or swimming in a free market. The same could not be said of Siler: even though he enjoyed the monopoly on the Annapolis pier, his Ann-Bay operation has capsized. It was perhaps a fitting epilogue to a little drama illustrating an old story about the perpetrators and beneficiaries of government regulation.

Dean Ahmad is president of a research consulting firm in Bethesda, Maryland. His articles have been published in Inquiry and other periodicals.