Port Bureau News June 2012

Port Bureau News June 2012

www.txgulf.org

A Seaworthy Space Shuttle: The Explorer Pulls Into Port The Texas House Committee on Transportation Comes to Houston

Low Sulfur Fuel Point/Counterpoint: What Will the New Emissions Control Area Mean?

Spotlight on Sean Carney President—Rickmers Linie (America)

The Space Shuttle Explorer is pulled by GHPB Member Company Kirby’s Tug Ross Sea as she leaves her overnight berth in Galveston before moving up the ship channel to her permanent home at the Johnson Space Center .

Port Bureau Staff Bill Diehl Jeannie Angeli David Cooley Al Cusick Cristina Gomez Janette Molina Patrick Seeba Josh Whitehead

Board of Directors *Dennis Hansell—Chairman *Steve Stewart—1st Vice Chair *Capt. Bill Hennessey—2nd Vice Chair *John Taylor—Sec./Treas. *Tom Marian—Immediate Past Chair *David Ellis *Charles H. Flournoy *Capt. John G. Peterlin III *Vinny Pilegge *Nolan Richardson *Capt. Richard Russell *Captain Robert Thompson *Len Waterworth *Nathan Wesely April Bailey Jim Black Robert Blades Ken Burnett Mike Drieu Robert Garcia Celeste Harris Jason Hayley Mehdi Hejazi Kevin Hickey Guy W. Hitt Charlie Jenkins Brad Maxcey Jerry Nagel Bernt Netland Lloyd Schwing Colin Scott Capt. Christos Sotirelis Tim Studdert *Denotes Executive Committee Members

Captain’s Corner

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Putting Together a Winning Team

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Since Craig Biggio retired a couple of years ago our Astros haven’t been much of a team. (That being said, I love the energy that some of them are bringing to the field this year.

They’re rewriting expectations.) The same could have been said of our maritime community advisory team known as the Houston-Galveston Navigation Safety Advisory Committee (HOGANSAC). However, it is not our players fault, what actually happened was HOGANSAC was locked out of the ball park. Locked out? Yes, that’s basically what the Department of Homeland Security did by not fielding a team or allowing us to meet for the past few years. Well, good players find a way to get onto the field eventually, and we have some real ball players in this maritime community. Through their efforts and the support of CAPT Jim Whitehead and RADM Roy Nash we were allowed to switch leagues from the heavy regulated Washington DC (FACA-Federal Advisory Committee Act) league to the more open regional Harbor Safety Committee (NVIC 1-00) league.

On February 20th 2012, our new team, the Lone Star Harbor Safety Committee (Lone Star HSC) kicked off its first meeting. Since then, we’ve met as a full committee again in May, and the four subcommittees have met numerous times to discuss issues. Each subcommittee has the authority to establish working groups and make advice and recommendations at the full Lone Star HSC meeting. Below you see who the team captains are, and I will add that if you are interested in playing this is where the best of the game is played and the most work gets done.

Navigation Operations Subcommittee Captain Christos Sotirelis, Gal-Tex Pilots Dredging Marine Construction Subcommittee Mark Coyle and Captain Marcus Woodring, PHA Maritime Education and Outreach Tammy Lobaugh, Texas A&M Galveston Waterways Optimization Subcommittee Jim Andrews, G&H Towing Just to give you a recap of the last game: on May 18th the full Lone Star Harbor Safety Committee met at the Houston Pilots Office (what a beautiful sunny field) and acted on several navigational issues by discussing an effort to support a Brownwater University revitalization, sending a letter to USCG Headquarters on proposed AIS requirements for push boats, and supporting the Bayport Dredging Project. Our next game is schedule for August 9th at the Coast Guard’s Marine Safety Unit Texas City. I hope to see you all there. Play Ball.

Limiting Sulfur Emissions: Point/Counterpoint What is an Emissions Control Area?

Unless Noted—All Photos Courtesy of Captain Lou Vest, Houston Pilots Association

On March 26, 2010, the International Maritime Organization (IMO) amended the International Convention for the Prevention of Pollution from Ships (MARPOL) designating specific portions of US and Canadian waters as an Emission Control Area (ECA). Allowing for the lead time associated with the IMO process, the North American ECA will become enforceable in early August of this year. The ECA lowers the amount of sulfur allowed in marine fuel to 1.0%, and by January 2015, the limit will lower again to 0.1% According to the US Environmental Protection Agency, ships are significant contributors to the U.S. and Canadian mobile-source emission inventories, though most are flagged or registered elsewhere. The program is designed to ensure that vessels complying with ECA standards will reduce their emissions of nitrogen oxides (NOx), sulfur oxides (SOx), and fine particulate matter (PM2.5) within the boundary. Though the quantification methodology for the 200 mile range has not been explained in depth by the agency, a similar program came into force in January 2010 for ports in the European Union, lowering the maximum sulfur content in fuel from 1% by mass to 0.1%.

What Does This Mean?

Put simply, to meet the requirements of the ECA, vessels will have to either avoid sailing into/out of the United States and Northern Europe or reduce the amount of particulate matter (NOx, Sox and PM2.5) being emitted from their engines. The three ways to accomplish this are:



Fuel Switching—Switching to low-sulfur fuel (less than 0.1%) eliminates the need for a complete retrofit however some modifications are still needed and the availability of enough lowsulfur fuel to meet demand is in question. With few facilities equipped to produce dedicated low-sulfur Marine Gas Oil and Marine Diesel Oil, and uncertainty about the regulatory requirements moving forward, the limited supply and rising demand is expected to have a dramatic effect on fuel costs.



Exhaust Gas Scrubbers—This device allows vessels to use existing fuel, and uses either chemicals or seawater to re- 4 move sulfur from exhaust gasses before they are pumped into the atmosphere. Scrubbers are relatively easy to install on board a vessel compared to some potential solutions, however they do require special tanks, pipes, pumps and a new water treatment system. Also, scrubbers increase power consumption and produce a sulfur-rich sludge which needs to be disposed of at dedicated facilities.



Switch to Liquid Natural Gas-Powered Vessels—an LNG fueled vessel does not produce emissions that violate the ECA, however the costs of retrofitting and fueling an LNG vessel are high. The ships require a cylindrical LNG fuel tank, special engines or engine modifications, a vaporizer, and double-insulated piping. Much like an LNG car, the savings available are attractive, however by most standards, the infrastructure necessary to sustain LNG shipping does not yet exist on a large scale.

What Are the Economic Impacts of the ECA? With the high costs of making modifications to vessels, many carriers are looking to use intermediate and low-sulfur fuel as a way to meet requirement, especially during the two year period before ECA restrictions tighten again in 2015. According to one Port Bureau Member: “The Maersks and Hapag-Lloyds of the world—operators with dozens of vessels and comparatively massive infrastructure and maintenance capabilities— we could see them making fleet-wide changes like converting to LNG or installing scrubbers, but for most of the world shipping market, at least short term, everyone is going to try to get as much low-sulfur fuel as they can get their hands on.” Tom Marian of Buffalo Marine Service also notes that “There’s a wariness of investing or dedicating the logistical requirements to accommodate a less-than three-year requirement.”

The 25,000 DWT converted LNG tanker Bit Viking: Converted at a cost of over $10 million- 75% of which was borne by the Norwegian Government— the tanker has an effective range of only 12 days at 80% load, but can also run on traditional distillates.

According to the US Energy Information Administration, lowering the sulfur content of bunker fuel will necessitate the use of desulfurized marine diesel and gas oil as ship fuel. Given the tightening supply of diesel, potential new demand for more diesel to power marine freight travel will bring additional pressure on diesel availability (including the land-side markets for commercial trucks and passenger vehicles), further increasing the price differentials between distillate and other petroleum fuels. In addition, although marine bunker fuel makes up less than 5 percent of total global petroleum product consumption, it

nevertheless has served as an important market for high-sulfur heavy residual fuels. One potential solution would be for refiners to invest in heavy residual conversion projects to break down residual oil into middle distillates. The capital and operating costs associated with such conversion projects would be high, however, and they would be passed on to ship operators. As a result, the ultimate effects of the MARPOL agreement on diesel supply is uncertain, but industry experts warn of potential issues: “Currently, the Gulf Coast refinery infrastructure does not possess the capacity to produce significant quantities of 1% intermediate fuel oil (IFO) due to the higher sulfur crudes that are being processed in this part of the country� according to a report by industry daily publication Bunkerworld.

Another report performed by the research firm Purvin & Gertz on The Impacts of IMO Specification Change and Other Measures to Reduce the Sulphur Content of Certain Fuels estimated that the cost of fuel could rise as much as 250% for some fuel oils as a result of the regulations (Table 5.1).

What Does the Use of Low-Sulfur Fuel Mean Operationally?

In order to use low-sulfur fuel economically, most operators have to change from existing high sulfur fuel oil to intermediate or low sulfur fuel oil or to marine diesel oil/marine gas oil and back again upon exiting the ECA. Often this requires a redesign of boilers to prevent furnace explosions and control viscosity during the switchover. To safely comply with regulations, vessels need to add tanks, piping, mixing tanks, purifiers and modify their fuel pumps, injectors, nozzles and lubrication systems. When the work is done, inspections need to be undertaken to ensure NOx technical code compliance.

Vessels also have to maintain separate storage tanks for existing bunker fuel oils and low sulfur fuel oils and the vessels will have to change over to low-sulfur fuel oil before completely entering the ECA to allow for dilution of current bunker fuel oils to 1.50% or less.

The Need to Reduce Emissions from Ships: The EPA’s Perspective

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The diesel engines that power ships are significant mobile source emitters. The largest ship propulsion engines being produced today must meet relatively modest emission requirements. In addition, both the main propulsion and the smaller auxiliary engines installed on these ships operate on fuel that can have extremely high sulfur content. As a result, these ships generate significant emissions of fine particulate matter (PM2.5), NOx, and SOx that contribute to nonattainment of the National Ambient Air Quality Standards for PM2.5 and ozone. Emissions from these engines also cause harm to public welfare, contributing to visibility impairment and other detrimental environmental impacts across the United States.

Many of our nation’s most serious ozone and PM2.5 nonattainment areas are affected by emissions from ships. Currently more than 30 major U.S. ports along our Atlantic, Gulf of Mexico, and Pacific coasts are located in nonattainment areas for ozone and/or PM2.5.

EPA has been advancing a coordinated strategy for many years to control air pollution from large ships. In addition to our Clean Air Act program, designation of U.S. waters as an ECA is a key component of EPA’s strategy. Also, the ECA and other requirements of Annex VI are implemented in the United States through regulations adopted under the Act to Prevent Pollution from Ships (APPS). Finally, EPA’s Clean Ports USA Program, as part of our broader National Clean Diesel Campaign, fosters innovation to achieve additional emission reductions from existing diesel engines and nonroad equipment at ports.

Air pollution from ships is expected to grow over the next two decades. Without EPA’s coordinated strategy, by 2030, NOx emissions from ships would be projected to more than double, growing to 2.1 million tons a year while annual PM2.5 emissions would be expected to almost triple to 170,000 tons. The North American ECA ensures that emissions from ships that operate in our waters and ports will be reduced significantly, delivering benefits to large segments of our population, as well as to marine and terrestrial ecosystems.

What Are the Environmental Impacts?

In 2020, emissions from these ships operating in the ECA are expected to be reduced annually by:  320,000 tons for NOx,  90,000 tons for PM2.5, and  920,000 tons for SOx, which is 23 percent, 74 percent, and 86 percent, respectively, below predicted levels in 2020 absent the ECA. The overall cost of the North American ECA is estimated at $3.2 billion in 2020, while the EPA estimates that benefits are expected to include preventing as many as 14,000 premature deaths and relieving respiratory symptoms for nearly five million people each year in the U.S. and Canada. The monetized health-related benefits are estimated by the government to be as much as $110 billion in the U.S. in 2020. —US Environmental Protection Agency Fuel switching at sea has potentially critical issues that need to be observed by crew members during the delicate process. Generally, auxiliary engine operations are affected so switching from high-temperature fuel oil to marine distillate fuels requires a cool-down period for pipelines and pumps to avoid insufficient lubricity and gasification of fuel. In addition, increased leakage can occur due to temperature variations in the respective fuel oils, and lubricants on the camshaft and changes in cylinder oil to prevent leakage from the fuel pump are all required. Because of the differences in density and viscosity of the two types of fuel oil and the physical issues associated with change, crew workload in the engine room will likely increase substantially. Conventional separators/purifiers require manual control, and modifications to address the aforementioned issues all will require training and additional work to be performed by the duty watch in the engine room when entering an ECA. Now What?

The State of California mandated fuel switching in 2007, and as a result some vessels have already experienced engine stalling leading the Coast Guard to issue a marine safety alert urging caution when changing fuel at sea. In January 2009, the Overseas Cleliamar lost power and nearly ran aground departing from San Francisco, and in the resulting discussions, ship owners noted that the changeover time can add several hours to the trip and extra costs for fuel can exceed an extra $30,000 per voyage.

“The changes are coming”, says Tom Marian, “we know that at Buffalo, we can supply any job and get the customer whatever blend of oils and distillates they need. Several years ago, we had order after order for boutique blends, then

Most Polluted Cities in the United States The American Lung Association (ALA) has analyzed data from air quality monitors around the nation to compile its annual State of the Air report. Houston’s air quality index has improved slightly this year to mark the best levels ever recorded for the city by the ALA. In particular, Houston’s daily short-term particulate pollution received “a commendable B”.

Cities with the Most Year-Round Particulate Pollution #1: Bakersfield-Delano, CA #2: Hanford-Corcoran, CA #3: Los Angeles-Long Beach-Riverside, CA #4: Visalia-Porterville, CA #5: Fresno-Madera, CA #6: Pittsburgh-New Castle, PA #7: Phoenix-Mesa-Glendale, AZ #8: Cincinnati-Middletown-Wilmington, OH-KY-IN #9: Louisville-Jefferson County-Elizabethtown-Scottsburg,KY-IN #10: (Tie) Philadelphia-Camden-Vineland, PA-NJ-DE-MD #10 (Tie) St. Louis-St. Charles-Farmington, MO-IL

#23 #120 #8

Where Did Houston Rank?

Overall 24 Hour Particulates High-Ozone Days

that leveled out. All of us—all the providers in the area will be able to get our customers the fuels they need to keep moving. The only concern I have is that nothing happens in a vacuum. We’ve seen that the $15-20 spilt between West Texas Intermediate and the Brent prices has led to European imports of WTI, affecting our markets here in the US, I can only imagine what will happen when these new regulations go into effect.”

The concern over low-sulfur fuels has even made its way to the floor of the new Lone Star Harbor Safety Committee. At the May meeting, representatives of terminals and carriers alike questioned the Captain of the Port as to what his guidance would be if a natural disaster restricted the availability of low-sulfur fuel to the extent that vessels would not be able to get in and out of port following the event.

Captain Whitehead noted that the Coast Guard was tasked with enforcing the zone, and careful consideration would go into any decision about how vessels moved in and out of port after a major incident.

The issue of low sulfur fuel is a hotly contested one with potential boons and detriments on both sides, but as implementation begins in two months, industry must remain vigilant for unintended consequences of regulation.—P. Seeba, GHPB

Port Watch

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Tom Marian—Buffalo Marine Service

Are Euro Problems Becoming Ours?

As the debate rages amongst economists on the impact of Euro woes and China’s stimulus plan will have on the United States trade picture, April’s maritime commerce picture did not bode well. In fact, April was the antithesis of March’s stellar performance in nearly every sense.

As the Day of Fools gave way to May Day, every port in Texas was below March’s vessel arrival account. Whether this was a premature breathing spell or the end of the post-Great Recession “recovery” remains to be seen; however, it certainly reflects a change in demand.

This month’s winner was the Port of Texas City which saw its total arrival numbers drop by 1 over the last month. With 125 vessel arrivals in April, the port remains 9% above last year’s running total. At the opposite end of the spectrum were the ports of Brownsville and Sabine.

These two ports located at opposite ends of the state were off 29% and 20% respectively. The one major difference between the two - other than geography – is the fact that while Sabine is off 2% from its 2011 year-to-date numbers, Brownsville is up a sizzling 44%. Working north from the border port, Corpus Christi saw 14% fewer vessel arrivals, Freeport dropped 19%, Galveston decreased by 7.5% and Houston’s monthly arrivals was off by 9%.

The Port of Houston still handled 711 deep-draft vessels – an impressive monthly number in its own right. The interesting piece of the Houston commerce puzzle is the composition of the vessels that discharged or loaded cargoes. On the one hand, tank vessels carrying oil declined by nearly 17% - due to shale gas production streams and waning demand – and on the other hand chemical tankers continued to surge with a 6% monthly rise resulting in a positive 44% year-to-date difference. Bulk cargoes were rather solid with a 3% gain but this was more than offset with a greater than 19% fall in general cargo vessel movements. Container vessels slackened by 6.6%; reflecting a softening in containerized good demand but LPG vessel arrivals continued its upward trend with its largest monthly gain of the year – 22% . Finally, the car carrier numbers were flat as compared to March (12 versus 13) but this category is up 21% for the year conveying a healthy demand for automobiles throughout the region. Last but not least, barges from sea plummeted 29% and inland tow movements throughout the Houston Ship Channel sank 2.5% during April.

All things being equal, the monthly negatives eclipsed the positives by enough of a margin to indicate that April may be more than an aberration. In fact, if the currency sniffles in Europe progress to a full blown cold it is anticipated that chemical and distillate exports may also wane due to reduced demand from afar. Granted, underlying all of this maritime transportation data is the true health of the U.S. economy and its ability to weather a trough of weak demand. That being said, it appears that the “experts” are already prepared to pare back their modestly positive predictions as the breezes of optimism are replaced by yet another round of doldrums.—T. Marian, Buffalo Marine Service

The Impact of the Panama Canal on the Houston Region Testimony to the Texas House Transportation Committee from Port Bureau President Bill Diehl Mr. Chairman and Members of the Committee: My name is Bill Diehl and I’m the Chairman of the Greater Houston Partnership’s Ports Task Force. I am also the President of the Greater Houston Port Bureau, a maritime trade organization of over 150 companies doing business along the Texas coast. In my previous career, I had the pleasure of working at the Panama Canal from 2004 to 2006 as the U.S. Coast Guard’s Liaison. In 2006, I assumed the Coast Guard’s Captain of the Port duties for the HoustonGalveston area, and retired from the Coast Guard in 2009 to accept The Texas House Transportation Committee Hearing my current position at the Greater Houston Port Bureau. I am here today to discuss what the Greater Houston Partnership sees as the effect of the Panama Canal expansion on Texas.

Before getting into the effect of the Panama Canal, I would like to highlight the value of our Texas ports. We know that as a nation roughly 1/3 of our GDP is tied to global trade and 98% of that tonnage is moving through our nation’s ports. What most people don’t realize is that 25% of that tonnage moves through Texas ports. Let me restate that, out of our 50 states, 25% of all inbound tonnage in the United States is coming into one state: Texas. It is probably time we start advertising ourselves as, Texas: America’s Energy and Maritime Capital. Our success as a state is our connection to global markets via our ports. Those global markets are served by ships and those ships are getting larger. The average vessel transiting the Panama Canal has more than doubled in size in the last 15 years primarily because of the growth and expansion of container trade.

The effect of the Panama Canal expansion is that it will allow us to continue to grow our trade with the global markets of Asia. The two sets of locks at the Canal reached full capacity in recent years and without the expansion, they would not be able to move additional cargo to meet global demands. In the maritime industry, if you’re not growing, you’re going to slowly go out of business, and the canal’s expanded third set of locks will allow it to service larger ships. With the additional capacity of the larger locks, Texas has great opportunity and we see three reasons that cargo movement will continue to grow in our State: 1.

Our region’s population is growing 2.

Container ships are growing larger 3.

Texas exports are growing State Rep. Larry Phillips My testimony will include a discussion of each of these three reasons and I will conclude with a warning about why we may not be able to take full advantage of the Canal’s Expansion.

First, let me talk about our regional population growth. Houston is the logical gateway into the middle of the country. We have 20 million people living within 500 miles of the Port, and our population in this area is growing at three times the national rate.

Why is this important? It is basic supply and demand: as our population grows we will need more sneakers, clothes, and flat screen TVs, and right now, most of those goods come in containers from Asia. Furthermore, most of the containers that come through our ports are consumed within weeks by customers within one-day’s truck ride. To visualize all of this, think about our oceans as super highways with our ports as on and off-ramps.

The Canal is a key bridge connecting those super highways. Now let’s take this analogy ashore: would it make a big difference to the economy if we build a massive

bridge connecting two super highways in rural West Texas—probably not, since the impact is limited with just a small 10 population. This is why a small Caribbean Island is not looking to Canal expansion as a game changer for their economy; they just don’t have the population demand to take advantage of the increased supply capacity the Canal will soon offer. However, our population within the Houston, San Antonio, and Dallas triangle is growing and will derive a lot of benefit from having adequate and efficient transportation infrastructure for our global supply chains. Having a port close to your customers is a good thing; having your customer base growing is even a better thing. We see that as our population grows we will be able to meet our global market demands of future generations efficiently by shipping through the Canal.

We are also optimistic that with the Panama Canal expansion, we will be able to receive larger ships laden with goods. With larger container ships, we will see the Dallas market open up for us here in Houston as the supply chain route shifts from the port of Los Angeles to Houston.

You have two slides from the Panama Canal to which I would like to call your attention. The first slide, with the three pie charts, shows how the global container fleet is growing. The left pie shows that in the year 2000 only 15% of the ships were too large to transit the current locks at the Canal (we call them Panamax Vessels). The right pie chart shows that by 2014, 48.1% of the global container fleet would not be able to transit the locks without expansion and that 12.5% will also test the expansion locks capacity The color coding

uses a term TEU; it stands for Twenty-foot Equivalent Unit, and is based on smaller 20-foot-long intermodal container, a standardsized metal box which can be easily transferred between different modes of transportation, such as ships, trains and trucks.

The current Panama Canal locks can take a 5,000 TEU ship and with the new locks they will be able to handle a ship in the 12,000 TEU range. So why does this matter? Well, going back to my metaphor that the Canal is simply a bridge between two super highways, by 2014 nearly 50% of the container ships out there will be too big to get across our bridge – the canal.

So larger ships are coming through the canal. How does Waiting at the Barbour’s Cut Container Terminal this help Texas? If you look at the second slide, with maps of the United States, I will explain that the Panama Canal expansion is really a fight for changing the distribution routes to Middle America.

In 1999, 86% of East-bound containers coming from Asia went into a west coast port and were shipped by train across the country to the East Coast. Only 11% went by an all-water route through the Panama Canal. By 2004 (when I arrived in Panama), the canal’s market share had jumped to 38% - that’s the sheer volume of goods moving from Asia to the East Coast by skipping a West Coast Port. As the ships grew it became obvious that it was cheaper to leave them on board and sail them through the Panama Canal then to take them into Los Angeles, and intermodally ship them across the country by train.

The green section on the map shows you where it currently makes more sense to ship through the canal to your final destination. With the expansion, the ships will quickly go from 4,000 TEUs to 8,000 TEUs meaning the price per container will drop. The Panama Canal numbers show the cost of shipping on 8,000 TEU ship is 16% less than a 4,000 TEU ship. This means that here in Texas, we will see the green line move west and now it will be more cost effective for our State to get its containers from ships going through the Panama Canal. Currently Dallas gets the majority of its freight via the Port of Los Angeles, because the cost of leaving it on a 4,000 TEU ship and shipping through the Canal are similar, but through LA you get the container probably a week sooner. However, with 16% freight cost drop that comes from bumping up to an 8,000 TEU ship, the total value equation for a Dallas company moving 50,000 containers means that it makes economic sense for them to factor the week’s delay into their schedule to take advantage of the cost savings offered by an ocean carrier coming through the canal.

This is what is happening with global economy: we are moving more cargo further, so we are seeking out less expensive and logistically sustainable ways to move that cargo. When it comes to moving material in volume over great distances, no truck, train or plane can come anywhere close to the efficiencies of ocean shipping.

So now we have the conditions for growth: a rising population, and larger ships to service them.

From the Houston Port Book, November 1948; Courtesy of Schrรถder Marine Services

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What else does Texas offer that makes it an extremely attractive place to offload cargo? Exports. Exports can cover the backhaul – the return trip – for a ship, allowing them to maximize usage of the vessel, driving costs down and making the trip financially attractive to carriers.

Emilia Istrate from the Metropolitan Policy Program in Washington D.C. wrote a report about the US Bureau of Economic Analysis’ economic numbers from 2011 noting that companies are orienting themselves where demand is and that exports have been and will continue to be a major driver in the nation’s economic recovery. According to the Bureau, the US economy has become more export intensive over the last couple of years and that growth will continue as companies take advantage of growing demand in developing countries.

So how do we stack up? From 2003 – 2008, Houston exports grew by 14.5 percent, and another 12 percent from 2009 – 2010. Our region exported more than $47 billion of goods in 2010 – 14% of our metropolitan GDP, and we’re ranked by the Brookings Institute as the fourth largest exporting region of the nation. Dallas is ranked as number five and between us; we have over 580,000 jobs supported by exports with steady double-digit growth rates.

As oil and gas exploration bring in steel – pipe, tubular goods, and construction materials - our chemical facilities are producing nearly $10 billion of export goods every year and are investing in ways to make themselves more efficient. Taking advantage of the low price of natural gas, many regional refineries and chemical facilities have switched to using a natural gas feedstock. By making the switch, the plants are able to produce resins, plastics and chemicals at a fraction of the variable costs as before.

Chemicals represent 20% of our total exports and nearly $10 billion/year, and it’s this type of engineering and infrastructure investment that is fueling our growth.

What does the Panama Canal Expansion mean to the state of Texas? It means as we grow we will see more cargo coming into Houston on bigger container ships to supply the needs of our population. Containers bound for Dallas via train may see significant advantages of shipping through Houston instead of Los Angeles. And when the volume of inbound shipping picks up, our manufactures will have an advantage in shipping out exports.

All of this is good, but we do have an Achilles’ heel: with additional cargo comes a strain on our infrastructure to be able to carry that capacity.

Having a workable strategy to meet this increased cargo infrastructure is key. On the land side, our local ports are gearing up for increased traffic. For example, the Port of Houston Authority (PHA) is building new facilities to accommodate the increased cargo. The PHA is tripling the design capacity of their container yards with the build out of their Bayport Container Facility as well as improving access to road and rail hubs in the region.

Our Achilles’ heel is the maintenance of our Texas ship channels. Most people don’t

think of a ship channel as infrastructure because it is not visible nor is it made of concrete or steel, but our channels are 14 our ramps on and off the maritime highway. Our local industry is putting $130 million into the Federal Harbor Maintenance Trust Fund (HMTF) every year to fund maintenance dredging, but we still have to beg to get $20 million of it returned as dredging allocations – when we really need $50 million a year. In recent years, funding disbursed from the HMTF has not reflected revenue collected with only 52% of the revenue generated actually being spent to keep our channels deep and wide. As we see larger ships, the lack of dredging will have a growing impact on our ability to bring them into our harbors safely and efficiently; put simply: if we silt in, the ramp will be closed.

Our regional ports rely on funding from the HMTF to maintain adequate dredging and capacity levels. For this reason The Greater Houston Partnership’s Board of Directors strongly supported the immediate passage of the Realize America’s Maritime Promise (RAMP) act (H.R. 104), which legislatively ties HMTF appropriations to HMTF revenues. This same solution Congress used for the Airports and Airways Trust Fund in AIR-21.

Here is a short anecdotal story we heard a couple of months ago: a Wall Street reporter called to inquire about business trends, and while talking to us, he mentioned that when he spoke to an executive from the Port of LA, the reporter was told that: “The best thing that could happen to Los Angeles is that Houston never gets dredged.”

In closing, 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 are becoming larger, requiring more sustained dredging. The Panama Canal’s expansion will allow these large ships to reach us by bridging the maritime highways of the Pacific with the Gulf of Mexico. However, to capitalize on this bright future, we need to continue to invest by dredging and building out our infrastructure; otherwise, the inefficiencies will starve the golden economic goose—our ports.

Mr. Chairman, members of the committee, on behalf of the Greater Houston Partnership and our affiliated Port Companies we appreciate the opportunity you have provided us today to highlight what we see as the Panama Canal Expansion’s effect on Texas.

Thank you. - B. Diehl, GHPB

Spotlight on Sean Carney President—Rickmers Linie (America) “Any job you have in the military involves some types of logistics, but I was pulled into some pretty significant transportation events by virtue of … well, by being there when a hiccup developed and they needed someone to help out.” As the operations officer for the headquarters commandant of the Stabilization Force (SFOR) – a multinational peacekeeping force tasked with implementation of the General Framework Agreement for Peace in Bosnia and Herzegovina – Captain Carney had his share of “transportation events”. “I remember when I was hey-you’d into redeploying an entire task force when the transport officer’s wife went into labor and he went straight on to a helicopter and went back to Germany. It was a great experience where I was responsible for everything and in control of nothing. I think that’s probably where I really got bit by the transportation bug” Originally from Utica, NY, Sean Carney went to Syracuse University on an Army ROTC scholarship. He spent a brief time in banking during college, and upon graduation, commissioned a second lieutenant in the United States Army and began work as an artillery officer. Stationed in Baumholder Germany, Ft. Sill Oklahoma and numerous other locations during his service, Sean deployed for over a year to Bosnia as part of the Implementation (later Stabilization) Force of peacekeepers in several operational roles before leaving the Army after six years at the rank of Captain.

After hanging up his green suit, Sean was a direct hire by GE Capital and moved to Chicago to work in the financial business. His projects included work on asset management, vehicle reclamation/marketing, and other transportation-related projects and after two years, he got an opportunity to move back to upstate New York to work for GE Energy. Hitting the ground running in a project management role, he focused on power plant construction and procurement for five years engaging in all facets of program work. When a position as GE Energy’s Director of Project Logistics opened up, he jumped at the chance and began managing his own division of over 120 people, moving between 2-4 million freight tons per year. “Gas turbines, wind turbines, steam turbines… the scope would change pretty broadly – from port of export to the port of import to the site. We had jobs on every continent in every type of condition you could imagine, and with the volume that we moved, I had dedicated charter teams to work with heavy-haul carriers.” Managing ten offices around the world, Sean and his people spent time focusing on his cargo’s transition points and job sites. “The activity that goes on between ship and shore is key – at the end of the day, the probability of something happening when the cargo is sitting still is pretty low, but with the amount of cargo we moved, I think we saw just about every type of issue occur that you can think of, so my team and I tried to stay one step ahead to meet the requirements of each job.”

Approached by Jerry Nagel, who had helped move his cargo during his GE Capital days, Sean moved from the shipper’s domain to take a job as Vice President for Rickmers-Linie (America) in late 2010, and in the summer of 2011, Sean stepped up and assumed the role of President/CEO. “I get a lot of questions about why I changed sides (from shipper to carrier), but I think that my perspective as a shipper in a former life adds an understanding of how cargo lives – the life cycle from inception in procurement to its final days in the construction process – that allows me to have a different conversation with my customers than maybe they’d normally hear from a carrier.”

One of the larger projects that Sean has been instrumental in shepherding at Rickmers has been the new joint venture between Maersk and Rickmers to provide US flagged heavy-lift service for breakbulk cargo worldwide. “The Houston office has taken a bigger stake in the game here – I mean, the breadth of our office was pretty big already between port captain activities, operational activities, and sales – but the wide range of skills that our people have has allowed us to stand up resources and scale up our capabilities pretty quickly and smoothly.”

Going forward, Sean is looking forward to keeping Rickmers moving in the right direction: “I keep looking to see how we can evolve our business. In a large-company environment in the energy business, we were always looking 6-7 steps ahead and had control of several of them. I’m trying to bring the same focus as a carrier with an emphasis of how we can use the hundreds of years of experience in our office to engage in the broader business going forward.”

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Sean met his wife Christy in college and they were married during his time in the Army – with a German marriage license to show for it – and they live with their three children Jack, Sam, and Grace in The Woodlands. In his free time, Sean is taking part in a fundraising drive for the Sailor’s Society – a group that offers emotional, spiritual, familial and financial support through seafarer’s centers and port chaplains around the world. Along with Dr. Ignace van Meenen, (Deputy CEO/CFO of Rickmers Group) and Thomas Hansen (CEO, Rickmers Trust Management Singapore), he will climb and descend the three highest peaks in the United Kingdom later this year. In 24 hours, the trio will scale and descend over 11,000 feet and the Rickmers Group will match all donations to the Sailor’s Society raised in support of their goal.

Rickmers-Linie provides a global network of liner services for the transportation of power generation machinery, wind power equipment, railway locomotives, yachts and similar cargoes. Rickmers-Linie is internationally recognized as a leader in ocean transportation of break-bulk, heavy-lift and project cargoes. Its technical expertise in stowage planning reduces shippers’ risks and makes loading and unloading safe, smooth and efficient. Rickmers-Linie (America) is based in Houston, Texas and the headquarters of Rickmers-Linie is in Hamburg, Germany GHPB Office Showcases Ship Channel Courtesy of the Houston Pilots Visitors and guests using the Port Bureau conference room now look across the table to see a view of the ship channel at night.

The 16’ long canvas print, donated by the Houston Pilots Association, showcases oil terminals and a refinery lit by facility lights, ship’s illumination and the moon showing that the ship channel is hard at work twenty-four hours a day. The photo, taken by Captain Lou Vest, joins a six foot by four foot piece of a break-bulk vessel unloading at the city docks also on display.

The Shuttle Explorer Touches Down in Houston “Though she’s not a space flown orbiter… she’s the only one we know that’s seaworthy” Photo Credit: Lou Vest, Houston Pilots Association, All Other Photos, P. Seeba, GHPB

After an 8-day journey across the Gulf of Mexico, the space shuttle replica Explorer, previously displayed at the Kennedy Space Center in Florida, arrived in Clear Lake on Friday, June 1st. The replica space shuttle sailed into a dock just one mile from the Johnson Space Center, where it soon will be on display to the public. Marking the occasion, JSC director Michael Coats remarked, “Though this isn’t a space-flown orbiter, it’s the only one that we know is seaworthy.”

The shuttle arrived at anchorage on Thursday the 31st and was moved to a lay berth in Galveston overnight, but as the sun came up, she began her trip up the channel, met by escorts from the Texas Parks and Wildlife Department, Galveston Police, Harris County Sheriff, United States Coast Guard, Texas Highway Patrol, and others. Towed by the Kirby barge Ross Sea, Captain Robert Thompson of the Houston Pilots was asked to board the tug on her way up the channel to provide expert advice on the crossing. Kirby barge operators marveled at the shuttle saying “You know, we’ve hauled a lot of loads, but this was a special trip—there was just something about looking behind you and seeing such a national symbol lashed to the deck.”

Festivities were held over the weekend to celebrate the arrival of the shuttle, beginning with the national anthem as a pair of NASA T-38 Talon jets flew overhead. The celebration culminated with a parade on Sunday as the replica made its one-mile trip along NASA parkway to the Space Center. Obstacles along the way caused the trip—which was originally

NMSAC Tackles Crew Guard Issues

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In response to growing concerns among the maritime industry, at its May 16 meeting the National Maritime Safety Advisory Committee (NMSAC) adopted a series of recommendations to Department of Homeland Security Secretary Janet Nepolitano. These recommendations, designed to alleviate pressure on crew members and ocean carriers from severe federal policies for crew security plan requirements, are expected to form the basis of further dialogue between industry, Coast Guard and Customs and Border Protection.

At issue are requirements implemented in 2005 after Coast Guard and CBP signed a memorandum of understanding regarding detention of certain crew members. Since that time, ship agents within the Delaware River port community and throughout the U.S. have been concerned about requirements for armed personnel, who are generally not sworn law enforcement officers, and frustrated by inconsistent application of policies.

“We understand DHS’s concerns relating to foreign crew members arriving on ships at U.S. ports,” said Delaware River Maritime Exchange Vice President Lisa Himber, who chaired the NMSAC Working Group. “But industry has equally valid concerns about the way these policies are affecting port operations, maritime security, and crew well-being.”

Among the recommendations, NMSAC suggest that DHS issue additional guidance to clarify the nature of the risk and change policies where necessary to appropriately respond to it. For example, • For a crew member who does not possess a visa, clarify that the individual is not necessarily classified as a threat to national security but rather may pose a risk of deserting his ship (i.e., illegal immigration vs. security threat).

• If an individual is not deemed a threat to national security, armed guards should never be required. If at any time armed guards are required by federal mandate, a DHS issued “use of force” policy should be provided and followed.

• If an individual arriving at a U.S. port is deemed to be a threat to national security, the responsibility of mitigating that threat must be placed on the appropriate federal, state or local authorities, not a vessel master.

Other suggestions included modifications to policies regarding repatriating crew members. Ron Branch, retired Coast Guard Captain and current President of the Louisiana Maritime Association noted that “The security environment at marine terminals has changed dramatically since the MOU was signed. The implementation of facility security plans and tighter controls on vessel and terminal access should certainly alleviate many of the federal concerns.”

In addition to NMSAC, the National Association of Maritime Organizations has also been working with CBP to address the issues.

Coast Guard has responded swiftly to the concerns following the discussions at the January NMSAC meeting. An ALCOAST bulletin which seeks to clarify policies was drafted shortly after the meeting and should be released shortly. In addition, Coast Guard Sector New York recently released a Maritime Security Information Bulletin stating that, “in most cases, the Captain of the Port New York-New Jersey will no longer mandate ‘armed’ contract security guards onboard commercial vessels.”

“It is our hope that CBP and Coast Guard will continue to review and modify policies to ensure they adequately reflect the current environment and appropriately balance the threat against the consequences,” Himber said. “We look forward to continued progress on these issues.” - L. Himber, Maritime Exchange for the Delaware River and Bay; this article reprinted with the kind permission of the Maritime Exchange of the Delaware River and Bay

scheduled to take three hours—to be delayed several times as technicians tried to maneuver the space shuttle along the parkway. As the shuttle spanned three car lanes, several times along its journey street lights had to be moved to allow the shuttle to pass, and workers had to trim trees along the route which prevented the shuttle from continuing.

Once the shuttle finally arrived at the Space Center, it was put on display for free in the parking lot. The Space Center plans on mounting the shuttle replica on a concrete base, and building a ramp this autumn so that visitors can tour the crew compartments and cargo bay.—J. Whitehead, GHPB

Upcoming Events: 12 July

Commerce Club Luncheon Port Director CAPT. Mike Mierzwa, USCG (Ret.), Port of Galveston

25 July

Area Maritime Security Committee Meeting 0900-1100—Galveston Cruise Terminal

10 August

Lone Star Harbor Safety Committee 1000—1200—USCG MSU Texas City

18 August

2012 Annual Maritime Dinner

(SOLD OUT)

13 September Commerce Club Luncheon ASAC Michael Anderson, FBI

11 October

Greater Houston Coffee Association Annual Luncheon

5 November

GHPB Captain’s Cup Golf Tournament

8 November

Houston Ship Channel Security District Annual Luncheon

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