dec2010

Port Bureau News December 2010

www.txgulf.org

Weathering 2010

Spotlight on Charles Flournoy Vice-Chairman, John L. Wortham & Son, LLP

Captain’s Corner

Industry working with Industry I hope you have all had a Happy Thanksgiving. The holiday is always a thoughtful time for me as we recognize our blessings for the past year. Also as I recover from the big meals on the couch watching football I usually write up the annual Diehl family holiday letter of how the kids have grown and what sort of mischief they have been up to. It is a fitting time for reflection and maybe a nap or two.

I am proud of the people that I work within this port community. Recently I heard the phrase “industry working with industry” to describe the 125 Port Bureau member companies. But besides being a business club, what does the Port Bureau do for its members? Since 1929, and until industry deregulation, the Port Bureau represented its members in front of Congress, maintained elaborate tariff records, and served as an information clearinghouse. Since the 80’s we’ve focused more on the information clearinghouse and added the collection of vessel movement data. You’ll read later in the newsletter about the steps we took this year to improve our ability to collect that vessel movement data, analyze it, and use it to help our members—the strides are exciting.

Keeping with this industry working with industry spirit, we emphasize that our main goal at the Port Bureau is to facilitate the promotion and expansion of our members’ current business activities along the Houston Ship Channel. In fact as members, your feedback and involvement are our most important resource for addressing common operational, legislative and environmental matters. Working together we can move more cargo cheaper and more effectively through our port. A prime example of this competitive cooperation is the Houston Pilots making available (through HarborLights) their dispatch information. With it, you know in advance the most up to date sailing, arrival, and shift times—saving us all time and money.

As we close 2010, we acknowledge that it was a rough year, but as the economy begins to shake off the doldrums of what so many have called the “The Great Recession” we look forward to 2011. At the Port Bureau we will continue our focus on our members and providing value-added services. Between our powerful vessel data capabilities, our public outreach, and our member-driven research projects we’ve become more informed, more responsive, and can touch a larger audience. This newsletter alone touches over 3,500 in the Houston area. I urge you to look out for our emails in the coming weeks as we have several exciting announcements that’ll ensure that in 2011 we can make even larger strides at promoting our members’ interest.

-Bill Diehl, GHPB

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Port Bureau Staff Bill Diehl Jeannie Angeli Al Cusick Cristina Gomez Janette Molina Patrick Seeba

Board of Directors *Tom Marian—Chairman *Dennis Hansell—1st Vice Chair. *Mike Drieu—2nd Vice Chair. *John Taylor—Secretary /Treas. *Robert H. Blades *Alec Dreyer *Charles H. Flournoy *Thomas C. Pace *Capt. John G. Peterlin III *Richard Russell *Steve Stewart *Nathan Wesely Jim Black Ken Burnett Jan Crittenden Celeste Harris Jason Hayley Kevin Hickey Guy W. Hitt Charlie Jenkins Shareen Larmond Kathy Murray Jerry Nagel Vinny Pilegge Nolan Richardson Lloyd Schwing Earl Smith Tim Studdert Lawrence Waldron Armando Waterland Don Welch

This year, the Houston Pilots will make over 18000 transits through the Houston Ship Channel.

Those 50 transits a day are added to the over 300-350 tow movements that pass through our waters. The over 130,000 total movements represents the estimated $322 million of business done every day along the Houston Ship Channel. With growing excitement over the opening of the Panama Canal, the expansion of the Bayport container facility, and the recovering global economy, Houston is a vibrant business community brimming with opportunity.

Looking into the numbers, since 2001, there has been a 76% increase in the number of vessel transits through the Port of Houston. Regressive analysis shows an 89% correlation with a linear trendline, and using these projections, by 2020 the Houston region could see as many as 27,000 vessel transits, with that number rising to 30,000 by 2025.

How will we handle the surge?

Coming Up in 2011

As part of our in-depth studies on Houston Ship Channel traffic and transits, the Port Bureau News will feature an article every month on different types of vessel calls, terminal utilization, and movement trends.

January: Container Terminals

The Houston region has talented and experienced people ready to handle the workload. A spokesman for the Houston Pilots says that “We have the ability to meet current demand and we’re always strategizing regarding future manpower demands.” With 90 pilots, the Houston Pilots currently have the ability to make 24,000 transits a year, and the board of commissioners has the ability to increase the number if it is necessary.

On the labor side, representatives from the ILA’s District office said that the labor capacity in the port region is well equipped to handle capacity— “We’re making sure we keep our workforce trained, safe, and ready to handle whatever comes across the docks” says Alan Robb.

With a surge of traffic, competitive cooperation among industry partners becomes more important than ever. One issue of concern to be addressed will be the availability of layberths.

With traffic steadily increasing, the port region

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will see a need for the scarcity of deep-draft layberths to be addressed. Having a place on the upper channel for deep-draft vessels to wait if necessary will allow vessels to move more efficiently through the port and let everyone involved tighten up their schedules to push more cargo across the docks. Houston is a port region with an abundant, stable labor force, infrastructure that is developing to meet customers needs, and facilities unrivaled in the United States. More than that, Houston is preparing the next generation by starting young.

Education and Development Developing young minds is critical to the future success of our region and industry. Starting at Jack Yates and Stephan F. Austin High Schools, the Houston Independent School District, Port of Houston Authority, and private industry have teamed up to begin educating students and preparing them for careers on the waterfront.

Also, with four public universities, and over ten private institutions, the Houston area is a quiet leader in higher education. At the University of Houston and Texas Southern University, the maritime realm is an important link in the educational chain. “We know that the maritime industry is an important source of jobs and trade to our region, and at the new TSU Maritime Transportation Management & Security program, we are excited to help our students get ready for their future success” says Ursurla Williams, Program Director at TSU. In addition to the both undergraduate and graduate programs at TSU, the University of Houston offers programs in supply chain and logistics technology that allow students to prepare to enter the marketplace with knowledge and practical experience.

With all industry, if you’re not growing, you’re slowing, however the Houston Ship Channel is expanding and proving itself to be a vibrant business community with opportunities for expansion in a wide range of sectors.

Dredging the Channel Working to Keep Houston Deep & Wide

The Houston Ship Channel was opened in 1914 as a deepwater channel, dredged to 25 feet. Through numerous expansion projects, this lifeline to the Port of Houston has been cut to depths of 45 feet in some sections, with a tapering effect taking place all the way up to the Turning Basin. The US Army Corps of Engineers, working to keep the Houston Ship Channel deep and wide, dredged over 3.7 million cubic yards of material from the channel in 2010.

In 2009, over $127 million was collected from the Houston port region in Harbor Maintenance Tax payments, however this year only $19 million was originally appropriated for dredging the Houston Ship Channel. The lack of full maintenance funding for our region requires extra caution and extra time to be taken when scheduling vessel movements. Because of width and depth restrictions, vessels cannot pass each other at certain points in the channel forcing scheduling lags, and in some places the accumulated silt means that draft restrictions limit the size of vessels that can move to a facility.

Unfortunately, this under-spending comes at a time when there is a desperate need for additional federal operations and maintenance dredging. The US Department of Transportation estimates that world trade, the vast majority of which is transported by ship, will double in the next 20 years. Ships have become bigger, requiring more sustained dredging. These issues will be further exacerbated with the Panama Canal expansion scheduled for completion in 2014.

The Harbor Maintenance Trust Fund (HMTF) was originally established as a tax levied on a port’s

imports and exports, and required appropriation by Congress to the U.S. Army Corps of Engineers for dredging projects at United States ports. Currently, the HMTF is funded through taxes

collected

from

imported

goods.

Since 2001, collections have increased 101 percent while fund expenditures have only increased 38 percent. This has resulted in a HMTF balance that is expected to reach $8 billion by 2011. Recent legislation addressing the disparity between revenues and expenditures has been introduced by Senators Kay Bailey Hutchison and Carl Levin, and Congressmen Charles Boustany and Bart Stupak.

Senator Hutchison recently remarked, in an editorial piece written for the Houston Chronicle: “Congressionally directed support to significantly deepen and widen the Houston Ship Channel is ensuring the Port of Houston remains competitive with ports around the world.” Currently, over 80% of the Houston Ship Channel is not dredged to project width or depth. If funding is not distributed, then restricted channel usage could force ships to light load and require more trips, increasing the transportation costs for imported products.

In 2010, the Greater Houston Port Bureau endorsed Realize America’s Maritime Promise (RAMP)’s initiative to address the underdredging of American harbors and the underutilization of the Harbor Maintenance Trust Fund.

Upcoming Projects In 2011, the Corps of Engineers has several projects which are currently being researched for work including hopper dredging at the entrance to Galveston harbor, pipeline dredging which will maintain the Bayport channel and flare at 40’, and maintenance work to remove silt from the channel between Exxon in Baytown and Carpenter's Bayou. These projects are slated to remove over 8.9 million cubic yards of material and will be opened to bid starting in mid-2011 with

GHPB Members Advertise in the Port Bureau News Reaching 3000+ Professionals in the Houston Port Region, contact the Port Bureau at (713) 678 4300, or pseeba@txgulf.org to arrange for either 1/6 page, 1/2 page, full page, or back cover advertisements.

dredging to begin before the end of the year. In addition to the dredging, next year the Army Corps will rehabilitate levees at placement areas in the turning basin.

The Houston Ship Channel may not be a natural channel, but with the hard work of the US Army Corps of Engineers, private industry and facilities along the waterway, and the patience of users, this vital passage is one of the cornerstones of our city, state, and nation’s economy.

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Port Watch Tom Marian—Buffalo Marine Service Red State, Blue Water, Black Books There is more red in the State of Texas after the GOP clean sweep and less of it on the waterfront judging by October’s vessel arrival information. The port of Galveston saw its most impressive one-month gain of the year - nearly 28%. While the substantial influx of vessel calls was aided by the demobilization of offshore vessels from the Deepwater Horizon; bulk liquid, fertilizer, Ro-Ro vessels and grain were all up. This positive and robust vessel arrival trend for the gateway to the ship channel will most likely continue as cruise ship arrivals experience their seasonal increase. This should further bolster Galveston’s 59% increase in vessel arrivals over the year.

The Port of Houston also enjoyed a very strong month with a 688 vessel arrival count in October – eclipsing July’s record by one. Granted, this was a mere 1% increase over September but, for the year, Houston is up nearly 7%. Most categories in the port were strong. Crude into the storage facilities lead the way. Additionally, break bulk and project cargo was up; grain in response to worldwide demand is on the rise; and bulk exports are holding their own as the dollar remains weak.

The impact of crude’s bullish pricing was also evident in Freeport which saw a 16% gain over September in terms of vessel arrivals. This was enough to put the port in positive territory – by a mere 1% - for the year. Texas City did not experience a gain in October as it was down 3.5% for the month. The good news is that it remains up nearly 24% over the previous year.

The Texas ports beyond the Houston region also put up solid numbers with the exception of Sabine which posted a 12% drop in vessel numbers – an outcome most likely due to inventory adjustments in preparation for the end of year tax assessments.

All in all, the first month of the year’s final quarter was another bright spot in the region’s maritime trade picture and certainly bodes well in the long term. To date, the gains made over the year have been incremental and steady reflecting the wisdom of private sector management over excessive government controls.—Tom Marian, Buffalo Marine

Security on the Ship Channel and Beyond The Houston Ship Channel Security District This January, the board of directors for the Houston Ship Channel Security District met for the first time and began working to address the region-wide concerns that result from the tremendous flow of commerce coming out of the regional maritime and petrochemical community. The District, formed by an act of State law and formally blessed by the Harris County Commissioners Court in January, is tasked with providing an integrated strategy for both land and waterside facilities within its boundaries.

At the beginning of the year, the District was no more than a mandate, but starting at the first meeting, the board began taking steps to ensure that the members of the District—the industries and companies in Harris County that, through their location or trade fall under the District’s responsibility— were well represented and that their assessed funds would be well used. By September, the board had heard months of updates and discussed the infrastructure system that would be developed through the District’s four zones, and come up with a plan of assessment that fairly assessed members based on their size so that the security projects could begin.

The first security projects, begun with non-matched federal funds and overseen by the District’s predecessor, the Houston Ship Channel Security Council, used $17 million to build out cameras, radar, and a wireless network that integrated analytics and intelligent video software into a command and control center. These sensors, detectors and IED mitigation equipment are already at work protecting the channel, and are an integral part of the toolkit that regional first responders can use during a crisis.

Moving Forward With the 2010 assessments, the Security District began to fulfill its mandate in earnest. With a plan of assessment based on the federal matching requirements for 2007 grant money secured by Harris County, the district issued assessments based on the size of member facilities as determined by acreage and personnel count. In addition to working with companies to ease payment processing, District board members also took an active role in ensuring that issues raised during the assessment process were addressed. Facility members which have recently had to cut back on staff or sell property due to the economic climate had their numbers adjusted and, where appropriate, their assessments reduced. Companies with more detailed concerns were able to meet with the board’s appeal subcommittees and have one-on-one discussions directly with board members.

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The Houston Ship Channel Security District’s first year was marked by progress, and with careful planning, considered action, and community responsiveness, 2011 is sure to continue work to ensure that facilities within the district begin to see the benefits of the partnerships that make the region such a vibrant business community.

Automation and Analysis

A Year at The Marine Exchange of the West Gulf

The Marine Exchange of the West Gulf, successor to the Houston Maritime Association and Morgan’s Point Maritime Reporting Services, has operated with the Port Bureau since 1982. For years, the Marine Exchange maintained a facility on Morgan’s Point where, every day, employees stood watch over the Ship Channel calling vessel arrivals in to a central office location where records were kept in a massive database.

When, in 2001, the Coast Guard began requiring that all vessels moving internationally or over a certain tonnage carry Automatic Identification System (AIS) transmitters, the Marine Exchange started to streamline its processes and develop a strategy for future growth and development.

Since then, through a partnership with the Houston Pilots and the HarborLights development team, the Marine Exchange has grown into the fastest, most accurate, and most comprehensive source of vessel movement information in Texas. With literally millions of entries and data points, the Marine Exchange provides daily service to members

continued on page 11

and is able to perform in-depth research projects to save customers time and money.

Marine Exchange services include daily vessel arrival reports which give valuable information describing what ships arrive, depart, and shift in the Houston Ship Channel, a Texas Ports report which gives a daily update on all vessels moving in and out of the ports of Texas, and a monthly statistical report which lets members see, at a glance, what ports, facilities, agents, and types of vessel move along the Texas waterways.

So How Does All This Work?

The Marine Exchange has access to movement data from vessels up and down the Texas coast. By leveraging the data, the ME is able to do detailed historical reporting on terminal usage, draft movement history, and movement. This allows customers to verify demurrage claims, verify incident response claims, reduce labor and fuel costs by streamlining operations with the increased information.

The Marine Exchange team will work with you to ensure that you are receiving the data that will help you meet your organization’s goals.

With a pricing model developed by the national organization of Marine Exchanges (MISNA), the Marine Exchange of the West Gulf can customize any report to the customer’s specific needs and situation.

An Example From a Recent Report for a Marine Exchange Customer

Reports and information coming into and out of the Marine Exchange are proprietary data, and the organization takes steps to protect sources and customers. This means that as a customer of the Marine Exchange, you can rest easy knowing that your research will not be disseminated across to competitors. Just like the rest of the Port Bureau, the Marine Exchange is built on reputation, information, and responsiveness, and exceeding customer expectation.

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Spotlight on Charles Flournoy Vice Chairman—John L. Wortham, LLC

Raised in East Texas, Charles graduated from the University of Texas in 1968 and one month later, began working for the Marine department at John L. Wortham—the department he manages today. In early 1969, the United States Army came calling and after attending Officer Candidate School, Second Lieutenant Flournoy went to Ft. Sill, OK to learn the artillery trade. After training, LT Flournoy was sent to Korea where he served until leaving active duty as a First Lieutenant in 1971.

After leaving the Army, Charles came back to Wortham where he still works to this day. Managing the Marine Department and directing marketing, Charles specializes in marine insurance for blue and brown water vessels and third world infrastructure development projects, such as the Dabhol Power Project bringing a massive 2,000 megawatt power plant to Maharashtra, India, as well as projects in Argentina, Bolivia, Tanzania, Algeria, Egypt, Australia, Panama, Colombia, and the UK. In his forty year career, Charles has worked on Hull and Protection and Indemnity insurance for ships, tugs, barges and service and supply vessels of all types, LNG re-gas and liquefaction facilities, pipelines, dams, powerplants, offshore platforms and more. His work on six continents has left him with an appreciation of the value of technology in the marketplace that allows him to stay responsive: “If we receive a claim, or are looking into a development project, I can send an adjuster down there today, and by tonight have a report complete with pictures of the entire project. That kind of speed is not only good for Wortham, but it’s a savings that we can pass on to our clients.” Charles is proud of Wortham’s front-end scanning systems that allows them to have an almost completely paperless workplace.

In 2007, Ike hit Houston and in addition to wiping out several floors of office space, left much of the city without power. As an insurance and risk management agency, Charles and Wortham were ready to meet the needs of their customers. With a working business continuity plan, the firm brought in a high-tech trailer hot spot that served as Wortham’s headquarters and with 43 workstations, satellite uplink and a backup of all the company’s records and servers, Charles was able to start visiting with clients at 10:30am on Monday morning to start helping them rebuild after the weekend storm wrecked havoc on their facilities and lives.

In addition to his work at Wortham, Charles is the longest-serving board member of the Greater Houston Port Bureau, the Chairman of Marine Insurance Seminars, Inc., a former chairman of the of both the Houston chapter and the Texas Affiliate of the American Heart Association, and has served the AHA at many levels including sitting on the operations committee of the national organization. He is a past president of the Houston Propeller Club, and in his free time, enjoys hunting Dove and Quail, fishing in Lake Conroe, and getting out on the water in a powerboat. Charles is immensely proud of his wife Kathie, his two sons Chuck and Michael, and his daughter Kate who is studying marketing at Texas A&M. Since its founding in 1915, John L. Wortham & Son, L. P. has focused on meeting the insurance, risk management, and employee benefits needs of companies, professional practices and individuals. Today, Wortham ranks as the largest independent insurance broker in Texas, with headquarters in Houston and offices in Austin, Dallas, Fort Worth, and San Antonio.

Wortham serves an extensive range of industries, from construction to energy, healthcare, sports and entertainment, offering a comprehensive portfolio of services, including insurance brokerage, claim management, loss control, risk management consulting, personal life insurance and employee benefits.

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