February Port Bureau News

Greater Houston 2013

Fe b r ua r y

Port Bureau

Petrochemical Exports

Capital Expansion

Spotlight

Houseboats: Not Vessels?

What’s next for US petrochemical exports and where does the Gulf Coast fit in?

Over $28.8 Billion in Infrastructure Development in the Houston Region

on Jim Brown Chief Executive Officer Dowley Security Systems

The U.S. Supreme Court Rules that a Floating Home in Miami is not legally a Vessel

MEMBER DRIVEN - MARITIME BASED - VALUE ADDED

Captain’s Corner ThE Coach

If you want to get off the country’s doomsday raft floating towards the fiscal cliff for a while, I recommend going to John Wooden’s website (www.coachwooden.com). It has some inspiring TV clips highlighting his great coaching career at UCLA. One starts out: “At UCLA they called him the Wizard of Westwood, but the only magic he ever used was common sense.” After a few clips, I want to run out the door and down the street as fast as I can like I’m coming out of the Texans’ Tunnel at the beginning of the game. Yes, this worries my wife and children, but I do enjoy Coach Wooden’s (picture above) straight forward logic. He preached hard work, careful planning, cooperation and enthusiasm. He preached hope.

This newsletter should give you hope for our region. The petrochemical industry, which is 85% of our port

“Hard Work, Careful Planning, Cooperation, and Enthusiasm”

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February 2013

operations, is in very good shape. In reading Dave Cooley’s article later in this newsletter on petroleum exports, it is clear that when the country started to enter the recession in 2008 our industry did not collapse their heads into their hands and say we are doomed. They looked for solutions and in Dave’s article it becomes very apparent how they tweaked their refinery processes to go after new markets. They anticipated the downturn in gasoline consumption in the U.S. that comes with a weak economy and turned their attention overseas to Central and South America and the Caribbean that were clamoring for more distillate products: kerosene, heating oil and diesel fuel. They offset the 2 million barrels a day in downturn in the U.S. with 2 million barrels a day in exports.

Couple the good news on petroleum exports with our recently completed Port Bureau expansion survey results tied to the natural gas data and you should be very enthusiastic about our future. Thanks to the cooperation of our companies we were able to collect data in the fall of 2012 on capital expenditures and maintenance planned in this region. For 2010 to 2015 we got in writing, either in a filled out survey or in a stock disclosure/press announcement, 28.8 Billion dollars in investments from 51 companies. Note the B in Billion. If you look closely at the graph featured in the article in this newsletter, you’ll see that ¾ of that investment still is ahead of us—scheduled for 2013-2015. I’m speculating, but I think what you see in 2010 of $2B/year was probably the industry average for the dozen years before 2010. That makes the 2013-2015, $6-7Billion/year investments a significant change in our industries. It truly highlights that industry is all-in on expanding to take advantage of the low cost natural gas available in the U.S. thanks to the shale fracturing process.

Coach Wooden was a big believer in being alert; he was constantly observing and eager to learn and improve. The two articles, the expansion into global markets and the expansion into natural gas use, should give you hope that our petrochemical companies are alert to market conditions and investing to improve their prospects for the future. I’m optimistic and think we have a very good story to tell the rest of the country.

Greater Houston Port Bureau | 3

GHPB Independant Research

Houston Capital Deve Nationally, only 59% of the Harbor Maintenance Tax (HMT) is being appropriated for its designed purpose – to fund maintenance dredging of ports and federal waterways. As a result, ports, including the Port of Houston, are not receiving the necessary dredging funding to remain deep and wide. For example, the lack of adequate maintenance dredging recently resulted in a draft reduction at the entrance of the Houston Ship Channel from 45’ to 43’6” for over two months. With the upcoming deepening of the Panama Canal and the trend toward larger, deeper-draft vessels, the Houston Ship Channel needs to be adequately dredged and maintained to remain globally competitive.

With the aim at giving the Port of Houston and COL Len Waterworth of the Port of Houston Authority ammunition for his trip to Washington, D.C. to speak with the Office of Management and Budget regarding dredging funding, the Greater Houston Port Bureau conducted the Houston Port Region Capital Development and Maintenance Survey to gather private industry capital and maintenance expenditure information covering the years 2010-2015.

Between August 31 and November 15, 2012, the Port Bureau sent surveys to 132 companies located along the Houston Ship Channel with letters from COL Len Waterworth and

What’s the difference?

Direct Jobs: Indirect Jobs: Induced Jobs: 4|

February 2013

Jobs with local com Jobs created locally Jobs determined to

elopment and maintenance CAPT Bill Diehl of the GHPB.

Key Survey Results:

The Port Bureau received investment data from 51 of these companies, or 39%, from a combination of responses to the survey and publiclyavailable stockholder disclosures or other public documents. From the responses, there is known investment of $28.8 billion between 2010 and 2015, with over 70% - $21.1 billion - of that still ahead of us between 2013 and 2015, and projected total investment for the region reaching $35 billion over 2012 to 2015. Based on a conservative construction labor spending estimate of 35% of total cost, approximately $12.3 billion of this investment will be spent on labor. From this information, economic firm Martin Associates estimates this will lead to 111,700 direct construction jobs, 154,100 induced and indirect jobs and $800 million in tax contributions between 2012 and 2015.

Nationally:

This survey conveys the extent to which private industry is investing in landside infrastructure, highlighting heavy investment in the future success of the Port of Houston, and should encourage federal lawmakers to allocate the monies collected from the Harbor Maintenance Tax for the intended purpose of maintaining the federal waterway by keeping the Houston Ship Channel dredged to its designed depth.

  

HMT Revenues (FY 2012): $1.54 billion Transfers from HMTF (FY 2012): $912 million 59% of funds received were utilized

Houston Ship Channel:        

Estimate total investment $35 billion for 2012-2015 111,700 direct construction jobs 154,100 induced/indirect jobs $800 million in tax contributions Cumulative investment: $28.8 billion (39% response rate) Past investment (2010-2012): $7.7 billion Future and current investment (2013-2015): $21.1 billion 90% of investments in petrochemical & refining industries

Tank T e rm i n al Con s t ruct i on at G H PB M e m b e r Hou s t on Fue L O i l T e rm i n al Com pany

mpanies providing support and services to the port and cargo operations. y due to the purchases of goods and services by the direct employees of the port and operational entities. o be related to the cargo moved by port terminals and cargo operations.

Greater Houston Port Bureau | 5

January 2013 Commerce Club Luncheon with RADM Roy Nash, Commander USCG District 8

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February 2013

Thank you to our January Sponsors:

Page Left: Top-Left: Capt. Robert Thompson, Houston Pilots and CAPT James Whitehead, USCG; TopMiddle: Charlie Jenkins, PHA and Bernt Netland, ITC; Upper-Left: RADM Nash addresses the Commerce Club; Upper-Middle: Mike Vance, TASC, Mark McCullough, Whitney Bank, and Jamie Sylvester, Briggs & Veselka Co, Briggs & Veselka Co; Upper-Right: David Halbert, Houston Mooring and Carl Holley, ITC; Lower-Right, Mike Usher, PHA entertains a small group at the Commerce Club luncheon; Lower-Middle, Karl Schrรถder, Schrรถder Marine Services and Ricky Raven, Chipolbrok; Lower-Right: CA Rousser, The Rousser Companies, and Allen Eckhard, Richardson Stevedoring & Logistics Page Right: Lower-Left: CA Rousser, Joe Burkett, Texas Terminals, and Warner Welch, Houston Vessel Traffic; Lower-Middle: Mehdi Hejazi, Norton Lilly; Lower-Right: The Houston Pilots Association sent over a dozen individuals to learn about current regulatory and safety-related affairs from the D8 Commander.

Greater Houston Port Bureau | 7

Exports of Refined Petroleum Products EXPORTS OF REFINED PETROLEUM PRODUCTS

Dave Cooley, GHPB

International trade involving refined petroleum products is a key component of the industry’s refining, marketing, and distribution activities. Initially, the U.S. was a sporadic participant in this arena until the growing U.S. economy and the consequent rise in personal wealth occurring dur-

ing the last half of the 20th Century and continuing into the early years of the 21st created a steady increase in the demand for oil products. As a result, the U.S. was a consistent net importer of refined petroleum products for over 62 years; from 1949 to 2011.

During this time, the net imports of refined petroleum products varied between 1 and 2 million barrels a day.

This recently changed as the result of two factors. The first factor was a decline in oil consumption of approximately 2 million barrels a day or about 11% as a result of the Great Recession of 2008-2009 from which the country has yet to fully recover. As a consequence of this de-

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February 2013

cline in oil consumption, the import of refined petroleum products also dropped by about 1 million barrels a day or 33% of the total oil product imports. The second factor and concurrent in time with the decline in oil consumption was a somewhat significant rise in domestic oil production that, due to logistical constraints, was priced at a substantial discount. This offered unique opportunities for refiners to increase the manufacture of refined products at a level in excess of current consumption, which led to a very significant rise in the export of refined petroleum products from 1 million barrels a day to over 3 million barrels a day. This combination of falling imports and rising exports resulted in the U.S. transitioning from being a net petroleum products importer to that of being a net petroleum products exporter. This event occurred during February 2011 and net refined petroleum product exports are currently averaging about 1 million barrels a day.

Whether or not a country is a net importer or a net exporter of refined petroleum products at any one particular point in time is a function of that country’s internal supply and demand. The supply includes indigenous crude oil production, if available, that is either supplemented or substituted by foreign crude oil imports that is then either augmented or completely replaced by imported refined petroleum products. On the demand side, the

key driver of oil consumption is the level of economic actively, as both factors are keenly correlated.

If refining infrastructure exists within a country, the goal is to manufacture a slate of refined pe-

Greater Houston Port Bureau | 9

troleum products that meets the country’s needs. Any difference between refinery output and internal oil consumption is then either imported or exported to balance the equation.

Aggregate, U.S. crude oil supply has increased about 1.7 million barrels daily while the import of crude oil has declined by a similar amount. Since total supply is relatively constant, this suggests that refinery activity is also unchanged.

Therefore, with supply relatively unchanged, as confirmed by unchanged refinery runs, aggregate demand must also be unchanged. The demand side of the equation is comprised of domestic oil consumption and refined petroleum product exports.

The result is that the decline in U.S. oil consumption was offset by expanded participation in the export market, with exports of refined petroleum products increasing to over 3 million barrels daily, a rise of over 2 million barrels a day since 2006.

In summary, the net importexport position of the U.S. for refined petroleum products is demand driven on the import side of the equation and economically driven with regard to exports.

Whether or not these trends continue and the U.S. has the ability to remain an active participant in the export market will be determined by the industry’s ability to produce the slate of refined products that meet needs of both the domestic and export markets.

The key will be how the oil industry’s refining players profitably manage refinery capability to meet evolving product demand.

WHAT PRODUCTS ARE EXPORTED? The primary refined petro10 |

February 2013

leum products exported from the U.S. between 1981 and 2006 were residual fuel and petroleum coke. Each was a by-product of a refining process geared to maximize the manufacture of gasoline - necessary to fuel the nation’s ever increasing population of automobiles. To meet this increasing demand, refineries continued to improve the severity of the various conversion processes to upgrade the remaining black oil

yield (residual fuel oil) into clean products: gasoline and distillate fuels.

While the upswing in exports of refined products that began during late 2005 generally benefited the full range of petroleum manufacturers; the increase in distillate fuel exports was particularly pronounced. Since the demand for distillate fuels, utilized by most countries throughout the

rest of the world as fuel for transportation, space heating, and cooking (diesel, heating oil, and kerosene, respectively) continues to grow, there are many opportunities for a new supplier, such as the U.S., to actively participate in this market.

WHERE DO THE EXPORTS GO? Economic

principles

note

The Increase in Distillate Fuel Exports (starting in 2005) was particularly pronounced Greater Houston Port Bureau | 11

that generally, the highest return on investment for a commodity sold in bulk may be obtained by minimizing transportation costs: selling to customers located nearby. This is manifest when analyzing the destinations of refined petroleum products exported from the U.S. Historically, the two predominant countries of destination for U.S. refined petroleum product exports have been Canada and Mexico. However, as the volume of refined product exports has expanded over the last six years, the nation’s portfolio of destinations has expanded as well. Today, in addition to Canada and Mexico, increasing exports of refined petroleum products are destined for locations throughout the Caribbean, Central, and South America. Currently, exports of refined petroleum products are running at 3 million barrels a day, with over 60% are destined for countries located in the Western Hemisphere.

NOTE: Last data point for the Destinations of U.S. Product Exports was October 2012 – a similar period was chosen for the beginning period to present a consistent comparison

Cui Bono?

The beneficiaries of these new market opportunities look to be coastal refineries - with a lion’s share of business moving to those facilities located along the Gulf Coast. This is especially pronounced since the dramatic rise in refined petroleum product exports beginning in 2005-2006.

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February 2013

Gulf Coast refiners benefit from this growth several reasons, but primarily they are reaping the benefits from their proximity to growing markets in the Western Hemisphere. In addition to the historical markets in Mexico, new market development has been successful in countries located throughout the Caribbean, Central, and South America. Since most of these countries have well established terminal and distribution facilities located within 5-14 days sailing from the Gulf Coast, but lack indigenous re-

fining capacity, customers in these areas benefit from establishing on-going long-term relationships. Refineries located on the Gulf Coast also benefit from the contra-seasonal market that is available in many South American countries that allows capture of premium market prices for both gasoline and distillate fuels throughout the year.

One example of the contra-seasonal market effect is the market for home heating oil. The price for home heating oil is cyclical, rising during the fall as consumers refill their tanks that have been empty since spring

and reaching a peak during the winter as consumers continue to replenish supplies during the winter to satisfy their space heating needs as cold weather envelops the country.

As spring approaches and the weather warms, the demand for home heating oil similarly declines. Since much of South America lies south of the equator and has comparatively reversed seasonal temperatures, Gulf Coast refiners can capture South America’s coldweather period during the domestic summer and the attendant higher price year round, optimizing profit.

As a result, the export of refined petroleum products emanating from Gulf Coast refineries has steadily grown from about 45% of U.S. exports of refined petro-

BARGING AHEAD ever so politely.

B

Buffalo Marine Service, Inc.

www.BuffaloMarine.com

Greater Houston Port Bureau | 13

leum products in 1981 to around 75% today.

The export market presents very attractive opportunities for refiners located not only in Gulf Coast, but specifically the Texas Gulf Coast Refining District. These refineries successfully captured an increased share of the export market and have enabled the Texas Gulf Coast Refining District to maintain a relatively high operating rate compared to refineries throughout the country.

The active role of the refiners located along the Texas portion of the Gulf Coast is just as important to supplying the world with refined petroleum products as it is to the nation. These refineries supply 25% of the domestic refined petroleum product demand and about 38% of the refined petroleum products exported from the U.S. This capability is supported by maritime commercial activities and infrastructure investment throughout the ports of Texas, but especially at the ports along the Houston Ship Channel.

SHIPPING NEEDS The export of refined petroleum products has increased dramatically since 2005, rising from about 1 million barrels a day to currently over 3 million barrels a day.

This increased export activity both benefits the shipping industry while placing additional strains on fleet demand and traffic flow. For example, utilizing a utilitarian equivalent vessel size of 50,000 SDWT, carrying approximately 350,000 barrels, the increased number of ship equivalents required on a national level to deliver today’s volume of refined petroleum product exports would be 229 product tankers per month. This is an increase of 151 product tankers a month from the level existing 5-6 years ago. Similarly, during this same time frame, an increase in refined petroleum 14 |

February 2013

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2005 Refined Petro2012 Refined PetroAdditional Ships leum Product Exports leum Product Exports per Month (50,000 (‘000,000 Bbls/Mo) (‘000,000 Bbls/Mo) SDWT) vs 2005 US

27,000

80,000

151

PADD III

18,360

60,000

119

Texas Gulf Coast District

9,180

30,000

59

HOU-GAL-TXC

4,590

15,000

30

DIRECTION Maritime Solutions for Moving Forward

product exports emanating from the Houston-Texas City-Galveston Port Complex results in an increase of about 30 product tankers a month, or on average, about 1 additional 50,000 SWDT vessel each day.

PORTS MARINE HEAVY INDUSTRIAL COASTAL

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PERMITTING

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These shipping values are determined based on published statistics that cite the Gulf Coast as providing about 75% of the nation’s current exports of refined petroleum products.

However, since the export data for refined petroleum products are not available below the Gulf Coast level, exports may be allocated based on refining capacity of each successive subdivision.

This resulted in allocating 50% of Gulf Coast refined petroleum products exports to the Texas Gulf Coast Refining District and 50% of the Texas Gulf Coast Refining District exports to the Houston-Texas City-Galveston area. This allocation process is utilized to derive the equivalent product tankers necessary for handling exports of refined petroleum products.

Greater Houston Port Bureau | 15

TODAY’S ECONOMICS One primary contributor to the transition from the U.S. being a net importer of refined petroleum products to a net exporter is the discount available on crude oil located in the Midwest due to additional oil availability from increased U.S. production and additional crude imports from Canada. This discount has offered a unique profit opportunity to the industry’s refining-marketing mixes that have both logistical access and the appropriate refining hardware necessary to process these oils as well as the commercial expertise to develop new export opportunities. These facilities are able to maintain a higher throughput than would otherwise be possible based on current oil consumption and they capture this discount by selling the incremental yield of refined products to a portfolio of new customers in the export market.

In the U.S., this increase in domestic crude oil

production is the result of the successful application of a new enhanced recovery technique – fracking – that releases oil deposits embedded in tight formations, such as oil embedded in shale. Currently the largest shale oil production is located in the midcontinent: North Dakota’s Bakken Shale producing about 700,000 barrels a day.

Similarly, in Canada, improved mining and extraction processes have increased tar sand production. The only current outlet for this Canadian production is by pipeline from Alberta into the U.S. Midwest where the key markets are the refineries located in Chicago, St. Louis, and the Gulf Coast.

This combined increase in both domestic oil production and Canadian imports has resulted in a very abundant crude oil supply available in the Midwest. However, our current national transportation infrastructure is not geared to handle such a significant supply increase and as a result, this oil is “stranded” and therefore creates a surplus. The magnitude of this surplus is reflected by the level of crude oil stocks located in the Midwest.

Crude oil stocks in the Midwest experienced a step-change around 2008-2009. Prior to this time, the stock level averaged about 55 million barrels, but afterward the stock level increased to about 80 million bar-

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rels; a 25 million barrel - nearly 46% - swing. This increased stock level is sufficient to significantly affect the price of oil now stranded in the Midwest This oversupply, created by a logistical bottleneck, has profoundly impacted the price of West

Texas Intermediate (WTI) – a light low sulfur crude oil utilized as the price benchmark for the vast majority of U.S. crude oils. Historically, WTI traded at a premium to North Sea Oil, Brent – similar in quality to WTI. However, during the last three years, WTI is trading at significant discount to Brent. This

Greater Houston Port Bureau | 17

price discount, which reflects the over-supply situation, is currently ranging between $15 and $25 a barrel.

This price discount will continue until the logistics system rebalances. At this point, the price for oil located in the Midwest will seek a new equilibrium based on both the current and expected future quality and quantity of the various crude oils from both indigenous production and Canadian imports. Until the Midwest oil price achieves price parity, the incentive exists for domestic refiners to continue to manufacture refined petroleum products in excess of domestic demand and continue to develop additional customers in the export market.

Historically, the refining segment has not been a very large contributor to overall oil industry profits. However, if this segment can maintain an operating rate above that dictated by domestic consumption and capture this stranded oil discount by exporting refined petroleum products, overall industry financial performance will continue to be enhanced.

Prima facie, while the gross margin accruing to refiners appears attractive, it does not include either the cost of transporting the crude oil from the wellhead to the refinery or the cost of operating the refinery. For example, the cost of transporting shale oil from the wellhead to a refinery in Texas is on the order

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February 2013

Greater Houston Port Bureau | 19

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of $5-$12 a barrel, depending on location and mode of transport.

In addition, the cost of the refining process can add an additional $3-$5 a barrel. These cumulative costs total between $8 and $17 a barrel. Deducting these total costs from the implied gross margin of $15-$25 a barrel results in an estimated net profit potentially accruing to a Texas refiner on the order of $2-$17 a barrel; a more realistic amount.

WHAT ELSE CHANGE?

COULD

Exports of petroleum products are currently focused on distillate fuels. In the future, could the export of motor gasoline also play a significant role? The answer is “very possibly.” Gasoline demand peaked at about 300 mil20 |

February 2013

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lion barrels a month, or 10 million barrels daily, just prior to the Great Recession during the summer of 2005. Was the decrease following the peak prior to the Great Recession a temporary phenomenon as a result of the ensuing slow economic recovery

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or was it the real thing? This is the key question. Time will tell if this drop-off in gasoline demand signified the peak and demand is indeed declining or if the decline was temporary and simply a function of the current level of lower economic activity.

An analysis of gasoline consumption lends credence to the hypothesis that a continuous upwardsloping straight-line is no longer is a valid representation of future gasoline demand.

Gasoline consumption is the result of vehicle mileage and vehicle mileage is the result of its two components: vehicle miles traveled, and vehicle fuel consumption.

The first component, annual vehicle miles traveled, rose steadily between 1981 and 1997 from 9,500 to 12,000 annual vehicle miles and then remained relatively steady fluctuating slightly above and below the 12,000 annual vehicle miles level for the next ten years (1997-2007).

Annual vehicle miles traveled has tapered-off slightly since 2007 as a consequence of the beginning of the economic downturn. Similarly, motor vehicle fuel consumption has essentially has followed the same pattern, falling steadily from 800 gallons per vehicle to 700 gallons a vehicle between 1978 and 1981 before leveling off - a trend that continues today.

As a result of these two factors, overall vehicle mileage (miles per gallon), initially rose dramatically from over 13 MPG to 17 MPG beginning in the late 70s through 1991 from which it has remained steady.

Going forward, factors that portend the future of gasoline consumption are the CAFE (Corporate Average Fuel Economy) Standards and demographics. Each can have a profound effect on the future outcome for gasoline consumption.

Based on an agreement in the fall of 2012, annual CAFE Standards will steadily increase to a level of 54.5 Miles per Gallon (MPG) by 2025 with a window sticker equivalent of about 30 mpg for all vehicles. Although this goal is not directly comparable to the level of actual current consumption (17 MPG), it does suggest that unless mileage driven increases proportionally, U.S. gasoline demand will move towards a decline.

With regard to demographics, the baby boomer population bulge is reaching retirement. One key consideration is whether or not discretionary income will be available to this population group during the retirement years - perhaps allowing realization of the long lived dreams of touring the country by automobile. Since most retirement income is now predominantly keyed to a retirement plan known as a defined contribution plan, the question of available income is most valid; especially in light of the Greater Houston Port Bureau | 21

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February 2013

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Combining these factors, it appears that the current apparent decline in the consumption of gasoline may be a harbinger of the future. This burgeoning trend could create an increased risk for the refining-marketing segment of the oil industry that heretofore was geared to maximize the production of motor gasoline.

However, if the experience related to distillate fuels is any guide, the export of gasoline will continue to allow the refiners to optimize refining output irrespective of any significant variation to the level of domestic demand. While true clarity will not unveil itself until the sluggish economy improves and unemployment is back in the 4%-6% range, the export of refined petroleum products is a growing market and here to stay. - D. Cooley, GHPB _____________________ NOTE: Unless otherwise noted, all data found in this report can be found with the Energy Information Administration, United States Department of Energy

Chief Executive Officer, Dowley Security Services, Inc.

James Brown Growing up on the south shore of Long Island, NY, Jim Brown spent much of his free time on the water. “There’s a kind-of mantra that’s encouraged at the service academies about a love of the sea, but that was very true for me - I did a lot of fishing and sailing on the bay.” Graduating from high school, Jim was accepted into the US Naval Academy, USCG Academy and NY Maritime Academy and started in New London in the Fall of 1978 to study engineering. “Ironically, my other college choices were music academies - studying piano, composition and the like. I’ve always been in a lot of rock or jazz bands and still like to get away from the office after a long day and pound out some blues.”

After four years, Jim graduated and commissioned as an officer in the United States Coast Guard. Assigned to the high-endurance cutter USCGC Mellon (WHEC 717) out of Seattle, WA, Jim spent his first few years in the Coast Guard as an on-board engineer before being accepted to the USCG’s master’s program at the University of Illinois in Champagne-Urbana.

Spending two years in central Illinois, Jim studied structural & architectural engineering and project management before “a wildly unlikely series of events found another open billet in the Pacific Northwest”. Working out of the 13th Coast Guard District , one of Jim ‘s primary duties included maintenance and upkeep on the lighthouses of northern Washing-

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ton. “It’s beautiful country up there; the lighthouses were out on remote islands, so I spent a lot of time working and camping out with the contractors while on assignment.”

In addition to his lighthouse and tower inspection duties, Jim began getting involved in project management work; “There was a lot of construction going on, so I was able to work on a myriad of different projects: a hospital in Alameda, CA, a couple of big hanger projects, and work at USCG stations up and down the West Coast.”

As Jim began looking towards the future, his Coast Guard detailer informed him that, due to budget cuts, his skills as an engineer would ensure that he was extremely unlikely to ever be assigned to another shipboard assignment. “The ability to go to sea was something that kept me very motivated, so for the first time, I started considering life after the Coast Guard.” When Jim’s detailer came back with his only choice for a next assignment in Kodiak, AK, he put in his papers, and began his transition to civilian life.

Starting with the MBA program at the University of Washington and following that with a strategic planning role at GTE - the erstwhile telecommunications giant - Jim was able to use his prior service to help him quickly rise in the corporate world. “I discovered that a lot of the skills I learned in uniform were very applicable - that a bit of drive, nerve and determination could go a long way.” After four years at GTE, Jim was offered a transfer to the Dallas office - located in the middle of DFW airport - but decided instead to move out on his own and engage his more entrepreneurial spirit.

with an ailing 55 gallon steel drum manufacturing plant in New Orleans, and five years with a multimedia integrator in Nashville before I got a call from a mentor of mine who said “Jim, I’ve got another one for you”.”

Infrastruct Security, a full-service security firm specializing in the regulated security market was a firm “with a good vision” that merged with Oklahoma-based Dowley Security Services in 2007.

“When I came in at the end of 2009, I was fortunate to find some good teammates who were as determined as I was to begin executing on a plan.”

Since that time, Dowley has set roots in Houston and expanded with regional offices in San Antonio, Oklahoma City and Tulsa. “We’ve been very fortunate to gain a lot of ground very quickly and the team continues to develop more with more talent and more spirit every day. We’ve been blessed that the marketplace has responded to our passion and in addition to our domestic growth, we’ve been able to deploy in Iraq and Saudi Arabia over the last 12 months - this allows us to bring our experience managing intellectual property and systems overseas as well as incorporate best practices from a multitude of environments and cultures back to our projects in the United States.”

In his free time, Jim still enjoys his dichotomous left-brain/right-brain pursuits listening to music from all corners of the world or reading everything from eclectic fiction to technical journals, but most of his free time is dedicated to his daughters “I’m fortunate to find myself enjoying what I do - this is a place that I really want to be: a place to thrive.”

Working at as the general manager for a mom-and-pop network integration company in Seattle, Jim was lucky to find himself at the right place at the right time.

The dot-com boom of the late 1990’s fueled technology growth, and with Jim’s help, within five years the company grew from 19 employees to over 250. After that period, Jim and the other partners were approached by a number of suitors and decided to sell the company. With a newfound reputation for turning around struggling companies, Jim moved across the country to Atlanta “which actually worked out very well for me personally because my sisters and recently retired parents were all migrating from the northeast to the southeast”. This began nearly a decade of work helping companies “that were fundamentally solid, but maybe needed to buy a vowel to get on the right track. I spent a few years Greater Houston Port Bureau | 23

The Dragon Makes Way for the Snake Port Watch - Tom Marian, Buffalo Marine Service The Year of the Dragon is coming to an end and thus we bid adieu to 2012. Statewide, 2012 was an improvement over the preceding year by 3.5% for blue water arrivals and ended the final month of the year up 2.2%. Hence, there was no precipitous growth as a whole but there were pockets of robust activity in a few of the smaller ports along with consistent gains in a few of the larger ports. Nonetheless, not all ports viewed the year as a positive one as Galveston and Freeport experienced declines of 8% and 6% respectively. Ironically, the month of December for both ports was perhaps one of the best months of the year as reflected in Freeport’s 22% monthly rise and Galveston’s 28% leap – no doubt attributable to an end-ofyear surge of petrochemical products and the commencement of the cruise season. Closer to the Bayou City, Texas City nearly matched its 2011 vessel arrival performance in 2012 (i.e., 2 fewer arrivals for the year) yet December’s 5% monthly decline was in part a result of fewer deepdrafts transporting crude into the port.

Not surprisingly, the two ports that saw the greatest benefit from the shale-gas fracking bonanza – Brownsville and Corpus Christi – posted the most enviable increases for year registering nearly 16% and 12% surges respectively. This is even more impressive given that neither one of these ports chalked up positive numbers for the month (i.e., Brownsville was flat and Corpus Christi off by about 2%). To the

east, Sabine fared well for both the year and the month with an over 4% annual rise which was bolstered by 6% more vessel arrivals in December. Rounding out the year’s maritime trade picture was the Port of Houston which posted a solid 4% gain for the year despite a monthly vessel arrival loss of 1.3%. On the brownwater side of the trade equation, Houston Ship Channel movements for the month were a bit paltry with 1.4% fewer transits; however, as reflected in the strong performance of the petrochemical sector, the inland trade picture on the western side of the Gulf Intracoastal Waterway handled 4.5% more traffic in 2012.

What was perhaps most interesting about the Port of Houston’s numbers in December was the fact that only two categories – Chemical tankers and petroleum tankers – fared better in December than in November. In fact, chemical tankers had their best month of the year at 170 vessel arrivals which translated into a 15.6% monthly gain and a record 74.6% jump for the year. Indeed, this particular category will be hard pressed to improve upon that number in 2013. Tankers, on the other hand, were off by over 19% for the year but did chip away at this loss with a 6.6% monthly gain. That being said, the monthly figures for both of these vessel categories was most likely attributable to end-of-year inventory accounting which generally results in minimizing shoreside storage volumes. On the opposite end of the spectrum,

the dwindling reefer vessel category had a mere 3 vessels call upon Houston – for the year. This is due to the displacement of such vessels by refrigerated containers which were carried by 2.6% fewer container vessels in 2012. In fact, December saw the fewest number of container vessel arrivals for the year and over 7% fewer than November’s tally. Again, this is not unusual given that December is a not a month where inventories are beefed up since the holiday import surge unfolds several weeks before the final month of the year.

Even cars took a breather for the month with a 23% drop (i.e., 3 fewer carriers) but this category’s fortunes were rosy given the 34.6% annual uptick. LPG vessel arrivals also posted great gains in 2012 – 21.7% to be precise – but, like the majority of the other categories, fell 4.5% for the month.

Even bulk and general cargo vessels which are harbingers of what looms on the economic horizon were off by 15% and 8.6% respectively. Notwithstanding these negative indicators for non-containerized cargoes, the regional industrial and manufacturing demands for 2012 were somewhat firm given that both of these vessel types were up for the year by more than 3% (bulkers) and 9% (general cargo).

All things being equal, the Year of the Dragon was fairly positive on the maritime trade front and very productive with respect to the movement, refining and export of petrochemical commodities.

Every indication is that 2013 should bring more of the same albeit there are preliminary signs that production costs are on the rise. That being said, the eclipse of the dragon by the snake conveys that caution should not be jettisoned as the gains of yesterday do not necessarily mean yet higher growth for tomorrow. Preliminary indications for the beginning of the year hint at a bit more momentum and recovery; however, in the Year of the Snake, things are not always what they seem!

-Tom Marian, Buffalo Marine Service

Providing marine services to vessels along the Gulf Coast for over 20 years. We own and operate USCG approved liquid vacuum trucks, a 10,000 bbl Tank barge for marine pollution (Marpol) waste, a 10,000 bbl tank barge for carrying industrial wastewater, a 10,500 bbl tank barge for carrying clean chemicals and a 1800 horsepower Tug for removal and transportation of various material.

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Your Houseboat Might The United States Supreme Court Rules that Fane Lozman’s Florida houseboat is a “floating home” - not a vessel.

Fane Lozman took his eviction by the city of Rivera Beach (the “City”) from his houseboat to the U.S. Supreme Court during their fall session.

The U.S. Supreme Court has now ruled that Lozman’s houseboat was a “floating home” and has ruled that his floating home is not a vessel.

It was obvious by reading the first line of the decision that the Court had ruled in Lozman’s favor.

The houseboat was called a floating home, which was described as a house-like plywood structure with an empty bilge space underneath the main floor to keep it afloat. Don’t all houses have empty bilge spaces underneath to keep them afloat? The Court noted that Lozman had the houseboat towed several times before deciding on a marina owned by the City. After various disputes with Lozman and unsuccessful efforts to evict him from the marina, the City brought a federal admiralty lawsuit in rem against the houseboat, seeking a lien for dockage fees and dam26 |

February 2013

ages for trespass. Lozman moved to dismiss the suit for lack of admiralty jurisdiction. The District Court found the floating home to be a “vessel” under the Rules of Construction Act, which defines a “vessel” as including “every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water,” 1 U. S. C. §3, concluded that admiralty jurisdiction was proper, and awarded the City dockage fees and nominal damages.

The Eleventh Circuit Court of Appeals affirmed the trial court, agreeing that the home was a “vessel” since it was “capable” of movement over water despite Lozman’s subjective intent to remain moored indefinitely.

The Court first held that the case was not moot. The District Court ordered the houseboat sold, and the City purchased the home at auction and had it destroyed. However before the sale, the court ordered the

City to post a bond to ensure Lozman could obtain monetary relief if he prevailed. The Court then found that Lozman’s floating home is not a §3 “vessel.” The Court reasoned: (a) The Eleventh Circuit found the home “capable of being used . . . as a means of transportation on water” because it could float and proceed under tow and its shore connections did not render it incapable of transportation. The Court found this interpretation too broad. The definition of “transportation,” the conveyance of persons or things from one place to another, must be applied in a practical way and cited Stewart v. Dutra Constr.

Co., 543 U. S. 481, 496 for this proposition. The Court then stated that a structure does not fall within the scope of the statutory phrase unless a reasonable observer, looking to the home’s physical characteristics and activities, would consider it designed to a practical degree for carrying people or things over water. (b) But for the fact that it floats, nothing about Lozman’s home suggests that it was designed to any practical degree to transport persons or things

Not really Be a Vessel Brought to you by Chalos & Company, P.C., International Law Firm New York | Houston | Miami | Athens | Cyprus over water, though it actually did. The Court noted that the houseboat had no steering mechanism, had an unraked hull and rectangular bottom 10 inches below the water, and had no capacity to generate or store electricity. It also lacked self propulsion, differing “significantly” from an ordinary houseboat. Sounds like a barge, doesn’t it? (c) This view of the statute is consistent with its text, precedent, and relevant purposes. The statute’s language, read naturally, lends itself to that interpretation: The term “contrivance” refers to something “employed in contriving to effect a purpose”; “craft” explains that purpose as “water carriage and transport”; the addition of “water” to “craft” emphasizes the point; and the words, “used, or capable of being used, as a means of transportation on water,” drive the point home.

The Court reviewed two cases in depth to support its conclusions.

Evansville & Bowling Green Packet Co. v. Chero Cola Bottling Co., 271 U. S. 19 involved a wharfboat floated next to a dock, used to transfer cargo, and towed to harbor each winter; Stewart, supra, involved a dredge used to remove silt from the ocean floor, which carried a captain

and crew and could be navigated only by manipulating anchors and cables or by being towed. The Court explained that water transportation was not the primary purpose of either structure; neither was in motion at relevant times; and both were sometimes attached to the ocean bottom or to land. However, Stewart’s dredge, which was regularly, but not primarily, used to transport workers and equipment over water, fell within the statutory definition while Evansville’s wharfboat, which was not designed to, and did not, serve a transportation function, did not.

The Court also noted that the purposes of major federal maritime statutes—e.g., admiralty provisions provide special attachment procedures lest a vessel avoid liability by sailing away, recognize that sailors face special perils at sea, and encourage shipowners to engage in port-related commerce— reveal little reason to classify floating homes as “vessels.”

The Court rejected the arguments made by the City and its amici arguing that a purpose-based

test may introduce a subjective element into “vessel” determinations.

The Court points out that it considered only objective evidence, looking to the views of a reasonable observer and the physical attributes and behavior of the structure. The Court recognized that its approach is “neither perfectly precise nor always determinative,” it claimed it to be workable and consistent and should offer guidance in a significant number of borderline cases.

Greater Houston Port Bureau | 27

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