5 Sablefish QS Leases
The regulations for the sablefish IFQ program allow for some restricted annual leasing of QS. The leasing rules provide one means for sablefish QS holders to make seasonal adjustments to their fishing activities and for new persons to enter the fishery. This chapter examines the extent of formal QS lease transactions over the 1995 through 1996 time period.
QS lease transactions are made for an IFQ year. The rules provide that sablefish catcher vessel QS may be leased in the years 1995, 1996, and 1997. The regulations providing for leases of catcher vessel QS expire on January 2, 1998.1
Holders of freezer vessel QS may lease any or all of those holdings during a year. However, holders of catcher vessel QS in a management area may only lease up to 10% of that QS during a given year.
The IFQ program regulations which provide for limited leasing of catcher vessel QS during the first three years of the program represent a compromise designed to balance the Council's different objectives. Opponents of leasing wanted to keep QS in the hands of active fishermen rather than absentee QS holders. Some opponents also thought that the ability to lease QS might dampen the volume of QS sales and make it more difficult for new persons to enter the fishery as QS owner-operators.
However, proponents of QS leasing wanted to maintain operational flexibility for fishermen in a dynamic environment.2 The temporary 10% rule sought to balance both sets of concerns.
The tables in this chapter will show that there were relatively few catcher vessel QS lease transactions during the first two years of the program. This may be partially due to the fact that a significant portion of the sablefish catcher vessel QS were "blocked" and at the beginning of the program a block had to be transferred in its entirety for any kind of transfer.3
At the start of the program, blocked QS could only be leased on this "all or nothing" basis. Blocks could not be broken up to allow some of the QS to be leased. This coupled with the 10% leasing restriction made the leasing of blocked catcher vessel QS more difficult.
Thus, a person who held only a single block of QS in an area (no unblocked QS) could not lease that block or any part of it. A person who held two blocks of QS for an area would only be in a position to lease some QS if one block was no more than 10% of the person's total QS holding.
During 1996, the regulations governing leasing of blocked QS were reworded into terms of IFQ. This change in wording allowed for 10% of the IFQ associated with a segment of blocked QS in a year to be leased. In other words, the blocking provision no longer applied to seasonal lease transactions of IFQ. This liberalization of the leasing provision for blocked catcher vessel QS did not become effective until September 9, 1996 and therefore did not have a substantial impact on catcher vessel leasing activities during 1996.
The reader should be aware that this chapter only covers formal lease transactions as reported to NMFS-RAM. While formal leases of catcher vessel QS were not extensively utilized in 1995 and 1996, there was another means under the sablefish IFQ program regulations whereby some QS could be fished by someone other than the QS holder.
Regulations allowing for the use of a "hired skipper" by an initial QS recipient on a vessel owned by the initial QS recipient appear to have been widely used during the first two years of the program. This topic is explored further in Chapter 14.
Any Category A (freezer vessel) sablefish QS holder can use a hired skipper to harvest the IFQ associated with that QS. Corporations and partnerships who are initial QS recipients of catcher vessel QS can employ a skipper to harvest the resource. Similarly, individuals who are initial recipients of catcher vessel QS can use a hired skipper in many cases.4
For example, regulations provide that: "An individual who receives an initial allocation of QS assigned to (catcher) vessel categories B, C, or D does not have to be on board and sign IFQ landing reports if that individual owns the vessel on which IFQ sablefish or halibut are harvested, and is represented on the vessel by a master employed by the individual who received the initial allocation of QS." This provision is not extended to individuals who were initial issuees of QS in the sablefish IFQ regulatory area east of 140o W. Longitude.5
The regulatory requirement that the initial QS holder own the vessel that is being used to harvest the IFQ was meant to constrain leasing of QS. However, the regulation was not specific concerning the percentage ownership interest that the QS holder needed to have. There apparently have been cases where an initial QS holder has purchased a very small ownership interest in a vessel and then the skipper of that vessel fished all of the person's IFQ.
Some of these arrangements may be de facto leases. Since the QS holder appears to be using a "hired skipper" and can avoid a formal lease transaction, the 10% restriction can be circumvented. In other words, more than 10% of the IFQ associated with the QS holder's holdings for an area could be fished under such an arrangement.
While the Council wants to provide for hired skippers, it does not want to expand the leasing privilege. During 1997, the Council has been studying the possibility of new percentage ownership requirements and may adopt regulations to constrain this practice.6
Another means a person might be able to circumvent the restrictions on leasing of catcher vessel QS would be to sell their QS with a tacit understanding that the QS would be transferred back to the original QS holder at the end of a specific period of time. The authors have not examined the extent of returned transfers for this report.7
5.1 Sablefish QS and QS Holder Lease Rates By IFQ Area
The sablefish IFQ program's rules provide for unlimited leasing of freezer vessel QS. However, only 10% of a person's catcher vessel QS for an area can be leased in a year.8
Originally, as noted above, sablefish catcher vessel QS contained in blocks could not be separated for lease purposes. This meant that the either the entire block had to be leased or none of the QS in the block could be leased. Under the rule, it was impossible for a person who held only a single block of QS for an area to lease any of that QS.
As significant portions of the sablefish catcher vessel QS issued in some areas were issued in blocks, leasing of some QS was not feasible for some persons. As a result, the regulation was altered in 1996 to allow for the leasing of up to 10% of the IFQ associated with a person's QS for an area, even if that QS was in a block. However, this liberalization did not become effective until September 9, 1996 and therefore had very little impact during the 1996 season.
Table 5-1 provides a broad overview of sablefish leasing activity by management area and year for 1995 and 1996. The table provides the year-end amounts of QS outstanding and the amount of QS that was leased during each year. The table also contains an "All" row that provides summary data over both years. A rough "QS lease rate" is calculated by dividing the amount of QS leased by the amount of QS outstanding at the end of each year and converting the resulting fraction into a percentage.
The table also contains an "All" years row for each area that provides summary data over both years. The data in the row represent the summation of numbers over both years or ratios based upon the sums over both years.
As can be seen, the highest QS lease rates during 1995 and 1996 occurred in the Western Gulf, Bering Sea, and Aleutian Islands areas. Over the entire time period, QS lease rates ranged from 1.4% in the West Yakutat Area to 16.8% in the Aleutian Islands areas.9 For sablefish, the highest QS lease rate occurred in a CDQ area.
Table 5-1 also provides data on the number of year-end QS holders and the number of QS holders who leased some QS during the year. A rough "QS holder lease (lessor) rates" is also calculated by dividing the number of QS lessors during the year by the number of year- end QS holders and converting the resulting fraction to a percentage.10 Over the entire 1995 through 1996 time period, the QS lessor rates ranged from 2.0% in the Southeast Alaska area to 5.9% in the Aleutian Islands area.
Table 5-1. Sablefish QS and QS Holder Lease Rates By Area, 1995-1996
5.2. Sablefish QS and QS Holder Transfer and Lease Rates By Area and Vessel Category, 1995-1996
Tables 5-2a and 5-2b provide more detailed summaries on sablefish QS and QS holder lease rates by area and vessel category for the years 1995 and 1996. For comparative purposes, QS and QS holder permanent transfer rates have also been included.
Leases and permanent transfers allow QS to move to persons who feel that they can use it more profitably and allow for consolidations of QS holdings and fishing operations either seasonally or permanently. The tables tend to show that lease rates for freezer vessel QS were higher than permanent transfer rates for freezer vessel QS over the time period. In contrast, lease rates for catcher vessel QS were extremely low in most areas and lower than permanent transfer rates for catcher vessel QS.
Table 5-2a provides data for each area and vessel category in 1995 and 1996. It also provides summary data over both years. The table includes the amount of QS at the end of each year, the amount of QS transferred within each year, and the amount of QS leased within each year by area and vessel category. QS transfer rates and QS holder lease rates are calculated for 1995, 1996, and the entire time period (ALL) for each area and vessel category. The methodology used to calculate these rates is the same as that described for Table 5-1.
Table 5-2a indicates that freezer vessel QS lease and transfer rates differ sharply with catcher vessel QS lease and transfer rates. Leasing of QS was largely confined to freezer vessels during 1995 and 1996. This can be seen by the relatively high QS freezer vessel lease rates shown in Table 5-2a.
For example, over the first two years of the IFQ program, lease rates for freezer vessel QS ranged from 14.1% in the Central Gulf area to 30.5% in the Aleutian Islands area. There was very little catcher vessel QS leased in any area and catcher vessel QS lease rates were 0.1% or less over the two year period in all areas and vessel classes. There was no catcher vessel QS leased in the Western Gulf, Bering Sea, and Aleutian Islands areas over the two year period. The low catcher vessel QS lease rates may be partially due to the significant amount of blocked QS in the catcher vessel categories.
While catcher vessel QS lease rates were very low and freezer vessel QS lease rates were substantial, permanent transfer rates for "60 feet or less" catcher vessel QS were higher than permanent transfer rates for freezer vessel QS in all areas over the two year period. However, freezer vessel QS permanent transfer rates were greater than the permanent transfer rates of "Greater Than 60 feet" catcher vessel QS in four of the six sablefish areas.
Table 5-2b provides similar data for QS holders by area and vessel category. Again, data are provided for 1995 and 1996. The table includes the number of QS holders at the end of both years, the number of QS holders with transfers within each year, and the number of QS holders with leases within each year. QS holder transfer rates and QS holder (lessor) lease rates are calculated for 1995 and 1996 for each area and vessel category
An "All Years" grouping sums data and provides a QS holder lease rate (lessor rate) over both of these years. Data on permanent sablefish QS transfers by QS holders were provided for comparative purposes.
These data on QS holders with leases and transfers are roughly similar to the data on QS leased and transferred. As can be seen, the number of catcher vessel QS holders who leased QS in the first two years is small relative to the number of year-end QS holders. QS holder lease rates for catcher vessel QS were less than 1% in all areas and catcher vessel categories over the two year period. No catcher vessel leases occurred in the Western Gulf, Bering Sea, and Aleutian Islands areas.
Table 5-2a. Sablefish QS Transfer and Lease Rates, 1995-1996 By Area, Year, and Vessel Category
Table 5-2b. Transfer and Lease Rates of Sablefish QS Holders, 1995-1996 By Area, Year, and Vessel Category
5.3 Lessors, Lessees, Leases, and Lease Rates
Table 5-3 provides additional details on lease transactions over the 1995 and 1996 time period. The table provides information on the number of lessors and lessees as well as the number of leases. Note that the numbers of lessors, lessees, and leases may vary for a particular type of QS because a person could lease QS to more than one person. Similarly, a person could lease QS from more than one person.
The table also provides data on the average sablefish QS per lease, the total amount of QS leased, and the QS lease rate as a percentage of the year-end QS. These data are provided by area, year, and vessel category.
An "All Years" summary row is provided for each area and vessel category. The numbers in these rows are the sum of the numbers in the two years or averages and rates based upon numbers summed over both years.
The table again shows that most of the formal lease transactions in 1995 and 1996 occurred with freezer vessel QS. There are no restrictions on leasing of freezer vessel QS. Freezer vessel QS rates ranged from 14.1% in the Central Gulf area to 30.5% in the Aleutian Islands area over the two year period. The average QS per lease was highest for freezer vessel QS in all areas.
No catcher vessel QS leases occurred in the Western Gulf, Bering Sea, and Aleutian Island areas. Lease rates for catcher vessel QS were 0.1% or less in the other three sablefish areas over the two year period.
Table 5-3. Leases of QS by Area, Vessel Category, and Year: 1995-1996
5.4 QS Lease Prices
This section provides information on sablefish QS lease prices. Table 5-4 provides summary data on the total number of formal lease transactions over the 1995 and 1996 time period and the number and percentage of these transactions that had lease prices available from the transfer forms. The table indicates that there were 128 sablefish QS lease transactions over the 1995 and 1996 time period, and lease prices were available from only 73 (57.0%) of the transactions.11
As can be seen, QS leases occurred in all sablefish areas in both 1995 and 1996. The total number of lease transactions declined by about a third in 1996 relative to 1995. The leases occurred largely within the freezer vessel class. Since a QS lease within a year can be translated into a specific amount of IFQ for that year, the pounds of IFQ associated with the leases are reported in Tables 5-4 to 5-6.
Table 5-5 provides information on the sablefish lease transactions for which prices were available. The table provides information on the number of priced lease transactions, the amount of QS involved in lease transactions, the average QS per lease, the amount of IFQ associated with these leases, and the average IFQ per lease by area and vessel category.
Where sufficient observations are available to preserve confidentiality, average lease prices are reported. Prices are reported in dollars per leased QS unit and in dollars per pound of IFQ leased. Prices per pound of IFQ leased are comparable across areas within a year.
As can be seen, there are too few priced observations in many categories to report an average price. Since there were relatively few priced lease transactions, the reader should view the reported average lease prices with caution.
The only reportable average prices are for freezer vessels. These average lease prices, in terms of dollars per pound of 1995 IFQ, varied from $.53 per pound in the Bering Sea and Aleutian Islands Areas to $1.03 per pound in the Southeast area.
In 1996, there are fewer reportable average lease prices. Average lease prices for freezer vessels could be reported in only three areas and varied only slightly. The average lease prices varied from $.99 per pound of IFQ in the Southeast area to $1.00 per pound of IFQ in the Central Gulf and Western Gulf area.
Prices over "All Areas" are reported in the last rows of the table for both 1995 and 1996. Again, prices can only be reported for the freezer vessel category. Average prices over all areas for the lease of freezer vessel QS increased from $.75 per pound of IFQ in 1995 to $.96 per pound of IFQ in 1996.
Table 5-6 provides similar data by area and block status. Because of the paucity of observations a price breakout by block status cannot be reported for individual management areas.
However, the "All Areas" row indicates an increase in the average lease price of both blocked and unblocked QS in 1996. It also indicates that the average lease price of unblocked QS was higher than the average lease price of blocked QS over all areas in both years. The average lease price of 1995 IFQ over all areas was $.63 per pound of blocked IFQ and $.76 per pound of unblocked IFQ. Similarly the average lease price of 1996 IFQ over all areas was $.88 per pound of blocked IFQ and $.97 per pound of unblocked IFQ.
Table 5-4. Priced and Unpriced Sablefish QS Leases By Area and Vessel Category, 1995-1996
Table 5-5. Average Prices For Sablefish QS Priced Leases By Area and Vessel Category, 1995-1996
Table 5-6. Average Prices For Sablefish QS Priced Leases, 1995-1996, By Area and Block Status