Marine Highway Transport of Toxic Inhalation Hazard Materials (2012)

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41 Geographical Dispersion Geographical dispersion is the most formidable obstacle to a significant increase in the volume of TIH marine shipments. As noted in Chapter 1, in the section labeled “Geography of Commodity Flows,” producers tend to cluster, but consum- ers tend to be widely dispersed throughout the country. Since natural gas is by far the most important cost com- ponent in the production of ammonia, new shale gas plays might result in the construction of ammonia production facilities in new locations, which would in turn affect com- modity flows. To date, no ammonia producer has announced its intention to build a facility near one of these plays. Even if it were to do so, it is unlikely that waterborne transporta- tion would be part of the logistics chain, given the location of these new plays. There is very little concentration of chlorine shipments between any origin-destination pair. With the announced intention of the chlorine industry to co-locate more pro- duction facilities adjacent to consumer facilities and with a widespread initiative underway to substitute safer products for chlorine, the likelihood of additional concentration or new high-volume corridors developing is minimal. Financial Risk of Catastrophes The railroads purchase insurance to mitigate the finan- cial risk of carrying hazardous materials, but this coverage is both expensive and limited in availability. According to the Association of American Railroads (AAR), highly hazardous commodities constitute only 0.3 percent of the total carload but account for 50 percent of the insurance costs of railroad companies (81). Any marine carrier wishing to enter the chlorine transportation marketplace will have to determine whether the cost of insurance against catastrophic accidents will outweigh the economic benefits of the transportation operation. According to the AAR, the revenue that highly hazardous materials generate for the railroads does not come close to covering the potential liability to railroads associated with transporting this traffic (34). Operational Ammonia The STB noted in recent proceedings that barge companies lack sufficient barge capacity and there is insufficient storage capacity (the shipper’s responsibility) to handle a significant shift of anhydrous ammonia traffic from pipeline to barge. Barge transport involves higher costs than pipeline transport, which could make a shift prohibitively expensive. Barges, unlike pipelines, are hindered by floods, low water, and icing, and barge trips take from days to weeks, while pipeline injection and withdrawal is essentially instantaneous. Some of the qualitative considerations that the STB found to limit the effectiveness of barge competition were capacity, reliability, speed, and safety. Because of insufficient storage capacity at barge destination points, someone would have to make prohibitively large expen- ditures or investments to shift from pipeline to barge (82). Chlorine Producers cannot store chlorine. This means chlorine moves from the manufacturing site to the consuming loca- tion and into the production process immediately with only nominal inventory on site. The ideal solution in this environ- ment is to build consuming plants or locations at the produc- tion site. One of the chlorine producers interviewed for this study indicated that marine possibilities are limited by customer locations, lack of marine routes, absence of marine docks and storage facilities, and insufficient demand for the bulk quanti- ties that can be economically delivered (typically 1,100 short tons per barge). C H A P T E R 7 Obstacles

42 A further complication for both chlorine and ammonia shipments is the fact that in the northern reaches of the river system (especially the Upper Mississippi River), ice is a prob- lem in the winter. The Upper Mississippi River above Quincy, Illinois, closes annually from December to March/April, and navigation is often restricted on the Illinois River in January and February. The fact that chlorine cannot be stored in suf- ficient quantities to last the winter becomes a severe opera- tional and financial constraint for logistics managers. Regulatory The current regulatory environment tends to discourage new market entrants. For example, accidents involving TIH materials have no liability limits. A single hazardous materi- als accident can bankrupt a small carrier. Several of the interviewees for this study indicated that one of the biggest obstacles to building new transportation and storage facilities is the permitting process. Uncertainty about the time it will take to acquire the permit and then construct the project makes a rapid response to market shifts very difficult. Jones Act requirements that restrict domestic service to ves- sels that are constructed in the United States, with a U.S. flag and a U.S. crew, make coastal movements an impossibility in the short run. There are no Jones Act vessels involved in coastal trade, and the cost to convert existing vessels would be prohibi- tive. Interviewees made the case that there is no need to move anything along the coast anyway. If port facilities were available, imports would be made directly by foreign-flag vessels and then shipped by barge, rail, or pipeline to the ultimate destination. Market A start-up enterprise or an expanding operation will need to consider two major market risks. The first is that manu- facturers may begin substituting for TIH materials to avoid the risks and transportation expenses and difficulties. This is already happening with chlorine-based producers, the most notable being Clorox. The other major risk is that producers may actively seek to cluster their facilities to avoid having to transport TIH materials over significant distances. The pro- posed new chlorine plant in New Johnsonville, Tennessee, is an example of such a strategy. In other words, users of ammonia and chlorine may begin relocating to sites closer to producers, thereby cutting out transportation altogether. Ammonia-Specific Factors The ammonia marketplace has shown itself to be sensitive to external factors, such as natural gas prices, that can vary dramatically over relatively short periods of time. Investment in such infrastructure is therefore uncertain and appears unlikely in the current regulatory environment with lengthy permitting processes and easy substitution via imports. U.S. fertilizer demand is not expected to grow much at all—it is a mature market. There is only so much available land, and only so much fertilizer can be put on that land. Interviewees indicated that the volumes for 2010 and 2011 are probably close to the ceiling for the United States. In other words, this market is a mature market with few, if any, existing service gaps. Chlorine-Specific Factors Chlorine demand is not expected to decrease significantly, despite the industry’s status as a “mature business.” Given the importance of chlorine-derived products in a modern econ- omy (ranging from basic construction materials such as PVC to refrigerants, bleaches, agricultural chemicals, water purifi- cation, and many other applications), it is unlikely that over- all chlorine use will significantly decline, despite a perception that chlorine is environmentally unfriendly. Nonetheless, the hazardous properties of elemental chlorine and consequent potential liabilities work against expansion of transportation and storage of chlorine gas itself. Infrastructure Conditions Businesses and associations that have an interest in marine transportation via the inland waterway system are almost unanimous in their concern over the condition of the locks and dams that make much of the system navigable. Such groups include the Waterways Council, the National Water- ways Conference, regional port associations, agricultural associations, and private businesses. Lack of trust in the long- term viability of the physical infrastructure is a significant roadblock to investment in businesses that use the system. In fact, one interviewee for this study stated very clearly that all considerations are secondary to the concern over the abil- ity to use the system over the long term. Concerns include the state of major navigation projects such as locks and dams (many of which are in need of significant rehabilitation) and the availability of funds to support maintenance dredging of navigable channels throughout the inland waterways system. Externalities to Consider Reaction of Organized Labor International Longshore and Warehouse Union (ILWU) The Coast Committee of the ILWU, supported by the Coast Longshore Division Caucus, opposes the United States government’s usage of scarce tax dollars to promote and

43 subsidize short sea shipping in the north/south movement of containers on the West Coast of the Americas. In the commit- tee’s opinion, such water trade movement, by its very nature, cannot compete economically with truck and rail (even if subsidized) and will only serve to further drive down the sector’s wages and working conditions. It will establish the framework for non-union and non-ILWU predatory union challenges to the Coast Longshore Division’s jurisdiction. In Seattle, no ILWU longshoremen handle the cargo associated with short sea shipping. It is all handled on the Duwamish River, either by non-union workers or long- shoremen represented by the Inland Boatmen’s Union (IBU) under a Pacific Coast Longshore Contract Document (PCLCD) “substandard agreement.” In the upriver ports of the Columbia River, the containers are handled exclusively by non-union dockworkers. Operators in non-union upriver Columbia River ports are requesting government subsidies to build barges designed to bypass ILWU longshoremen in Portland and transport commodities directly to the non- union Duwamish, where the barge can be unloaded for the short truck transport to Seattle’s International Port. Already, the Coast Committee is being approached with requests for manning and wage reductions that would be unique to short sea shipping. Potential operators are seeking advantages from non-Pacific Maritime Association (PMA) member public port authorities to lease blocks of property for the purpose of establishing container yards (CYs) with no ILWU Coast Longshore Division presence. The AFL-CIO’s Transporta- tion Trade Department (TTD) wants to support short sea shipping, but the Coast Longshore Division is blocking any formal endorsement (83). ILWU Coast Committeeman Leal Sundet claims that short sea shipping proposals promising lower costs and environ- mental benefits by using ships to transport goods between West Coast ports (instead of trucks) are largely based on models employing non-union or low-wage labor in order to compete with the largely non-union trucking industry. He, therefore, opposes any government support for short sea shipping (84). AFL-CIO Maritime Trades Department The AFL-CIO strongly supports legislation introduced by Sen. Frank Lautenberg (D-NJ) that would amend the Inter- nal Revenue Code to exempt the waterborne transportation of cargo between domestic U.S. ports from the Harbor Main- tenance Tax (HMT) (85). Maritime labor is hoping to use provisions of the Energy Independence and Security Act of 2007 to promote impor- tant national concerns, including more jobs for U.S. civilian mariners, enhanced U.S. productivity, less gridlock, and a safer environment. Among other things, the bill establishes a formal “marine highway” program within the federal govern- ment and provides for seed money for selected programs (86). International Longshoremen’s Association (ILA) According to its website (http://www.ilaunion.org), the ILA represents more than 65,000 longshoremen on the Atlantic and Gulf Coasts, Great Lakes, major U.S. rivers, Puerto Rico, and Eastern Canada. The ILA supports short sea shipping. Recently, the ILA publicly welcomed American Feeder Lines’ announcement to begin a coastwise service in the Northeast. ILA members in that region are largely idle during the winter. According to ILA representatives, the new service will put up to 20 people to work every week, unload- ing cargo and operating the terminal (87). Reaction of Rail and Trucking Interests The desire by railroads to exit the business of transporting chlorine and anhydrous ammonia is documented elsewhere in this report. Given their desire to exit, railroads will not pose a competitive threat to any barge operations in most cases. This premise was verified in an interview with a Class I railroad executive, but this same individual also pointed out that the off-water location of origins and destinations for these ship- ments makes a diversion to marine traffic almost impossible. Shippers do not consider trucking to be a viable alternative for long-haul transportation. Cost and safety elements make the use of truck transportation non-competitive, except in rare, well-defined cases. Therefore, a new or expanded marine service for long-haul transportation would not expect to face significant opposition by trucking interests. Public Safety and Environmental Issues The dramatic railroad incidents described earlier in this report illustrate the significant public safety risk inherent in the long-haul transportation of TIH materials. Given that marine transportation generally does not pass through or adja- cent to residential areas, it would appear that there is less risk to public safety when transporting by water. Such assump- tions would clearly depend upon specific routes and origin/ destination locations. The basis for the assumption that a marine accident would have less severe consequences than a tank rail car accident is that an accident below the water line or at water level has reduced consequences. The researchers reviewed all large spills (> =1,000 gal) from inland waterway traffic from 2001 through 2009. There have been no chlorine or ammonia spills. Unfor- tunately, Coast Guard records are spotty, but the researchers identified and reviewed 55 instances where at least 1,000 gal of hazardous material was spilled. There were seven instances

44 where an accident caused a loss of product from a barge. Three of these spills definitely occurred below the waterline. Three others are inconclusive, but they occurred in bays or heavy industrial areas. Another one that was inconclusive occurred in a populated area (McAlpine Lock). None of the incidents involved a spill from loading or unloading operations. The data appear to support the hypothesis that marine-related incidents are less risky to human health and safety than rail accidents. Potential Roadway Congestion Mitigation The volumes associated with ammonia and chlorine are substantial in terms of the truckloads and rail carloads they represent. In 2010, approximately 11.1 million short tons of ammonia were produced domestically. Assuming that an ammonia tank truck carries 20 tons of ammonia, the total production volume equates to approximately 555,000 full truckloads. Similarly, assuming that an ammonia tank rail car carries 80 tons of ammonia, the total production volume equates to 138,750 rail car loads. In 2009, Olin, OxyChem, and PPG had a combined chlo- rine production capacity of 7.21 million tons. The litera- ture does not state the level of utilization at these facilities; however, assuming it were 90 percent, the actual produc- tion would be 6.5 million tons. Chlorine cargo tank trucks meeting U.S. DOT Specification MC331 or MC330 have an approximate capacity of 15 to 20 tons (88). Assuming a tank truck carries 20 tons, the total production volume equates to 325,000 truckloads. Assuming that a chlorine tank rail car carries 90 tons (89), the total production volume equates to 72,000 rail carloads. However, even though the annual transported volume of these commodities is significant, the potential for roadway congestion mitigation is severely limited. Trucking is already the mode of last resort for ammonia and chlorine shippers. There are currently virtually no chlorine movements by truck and only a small number of long-haul truck movements of ammonia. To put this in perspective, there were 4.9 million tons of ammonia transported by truck in 2007 with an aver- age shipment distance of 194 mi per shipment. This indicates that trucking is used primarily for local delivery and would not make a good target for congestion relief by barges. There is so little chlorine shipped by truck, it does not appear in the federal government statistics.