December 2014 Port Bureau News

Port Bureau December 2014

Greater Houston Port Bureau

News

The Port Bureau’s 2014 Year in Review

Fuel Efficiency and Emissions Standards for Heavy Duty Trucks Oil, Commodities Markets, and Price Halliburton to Buy Baker Hughes

A Merging of Giants

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Port Bureau 6

News

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3 Captain’s Corner 6 Oil, Commodities 16 Year in Review Pushing the Snowball for an Avalanche of Member Success

4 Port Watch

Holiday Party Index: Maxing Out in 2014

Publisher/President CAPT Bill Diehl, USCG (Ret.), P.E. Editor Christine Schlenker Copy Editors Emily Mitchell Judith Schultz Art Director Christine Schlenker For information about the Port Bureau:

Phone: (713) 678-4300 Email: info@txgulf.org

Markets, and Price

12 Halliburton to

Buy Baker Hughes A Merging of Giants

Writers Dave Cooley Matt Logan Emily Mitchell Christine Schlenker Judith Schultz Patrick Seeba

Photographers Megan Essenmacher Christine Schlenker Patrick Seeba

Port Bureau Staff Jeannie Angeli Al Cusick Megan Essenmacher Cristina Gomez Janette Molina Printing Company DiPuma Printing and Promotional Products www.dipuma.com

For information about the Port Bureau News stories or advertising:

Email: editor@txgulf.org

2 | December 2014

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Success for Our Members in 2014

20 Fuel Efficiency

and Emissions Standards for Heavy Duty Trucks A Publication of the Greater Houston Port Bureau The Port Bureau News magazine is a monthly publication of the Greater Houston Port Bureau, a member-driven nonprofit dedicated to promoting the maritime community, providing vessel movement information and offering members premier networking and advertising opportunities to drive business.

The magazine is distributed to over 7,000 professionals in the Houston maritime community via U.S. mail and email. Advertising is available for members.

Captain's Corner Pushing the Snowball for an Avalanche of Member Success

T

he weatherman assures me the folks back East are pulling on their snow boots earlier than ever this year. While I am quite content to enjoy my winters on the sunny Texas Gulf Coast, the first snowfall was an event that always spurred a lot of momentum in my family while I was growing up. We raced to give each other a good snowball pummeling and competed to see who could build the best snowman, snow house, or snow something on the block.

Quality snow objects were created when we could get some good frosty force going by rolling the balls – or ourselves – downhill somewhere. We agreed with Warren Buffet, when he said “the important thing is to find wet snow and a really long hill.” Hence, we put the well-known snowball effect into action to build for our success.

As the year winds down around the Port Bureau, the same momentum gathers in our office. It’s our time to review the year’s accomplishments and ramp up our planning for the coming year. We feel the impetus of opportunity as we consider the optimistic future of the port region, the abundance of wet snow to work with, and the lengthy hill we have been rolling down for success.

I am so pleased to be surrounded, actually buoyed, by an amazing staff. Together we interact with our members and meet weekly to share ideas about how we can improve the programs we deliver. We realize that companies must continue to innovate if they are to remain relevant.

Since 2009, we’ve more than doubled membership

and greatly increased member benefits. As the number of members has increased, so have business referrals. Port Bureau CAPT Bill Diehl, events have grown, and so have the opportunities to network and USCG (Ret.) build business. We beefed up the news magazine content and increased distribution, thus expanding the reach of information in the port region.

New research projects supply the port community with valuable trade analysis and advocacy talking points.

It’s the snowball effect – and it strengthens our business. It’s momentum going in the right direction.

We are rolling into 2015 with plans for more and better member services. We plan to take the quality of our events to the next level and to add members-only events. We’ve honed our skills to provide more grant application assistance and more research and analysis.

We are increasing member visibility through more member company features in our magazine and on our website.

This year, we’re hosting our first ever holiday member appreciation event at Jackson’s Watering Hole near the University of St. Thomas on December 11th.

It will be a time to bask in the energy of good business and toast the success of our members.

If you have suggestions on how we can better benefit your business, give me a call. I am happy to hear your thoughts. We are committed to providing you with excellent service, and we look forward to building a snowball with you into an avalanche of port business success.

Last January, I encouraged everyone to get involved, get informed, and get better at business with the Port Bureau. Now I urge you to keep up the momentum and stay involved, stay informed, and stay innovative.

Keep our snowball effect at work for your business. ò

Greater Houston Port Bureau | 3

© Christine Schlenker

PORT WATCH

Holiday Party Index: Maxing Out in 2014 Tom Marian, Buffalo Marine Service

T

he holiday party index is one of those lesserup a 6% monthly gain for Texas ports. This month’s known economic indicators that provides leaders were the southernmost ports of Brownsville and some degree of insight into the health of the regional Corpus Christi. Brownsville logged its biggest monthly economy. This index has two basic components: venue percentage jump for the year at over 41%, but it conand menu. In Texas, there has been a steady growth tinues to lag behind last year’s record year by nearly in the number and expense of these annual fêtes over 10%. Corpus Christi, on the other hand, has assumed the last four years. Not unexpectedly, 2014 is poised the lead in the year-to-date realm with a 19% annualto be more festive than 2013. Perhaps there could be ized increase, no doubt fueled by this month’s 11% rise. a tad more tinsel Indeed, there is not Texas Ports Deepdraft Vessel Arrivals and champagne enough space on the Oct. 2014 Year-to-Date Percent Change due to the further waterfront as barge BROWNSVILLE, -9.4% “reddening” of queues continue to Congress. Election regrow and refinery CORPUS CHRISTI, 18.8% sults aside, the optimism production continFREEPORT, 15.4% that girds the holiday party ues to expand in step GALVESTON, 11.4% circuit is certainly being fuwith the crude flow from the HOUSTON, -0.3% eled by a robust year on the Eagle Ford and Permian basins.

PORT LAVACA, 1.0% waterfront.

Freeport has fallen to second place with reThings are looking up during the final quarter of 2014, with October racking

4 | December 2014

SABINE, -4.3%

TEXAS CITY, -7.5% GRAND TOTAL, 2.1%

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spect to its percentage improvement against last year at 15.4%. During the last three months, its arrival numbers have remained unchanged.

port watch

Port of Houston Deepdraft Vessel Arrivals

Oct. 2014 vs. Oct. 2013 2,500 2,000

Oct. 2014 YTD (Total: 6,930)

1,500

Oct. 2013 YTD (Total: 6,946) 1,000 500 -

While this is better than a decrease, the vessel count reflects the second-lowest monthly total for the year.

Next door, Galveston also repeated its vessel count from September in October. Coincidentally, the monthly arrival figures were also just above the year’s low. Fortunately, Galveston remains well in the black with a healthy 11% year-to-date rise.

The crude-centric ports of Texas City and Sabine added to their year-to-date arrival deficits with monthly losses. Granted, Texas City only saw one fewer vessel in October after experiencing one of its largest monthly declines in September; however, 2014 is lagging nearly 8% as compared to 2013. Sabine’s monthly wane was more pronounced at almost 6%, thereby pulling down its year-to-date performance by over 4%. Both ports are shifting to feedstocks from rail, pipeline, and barge rather than from deepdraft vessels laden with foreign crude.

The Port of Houston enjoyed a very profitable and productive month in a variety of categories. Overall, the port handled 10% more vessels over the last month and nearly broke even in terms of vessel calls. There was a rather impressive surge in chemical tanker traffic, with 27% more of these vessels plying the ship channel in October. In fact, October’s count was the high for 2014. Yet, this vessel category remains off by a marked 21% for the year. Tankers were also up by 14% for the month which allowed this segment of the ship-

ping sector to remain a smidgen above last year’s total as the export of distillates slowly displaces foreign crude imports. LPG vessel movements are also above that of last year but tapered by nearly 4% over the last month.

Ag exports were aided in a very healthy 20% monthly climb in bulk vessel ships that visited the port. Bulkers are experiencing one of their best years over the last decade, with 2014 surpassing 2013’s totals by 23%. Conversely, general cargo arrivals are off 5% for both the month and the year. Nonetheless, the decrease in numbers has been more than offset by the volume of cargo bound for construction projects throughout the state. Container vessel traffic was flat for the month, but it, too, is transporting greater volumes of supplies and materials into Houston. To date, 5% more container vessels have transited the Houston Ship Channel compared to last year. Car carriers are transporting more vehicles into the port but on 10% fewer vessels. Finally, the ocean-going tow activity enjoyed a banner month with 16% more traffic.

In light of all of the hustle and bustle on the waterfront as 2014 enters its final month, what better way to reap the benefits of a vibrant economy than a good oldfashioned holiday party? So, given all of the impending holiday cheer, how is this year’s holiday party index shaping up? Looks like things will be well into the 90s on a scale of a 100! Have a great Thanksgiving and a blessed Christmas season with family, friends, and those who bring cheer to your day. ò

Save the Date:

Commerce Club January 8, 2015 Register online at www.txgulf.org

Greater Houston Port Bureau | 5

Oil Price

Oil, Commodities Markets, and Price Dave Cooley, GHPB

O

il has always been a primary driver of Houston’s economy, but the sector has enjoyed a new relevance over the last several years. From a low point of around 5 million barrels per day in 2006 and 2007, domestic production has increased dramatically to a current level of 8.6 million barrels per day, or approximately 46% of total U.S. demand.

In the two months between mid-September and mid-November, the oil price tumbled from just under $100 to about $75 per barrel. Given the magnitude of this price drop, questions arise as to the level at which prices will stabilize and what that will mean for continued oilfield investment.

Economic pundits suggest that the “critical” level for oil prices, or the point at which oilfield investment will halt, is between $50 and $70 per barrel. OPEC also recently expressed concern about the possibility of oil prices dropping to $70 per barrel. What is the basis for these prognostications and what do they mean?

Source of the Numbers

The estimated critical levels generally evolve from a macro-assessment of existing and future operating expenditures along with the capital investment required to obtain, evaluate, and develop an oil property. These numbers are a function of the sector of the industry evaluated, the time period considered, and the economic viability of not only the industry sector but also individual components of that sector. More often than not, these projections are usually supplanted by changing events that modify either the quantity supplied or the quantity demanded, but, in either case, the price will respond to the underlying supply and demand structure in the oil market.

6 | December 2014

Will prices go up or down? It’s all about perspective.

Impact of the Numbers Whether the numbers are, or are not, correct, falling oil prices (or that of any commodity) will elicit a range of action and interaction throughout the market and will have an effect on the industry’s cash flow. The

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Greater Houston Port Bureau | 7

Oil Price critical questions are: How low is too low and how long will the prices remain depressed?

An initial result of falling oil prices can simply be companies postponing future capital investments.

However, should oil prices continue to fall, then current expenditures could be affected through delaying or postponing current drilling programs. If lower oil prices persist, firms may need to consider the liquidity of their assets, and the financial stability of some firms may be questioned. Ultimately, the cumulative result of any or all of these events will be a reduction in the supply of oil. When this might occur and at what magnitude is pure speculation. In any event, it is certain that both supply and price will react as supply and demand rebalance over time.

Comment

In the market, the price of oil, like the price of any commodity, responds to the long term interaction of supply and demand. However, during the short term,

oil prices are also influenced by the amalgamated expectations of all market participants and are ultimately balanced by real-world events. Understanding the characteristics of a commodity and the resulting price behavior is essential.

What Is a Commodity?

Characteristically, a commodity is a homogeneous product with low barriers for firms wishing to either enter or exit the business. The market thrives with many sellers and buyers, none of whom can individually influence prices. More succinctly, and most critically, a commodity is a product over which the producer has lost control of the price. In contrast, if a producer has the power to control a product’s price, the producer also has a direct influence on the supply of that product. If the producer can influence supply, the product is not a commodity.

Primary examples of commodities include grains (wheat, corn, rice), softs (cocoa, coffee, sugar), raws

Sea & Shore

Ship & Store

www.odfjell.com

8 | December 2014

The Odfjell Group is a leading participant in the global market of seaborne transportation and storage of chemicals and other specialty bulk liquids. The Odfjell Tankers fleet of about 90 ships, trades globally and regionally. The Odfjell tank terminal division of 12 partially owned tank terminals is in a network with 12 other tank terminals partly owned by related parties. The terminals are all strategically located around the world, and with Odfjell Group headquarters in Bergen, Norway, the Company has more than 20 offices world wide.Odfjell has about 3,500 employees and annual gross revenue of about $1.2 billion.

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Oil Price (iron ore, bauxite, rubber), metals (gold, silver, lead, tins, zinc, steel), energy (crude oil, gasoline, heating oil, fuel oil, kerosene, coal, natural gas, electricity), foods (milk, butter, eggs), currencies, interest rates, and stock indices. Each product has graded specifications or defined characteristics that delineate quality, and, as a result, the source of any particular commodity is generally indistinguishable.

In the oil market, one method of reconciling expectations and reality is the weekly publication of oil stocks (above ground inventory). Generally, a draw on stocks is viewed as demand exceeding supply (consumption

What Determines Price?

In the long run, the price of a commodity is established by the amorphous balance of supply and demand, described by Adam Smith more than two centuries ago as the “invisible hand.�

For example, the consensus is that the oil market appears to be oversupplied and, therefore, the price of oil is falling. Whether or not the market is truly oversupplied will not be confirmed until statistics are published offering a post-event view on actual quantities of production and demand. In the present, however, the current experience is driven by expectations that supply is outstripping demand. If expectations are confirmed by real-world events, as in the market is both expected to be oversupplied and is in actuality oversupplied, it is unlikely that prices will react. However, if expectations are not confirmed by reality, prices will increase if reality is more favorable than expectations or decrease if it is not.

Greater Houston Port Bureau | 9

Oil Price is greater than production) and a build of stocks as the reverse. This interim assessment of supply and demand is a barometer utilized by market participants to ascertain market realities.

During the week prior to the publication of the weekly stocks report, market participants develop an expectation of future price direction based on a wide range of currently available information. Based on the collective assessment of each individual market participant’s view of these trends, a new set of expectations is developed and, based on these market expectations, market participants will either buy or sell. When stocks are published at the end of the weekly cycle, expectations will be evaluated versus reality and prices will or will not react. Whether prices move or not, the cycle of developing expectations is reset and begins again.

Weekly stock reports constitute a reality check on the previous week’s market actions.

In the meantime, however, the long term factors of supply and demand could change. Often, prices are

10 | December 2014

moving in the opposite direction due to an exogenous event, such as colder weather sparking an increase in the demand for heating oil. To continue the example, increased demand for heating oil may imply that, in general, oil demand is increasing relative to supply, thus overriding the previous expectations of general oversupply. Based on this new information, market participants may change their market view from being either a pro-active seller or latent buyer into either a pro-active buyer or a latent seller, and await validation from “next week’s” oil stocks report.

In the future, the factors of longer term supply and demand will continue to change. The cycle repeats itself week after week, month after month, year after year.

Exogenous events, even if anticipated, always appear and will continue to influence market participants’ perceptions, who, based on their internal analyses, will develop a new view on prices on which further action will be taken.

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Oil Price In a balanced interplay of market participants, perceptions that prices will increase are offset by perceptions that prices will fall. Should the number of market participants holding one particular view outnumber those holding the other, the general price level will either rise or fall until overcome by the realization of another external event. The result is a dynamic commodity market with a large number of buyers and sellers evaluating current events, developing an internal market view, and taking action with the objective of either buying low or selling high. Therefore, the present oil price is an arbiter of expectations of current oil market participants versus ultimate reality.

Conclusion

As for the level at which oil prices will stabilize, if left to their own devices, prices will settle at a level that inflicts the most pain. This is a key characteristic of a commodity. On the downside, prices will move towards the variable costs of the lowest cost producer, imposing pain on all those with higher variable costs.

As a result, supply will decrease. Similarly, on the upside, prices will move higher in order to inflict pain on consumers. At some point, consumers will begin to substitute a different product in their consumption habits and demand will begin to decline. However, this is only true if the price is left to its own devices. The price of a commodity can be immediately influenced by exogenous events, such as politics (war), weather (hurricane), market liquidity (bankruptcy of a major participant), or the resolution thereof, which can arrest price movement mid-stream.

At what level will oil prices stabilize? Pick a number, any number. It is all a matter of luck and, as Lefty Gomez once said, “I’d rather be lucky than good.” ò

For more information, contact Dave Cooley at dcooley@txgulf.org or (713) 670-1268.

Greater Houston Port Bureau | 11

Industry update

Halliburton to Buy Baker Hughes A Merging of Giants Matt Logan, GHPB

O

n November 17, 2014, Halliburton and Baker Hughes announced that the companies have agreed to terms for Halliburton to purchase Baker Hughes for a reported $34.6 billion. Halliburton and Baker Hughes are currently the second and third largest oilfield services providers in the U.S., respectively. The deal is seen as a way for Halliburton to take advantage of low oil prices in its buyout valuation. Crude oil prices tumbled over 20% between September and November, falling over 6% in the week ending November 14 and bottoming out at $74 per barrel.

for our shareholders.” After months of negotiations and breakdowns, the deal was reportedly finalized at a Sunday meeting between Lesar and Martin Craighead, Baker Hughes’ CEO, over a coffee and a Coke.

Major Hurdles

Baker Hughes shareholders will receive 1.12 shares of Halliburton plus $19 in cash for each share owned.

As of November 18, 2014, this would amount to approximately $74.60, which represents about an $8.50 premium over the current market price. Do not, however, go rushing out to invest your retirement fund in Baker Hughes stock just yet. Due to the scope of the acquisition, combining the second and third largest

While a deal between the two companies had been rumored for weeks, the final announcement came quickly. Talks regarding the acquisition originally fell apart late in the week prior to the announcement. Accusations Top U.S. Based Oilfield Service & Supply Companies flew from both sides, with Baker Hughes claiming that Halliburton and its CEO Dave Lesar refused to move from an unrealistically low valuation. Halliburton then hinted at the possibility of a hosSchlumberger tile takeover, where one company Halliburton buys a controlling portion of another’s shares, by releasing a list of proposed new board members for Others RPC Baker Hughes. Ultimately, cooler Baker Hughes heads prevailed and the two com- Oceaneering panies came back to the negotiat- International ing table, announcing a final deal Oil States on Monday, November 17.

International Following the announcement, FMC Technologies National Oilwell Mr. Lesar stated, “Each of us has Cameron Varco negotiated hard for the best deal 12 | December 2014

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Industry update companies in the same industry, federal regulators are sure to take a close and lengthy look at the deal to ensure it does not run afoul of applicable antitrust statutes.

Any time such substantial players in an industry merge, antitrust questions inevitably arise. In the case of Halliburton and Baker Hughes, analysts and experts are divided over whether Halliburton can secure approval for their buyout. Halliburton thinks it will, and was willing to put up a $3.5 billion termination fee to prove it. Halliburton would pay the termination fee to Baker Hughes in the event the buyout does not obtain regulatory approval, and was one of the main sticking points in the negotiations from the Baker Hughes side.

If approved, the aquisition would propel Halliburton past Schlumberger, the top oilfield service and supply company, but only slightly, based on 2014 revenue. Antitrust regulators will most likely focus on the companies’ hydraulic fracturing services and services

provided in the Gulf of Mexico. In both of these areas, Halliburton and Baker Hughes are already the dominant players.

Halliburton has stated that, if necessary, it is prepared to sell off businesses that account for roughly $7.5 billion in annual revenue. Anticipating this measure will be necessary for regulatory approval, Halliburton has already identified and reached out to potential buyers for these businesses.

Age-Old Rivals Become Partners

Halliburton was founded in 1919 by Earl P. Halliburton in Duncan, Oklahoma, when Mr. Halliburton built a wooden box and started an oil well cementing business. Today, Halliburton offers a broad array of products and services for oil and gas exploration, and employs more than 80,000 people in over 80 countries.

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Industry update for hydraulic fracturing, commonly referred to as fracking, in recent years.

Baker Hughes was formed in 1987. However, the two original companies which merged together to form Baker Hughes, Baker International and Hughes Tool Company, had been around since the beginning of the twentieth century. In the 1900s, both founders, Reuben C. Baker and Howard R. Hughes, introduced cutting edge products that revolutionized drilling technology.

Today, Baker Hughes remains an innovation leader in drilling technology and provides numerous other services to improve productivity for the oil and gas industry. The company employs more than 60,000 people in over 80 countries.

Both Halliburton and Baker Hughes are based in Houston, which is not surprising considering the amount of oil and gas that flows through the region.

This geographic similarity will make for an easier

transition. Preliminary estimates are that nearly $2 billion in annual costs can be saved by combining the two companies’ operations and research and development divisions.

Outlook

No matter the exact amount of costs savings or synergies, this buyout is a major shakeup for the oilfield services industry. There is no doubt that the 800-pound gorilla Schlumberger will have a response, but what will it be? How will future volatility in oil prices affect the industry and will we see more moves like this? How will the Senate’s defeat of the Keystone XL Pipeline on November 18 impact the industry? All things considered, we may be in store for a major fracking of the oil industry, which could have widespread impacts on the Houston region and economy. ò

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Greater Houston Port Bureau | 15

Year In review

YEAR IN REVIEW

Success for Our Members in 2014 The Greater Houston Port Bureau and its membership have had an outstanding year, going above and beyond the goals we set at the beginning of 2014 to improve the membership experience and to increase our research and advocacy support for the community. The future promises even more opportunities for the Port Bureau to continue supporting our members and industry partners. We look forward to working together for a great 2015.

Business Development, Outreach, & Advocacy

The Port Bureau staff vigilantly works for and with community partners to promote the value of the port industry. This mission broadened in 2014 to include meetings with delegations from London, Brazil, Spain, Ethiopia, and Kuwait to demonstrate the significance of the Houston Ship Channel and the industries it supports. Our staff hosted informative sessions with these groups to discuss topics ranging from shipping more oil and gas equipment through the port to security initiatives protecting the ship channel.

In early April, CAPT Diehl traveled to Washington, D.C.,with the Port of Houston Authority and key industry representatives to assist in the continued push for increased support for dredging and harbor maintenance.

The trip proved fruitful as Congress passed the Water Resources Reform and Development Act of 2014 (WRRDA) in May. Later in the year, the Port Bureau worked with industry partners to propel Congress to extend the Export-Import Bank of the United States. Advocacy for harbor maintenance and other regulatory issues fomented meetings with local and national political leaders as well as numerous community, industry, and educational events on behalf of port businesses. CAPT Diehl sits on the Texas Southern University Marine Transportation Security Board and the Houston International Seafarers Center Board, and is a committee member for the Promote Houston Ship Channel 2014 Centennial project.

The Port Bureau sponsored a round table discussion on oil and tanking this year, offering industry leaders a “groupthink” style opportunity to discuss the future of the industry and map out potential hurdles. More roundtables are planned for 2015. In addition, the Port Bureau staff participated in the Lone Star Harbor Safety Committee and its subcommittees, examining, and addressing important issues in our maritime community.

Analysis Reports & Projects

The Port Bureau welcomed Emily Mitchell to the analyst staff this year, joining Dave Cooley, Matt Logan, and Christine Schlenker. The team authored reports on a variety of industry topics. These reports were published in the monthly Port Bureau News magazine and are available in an online archive on the Port Bureau’s website.

Along with original analysis, the Port Bureau staff supported several groups applying for grants in 2014. We collaborated on a winning grant 16 | December 2014

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year in review through The Center for the Advancement of Science in Space (CASIS) to develop the Global AIS on Space Station (GLASS)project.

The Marine Exchange, a cornerstone of our decades-long commitment to tracking vessel movements in Texas, produced daily vessel movement reports, weekly estimated time of arrival reports, and monthly vessel statistical reports. The weekly reports are available to subscribers, while the monthly reports are distributed to all members free of charge. We also kept members apprised of channel conditions during the Texas City Y Incident through timely alerts and updates.

PHA and industry leaders met with U.S. Rep. Ted Poe in April 2014. Photo courtesy of PHA.

Professional Development & Education

The Port Bureau hosted two Certified Port Executive training programs in 2014. Attendees received instruction in the transportation system as well as the operation of ports, vessels, and marine terminals. By hosting eight educational Commerce Club luncheons and promoting the annual luncheons of the Greater Houston Coffee Association and the Houston Ship Channel Security District, the Port Bureau provided access to informative speakers from a cross-section of the maritime and transportation industries. The speaker line-up included

Key Reports in 2014 • 2014-2020 Vessel Forecast Analysis • Crude Oil Infrastructure • Dredging & Harbor Maintenance • Waterborne Trade Analysis • Jones Act Fleet Survey • U.S. Container Port Depths Survey • Classification Societies • Mexico Energy Reform • Shipping Alliances • Specialty Coffee • Condensates & Crude Exports • Ethane Investment • Kurdish Crude Oil Dispute • Houston & Foreign Trade Statistics • Export-Import Bank Reauthorization

• RADM Kevin Cook, Commander, USCG District 8; • Joe Bob Perkins, CEO, Targa Resources; • Capt. Mike Morris, Presiding Officer, Houston Pilots; • RADM James Watson, President, ABS Americas Division; • Wolfgang Freese, President, Region Americas, Hapag-Lloyd; • Rick Shannon, President, Atlantic RoRo Carriers; • Janiece Longoria, Chairman, Port of Houston Commission; • David Grzebinski, President & CEO, Kirby Corp.; • Philip Blaber, Commercial Director of Soluble Coffee, Ecom Agroindustrial Corp. Ltd.; and • RADM Paul F. Thomas, Assistant Commandant for Prevention Policy for the U.S. Coast Guard.

The Houston Ship Channel Centennial brought the Port into the spotlight. Photo courtesy of PHA. Greater Houston Port Bureau | 17

Year In review The Port Bureau helped plan and produce the 2014 Maritime & Logistics Youth Expo, offering high school maritime students and Sea Scouts hands-on port experience and exhibits at the Port of Houston Authority’s Bayport Cruise Terminal. In addition, CAPT Diehl and Matt Logan served on committees for the Petrochemical and Maritime Outlook Conference.

Events

Every event supported by the Port Bureau throughout the year offered numerous networking and business development opportunities. More than 600 senior executives registered for the 85th Annual Maritime Dinner in August, honoring Ned Holmes as the Maritime Person of the Year. This formal event was our largest ever, with honoree Ned Holmes receiving recognition from peers, public officials, and friends from the maritime and transportation industries. Commerce Club luncheons at Brady’s Landing broke attendance records once again in 2014, and the 6th Annual Captain’s Club at BraeBurn Country Club teed off in November with every available team slot sold out.

The Port Bureau was a promotional partner in the 2014 Port of Houston Centennial, participating in the Centennial Family Festival, the Houston Ship Channel: Deep Water Centennial documentary broadcast on PBS, and the 100-Year Rededication Ceremony.

The Greater Houston Coffee Association hosted cocktails and dinner aboard the M/V Sam Houston for an evening on the Houston Ship Channel in June.

The Houston Ship Channel Security District’s annual luncheon at the Houston Marriott South welcomed 200 guests and featured displays from USCG Sector Houston-Galveston and local law enforcement. The Houston Customhouse Brokers & Freight Forwarders Association hosted luncheon events and educational seminars, and kept members involved with industry issues throughout the year. The organization launched a new website in late 2014 to provide more information and referral services and better serve the market at www.hcbffa.org.

18 | December 2014

Looking Forward to 2015 The Port Bureau continues to look for new and innovative ways to drive business development for our members and to support the advocacy missions necessary for the health of the Port of Houston and surrounding port communities. Whether your company is a longtime Port Bureau member, or you are hearing about us for the first time, give us a call and make 2015 the year you get more involved in steering the port toward success. ò

Maritime professionals gathered for networking and knowledge at the Commerce Club luncheons.

Dinner Committee Chair and Board member April Bailey presented Ned Holmes with his honoree gift at the Annual Maritime Dinner.

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year in review

2014 Port Bureau Members ABS Americas ♦ ABS Consulting ♦ ACM Logistics and Consulting ♦ AET Inc. Limited ♦ AllTrans Port Services ♦ Alphamar-IMW ♦ Amegy Bank ♦ American Shipping & Chartering ♦ Antipollution USA LLC** ♦ Arcadis-US** ♦ Argosy Barge Lines ♦ Bank of Texas ♦ Bay Houston Towing ♦ BB&T Branch Banking & Trust ♦ Bertling Logistics ♦ Berard Transportation** ♦ Best Bet Marine Services ♦ Biehl & Company, L.P. ♦ Blades International ♦ Blank Rome LP ♦ Bludworth Marine LLC ♦ Blue Water Shipping Co.** ♦ Briggs & Veselka Co. ♦ Briggs Equipment** ♦ Brown & Gay Engineers, Inc. ♦ Buffalo Marine ♦ Caldwell Companies ♦ Callan Marine** ♦ Canal Cartage Company ♦ Capstone Associated Services** ♦ Cardinal Marine** ♦ Cargill ♦ Cargoways Logistics ♦ Cedar Crossing LP ♦ Central Healthcare Services ♦ Ceres Gulf Inc. ♦ Chalos & Co ♦ Channel Biorefinery Terminal ♦ Chaparral Stevedoring Co. ♦ Cheetah Chassis** ♦ Chem Coast ♦ Chipolbrok America Inc. ♦ Citibank ♦ Clark Freight ♦ CLM Towing LLC ♦ Coastal Cargo** ♦ Colliers International ♦ Consolidated Bonded Warehouses ♦ Cooper/T. Smith** ♦ DAMCO ♦ Dannenbaum Engineering ♦ Danner’s Incorporated ♦ D’Onofrio Management Works ♦ Dowley Security Systems Inc. ♦ East End Chamber of Commerce ♦ East Houston Regional Medical Center** ♦ Economic Alliance Houston Port Region ♦ Empire Truck Lines ♦ Enterprise Shipping** ♦ Enviro-Tech ♦ Envision Resources Ltd.Co. ♦ Equipment Depot ♦ Excargo Services Inc. ♦ Executive Shipping ♦ ExxonMobil Baytown ♦ Fire Protection ♦ Fr. Meyer’s Sohn Logistics ♦ Frank Mohn Hou. Inc. ♦ Frost Bank ♦ G&H Towing ♦ GAC Shipping ♦ GalTex Pilots ♦ Gardere Wynne Sewell ♦ Garner Environmental Services ♦ Galloway Johnson Tompkins Burr & Smith ♦ Global Diving & Salvage ♦ Greater Houston Partnership ♦ Gulf Marine Industrial & Supply ♦ Gulf Marine Supply ♦ Gulf Stream Marine, Inc. ♦ Gulf Winds International ♦ HANSA Heavy Lift Americas, Inc. ♦ Harley Marine Services ♦ Hazel Impex ♦ HDR Engineering Inc. ♦ Hellenic Marine ♦ Houston Business Insurance Agency ♦ Houston Fuel & Oil Terminal Co. ♦ Houston International Seafarers Center ♦ Houston Mooring Co. ♦ Houston Pilots ♦ Houston Ship Repair ♦ Houston Terminals LLC** ♦ HUB Int’l Insurance** ♦ IBC Bank ♦ ICIS ♦ IGSI ♦ Inbesa America, Inc. ♦ Inchcape ♦ Indigo Beam** ♦ Industrial Terminals ♦ Intercontinental Terminals ♦ Intergulf Coporation ♦ INTERTEK ♦ Iv INFRA USA ♦ J.A.M. Distributing ♦ Jacintoport ♦ Lloyd Engineering** ♦ John L. Wortham & Son ♦ JPMorgan Chase ♦ Kirby Inland Marine ♦ Kinder Morgan** ♦ KPI Bridge Oil New York ♦ LBC Houston ♦ LNG America** ♦ Lockwood Andrews & Newman** ♦ LyondellBasell** ♦ Maersk** ♦ Malin International ♦ Manchester Terminal ♦ Mare Liberum ♦ McCarthy Building Co. ♦ McDonnell Group** ♦ Mediterranean Shipping ♦ MidSouth Bank** ♦ Milestone Chemical Tankers ♦ Mills Shirley ♦ Moran Gulf Shipping ♦ Morris Export Services ♦ Mosaic** ♦ New Century Financial ♦ Nordic Tankers (TX) Inc. ♦ Norton Lilly International ♦ Ocean Shipholdings, Inc. ♦ Odfjell ♦ Oiltanking Houston, Inc. ♦ Palletized Trucking** ♦ Peninsula Petroleum** ♦ Port Freeport ♦ Port Isabel/San Benito ♦ Port Mansfield (Willacy) ♦ Port of Brownsville ♦ Port of Galveston ♦ Port of Harlingen ♦ Port of Houston Authority ♦ Port of Texas City ♦ Port of Umatilla ♦ Port Terminal Railroad Association ♦ Ports America Texas, Inc. ♦ Raba Kistner Consultants Inc.** ♦ R.W. Smith & Co. ♦ Richardson Companies ♦ Rickmers-Linie ♦ Royston Rayzor ♦ SAVAGE ♦ Schröder Marine Services ♦ Shamrock Marine ♦ Shell U.S. Trading ♦ Shrader Engineering ♦ South Atlantic & Gulf Coast District ILA ♦ Southern Export Services ♦ Southport Agencies ♦ Spliethoff Americas, Inc.** ♦ Stepp & Sullivan, P.C.** ♦ Suderman & Young Towing ♦ T. Parker Host ♦ T&T Marine Salvage, Inc.** ♦ Targa Resources ♦ TASC ♦ Texas Dept. of Transportation ♦ Texas Mooring ♦ Texas Terminals, LP ♦ The Action Group Companies ♦ The Dow Chemical Co ♦ Transaction Packing ♦ Transmarine Navigation Corp. ♦ Triton Overseas** ♦ Trustmark National Bank ♦ U.S. Cutoms & Border Protection ♦ UTC Overseas, Inc. ♦ Vopak (Deer Park) ♦ Watco Companies Greens Port Industrial Park ♦ Weeks Marine** ♦ Wells Fargo Bank ♦ West Gulf Maritime Association ♦ Westway Terminal ♦ Westwind Helicopters ♦ Whitney National Bank ♦ Wilhelmsen Ship Service ♦ Wm Morris Enterprises ♦ World Chandlering Intl. ♦ WRIST/World Ship **New members welcomed in 2014.

Greater Houston Port Bureau | 19

truck standards

Fuel Efficiency and Emissions Standards for Heavy Duty Trucks Dave Cooley, GHPB

Executive Summary In order to reduce greenhouse gas emissions and improve overall fuel efficiency, on August 9, 2011, the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) jointly issued a rule establishing the firstever standards for both greenhouse gas emissions and fuel economy for heavy duty trucks. Various factors influence heavy duty truck fuel efficiency, including vehicle aerodynamics, engine efficiency, tires, payload, and miles driven. If all heavy duty long-haul trucks operating in the Port of Houston region meet these guidelines, the region would save about $95 million in annual fuel costs and about $5.5 million in annual greenhouse gas social costs.

Emissions and Fuel Economy Standards

In response to a 2010 directive from President Barack Obama, the EPA and the NHTSA issued the first-ever joint standards for greenhouse gas emissions and fuel economy for heavy duty trucks.

The EPA’s stated goal in issuing the ruling is that “combination tractors – commonly known as big rigs or semi-trucks – will be required to achieve up to approximately 20 percent reduction in fuel consumption and greenhouse gas emissions by model year 2018, saving up to 4 gallons of fuel for every 100 miles traveled.”

This study will focus on trucks classified as Class 7 and Class 8, the tractors that pull flatbeds, tankers, or big-box trailers. These trucks frequent the port and 20 | December 2014

Figure 1: Class 7 & 8 Tractors related port facilities, moving goods to and from the ships supporting the foreign waterborne trade of the United States.

Truck Classification System

Trucks are classed according to a combination of two ratings, the Gross Vehicle Weight Rating (GVWR) and the Gross Combined Weight Rating (GCWR). The Gross Vehicle Weight Rating is the maximum operating weight of a vehicle as specified by the manufacturer, which includes the vehicle’s chassis, body, engine, engine fluids, fuel, accessories, driver, passengers, and cargo, but excluding the weight of any trailers. Once a tractor is attached to a trailer, the Gross Combined Weight Rating refers to the total weight of the entire vehicle, including the weights of the tractor, trailer, cargo, and any fluids and accessories. Heavy duty trucks are defined as on-highway vehicles with a GVWR greater than 8,500 pounds This includes truck Classes 2b through Class 8, or everything from a heavy

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truck standards duty pick-up truck or a utility van weighing between 8,500 and 10,000 pounds, to dump trucks, cement mixers, and tractor-trailers with or without sleeping accommodations, with the largest weighing over 33,001 pounds.

A Class 7 truck is a vehicle with a GVWR of 26,000 to 33,000 pounds and a typical GCWR of 65,000 pounds, while a Class 8 truck is a vehicle with a GVWR greater than 33,000 pounds and a maximum GCWR of 80,000 pounds, which is the maximum legal permissible highway weight on the Interstate Highway System. In the U.S., there are over 2.4 million Class 7 and 8 trucks on the road traveling over 160,000 billion

miles and consuming about 28 billion gallons of fuel per year. Typical examples of these truck tractor types are illustrated in Figure 1.

Greenhouse Gas Emissions and Fuel Consumption

In 2012, greenhouse gas emissions by the transportation sector totaled 2 billion metric tons of CO2 equivalent, equaling roughly 28% of total U.S. emissions. Class 7 and 8 combination trucks emitted over 281 million metric tons of CO2, or 16% of the total emissions of greenhouse gases for the transportation sector. This equates to 4% of total U.S. emissions. The breakdown of 2012 emissions is shown by Figure 2.

Figure 2: 2012 U.S. Emissions of Greenhouse Gases (Millions Metric Tons of CO2 Equivalent) Commercial 5%

Agriculture 9%

Residential 5% U.S. Territories 1%

All Other Transportation 24%

Industry 20%

Transportation 28%

Electricity Generation 32%

Truck Classes 7-8 4%

The 2012 on-highway fuel consumption of 11 million barrels daily is 68% of the total quantity of U.S. refined product demand, which totals just over 16 million barrels per day. Within the transportation sector, heavy duty trucks (Classes 3 through 8) consume over 2.7 million barrels per day of fuel, with Class 7 and 8 combination trucks representing 81% of the total fuel consumption of all heavy duty trucks. Historical data are shown in Figure 3.

While greenhouse gas emissions have declined and fuel efficiency has improved in

Source: EPA, DOE Transportation Data Book #33

Figure 3: U.S. On-Highway Fuel Consumption Transportation Sector (' 000 Barrels Daily) 14,000 12,000 10,000

Class 7-8 Trucks Class 3-6 Trucks Cars and Light Trucks

8,000 6,000 4,000 2,000

Port of Houston Authority

0

Houston: America’s Distribution Center

Source: DOE Transportation Data Book #33

www.portof houston.com/map

Greater Houston Port Bureau | 21

truck standards recent years, most of this progress has been associated with automobiles and light duty vehicles. The lack of emissions and fuel economy improvement in heavy duty vehicles led to President Obama’s 2010 directive to the EPA and NHTSA to establish joint standards. The White House states that adoption of these new EPA/ NHTSA standards will not only benefit public health through reduced greenhouse gas emissions, but will also help American consumers enjoy real savings as the cost

of transporting consumer goods declines with better fuel efficiency.

The Standards

The standards promulgated by the EPA and NHTSA are applicable to Class 7 and 8 trucks for the 2017 model year, and will be phased in between 2014 and 2017. Table 1 sets out these new greenhouse gas emissions and fuel efficiency standards.

Table 1: Final Model Year 2017 Combination Tractor Standards EPA Emissions Standards (g CO2/ton-mile)

NHTSA Fuel Consumption Standards (gal/1,000 ton-mile)

Low Roof

Mid Roof

High Roof

Low Roof

Mid Roof

High Roof

Day Cab Class 7

104

115

120

10.2

11.3

11.8

Day Cab Class 8

80

86

89

7.8

8.4

8.7

Sleeper Cab Class 8

66

73

72

6.5

7.2

7.1

Tractor Type

22 | December 2014

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truck standards The key variables that influence these standards are the fuel efficiency of the engine, the aerodynamics of the unit, and how the unit is operated. As the engine becomes more efficient, both thermally and operationally, and the unit becomes more streamlined, greenhouse gas emissions and diesel fuel consumption are reduced.

The Results This study compares the established standard for model year 2017 with the calculated standard for the 2010 model year for both greenhouse gas emissions and fuel consumption. To bridge data between the historical year 2010 and the future year 2017, it is assumed that annual vehicle miles driven and annual new truck sales for both Class 7 and Class 8 trucks will follow

Table 2: Difference in Standards, 2010-2017, High Roof Tractors Only Emission Standards (g CO2/tonmile) Difference from 2010

Tractor Type

Fuel Efficiency Standards (gal/1,000 ton-mile) Difference from 2010

Day Cab Class 7

18

1.8

Day Cab Class 8

14

1.4

Sleeper Cab Class 8

22

2.2

BARGING AHEAD ever so politely.

B

Buffalo Marine Service, Inc.

www.BuffaloMarine.com

Greater Houston Port Bureau | 23

truck standards historical patterns and that the current values for the social cost of carbon ($22 per metric ton CO2) and the price of diesel fuel ($3.75 per gallon) reflect the best estimate of both historical and future values. Data are computed and displayed in Table 2 for the “High Roof ” category only.

Achieving the standards leads to a 13% reduction in greenhouse gas emissions for Class 7 High Roof Day Cab trucks, a 15% reduction for Class 8 High Roof Day Cabs, and a 23% reduction for Class 8 High Roof Sleeper Cabs. Based on projected new truck sales of 230,000 units in 2017 with a median longevity of 23 years, these new Class 7 and Class 8 trucks will reduce the social cost of carbon by about $30 million, $90 million, and $140 million for Class 7 Day Cab, Class 8 Day Cab, and Class 8 Sleeper trucks, respectively.

Achieving the fuel efficiency requirements would reduce fuel consumption by 13% and 14% for Class 7 and Class 8 Day Cab trucks, respectively, and 23% for

Class 8 Sleeper Cab trucks. Based on the aforementioned 2017 new truck sales projections, the annual fuel cost reduction adds up to $500 million for Class 7 Day Cab trucks, and $1.5 billion and $2.4 billion for Class 8 Day Cab and Sleeper trucks, respectively.

Influencing Factors

Many factors influence truck fuel efficiency and emissions. In addition to payload, factors such as engine fuel efficiency, aerodynamics of the tractor-trailer combination, and tire type all have a major impact on the emissions and fuel efficiency of the unit. The primary resistance forces, along with specific aerodynamic drags, are displayed by Figure 4.

Aerodynamics

Aerodynamic losses occur when the airflow moving over a vehicle is disrupted. Interest in the aerodynamic efficiency of Class 7 and Class 8 trucks has increased in recent years as the effect of greenhouse gas emissions has become more prominent and fuel costs have soared.

Figure 4: Tractor-Trailer Power & Resistance Forces and Aerodynamic Drag Resistance • Aerodynamic • Rolling • Driveline Losses • Auxiliary Loads

Power • Engine Power Trailer Leading Edge Drag

Trailer Base Drag

Underbody Drag 24 | December 2014

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Gap Drag

truck standards The benefits of various aerodynamic innovations are best captured when one considers the entire vehicle, both tractor and trailer, as a single unit. That is, any added weight must be accompanied by improved aerodynamics to increase overall fuel efficiency and decrease related greenhouse gas emissions.

When considering a standard tractor-trailer combination like the one shown in Figure 4, the four most common aerodynamic drag problems are • the area behind the back of the trailer (the “trailer base”), • the area in front of the trailer that is not sheltered by the roof fairing (the “trailer leading edge”), • the area beneath the trailer (the “underbody”), and • the area between the tractor and the trailer (the “gap”).

year, the annual savings is about $1,600, which pays back the initial investment of under $1,100 in less than one year. Gap reducers, which cost approximately the same as underbody skirts, provide a slightly lower fuel

THE HOUSTON PILOTS Silent Servants of Progress

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For example, items such as bug deflectors, custom sunshades, air cleaners, and B-pillar exhaust stacks, as well as additional horns, lights, and mirrors, all create aerodynamic drag that increases both fuel consumption and greenhouse gas emissions. Eliminating, redesigning, or creating alternative placement of these items is a low-cost solution towards improving mileage and reducing emissions.

In addition, simple aftermarket modifications are available to mitigate aerodynamic drag by reducing cross-wind yaw or turbulence behind the trailer. Some examples of these modifications include skirting on the trailer underbody, adjustable cab-rooftop flaring to match the tractor height to the trailer height, retractable gap-sealing mechanisms, and rear-drag reduction devices. While some of these solutions have been around for many years and their benefits are widely acknowledged, more recent advancements are slowly gaining acceptance.

The underbody side skirt is widely accepted because of its demonstrated fuel savings of between 3% and 5%. Based on the current diesel fuel price of $3.75 per gallon, this translates to 11 and 18 cents per gallon, or about 2 to 3 cents per mile based on an average of 6 MPG. For the average Class 7 or Class 8 truck traveling 65,000 miles a

Greater Houston Port Bureau | 25

truck standards savings of between 1% and 2%. The slightly longer payback period of one to three years is a likely cause for their slower adoption rate.

Tires Energy loss due to the rolling resistance in tires occurs both in the sidewall and the tread. Advances in tire manufacturing, including new elastomers, arrangement of belts, and basic tread design, have led to a decline in lost energy and an improvement in fuel efficiency. Maximum benefit is obtained when these low rolling resistance tires are installed on both steer and drive wheels. Low rolling resistance tires can be used on trailers as well. For example, a wide-base single tire can replace the more commonly utilized dualtire set and carry a similar payload. The wide-base tire improves rolling efficiency not only by reducing the overall weight of the trailer, but also by reducing drag, since there are only two sidewalls to flex as opposed to four sidewalls associated with the dual-tire set.

Closely associated with tire type is tire pressure.

Tires that are improperly inflated, in addition to increasing fuel consumption, can run “hot� and result in damage to the casings and sidewalls, possibly leading to accidents from poor handling, hydroplaning, or tire blow-outs. Tire pressure monitoring systems include sensors that measure tire air pressure and

26 | December 2014

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truck standards provide real-time feedback to the driver so corrective action can be taken.

by the engine, 56% is lost in thermal efficiency, 8% in idling and auxiliary power uses, 1% each by the transmission and driveline, 21% overcoming the resistance of aerodynamic drag, and 13% overcoming the rolling resistance of the tires.

Low rolling resistance tires and wide-base single tires have been well accepted in the industry. Fuel savings from installing these new tire types range from 1% to 3% for low rolling resistance tires and 2% to 4% for wide-base single tires. However, as these new tire types require more frequent replacement than older types, and managing inflation pressure in real-time is more challenging, the actual payback period is difficult to determine.

Achieving the stipulated goals for greenhouse gas emissions and fuel efficiency will require modifications throughout the entire tractor-trailer system. Improvements in aerodynamics and rolling resistance offer the best opportunities for reaching these goals because every unit of energy produced by the engine that is saved overcoming these forces reduces the tractive load (the energy required to move the tractor) by 3 units of energy. This is achieved by not only reducing torque, which reduces fuel consumption, but also by decreasing the required engine size and reducing the overall tractor weight.

Engine

Class 7 trucks generally utilize diesel engines rated at 11 liters with 350 horsepower, while Class 8 trucks use engines rated at 15 liters with 450 horsepower.

These engines generate the required force to not only overcome negative resistance factors that work to prevent motion, but also to achieve sufficient surplus force to economically and safely haul a payload across various terrain and road surfaces. Of the power generated

Additionally, it is possible to improve engine technology in several ways. As the forces of resistance are reduced, so is the power required for the same forward

Opportunity.

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11/18/14 1:44 PM

truck standards motion. Furthermore, lower power requirements lead to smaller engine sizes, thus reducing weight and, by extension, resistance. Some of the modifications that improve engine performance include • • • •

reducing internal engine friction, improving the handling of intake air, refining fuel injection strategies, improving turbocharger efficiency and energy recovery, and • improving thermal management/heat transfer within the engine.

As these and other technological changes are implemented, fuel efficiency will improve and greenhouse gas emissions will be reduced. For example, Cummins Diesel indicates that diesel engines manufactured for 2013 will achieve 2% to 4% better fuel economy than the previous model. This translates to a savings of 8 to 15 cents per gallon, or about 1.3 to 2.5 cents per mile. Based on annual truck travel of 65,000 miles, the

28 | December 2014

projected savings would approximate $1,300 per vehicle. Assuming this annual fuel economy savings can be replicated for half of the years between the initial announcement in 2010 and when trucks must achieve the standard in 2017, the ultimate annual savings could approach $4,000 per truck.

The Future

Looking forward to the truck designs of the future, tractor-trailers like the Walmart Advanced Vehicle Experience prototype displayed in Figure 5 incorporate many aspects of efficiency improvements. While these designs are focused on the needs of long-haul transportation, similar aerodynamic modifications are adaptable for local or yard service. As these futuristic designs unfold, short-haul tractor-trailers will evolve as well.

Port of Houston

The number of Class 7 and Class 8 trucks calling each day at the facilities located throughout the Port of

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Figure 5: The Walmart Advanced Vehicle Experience prototype was showcased at the Mid-American Trucking Show in March 2014. Photo courtesy of Walmart Stores, Inc. Houston and related port facilities is somewhat subjective. As a reference point, the number of trucks calling at the various Port of Houston Authority-operated terminals is estimated at about 8,000 truck calls per day.

Using this value as a baseline, and incorporating data from the TxDOT Truck Study of 2012, the Port of Houston (private and public) terminals and related port facilities receive an estimated 14,000 truck calls per day.

The results and benefits previously cited for nationwide activity of Class 7 and Class 8 trucks do not necessarily translate to truck activity at the local level.

Local delivery operations have inherent inefficiencies that limit the ability to achieve full engine efficiency, such as higher density traffic flow limiting speed and increasing idle time, as well as shorter round-trip travel between origin and destination. However, the benefits of long-haul offer instructive insights into the shorthaul application of aerodynamic and efficient rolling designs and engine improvements.

Improved aerodynamics, low rolling resistance and wide-base tires, and increased engine efficiency result in cumulative fuel savings of between 6% and 8%. Based

on average fuel savings of 7% and average short-haul fuel economy of 3.8 MPG for Class 7 or Class 8 trucks, the fuel savings would average about 0.25 MPG.

For the estimated 14,000 truck calls a day in the Port of Houston region, and considering an average trip of 36 miles per truck call, the total fuel savings add up to over 25 million gallons, or about $95 million. Reducing diesel fuel consumption by 25 million gallons would eliminate the emission of over 250,000 metric tons of carbon dioxide. Adopting these standards for Class 7 and Class 8 trucks serving the Port of Houston region would represent a reduction in total CO2 emissions for Harris County of 0.5%, based on 2013 CO2 emissions of over 48 million metric tons.

Commentary

The parameters established by the EPA and NHTSA for fuel efficiency and greenhouse gas emissions are standards and do not reflect actual performance. However, similar to the Corporate Average Fuel Economy (CAFE) standards for automobiles, as truck fleets are replaced with newer equipment and Greater Houston Port Bureau | 29

truck standards technology continues to advance, actual fuel efficiency improves and greenhouse gas emissions fall.

Furthermore, the key variable established for each standard is the loaded-ton-mile. If a truck experiences a 100% load-factor, then the tractor-trailer combination for the 2017 model year would theoretically achieve the results established in the standard. For a tractor-trailer combination with less than a 100% load-factor, the actual emissions and fuel economy should exceed the standards, as the light gross combined weight will lead to lower fuel consumption and, therefore, lower emissions than a fully-loaded tractor-trailer.

President Obama has directed the EPA and NHTSA to issue the next phase of joint fuel efficiency and greenhouse gas emissions standards for medium and heavy duty trucks. The published timeline suggests a Notice of Proposed Rulemaking will be issued

by March 2015 and the rule will be finalized by March 2016.

Conclusion

The standards promulgated by the EPA and the NHTSA will encourage the efficient design of tractortrailer combinations that will consume less fossil fuels and, therefore, reduce greenhouse gas emissions into the environment. The capital invested in measures such as installing aftermarket items, utilizing low rolling resistance and wide-base tires, and upgrading or retrofitting engines will generally pay off after 2 to 4 years thanks to increased fuel savings and efficiency. Local hauls, such as drayage and local deliveries, can also realize a portion of these benefits and have a beneficial effect on the local environment here in Houston. ò

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Advertising Directory Bank of Texas..................................31............... www.bankoftexas.com Blades International............................ 14....................... www.bladesintl.com Blank Rome LLP................................... 9........ www.blankromemaritime.com Briggs Equipment................................ 15........... www.briggsequipment.com Buffalo Marine Service........................ 23................ www.buffalomarine.com Cargoways...................................... 7........ www.cargowayslogistics.net Clark Freight........................................ 6..................... www.clarkfreight.com Gulf Winds International...................... 26................................www.gwii.com HDR Engineering Inc........................... 22............................ www.hdrinc.com Houston Pilots..................................... 25............... www.houston-pilots.com McCarthy Building Companies, Inc.......11........................www.mccarthy.com Odfjell Holdings (US) Inc...................... 8..............................www.odfjell.com Port of Galveston.............................13.......... www.portofgalveston.com Port of Houston Authority................... 21.............................. www.poha.com Richardson Companies........................ 28.....www.richardsoncompanies.com Shrader Engineering........................... 10............................ www.shrader.net Trustmark National Bank..................... 30.......................www.trustmark.com Vopak.................................................. 25.............................www.vopak.com Whitney National Bank........................27.......................... www.whitney.com Wortham Insurance............................. 25......... www.worthaminsurance.com

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