January 2014 Port Bureau News

Port Bureau News Greater Houston Port Bureau

JANUARY 2014

Spotlight On Captain Mike Morris, Presiding Officer Houston Pilots

Dredging The Good, the Bad, and the Insufficient

NA Port Analysis Houston is the GDP “Gulf ’s Darn Profitable” Port

Dredging Analysis Is Houston’s vessel traffic hampered by the lack of dredging?

M E M B E R D R I V E N - M A R I T I M E B A S E D - VA L U E A D D E D

© LOUIS VEST

CAPTAIN’S CORNER Get Involved, Get Informed, Get Better in 2014

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appy New Year! If I did not get a chance to visit with you over the holidays and wish your family a Merry Christmas and Happy New Year, then please accept my belated warm wishes. The Diehl family is doing well, and, as you can see, the children are growing into adults much too fast for my liking. Rachel is a junior at Texas A&M studying Kinesiology, Daniel is a sophomore at the University of Houston studying Mechanical Engineering, and Michael is a junior in high school.

informed, and get better at doing business within the port through participation in the Port Bureau. 2014 will be a milestone year as we commemorate 100 years of business on the ship channel, explore the potential of increased exports, and count down to the opening of the Panama Canal expansion.

Get Involved

Involvement in the 100th Anniversary should be on everyone’s to-do list. The Port of Houston is the nation’s largest port, and we have the capacity to grow. Yet it’s very valuable role in local commerce and history frequently goes unnoticed by the public. Rarely, is there much mention of its contributions in local media. StuAs full disclosure, when we took this photo, I told dents study Texas history in the 4th and 8th grades in our the kids I wanted to use it in the Port Bureau magazine. schools. If the ship channel is chosen as a report topic, They did not approve and voiced concerns about being students often have trouble finding data to complete their used as pawns in the dredging money wars. I was pleased assignments. that they actually knew what I did and replied, “Put your We have the perfect platform to change that with the armor on.”

100th Anniversary. By the end of 2014, everyone should Actually, what I want to discuss is the Port Bureau be talking about Houston’s most valuable industry. It is Family. Whether you are a member or thinking of bean unparalleled opportunity for gaining public support coming one, this will be a great year to get involved, get for the needs of our industry. Involvement can make the 2 | January 2014 www.txgulf.org

make the difference between good and spectacular results.

Get Better

Your membership offers you a plethora of opportunities for networking and business building and using information to improve your efficiency. It keeps you in the mix of a diverse group of industry leaders committed to making a difference in growing the vitality of our maritime industry. When you strengthen your involvement with the Port Bureau, you strengthen your business and help build Houston’s role in the global community.

Mark Twain wrote that the secret of getting ahead was “getting started.” Most of us have learned that lesson; however, I’d like to ask if you’re “getting started” on your Port Bureau membership plans for 2014? If you haven’t visited with us in a while – please stop by. We have a talented staff ready to assist the success of our industry by assisting you.

From left: Bill, Annette, Michael, Rachel and Daniel Diehl. difference between a great celebration and a spectacular one.

Get Informed

Our staff took a look at industry-related events planned for Houston in 2014. There were about three per month related to LNG. It’s a topic that is on everyone’s radar. How will its growth affect yours? Will Houston continue to be the export leader in this exploding market? It will be if we stay informed and stay involved. Our goal is to keep our members informed about the most pertinent topics and trends that keep our industry strong.

Shale market analysis is a priority item on the Port Bureau’s roster in 2014.

The Port Bureau News is “getting started” in 2014 with an editorial focus on dredging and harbor maintenance. You may be thinking “same song, 100th verse”, and you would have a point. But we won’t quit talking about it until we “get ahead” on solutions to this difficult issue. Again, the involvement of our members is crucial to success.

Will the supercontainer ships glide up the ship channel and dock here? Will Houston realize the full potential that is within its grasp? Once more, involvement will

Get involved. Get informed. Get better in 2014—the Port Bureau Family will help you. ò

Greater Houston Port Bureau News 111 East Loop North Houston, TX 77029 (713) 678-4300 (o) | (713) 678-4839 (f ) www.txgulf.org The Greater Houston Port Bureau News magazine is a monthly publication of the Greater Houston Port Bureau. The Greater Houston Port Bureau is a member-driven non-profit 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 6,500 professionals in the Houston maritime community via U.S. mail and email. Advertising is available for members.

CAPT Bill Diehl, USCG (Ret.), President Jeannie Angeli, Vice President Cristina Gomez, Administrative Assistant Janette Molina, Marine Exchange Christine Schlenker, Research Analyst Dave Cooley, Analyst Matt Logan, Policy & Advocacy Analyst Judith Schultz, Copy Editor Al Cusick, HSCSD Administrator Patrick Seeba, HSCSD Program Manager Printed by: DiPuma Printing & Promotional Products FRONT COVER: Dredging activity on the Houston Ship Channel; photo

by Roy Luck, Cypress, TX. BACK COVER: Bow Wave; photo by Capt. Louis Vest

Greater Houston Port Bureau | 3

© LOUIS VEST

PORT WATCH Tom Marian, Buffalo Marine Service

Things are Still Looking Up in this Corner of the Country

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s the year draws to a close, optimism abounds in the realm of maritime trade throughout Texas.

Overall, there were no record-shattering gains, but for the most part the comings and goings of vessels large and small were beyond that of the previous year. Thus, despite an expected softening in the vessel arrival numbers for November, the overall year-to-date “yield” for the state remains up by 4%. Unfortunately, blue water movements for the year were not robust enough to “float” the Houston Ship Channel brownwater movements, which fell another 8% for the month and remain almost 7% off last year’s pace. This particular data point is a bit perplexing, given the amount of shale gas crude and associated chemical byproducts being transported in barges throughout the inland and intercoastal waterways.

Yet, given that this arrival measurement only focuses on tows bound for or navigating across the Houston Ship Channel, it does not take into consideration the vast number of tows transiting from Sabine to the western rivers.

After a rather blistering October, only two ports – Freeport and Texas City – managed consecutive monthly vessel arrival gains by 19% and 4% respectively. In fact,

Texas Ports Deepdraft Vessel Arrivals Nov. 2013 YTD Percent Change

Freeport enjoyed its strongest month of the year by a very wide margin which no doubt added to its 5.4% year-to-date gain. Texas City, on the other hand, remains below 2012’s vessel pace by 6.5% in no small part due to the decrease in foreign oil bound for its terminals.

The port of Sabine maintained its lead in the greatestimprovement category vis-à-vis vessel cumulative vessel arrival for the year despite a monthly downtick of nearly 4%. Its stellar year was propelled by the mounting chemical exports being driven by cheap domestic crude flowing into its refinery infrastructure. At the opposite end of the Texas coastline, Brownsville’s monthly arrivals tumbled by more than a third as the port registered its second lowest total for the year. Nevertheless, this outpost port remains 17% above 2012’s volumes – another beneficiary of the Eagle Ford shale basin.

4 | January 2014 www.txgulf.org

Port of Houston Deepdraft Vessel Arrivals

Nov. 2013 YTD vs. Nov. 2012 YTD

Deepdraft Vessel Arrivals

The port of Corpus Christi has also benefited greatly from the flow of shale gas crude as vessels calling upon the port have increased over 2000 13% for the year. Yet, after a white hot October, traffic was bound to slacken – 7% 1500 to be more precise. The port of Galveston experienced similar results coming off of a near-record October when its arrival 1000 numbers tapered off by roughly 5%.

Regardless of this minimal slide, Galveston 500 has seen nearly 4% more deepdraft vessels than the previous year.

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What of Houston? It remains the only major port to remain in negative territory for both the year and the month. Mind you, the monthly wane was projected due to October’s strong performance and, to a certain extent, the redistribution of 2013 Nov. YTD (Total = 7,611) 2012 Nov. YTD (Total = 7,711) vessel movements attributable to nearly 150 fewer tank vessels calling upon the Conversely, at this end of the trade pipeline, things were port has skewed the overall arrival picture for the Port quite positive. Perhaps to such an extent that the bulk of of Houston. Consequently, in terms of raw numbers, a the respondents that had a favorable rating for 2013 were 4% monthly vessel arrival decline, which contributed denizens of the Gulf Coast! Irrespective of the polls, it to an aggregate decrease of 1.3% compared to 2012, is safe to say that 2014 will capitalize on 2013’s gains, is somewhat insignificant in the broader trade picture. and the exports of the petrochemical complexes that are To that end, it would stand to reason that most vessel situated in Texas and Louisiana will continue to produce categories experienced a monthly lull. As evidenced by sustained regional growth. All the best in 2014! ò across-the-board decreases in bulk vessels (-17.5%); container ships (-6%); general cargo carriers (-10%); LPG carriers (-4%); oceangoing tows (-18%); car carriers (-9%); and chemical tankers (-28%), there were no genuine surprises. That is, until one notes that tank vessels were at a high for the year with a 19% monthly influx. Furthermore, juxtaposing this increase against the dramatic monthly decrease of chemical tankers creates the impression that chemicals are lagging on the export front and crude exports are on the rise. Perhaps the former is temporarily true, but the latter is more likely tied to the continued export of distillates to South American markets.

How will all of this settle out as 2013’s ledgers give way to 2014’s empty slate? Most observers of the nationwide economic picture opine that given the lackluster picture of 2013, 2014 can only mean better tidings on the trade front. After all, several polls indicate that a sizeable majority of the population viewed 2013 in a somewhat negative fashion.

Port of Houston Authority

Houston: America’s Distribution Center www.portof houston.com/map

Greater Houston Port Bureau | 5

Port of Houston Recognized as “Gulf’s Darn Profitable” Port Judith Schultz, GHPB

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olliers International declared the Port of Houston “poised to lead” and cheekily recognized the Port with the GDP – “Gulf ’s Darn Profitable” – Award in the December 2013 North American Ports Analysis, a white paper examining U.S. and Canadian ports. The ports of Baltimore, Virginia, Cleveland, Charleston, Houston and Tacoma were cited as ports emerging “with winning strategies in the second half of 2013”.

The report rated Houston with optimal economic health, including it in its top ten port economies, and was effusive in its commendation: “And what can be said about the Port of Houston that we haven’t already said? Not only is it Colliers’ view that it’s the “Most Irreplace­able Port” in North America,

it’s proven to be quite profitable. In July, the Port of Houston generated $21 million in operating revenue, a 7 percent increase over the same period in 2012. So far in 2013, oper­ating revenue is up 4 percent, year over year.

Net income in July rose by 47 percent, year over year, to $4 million. In this year-end report, we honor the port of Houston with the “GDP (Gulf ’s Darn Profitable)” award. This latest recognition should not be taken lightly when one notes the unfolding events at the port of Long Beach: It takes more than great physical facilities and deep water to be a great port; it takes a great port director and board of directors. Houston has both.”

Colliers reported that Baltimore, Mobile, Prince

6 | January 2014 www.txgulf.org

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Rupert (Canadian Pacific coast), and Tacoma are postPanamax (PPMX) ready with the completion of dredging projects and/or new gentry crane upgrades. In North America, eight ports can accommodate the largest fully laden container vessels that will make passage through the Panama Canal in 2015. Five are West Coast ports, two are in the Gulf and East Coast, and one is Canadian. New York, Charleston and Miami are projected to be PPMX-ready in two to five years. At present, Mobile claims the honor of the deepest port on the Gulf at 60 feet.

So where does this leave Houston?

Colliers’ ranked Houston fourth in North American port capital expenditures in 2013. The Port of Houston Authority expended $220 million in 2013 for port improvements. This figure will rise to $300 million in 2014, with a planned capital expenditure purchase of $60 million for Super-PPMX gantry cranes. The Port’s master plan calls for $3 billion in capital expenditures through 2025.

an advantage in the coming dual-fuel container ship solution to in-port air-quality environmental regulations.

Colliers projected that ports with infrastructure already in place will attract the new dual-fuel vessels launching in just over a year.

The Port of Houston propels $178 billion in economic impact, continues to invest to fuel this economic engine, and is the nation’s leader in exports. The only fly in this optimistic ointment is the continuing Congressional delay in reforming Harbor Maintenance Trust Fund appropriations. The intake/outtake imbalance of HMTF disbursements poses a significant threat to future economic opportunities. From house-to-pier, policy improvement is pretty darn indispensable to the country’s most irreplaceable port.

Colliers Houston has been a Port Bureau member since 2008. To read Colliers’ 2013 North American Port Analysis report in its entirety, visit www.colliers.com and click on Market Insights, or email editor@txgulf.org. ò

The report also cited Houston as positioned to have

BARGING AHEAD ever so politely.

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The Dredging Issue

The Good, the Bad, and the Insufficient Matt Logan, GHPB Analyst

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.S. ports are the arteries that pump commerce throughout the United States. The American Association of Port Authorities calculates that 99% of foreign trade tonnage that moves in and out the U.S. transits through our ports. Every day $4 million worth of goods arrive and depart U.S. ports. This amount of foreign trade activity accounts for nearly one-third of the U.S. gross domestic product (GDP). U.S. ports don’t only benefit the local areas in which they are situated but also serve the commerce of every state in the nation.

Every day 13 million Americans wake up and go to jobs that are supported by U.S. port activity. Many Americans, however, are not aware of the significant role U.S. ports play in the economy. Even fewer are aware of how these beacons of economic activity are maintained and if that level of maintenance is appropriate to ensure long-term sustainability.

Ports More Than Hold Up Their End of the Bargain for the U.S. Economy U.S. ports require constant maintenance to ensure they are functioning efficiently and to the maximum possible capacity. The build-up of silt at the bottom of port channels is a major issue as it places restrictions on the depths at which ships can pass through and dock. Currently, the U.S. Army Corps of Engineers estimates that nearly one out of every three vessels transiting U.S. ports $1,800

is unable to carry full loads due to silt build-up.

In 1986, the U.S. Congress created the Harbor Maintenance Tax (HMT). This ad-valorem 0.125 % tax of all imports (taxation of exports is illegal) was designed to generate funds to properly maintain U.S. ports. The funds were to be placed in the Harbor Maintenance Trust Fund, and then allocated out to U.S. ports for dredging and maintenance needs. Over the past ten years, Harbor Maintenance Tax revenues have ballooned to nearly $1.7 billion per year. On the surface this seems great for U.S. ports, but disbursements from the Harbor Maintenance Trust Fund for port maintenance have plummeted to only 49.94% of annual Harbor Maintenance Tax revenue. This type of discrepancy in the spending of Harbor Maintenance Tax revenues has led to an over $7.5 billion

HARBOR MAINTENANCE TAX REVENUES BY YEAR $1,690,000,000

$1,600

In Millions

$1,400

$1,200

$1,000

$761,000,000 $800

$600

2000

2001

2002

2003

2004

2005

10 | January 2014

2006

2007

2008

2009

2010

2011

2012

www.txgulf.org

surplus in the Harbor Maintenance Trust Fund. This money has been siphoned off for the General Fund in the past few years to pay down the national debt and will likely never reach its intended purpose of U.S. port maintenance.

The U.S. Army Corps of Engineers estimates that, in their current condition, U.S. ports need $1.5 billion annually over the next 5 years to properly dredge to their designed depth and ensure they are operating as efficiently as possible. This is far more than the $854 million that was allocated for port maintenance in 2012, but much less than the benefits U.S. ports provide to the economy. Shippers pay $1.7 billion each year to the Harbor Maintenance Tax, and federal tax revenue generated by jobs related to port activity totals over $200 billion every year. U.S. ports, and the individuals that use them, are holding up their end of the bargain. It is vital that the appropriate amount of funds are allocated to port

maintenance every year to ensure the economic benefits U.S. ports provide are sustainable in the long-run.

Loss Depth = Lost Exports, Lost Jobs, and an Overall Economic Loss

With the current condition of U.S. ports falling below their maximum designed capacity and not operating

Greater Houston Port Bureau | 11

in the most efficient manner possible, the American Society of Civil Engineers (ASCE) says the U.S. economy is missing out on substantial possible economic benefits. They also say these missed opportunities will grow exponentially in the coming years, with the cumulative losses being at an alarming level by 2040. The ASCE estimates that by 2020 the value of goods the U.S. will miss out on exporting because our ports are not operating at their maximum capacity will be $270 billion. By 2040 the estimate grows to $2 trillion in missed U.S. exports. In turn, U.S. businesses will suffer. By 2020 business sales that will be lost because U.S. ports are not operating as efficiently as possible will total $1.3 trillion.

These lost business sales will total $7.8 trillion by 2040. U.S. lost potential GDP will total $700 billion by 2020 and $4 trillion

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by 2040. 738,000 Americans will miss out on jobs that Both the U.S. Senate and House of Representawould be available if U.S. ports were operating at maxitives recently passed a water resources bill. The products mum capacity by 2020. The number of lost American jobs are currently in a conference committee to work out a will total 1.4 million by 2040! final version to place on the president’s desk that will then hopefully get signed into law in 2014 or 2015. The When the depth of a port is restricted, a ship must carry less cargo so that it does not sit as deep in the water. compromised bill will likely require Harbor Maintenance Trust fund expenditures on port maintenance to be 65% To put in perspective how these numbers can add up so of the revenues generated by the Harbor Maintenance quickly, consider a typical tanker ship. One foot less Tax. The bill could also gradually increase this number, depth for a typical tanker means it must forego 20,000 barrels of product. At simply $100 a barrel (which is a low number for many chemicals U.S. companies export), one foot less depth means a typical tanker misses out on carrying $2 million in product.

DIRECTION

What Needs to be Done?

Maritime Solutions for Moving Forward

HMT EXPENDITURES = HMT REVENUES Harbor Maintenance Tax revenue must be fully allocated towards the maintenance of U.S. ports to ensure:

2) The U.S. economy is fully benefiting from the economic rewards U.S. ports offer.

Having the Harbor Maintenance Trust fund operate where expenditures must equal revenues is not a foreign concept. Laws already exist for other federal trust funds that require expenditures to equal revenues. The Airport and Airways Trust Fund operates in this manner. When comparing the Airport and Airways Trust Fund with the Harbor Maintenance Trust Fund for the year 2010, 95% of the Airport and Airways Trust Fund was spent towards maintenance while only 58% of the Harbor Maintenance Trust Fund was spent toward maintenance.

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1) U.S. ports are able to accommodate their designed capacity; and,

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Greater Houston Port Bureau | 13

capping out at 80% of revenues in seven years.

of total export tonnage. A 2012 study by Martin Associates reported that the Port of Houston is responsible for over one million jobs and over $178 billion in statewide economic activity.

Passage of this type of bill is a step in the right direction, but more would still need to be done to meet the $1.5 billion annual maintenance dredging needs established by the U.S. Army Corps of Engineers. ReachDespite its significance, in recent years the Port of ing this threshold to ensure adequate annual dredging Houston has not received the necessary funding to mainis important because when tain the port. In 2012, the Port ports reach a critically shallow of Houston contributed $104 depth, emergency dredging million into the Harbor Main“...Over half of the amount takes place. Emergency dredgtenance Trust Fund, but received ing costs twice as much as only $30 million to carry out contributed by the Port of normal maintenance dredging. maintenance tasks. According to Houston does not go towards It is significantly more costthe Army Corps of Engineers, maintenance of the port.” effective to invest the necessary the Port of Houston needed $50 funds in routine maintenance million of maintenance work in to properly maintain U.S. ports 2012. However, the Port was apthan it is to wait and carry out emergency dredging. propriated only 60% of this amount to carry out maintenance tasks. Over the past five years, the Port of Houston A Local Snapshot has contributed over $438 million to the Harbor MainThe Port of Houston is consistently one of the busiest tenance Trust Fund. This is $289 million more than the ports in the U.S. As of July 2013, the Port of Houston ac- amount appropriated for maintenance of the Port of counted for 10% of total U.S. import tonnage and 13% Houston over the same five-year period. This means that

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over half of the amount contributed by the Port of Houston to HMTF does not go toward maintenance of the port, maintenance that is desperately needed. Currently, only 5% of the Port of Houston is at its full federal channel project depth.

Based on 2008-2009 factors, a 2010 Texas Transportation Institute study found that a one-foot draft restriction of the Houston Ship Channel would cause a loss of

$186.5 million per year to the area economy. Considering this estimate was based on the recession economy and that activity in the Port of Houston has increased since then, the current impact of lost draft is expected to exceed that amount.

Between June and December 2013, portions of the Houston Ship Channel were operating at a 2 foot draft restriction because of silt build-up. Ships could only travel the channel at a 43 foot depth instead of the designed 45 foot depth.

This restriction cost the area economy tens of millions of dollars.

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Ports are a vital part of the U.S. economy. They keep the U.S. competitive in a rapidly growing global market. However, they can only remain an asset if they are sufficiently maintained. The more efficiently U.S. ports operate and the more cost-effective they are with deeper draft possibilities, the more attractive U.S. ports will be to companies throughout the world.

This is only possible when U.S. ports are properly dredged and maintained.

The U.S. government must realize this and use the money raised by the Harbor Maintenance Tax for its intended purpose: to maintain U.S. ports. In addition, ports with large potential, like the Port of Houston, must be given the appropriate amount of funding to ensure they provide the maximum possible benefit to the economy.

More education and awareness is needed regarding the dredging issue so that Americans realize the importance of U.S. ports in their everyday lives and the level at which our ports are being under-maintained.

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For an educational pamphlet emphasizing the attention needed regarding the dredging issue, please contact Matt Logan at mlogan@txgulf.org ò

Greater Houston Port Bureau | 15

Spotlight on Capt. Mike Morris Presiding Officer, Houston Pilots Association Christine Schlenker, GHPB Analyst

© LOUIS VEST

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apt. Mike Morris grew up in Miami and the Florida Keys, always around the water and knowing he wanted to make his career on the ocean.

With no family or friends in the maritime industry, he had no guidance except the desire to attend a federal academy. During his admittedly haphazard application process, he found the U.S. Merchant Marine Academy, which seemed like a good fit for his career aspirations.

Morris performed well at the Academy, but particularly excelled in his business classes. As a senior, he had the opportunity to work on a 3-month project at the Port Authority of New York & New Jersey and to take supplemental courses at MIT.

shore assignment and he decided to make the housing move permanent. Initially, Morris was teaching a certification course at Texas A&M Galveston designed for Exxon employees. Soon thereafter he was pulled from teaching to work on one of his most memorable earlycareer assignments. He assisted in the 1979 Neches River clean-up after the tanker ESSO Bayway punctured a hole in its bottom and began leaking oil. Some of the leaked oil reached the Bessie Heights Marsh, a saltwater marsh home to redfish, speckled trout, and flounder along with innumerable birds, insects, mammals, and alligators. Morris gained “a lot of satisfaction in seeing the waterway cleaned up.” Following this assignment, Morris stayed onshore for another two years working on various projects Returning to the sea in 1980 as a 2nd mate, Morris

After graduating in 1975 with a degree in Marine Transportation, Morris had an offer waiting from Exxon, but chose to take “down time” transferring yachts to Florida. Two months later he joined the Exxon team as a 3rd mate on a tanker moving clean refined products from Gulf refineries to the Northeast, serving a navigation watch while at sea and working cargo operations while in port. While sailing this route in 1976, Morris met his future wife Marta, a waitress on his vessel.

After three years, he was transferred to Houston for 16 | January 2014

www.txgulf.org

A Morris Family Christmas

was sent to Alaska to run crude from the Alaska Straits to Washington, California, and Panama. “I was at the right place at the right time, and I moved up rather quickly,” said Morris, describing his rapid succession from 2nd mate, to chief mate, and finally to Master over the next two years.

In 1985, Morris was transferred to the Exxon Galveston in San Francisco Bay and “spent the last 10 years [with Exxon] working on a vessel that never went to sea.” As the captain of a lightering vessel, Morris sailed between the lightering anchorage and docks, an experience that prepared him greatly for his next role as a pilot. Almost none of the tankers transiting from Alaska to California could go directly to the berths and some required up to six lighterings.

Morris honors retired Texas pilots at a recent Texas State During his entire West-Coast career working 45 Pilots Assoc. meeting. From left: Capts. Morris, Max Blanton, days on followed by 45 days off, Morris’s family reLarry Robinson and James Coonrod. mained in Houston. Morris married Marta in 1981 and had three daughters over the next several years: Natalie, more structured), Morris was assigned to work under the an art director for an advertising company in Fort Worth, mentorship of an experienced pilot, Capt. Ernie Reed. and twins Tess and Tina, both doctors of physical therHe monitored Morris’s progress and acted as Morris’s apy. He’s lived in the Champions Forest area since 1979, first point of contact if he had any questions. Morris rode moving just a few blocks away from his first house to a on vessels with nearly all of the pilots during the first few larger one when the number of children outstripped the months of training to learn how to handle a vessel in the number of bedrooms. narrow and often congested channel.

Morris jokes that when his mother-in-law moved After three months, Reed released Morris to start piin and it was five women to one man, “I learned quickly loting the smallest vessels on his own. In the first year, he to just say ‘yes ma’am’ and ‘no, ma’am’ and let them have worked every day on the channel as a junior deputy. As their way.” But more earnestly, he freely gives his wife all he began his second year as a senior deputy, he worked a the credit for keeping the family going while he was away two-week on, two-week off schedule. In this second year half of the time, noting “it takes a strong partner” to be Morris, just like other deputies, spent up to half of his able to have that lifestyle. However, having 45 days off time off on larger vessels with experienced pilots to get at time certainly had its perks when raising the children, the feel for how such massive vessels moved. Throughallowing Morris time during that break to completely out the training program the deputies would gradually devote to his family and to be one of the only PTA dads increase the size of the vessels they worked on. at his children’s schools. Morris believes he spent more The training program for pilots is inherently diffiquality time with his family when he was on at-sea ascult, but the relationship between the experienced pilots signments than when he was onshore going to the office and the junior deputies they are guiding is the key to the each day. success of the entire association. “All of the pilots want Morris was selected for the two-year pilot training to make a new pilot the best he can be, to make him a program just as he retired from Exxon, and he started as a better pilot than they are” to keep the waterway as safe junior deputy in May 1995. Having spent most of his caas possible. As the sizes of the vessels visiting Houston reer on the West Coast, “it was quite the transition” movhave increased, so have the training requirements – new ing to the Houston Ship Channel. Morris was unfamiliar pilots now go through three years of training before being with the Channel, the dock names, the local tug names, allowed to pilot the giant tankers and container ships. and even the other pilot names. Under the training As an association, the Houston Pilots are made up of a regime of the time (which has since become longer and Greater Houston Port Bureau | 17

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411 Brisbane Houston, TX 77061 866-597-4851 toll free | www.gwii.com

18 | January 2014

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50-50 ratio of former bluewater and former brownwater captains. Morris believes this “blending of experience has made us all better pilots” by being able to learn from individuals with a broad range of perspectives.

Now in his 19th year as a Houston Pilot, Morris jokes that he may have left Exxon before retirement if he had known how much he would like being a pilot.

For him the most enjoyable aspects of piloting are the ship handling and the challenges that come with working in a long, narrow, and very busy channel. In addition, by being able to board so many different vessels, “I get to go out and meet some nice crews, learn about their countries, and enjoy a meal with them.”

Morris has a strong history in representing and improving piloting in Houston and in Texas. Morris was recently re-elected as Presiding Officer of the Houston Pilots, following up on a previous term in 2004-2005. He has served as an officer for the Texas State Pilots Association since 2006, including as the current President. He also serves on two national committees, the Coast Guard’s Navigation Safety Advisory Council (NAVSAC) and the Society of Naval Architects and Marine Engineers’ (SNAME) Panel H-10 for Ship Controllability.

When asked why he was so involved at these organizations, he responded, “I think any place I’ve been I’ve always wanted to leave a mark, make a difference, make the organization better. I like to get engaged.” ò

Capt. Mike Morris will be speaking at the Port Bureau’s Commerce Club luncheon on Thursday, February 13, 2014 at Brady’s Landing in Houston. To register, call the Port Bureau at (713) 678-4300 or visit our website at: www.txgulf.org/commerceclub.php.

The Commerce Club Luncheon Series Produced by the Greater Houston Port Bureau The Commerce Club Luncheon Series by the Greater Houston Port Bureau brings together Houston-area maritime professionals to network and to learn from regional and national speakers. Join us every second Thursday from 11:30 am to 1:00 pm at Brady’s Landing in Houston. Advanced individual tickets are $30 for members or $35 for non-members ($5 surcharge for seats paid at the door). Sponsorship tables of 8 are available for $750. To register, please call (713) 678-4300 or email cgomez@txgulf.org.

January 9, 2014 RADM Kevin Cook Commander, Eighth Coast Guard District Rear Admiral Kevin Cook serves as the Commander of the Eighth Coast Guard District headquartered in New Orleans, and is responsible for U.S. Coast Guard operations spanning 26 states, including the Gulf coastline from Florida to Mexico and the adjacent offshore waters of the Gulf of Mexico, as well as the inland waterways of the Mississippi, Ohio, Missouri, Illinois, and Tennessee River systems.

February 13, 2014

March 13, 2014

Capt. Mike Morris Presiding Officer, Houston Pilots

Joe Bob Perkins CEO, Targa Resources

Capt. Morris was recently elected as the Presiding Officer of the Houston Pilots Association for his second term (formerly serving 2004-2005). He has served on the Texas State Pilots Association since 2006. Prior to becoming a Pilot, he sailed for over 20 years, 13 as a master. He is a graduate of the U.S. Merchant Marine Academy.

Joe Bob Perkins has served as

Chief Executive Officer and director of TRC, the General Partner of TRP and TRI since 2012 and has served Targa in other capacities since 2003.

Prior to joining Targa, Mr. Perkins gained extensive experience in business development and consulting for exploration and resources firms. Mr. Perkins graduated with honors from Texas A&M University and with distinction from Harvard Business School.

Greater Houston Port Bureau | 19

INCH BY INCH

Is the Houston Ship Channel maintenance dredged deep enough?

Dave Cooley, GHPB Analyst

A dredge and dredging pipes working near the San Jacinto Battleground Park in March 2012. Photo by Roy Luck.

T

he Houston Ship Channel is one of the busiest port complexes in the country. Since 2009, the Houston Port has ranked first in total waterborne foreign trade, as assessed by tonnage. During this time period, the sum of waterborne foreign import and export activity at the Houston Port ranged from 136 million metric tons in 2009 to 153 million metric tons in 2012. Through September 2013, Houston solidified its first place ranking by handling over 147 million metric tons of cargo for the year.

All types of ships transit the Houston Ship Channel – oil and chemical tankers, bulkers, general cargo ships, container ships, roll-on/roll-off ships, vehicle carriers, and gas carriers. The size, cargo, and draft of these ships are all quite different and reflect the diversity, capabilities, and the growth of the Houston Port.

20 | January 2014

During the period January 2011 through September 2013, vessel arrival statistics for the Houston Port are displayed in the following table: Vessel Movement Statistics - Houston Port Jan. 2011 to Sept. 2013

Vessel Arrivals

Monthly Average

Annual Average

33-Month Total

659

7,907

21,744

The authorized depth of the Houston Ship Channel ranges from 45 feet at the sea buoy to 36 feet at the Turning Basin, the terminus of the ship channel. The ship

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channel depth is dredged in three reaches: 45 feet from sea buoy to the Sam Houston Tollway Bridge for a distance of approximately 50 miles; 40 feet from the Sam Houston Tollway Bridge to the 610 Bridge for a further distance of about 7 miles; and 36 feet from the 610 Bridge to the Turning Basin, another 3 miles. About 75% of all vessel arrivals and departures are at draft of 30 feet or less and around 85% of transits occur at drafts of 36 feet or less.

As evidenced by comparing the graphs on the opposite page, the Houston Port is export driven.

The number of vessels sailing from Houston on deeper drafts is greater than the number of vessels arriving at the same draft. This is most evident at vessel drafts ranging from 30 feet to and including 40 feet.

Number of Ships Arriving Houston Port by Vessel Draft

A r r i v a l s

7,000

120%

6,000

100%

5,000

80%

4,000

60%

3,000

40%

2,000

20%

1,000

0

0% 8

15

20

25

28

30

32 34 36 38 40 Vessel Draft Number of Ships Cumulative %

42

45

48

Number of Ships Departing Houston Port by Vessel Draft

D e p a r t u r e s

6,000

120%

5,000

100%

4,000

80%

3,000

60%

2,000 On the import side, more vessels arrive at 42 to 45 feet than depart at 1,000 those levels. The vessels traveling at 0 these drafts are destined to and from 8 15 several of the very active oil facilities located on the Ship Channel. These oil facilities handle, on average, 153 arrivals and departures each month or about 24% of the average monthly vessel transits. Looking to the future, the Bayport and Barbours Cut Container Terminals are well positioned along the 45 feet reach to accommodate

40%

20% 0%

20

25

28

30

Number of Ships

32 34 36 Vessel Draft

38

40

42

45

48

Cumulative %

“...The Houston Port is export driven.

The number of vessels sailing from Houston on deeper drafts is greater than the number of vessels arriving at the same draft.�

Greater Houston Port Bureau | 21

the new PANAMAX size container vessels and further augment the import side of Houston’s waterborne trade.

Vessel Arrivals-Departures by Cargo Type January 2011-September 2013

16,000

66

62

70

14,000 60 To match the types of ships 12,000 calling at the berths and docks 50 along the Ship Channel, three 10,000 40 general categories were created, 8,000 viz., containers; bulk, break bulk, 30 6,000 vehicles, and general cargo; and 15 20 4,000 oil, chemical, and gas carriers.

10 This classification resulted in 15 2,000 docks and berths for containers 0 0 with 3,500 vessel arrivals and Containers Bulk, Break-Bulk, and Oil and Chemicals departures; 66 berths and docks General Cargo handling various bulk deliveries accommodating over 4,800 vessel Total Vessel Arrivals Total Vessel Departures Number of Berths-Docks arrivals and departures; and 62 berths and docks for handling that Houston is an export port. oil, chemicals, and LPG with over 13,500 vessel arrivals Having identified the ship that either arrives or and departures during the study period. departs at maximum draft, certain vessel dimensions ANALYTICAL PROCESS can be identified: in particular the TPI (tons per inch To ascertain the number of vessel movements ocimmersion). This factor was then utilized to determine curring at capacity, i.e., vessel arrivals and departures at the potential change in the cargo carrying capacity of maximum draft throughout the Houston Ship Channel, the ship if the depth of the ship channel were reduced vessel movements from January 2011 through Sepby one inch, or then multiplying by twelve, by one foot. tember 2013 from Bayport to the Turning Basin were The potential cargo lost at each berth or dock was then analyzed, and the number of ships arriving and departsummed to determine the opportunity cost of losing one ing at “maximum” draft was recorded. During the study foot of allowable draft applicable to those vessels that period, 489 ships arrived and 1,208 ships departed at arrived or departed at maximum draft. This value can the “maximum” draft over all reaches of the Houston then be compared to the cost of maintenance dredgShip Channel. The significant difference between the ing to evaluate the cost-benefit of maintaining the ship number of ships that arrive and the number of ship that channel at its authorized depth of 45 feet. depart, each at maximum draft, again supports the fact

22 | January 2014

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RESULTS The total cargo “lost” during the study period for only those ships arriving and departing at the maximum draft along each reach of the ship channel was 0.3 million metric tons. This quantity is 0.074% of the total tonnage of the 409 million metric tons that were delivered along the Houston Ship Channel from January 2011 through September 2013. Since this occurred along the entire ship channel and ships arriving and departing at maximum draft were also along the entire ship channel, the key assumption is that the ships are proportional to the total tonnage. Assuming this to be true, applying the percent of lost tonnage to the value of the total waterborne foreign tonnage applicable to Houston during the same period would result in the opportunity cost of maintenance dredging. The value of foreign waterborne trade from January 2011 through September 2013 was $470 billion. The percentage that represents the lost tonnage of 0.074% multiplied by the total value of foreign waterborne trade results in a value of $346 million. This is the opportunity cost of maintenance dredging.

From the U.S. Army Corps of Engineers – Galveston

“The total cargo ‘lost’ during the study period for only those ships arriving and departing at the maximum draft along each reach of the ship channel was 0.3 million metric tons.”

District website, press releases show that from January 2012 through September 2013, the contracts let for maintenance dredging on the Houston Ship Channel totaled $83 million. Assuming a ratable expenditure pattern occurred during the previous 12 months, i.e., January through December 2011, the total monies expended on maintenance dredging was $131 million.

The cost benefit of maintenance dredging, based on

Greater Houston Port Bureau | 23

losing one foot of draft over the entire ship channel, is $214 million. The approximate breakeven point would occur if the opportunity cost is overstated and the cost of maintenance dredging is understated each by 45%.

If considering activity only in the 45 foot reach, identified as the Sea Buoy up to the Sam Houston Tollway Bridge, the economics continue to favor maintenance dredging. The opportunity cost is $127 million and is based on the composite landed price of crude oil and residual fuel oil delivered to the facilities along this reach.

The maintenance dredging cost of $93 million also reflects activity occurring only along this area. As a result, the benefit to maintenance dredging remains positive at $34 million. The results are summarized in the following table.

Opportunity Cost of Dredging & Net Benefit of Dredging Entire Ship Channel

45’ Reach

Lost Tonnage by Value

$346M

$127M

Maintenance Dredging

$131M

$ 93M

Benefit to Dredge

$215M

$ 34M

24 | January 2014

CONCLUSION While the number of vessels arriving or departing at maximum draft is not necessarily “staggering” when compared to the number of total vessel arrivals and departures, it is essential for the Houston Ship Channel to have the ability to accommodate ships of this size that have arrived in the past and will continue to arrive in the future. Therefore, it is beneficial for the country as a whole and the metropolitan Houston area in particular to maintain the flow of trade that supports not only local manufacturing but also numerous derivative industries and ancillary infrastructure. Keeping the Houston Ship Channel at 45 feet is the key! ò

Port Bureau analysts are available for bespoke economic research and reports. Custom data sets from the Vessel Movement Database used for the preceding analysis are available for purchase.

Please email info@txgulf.org for more information about Port Bureau services.

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Texas Gulf Coast Gateway to the Midwest, Southwest and the Greater Galveston/Houston Region

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Greater Houston Port Bureau | 25

Congratulations to Port Bureau Director Capt. Bill Hennessey on his Retirement Capt. Bill Hennessey retired from ExxonMobil at the end of December 2013. The Port Bureau staff and Board of Directors would like to extend their warmest thanks for his service on the Board and in the community and well wishes for a long and happy retirement. Capt. Hennessey joined the Port Bureau Board of Directors in 2010 after becoming the Marine Superintendent for ExxonMobil’s Baytown Refinery. He was elected to the Executive Committee in 2012 as Second Vice Chairman. Throughout his tenure on the Board, Capt. Hennessey gave strong support to the Port Bureau and to bettering the Houston-area maritime community.

Capt. Hennessey’s successor at ExxonMobil is Robert Baker. ò

26 | January 2014

Not a retirement photo: Capt. Hennessey (far left) and his 2012 Port Bureau Captain’s Cup golf team.

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PLANTING THE SEEDS FOR A SECURE FUTURE MARITIME ACADEMY INTERNS Your Partners For Success The mission of the Maritime Academies is to expose High School students to career opportunities available to them in the maritime industry.

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The Port of Houston Partners in Maritime Education A non-profit 501(c)(3)

CONTACT: Linda Clary: Maritime Academy Coordinator 713-670-2837 lclary@poha.com

111 East Loop North Houston, TX 77029

Greater Houston Port Bureau | 27

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