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1 SUMMARY North American Marine Highways Introduction As the economic and geographic character of the United States changes, so too must the transportation system. The important factors driving increased interest in waterborne ship- ments in Europe and other parts of the world--congested roads, high fuel prices, tolls, road taxes, hours of service limitations on truck drivers, driver shortages, safety concerns, and environmental concerns--can all be found in the United States. It is with this basic understanding that the U.S. Maritime Administration (MARAD) launched its Short Sea Shipping (SSS) Initiative, which has now evolved into the North American Marine Highways (NAMH) Initiative. The enthusiasm for NAMH, however, has been tempered in recent years by the failure of some start-up initiatives and the fact that, despite record energy prices, the promise of NAMH does not appear to have been fully embraced by the freight community. One of the first tasks in assessing NAMH or SSS is to establish a reasonable definition for "North American marine highways." This research uses the definition for "short sea shipping" adopted by the Society of Naval Architects and Marine Engineers Panel O-36 also to define North American marine highways as follows: Freight service operations carrying either containerized or trailerized cargoes (or empties) via the coastal waters and river systems . . . and in particular those services where there is a true "intermodal choice" to be made by the shipper between moving units by water and using one or more land-based alternatives (i.e., highway and/or rail).1 In order to understand NAMH and what can be done to support their development, the authors have divided the subject matter into the following seven topics: Ventures (both successful and unsuccessful) since 1990, Shipper requirements, Vessel considerations, Legislation aimed at encouraging NAMH, The European experience, Obstacles to further development of NAMH, and Miscellaneous important considerations. Findings One of the more interesting findings from this research effort is that marine highway ventures of varying distances have the potential for viability. Thus, the conventional wisdom

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2 that marine highway operations are viable only at distances equal to, or greater than, those that are viable for intermodal rail is not correct. On the contrary, successful operations have been carried out on routes as short as "across the bay" and as long as more than 1,000 mi. More importantly, the researchers concluded that there is no critical distance for determining whether a particular venture will be successful. The specific geographic fea- tures of each service must be considered, including the alternative landside distances and connections. There seem to be several themes that run through the successful attempts and those that characterize the unsuccessful ventures. Ventures that have been successful exhibit the fol- lowing characteristics: They operate in a limited market in terms of geography and cargo mix. They deliberately do not try to be "all things to all people," but also do not depend exclusively on a single shipper. The vessels (ship or barge) are adequately sized for the cargo that is being targeted. Most of the successful operators work with relatively small lot sizes, enabling them to use equip- ment that requires a lower upfront capital budget. Smaller vessels such as barges also are easier to replace or substitute. The frequency meets the needs of the customers, and there are often set, reliable schedules. Successful ventures promote an integrated door-to-door service. Working with truckers (or controlling their own truck fleets) and becoming intermodal providers were key ele- ments of success. They are able to provide cost-effective terminal services. There is limited competition from potential marine service providers. Unsuccessful ventures also had several common characteristics: The door-to-door cost was not competitive with trucking and/or rail services. An attempt was made to develop a market based on the characteristics of a preexisting vessel or vessels, as opposed to the market characteristics dictating the type of vessel to be utilized. In order to reduce capital requirements, certain ventures time-chartered their vessels. When the charters expired they were unable to negotiate new charters for their vessels, or find suitable replacements. There was heavy reliance on a single vessel. When mechanical or weather problems arose, there was no ability to work around them, causing shippers to lose confidence in the service. Although the success rate of all ventures was low, services that were designed to cater to international cargoes have a higher failure rate than do domestic services. The literature review and interviews revealed several shipper requirements that are impor- tant for a marine highway operator to address. To succeed, a NAMH service must possess two major characteristics: (1) it must provide a time/cost tradeoff that is competitive with that of other modes, and (2) it must be reliable and as seamless as possible. The most important attributes in a shipper's choice of mode are (not necessarily in order): general preference for retaining the existing service structure, travel time, reliabil- ity, and cost. Various vessel types are, or could be, employed in NAMH operations. They can be classi- fied as the following:

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3 Tug and pull-barges (ocean going), Tug and barges (river type), Integrated tug/barge and articulated tug/barge (ITB/ATB), Small ships, Rail ferry, and High-speed ferry. The literature suggests that in the case of vessel selection, smaller may be better. Optimal ship size is obtained by trading off economies of size in the hauling operations with dis- economies of size in the handling operations. The larger the vessels are, the lower the opti- mal frequency is to handle the same volume. This creates a barrier to entry into shipping routes, as the volume of cargo must be sufficient to enter the market with an economically sized vessel. In port, handling costs per ton often increase with ship size, but hauling costs per ton at sea decline with size. Typically, shipping lines will enter a new market with the smallest vessels that meet their economic requirements and then grow the service by substituting larger vessels for the smaller ones. Intraregional container ships seem to fall within the range of 1,000 to 3,500 TEU. (TEU stands for 20-ft equivalent unit. A 20-ft ocean container is 1 TEU; a 40-ft container is 2 TEU. This is the standard unit of measure for container capacity.) The most appropriate roll-on/ roll-off (Ro/Ro) vessels appear to be in the small- to mid-size range of 600650 ft length over- all, 21-ft draft, and the capacity to transport 140150 48-ft or 53-ft trailers). Focusing on a relatively high number of small vessels spreads the risk and mitigates the impact of taking a single vessel out of service, while allowing trucking and rail to serve as a safety net in the event of high demand or reduced vessel capacity (as in the case of a drydocking). Alternatively, the disadvantage of committing to smaller vessels in a high-volume market is that the service may never achieve the operating economy that could be realized by using larger ships and, thereby, might be more vulnerable to competitors. Legislative activity to date can be separated into two main categories (1) attempts to mod- ify or eliminate the Harbor Maintenance Tax (HMT), and (2) designation or promotion of routes for the development of marine highways or SSS through infrastructure grants or other mechanisms, along with attempts to actually fund these programs. Efforts to eliminate HMT for domestic shipping have been unsuccessful to date. In the last four congressional sessions, a number of lawmakers have sponsored bills providing HMT relief, either on a regional or national basis. Despite bipartisan support for the idea, none of those bills has made it out of committee. Such efforts are still underway in the current session of Congress. Bills that encourage the development of marine transportation alternatives have met with more success, but they have not been accompanied by levels of funding that would be nec- essary to jump-start the industry. The literature is replete with obstacles encountered by prospective marine highway ship- pers and operators. For the most part, they all can be reduced to one issue: these services are not cost-competitive with the alternatives that exist. The economic model is compli- cated by the fact that NAMH services must not only meet the prices offered by alternative modes but, in many cases, must actually offer a significant discount over trucking alterna- tives to compel shippers to switch. (Studies indicate that discounts of 20% to 30% off truck- ing costs may be required to compensate for a transit time increase of one day for longer short sea transits, assuming that the NAMH service is reliable.) The question then becomes one of determining what factors prevent such services from competing effectively.