GIWW Ports Capitalizing On Fracking Boom

Waterways Journal
19 August 2013
By David Murray

In an “anemic” market environment, with “many headwinds,” a strong transportation infrastructure is vital to prosperity. Only the waterways can take full advantage of the energy opportunities being unlocked by the fracking revolution, according to Ken Eriksen, senior vice president at Informa Economist.

Those were two of the most important messages at the 108th convention of the Gulf Intracoastal Canal Association, held August 7–9 in New Orleans at the Westin Canal Place.

Eriksen, a veteran of many inland meetings, reported that liquid cargoes along the Gulf coast are almost at record levels, thanks to the Eagle Ford shale. Railroads cannot handle the increased traffic and are looking for intermodal opportunities. The 20 million annual tons of petroleum-related traffic is now the largest cargo category on the Gulf Intracoastal Waterway.

Costs Rising

The flood of cheap natural gas and oil is having knock-on effects in many industries. Eriksen said the textile spinning industry is returning to U.S. shores because cheap natural gas energy, along with lower transportation costs, now offsets Asia’s cheap labor.

But costs are rising for inland towboats as well, although accurate figures are hard to come by, said Eriksen.

The latest industry figures estimate costs of about $6,000 per day to operate a 2,100 hp. boat with two 30,000-barrel tank barges. This figure differs significantly from the Corps of Engineers estimate of $5,000 per day that it uses to estimate costs of lock failures and other shutdowns, showing the need for industry to keep the Corps supplied with up-to-date figures.

The  ‘Missing Mode’

Eriksen displayed a U.S. Dept. of Transportation map that purported to show “major freight corridors”—but only showed the Mississippi and Ohio rivers, leaving out such major corridors as the Tennessee-Tombigbee waterway system. He contrasted this with a more accurate and detailed map done by Wired magazine in a recent story about logistics programming.

Eriksen noted that the Tenn-Tom did its own study of cargo moving through it, and said other systems should do the same, instead of waiting for the federal government to catch up. The Tenn-Tom study is only eight pages long, he said—the perfect length to put into the hands of a member of Congress or staff member.

The logistics data shortfall has created major employment opportunities, Eriksen noted.  Logistics planning and routing is one of the fastest-growing areas of computer programming. Anyone who gets a degree in this fast-growing field will “make more than a finance MBA starting out,” he said.

One problem for waterways interests is the “siloing” of transportation modes within state transportation agencies, with one mode knowing little about others.

Kentucky highway officials, said Eriksen, are frequently surprised by spikes in truck traffic that follow lock failures or shutdowns. But “awareness is growing” that a multimodal-systems perspective is needed for state freight corridor investments. Awareness of waterways and multimodal issues also needs to spread more into general industry, he said.

Estimating Shutdown Costs

Mark Hammond, senior economist in the Great Lakes and Ohio River Division of the Corps of Engineers, then explained how the Corps calculates the cost of shutdowns and delays at locks and other waterway structures. The model, called the Shipper Carrier Costs Model, is important because the Corps uses it for its annual budget list of maintenance priorities.

The Corps studies three kinds of costs: delay costs, or the costs of using alternate water routes; diversion costs, or the cost of using another mode of transportation;  and rescheduling costs, the lost time and expense. Hammond said the Corps is trying to shift from the old model that measures tonnage to one that measure cargo values.

Hammond displayed a chart that ranked the costliest locks for delays or shutdowns. Calcasieu ranked first, while Algiers Lock, which had an emergency shutdown of 112 days this year, ranked 32. The three types of costs incurred by the Algiers shutdown—in delays ($21,888,000), diversions ($123,943,000), and rescheduling ($1,000)—were estimated at just under $146 million.

‘Book Of Pain’

In response to a question from the audience, Hammond noted that this data is based on a survey of shippers and carriers, with a response rate of 60–75 percent. It includes only direct costs to shippers and carriers; it does not include the costs of product re-sourcing (i.e., when customers choose another supplier), or the impacts on plants that may have to change production schedules or even shut down temporarily due to transportation delays.

Hammond noted that much of the information the Corps needs, from the petrochemical industry for example, is both proprietary and fast-changing. He then turned the tables, asking the audience whether any of their companies kept a separate account of delay costs; no one raised a hand. Eriksen said that while he recognized that responding to surveys is a cost for the industry, it is an increasingly necessary one.

“Although we think it’s OK” for the Corps’ purposes,” Hammond said. “We know it’s not a complete picture. We’re especially limited in our knowledge of the GIWW basin.”

Hammond closed by saying, “We want industry’s help” in improving the cost model. He suggested that GICA might want to think about collecting such information as an honest broker. “There’s an opportunity here for GICA to shepherd these data points into a useful form” for carriers and shippers, he said.

Charlie Jenkins of the Houston Port Authority said the port faces similar constraints in asking clients for confidential information. The port compiles its own estimates of delay and shutdown costs for shippers and carriers, which it calls its “book of pain.”

Washington Roundup

Mike Toohey, president and chief executive officer of Waterways Council Inc., gave a roundup of news from Washington. The two big preoccupations of Congress right now are immigration reform and tax reform, he said, but the current Water Resources Development Act (WRDA) is expected to pass in some form. It’s up for consideration in the House of Representatives in the fall, but it has to compete with a proposed limit on tax increases and the defense reauthorization bill, both contentious matters. There are only 12 days of legislative session before the end of September.

To top matters off, Toohey said, the government reaches its debt limit in November, forcing yet another debate on whether to extend the government with continuing resolutions or to raise the debt limit, another hot-button issue. Toohey said he thinks continuing resolutions are likely. “Unfortunately, Congress is getting used to bumping along” with continuing resolutions.

The good news is sequestration has not bitten as deeply yet as many feared, although there was much talk at GICA about cuts in travel budgets for officials from the Coast Guard and Corps of Engineers to visit conferences like this.

Toohey said that proposed spending cuts are not targeting the Corps of Engineers as much as many other government agencies, reflecting increased bipartisan recognition in Congress of the importance of the Corps’ missions.

Senate WRDA

The Senate currently has a version of the Water Resources Development Act (WRDA) that accepts the industry-proposed “federalization” (that is, suspending industry contributions from the Inland Waterways Trust Fund) of the Olmsted Lock & Dam project for one year. Olmsted currently monopolizes most of the Corps’ construction budget, to the detriment of other needed work.

The Senate bill contains an increase of $1 billion for the Harbor Maintenance Trust Fund, the waterways industry-supported RAMP Act. It also includes a directive that the Corps must perform all operations and maintenance of authorized navigation projects.

One Senate provision accepts cost sharing of 65–35 for qualifying hurricane-protection projects; another provides for no cost-sharing at all (full federalization) for projects below a 50-foot depth. Several of these provisions, Toohey said, were inspired by Hurricane Katrina.

The Senate WRDA bill also proposes a nine-cents-per gallon increase to the current fuel tax that supports the IWTF, but since spending bills can only originate in the House, that bill must wait to be reconciled with a House-originated bill. It is unlikely that the Republican-controlled House will agree to nine cents, but it may accept six cents, he said. Toohey said the increase may either be made a part of WRDA or be a separate bill.

Meanwhile, the House of Representative’s version of WRDA (called the Water Resources Reform and Development Act, or WRRDA) is being guided by Rep. Bill Shuster (R-Pa.), chair of the Transportation and Infrastructure Committee.

Toohey said the details are being kept secret to help the various interests hash out compromises—as in the old days when Shuster’s father, “Bud” Shuster, chaired the same committee when he represented Pennsylvania’ 9th district.

Shuster has promised, though, that the House’s version will contain no earmarks; will be transparent; will “emphasize economic competitiveness and growth”; and will de-authorize as many projects as it authorizes.

Toohey said one comment he often heard when asking younger members of the House whether or not they would support an increase in the user fee is, “What does Grover think?”—referring to influential anti-tax advocate Grover Norquist, who has gotten many House members to sign his pledge of no net tax increases.

However, Toohey said that after Sen. David Vitter (R-La.) explained the user fee, Norquist had no objections to it, scoring it as not a tax increase. Norquist’s approval frees the junior House members to vote for it.

The bottom line, said Toohey, is a WRDA is very likely to become law with most, if not all, of the provisions that the waterways industry supports.

Tributaries Matter

The next panel focused on tributaries and what they mean for the GIWW. The panel included Larry Merrihew, president of the Warrior Tombigbee Waterway Association since 2007; Bruce Windham, administrator of the Tennessee-Tombigbee Waterway; Roy Holleman, marketing director of the Red River Waterway Commission; and Jennifer Stastny, executive director of the Port of Victoria, Texas, birthplace of GICA.

Merrihew said two locks are scheduled to close for 30 days on the Warrior-Tombigbee Waterway in 2014 to have their lower miter gates replaced, but noted that Congress has not yet appropriated the money for them.

Training Teachers And Students

Windham described the educational efforts of his association, which has developed a curriculum of 60 lesson plans for primary and middle school teachers on waterways. The curriculum is tied into state STEM (science, technology, engineering and math) programs. This summer, the program trained 100 teachers from eight counties at a cost of about $343,750, or about $300 per teacher. The teachers get a truck packed with items for hand-on exercises  that are donated by the waterways industry.

Windham urged other waterways association systems to do similar projects. Although he said it takes years to see results, the kids go home and educate their parents, building support for the long term.

Diaper Shortage

Stastny’s Port of Victoria has enjoyed explosive growth because it is at the epicenter of Eagle Ford shale activity. She said the growth rate of the port has been like putting your toddler to bed and having him wake up the next morning as a teenager. The port moved its first barrel of oil in May 2011, and today moves 1.7 million barrels per month and 80,000 tons of frac sand per month (see WJ, January 21, 2013). Two years ago, Caterpillar announced the building of the largest excavator assembly plant in North America in Victoria.

Stastny said the 35-mile-long Victoria Barge Canal traverses two navigation districts, West Side Calhoun County Navigation District and Victoria County Navigation District.

Stastny, too, urged carriers to share more figures with decision-making agencies like the Corps. Her port had no O&M funding for dredging in 2012. The figures that carriers are required to report to the Corps’ Waterborne Commerce Statistics Center play an integral part in determining the maintenance dredging funding allocations to waterways. As a result of what Stastny said was gross underreporting by carriers on the Victoria Barge Canal, its O&M funding decreased from $3.5 million per year to $363,000  for 2012.  Carriers reported 2.2 million tons to the Corps, while facilities on the canal reported and paid the respective Navigation District's wharfage fees on 6.7 million tons. Without accurate reporting of the carrier's volumes, Stastny said, critical waterways such as the Victoria Barge Canal will continue to receive inadequate maintenance dredging dollars.

Stastny shared the story of Invista, a company located in her port that is one of only two makers of a chemical called C-12, a vital component in many lifesaving medical devices, as well as in the covering on disposable baby diapers. When the only other plant making C-12, in Europe, suffered a disastrous explosion and fire that will close it for at least five years, the resulting shortage of absorbent diapers made news around the world. The Victoria plant remains the only one in the world making C-12.

“If Invista has to light-load its barges because of inadequate dredging, the effects could be felt worldwide,” said Stastny.

Exporting Oil OK

The lunch speaker was freshman Rep. Randy Weber, whose 14th District in Texas includes many petrochemical plants and five ports. Weber said his district produces 60 percent of the nation’s jet fuel. The Keystone pipeline, if built, would terminate in his district.

Weber said that during a visit to Republican House members in March, President Obama said that if the Keystone were built, oil companies “would just export oil.” Weber said he replied, “What’s wrong with that?” Because of fracking , the U.S. is set to become a net energy exporter sometime in the next few years.

Weber said he is afraid that unless the Corps receives more funding, it will establish a new threshold of 2,000 lockages per year to maintain them. He is in favor of getting Congress back on track to pass a WRDA every two years, as it used to, he said.

A Tale Of Two Committees

In the afternoon, Tom Marian of Buffalo Marine moderated a panel on marine federal safety advisory committees. The federal committees flow out of the 1972 Federal Advisory Committee Act, which also set up a Committee Management Secretariat.

Cherrie Felder, a maritime organization veteran who was introduced by Marian as the “diva of the waterways,” since she has held “almost every leadership position there is to hold,” currently chairs the Lower Mississippi River Waterway Safety Advisory Committee (LMRWSAC, pronounced “lomarsac”). LMRWSAC, said Felder, is currently the only functioning federal advisory committee empowered to speak officially on maritime safety issues on the Lower Mississippi. Its 25 members, drawn from various sectors of the maritime industry, are appointed by the Secretary of Homeland Security. Its current authorization expires in 2020, but it is awaiting approval of its charter, which must be renewed every two years.

Felder explained that although committee members are unpaid volunteers, they are considered federal employees in some respects, meaning there is a lot of paperwork to fill out and burdensome conflict-of-interest rules to follow that can limit members in many ways. For these reasons, industry veterans are sometimes reluctant to serve on federally chartered safety advisory committees. The advantage, however, is that when federally chartered safety committees issue reports and recommendations to agencies like the Corps of Engineers and Coast Guard, the latter are obliged by law to give a formal written public response. That’s not the case with more informal bodies that may also advise agencies, such as local harbor safety committees that may contain many of the same personnel that serve on the federally chartered committees.

Since the committees typically have to renew their charters every couple of years, members have frequent chances to reassess whether to continue in that form. Felder said that LWMRSAC recently chose to continue as a federally chartered committee. The Houston Galveston Navigation Safety Advisory Committee (HOGANSAC), on the other hand, “withered on the vine due to federal regulations,” according to Marian. It chose to dissolve itself as a federally chartered committee and re-form as a local harbor safety committee, called the Lone Star Harbor Safety Committee, created in February 2011 with 31 members with staggered 2-year terms. It is “a more informal animal” than a federal committee. Despite not being federally chartered, it is respected enough that the National Transportation Safety Board recently asked it for safety feedback in the wake of a recent accident, said Marian. Lone Star has recently reactivated plans for the popular “Brown Water University,” in which Coast Guard and Corps officials learn about the realities of the inland industry.

The U.S. currently has about 80 harbor safety committees, and Marian said that there is usually good, close cooperation between them and the Coast Guard and Corps.