As has been noted in various publications and the media coverage, the Gulf shrimp fishery has been in economic decline for approximately the past three years. Travis and Griffin (2004) discuss this decline and its causes in detail, the highlights of which follow. It is also highly likely that this decline as been greatly accelerated through the impacts of Hurricanes Katrina and Rita in 2005; however, measurement of this increased decline and level of participation cannot be accomplished at this time.
According to Funk (1998), which examined fleet profitability during the 1965 through 1995 time period, the average annual rate of return (net revenue or profit as a percentage of revenue) for the fishery as a whole was 12.5%, which is a respectable figure for capital investors. Given the inherent variability in shrimp stock conditions from year to year and, thus, landings and revenues, it is not surprising that profitability was also quite volatile from year to year, with the industry experiencing exceptionally high profits in some years and very low or negative profits (losses) in other years. In addition to the annual variability in abundance, economic performance appeared to be largely driven by changes in fuel prices, with changes in crew share expenses playing a secondary role. Several researchers have noted that fuel costs have and continue to represent a significant portion of the industry’s operating costs (Haby et al. 2003; Ward et al. 1995). Thus, fluctuations in fuel prices can significantly impact the industry’s economic performance.
In addition to variability over time, Funk’s (1998) analysis also indicated that economic performance varied by vessel size. In general, rates of return tend to be higher on average for smaller vessels than for larger vessels, even though revenues and aggregate profits tend to be higher for the larger vessels. This result indicates that the costs of operating larger vessels also tend to be relatively higher, both in the aggregate and on a per unit basis, than those of smaller vessels. However, Funk (1998) hypothesized that ownership status and level of participation in the fishery were two of the most important factors explaining this variation in profitability. That is, smaller vessels tend to be predominantly operated by their owners, but only participate in the shrimp fishery on a part-time basis. These factors increase the flexibility of these vessels’ operations. In general, these vessels will only participate in the fishery when revenue and/or profit per unit of effort is relatively high. When low or negative profits are being earned, these vessels and their owners will allocate their time to other fisheries and endeavors. Conversely, the larger vessels are more frequently operated by hired captains, and participate in the fishery on a full-time basis. In addition to the fact that these captains must be paid, as well as the crew, these vessels have much less flexibility with respect to when they participate in the fishery. Good captains must be retained, lest they be lost to other owners, and bills for relatively high “fixed” costs, such as insurance, mortgage payments, etc., must still be paid regardless of whether the vessel fishes or not. Furthermore, many of these larger vessels are part of a vertically integrated operation (i.e. they are owned by processing firms). In such instances, the goal of the owner is likely to maximize profits for the entire operation as opposed to the individual vessel. A stable supply of shrimp is critical to the profitable operation of processing plants. All of these factors will cause these larger vessels to continue operating in the shrimp fishery, even when profits are low or negative. Therefore, on average and over time, a lower rate of return should be expected for larger vessels relative to smaller vessels in this fishery. Funk’s (1998) results confirm this expectation. Nonetheless, overall, this industry was historically profitable during this time period.