Clear As Mud?

Clear As Mud? Industry asks when will the U.S. government see its way to the bottom of a deepening dredge crisis?

By Chris Dupin

   The nation's maritime industry is facing a two-fold dredging challenge.
   Already, port advocates say federal funds provided to the Army Corps of Engineers for maintaining harbors are inadequate, and there is concern that some of the money in the Harbor Maintenance Trust Fund may be tapped for other purposes.
   'The problem of federal navigation channels not being adequately maintained to their authorized dimensions, depths and widths, certainly has been getting to be more of a widespread problem throughout the U.S.,' Kurt Nagle, chief executive officer of the American Association of Port Authorities, told American Shipper. 'The Corps has essentially had to rob Peter to pay Paul and try with limited resources to manage the channels around the country to the degree that they are able.'
   The second challenge is that a growing number of ports are seeking funds to deepen their harbors in order to accommodate larger ships that are already arriving or expected in coming years.
   That will become particularly critical after a third set of locks at the Panama Canal, scheduled for completion in 2014, will allow much bigger containerships from Asia to traverse the isthmus and call at U.S. ports on the East Coast and Gulf of Mexico.
   Today, the largest Panamax ships carry about 5,000 TEUs, drawing 39.5 feet of water.

Sabonge

   Rodolfo Sabonge, vice president of market research and analysis at the Panama Canal Authority, said that when the expansion was first announced, his agency designed the locks to accommodate containerships drawing 50 feet of water with a capacity of 12,600 TEUs. Since then classification societies have come forward with designs for containerships loaded with 14,500 TEUs that will be able to squeeze through.
   Sabonge estimates the cost per TEU for moving cargo from Asia to the U.S. East Coast will drop from $859.21 for a 4,500-TEU ship or $852.17 for a 5,000-TEU ship, to $845.58 for an 8,000-TEU ship and $769.91 for a 12,000-TEU ship.

Anderson

   While each port must look at its project parochially, it is also 'of strategic importance for all of our ports on the eastern seaboard to be looking at how they continue to handle Asian trade,' said Paul Anderson, CEO of the Jacksonville Port Authority, and a former commissioner at the Federal Maritime Commission.
   Ports face the need to handle bigger ships not only from an expanded Panama Canal, but also from the tran-Suez and Europe services that are already using larger ships today, Anderson said.
   The dredging issue has attracted increased interest from some members of Congress who consider deeper harbors important to the nation's economic recovery, the president's desire to increase exports, and the competitive interests of ports in the states they represent.
   Even as disagreement among Democrats and Republicans over federal spending reached a crescendo in early April, there appeared to be growing bipartisan support for harbor deepening.

Maintenance Backlog. A report from the Congressional Research Service in January said the Army Corps of Engineers estimates 'full channel dimensions at the nation's busiest 59 ports are available less than 35 percent of the time.
   'This situation can increase the cost of shipping as vessels carry less cargo in order to reduce their draft or wait for high tide before transiting a harbor. It could also increase the risk of a ship grounding or collision, possibly resulting in an oil spill,' the report noted.

'The Corps has essentially had to rob Peter to pay Paul and try with limited resources to manage the channels around the country to the degree that they are able'

Kurt Nagle chief executive officer, American Association of Port Authorities

   'Almost the entire country, almost every navigation project in the country is not being fully maintained at the present time,' James E. Walker Jr., navigation program officer for the Army Corps of Engineers, said in an interview, admitting 'That's not a very positive spin.
   The president's fiscal year 2012 budget provides for use of $758 million to maintain coastal channel and harbors. It was $747 million in fiscal year 2011, $834 million in 2010, and $760 million in 2009.

Growing Surplus. Congress established the Harbor Maintenance Trust Fund (HMTF) in 1986, which is financed through a 0.125 percent harbor maintenance tax on the value of cargo imported through a port or moved between two domestic ports.
   (The Supreme Court said in 1998 that exporters did not have to pay the tax, finding it unconstitutional. While the tax has been challenged by the European Union at the World Trade Organization as a discriminatory import tariff, the EU has not pressed the issue in more than a decade.)
   But for years, only about half the tax money being collected has been spent on harbor maintenance, leading to a $6 billion HMTF surplus.
   'If the Corps had full access to the trust fund there would not be an issue on the Mississippi River,' said Barry Holliday, chairman of Realize America's Maritime Promise, The Harbor Maintenance Trust Fund Fairness Coalition (RAMP Coalition), as well as executive director of the Dredging Contractors of America. 'That is why we are trying to enact legislation that would ensure the Corps budget is able to have full access to all the revenues generated' by the HMTF.
   That argument met with a great deal of sympathy by House members at a March 8 hearing before the Subcommittee on Water Resources and Environment.
   'The backlog of every dredging project in the country could be paid for,' said Rep. Andrew P. Harris, R.-Md. 'When we are borrowing from the Chinese to pay our debts, I wonder a little bit.'
   But Rep. Tim Bishop, D-N.Y., noted there was a long history by both Republican and Democrat presidents using the surplus in the HMTF, just like that in Social Security, to reduce the deficit.

Southwest Pass To Duluth. President Obama's 2012 budget provides for use of $758 million from the HMTF to maintain coastal channel and harbors. Darcy noted that while the overall civil works budget for the Corps is 15 percent below the enacted fiscal year 2010 level, the amount for harbor maintenance and related work in the fiscal year 2012 budget is 'essentially unchanged from the two prior years.'
   Port advocates say the amount being appropriated is far below what is needed, and as a result navigation is being restricted on a number of waterways including the Mississippi River and on the Great Lakes.
   For example, it normally costs more than $100 million to maintain channels on the Mississippi River, said Ken Wells, retired coordinator of the Big River Coalition, which represents nearly 50 organizations and companies that depend on the river.
   Even when the Corps of Engineers has received less money than needed, it has generally been able to reprogram funds to keep the Mississippi dredged.
   But Amy Larson, president of the National Waterways Conference, said restrictions placed on the Corps by the Office of Management and Budget has limited its flexibility in making up the funding shortfall by moving funds within its budget.
   The Corps was given $63 million for maintenance dredging the Mississippi River when $104 million is spent in an average year.
   'Instead of spending what they have and either working to reshuffle funds or looking for a supplemental or frankly get the administration to understand the need for the river, they simply announced they are cutting back to stay within their budget,' Wells said.
   Earlier this year draft was limited at the mouth of the Mississippi River and restrictions were placed on operating ships at night on parts of the river.
   'The Mississippi was probably the last to fall in terms of the situation that we're facing across the country in our channel maintenance program,' Walker said. 'You have a few ports on the West Coast that are naturally deep that do not require dredging and those are probably the only ones that really have their full dimensions available,' he added, pointing to Los Angeles, Long Beach, Seattle and Tacoma.

Cost Of Light Loads. Not being at full dimensions may not affect shipping on a waterway right away. But as shoaling the sides of channels becomes more severe, Walker said pilots may be restricted to moving cargo in one direction, or be forced to move ships during high tide which can restrict arrival and departure times, and drive up costs.
   Eventually ships may be forced to light-load, which can further raise shipping costs.
   Michael R. Lorino Jr., president of the Associated Branch Pilots in Metairie, La., said pilots were forced to reduce the draft of ships on the Mississippi River from 47 feet to 44 feet earlier this year.

The new dredge Edward S. 'Ned' Reed scours along the docks at the Port of New Orleans.

   'To put things in perspective, the loss of three feet of draft on a crude oil tanker equals more than a $4 million loss. That's per ship. Consider that every day, roughly 30 ships of every kind, from oil tankers to cruise ships, make their way in and out of the river,' Lorino said in a statement issued March 1. 'Do the math. I can promise you, shipping companies are. And it won't be long before they realize they can be far more profitable going to ports all across South America.'
   By early April, things had begun to improve. The Corps of Engineers hired three dredges to work around Southwest Pass, and the Associated Branch Pilots said ships were able to load to 45 feet. With the river rising from snowmelt and continuing work by the dredges, they were hopeful the normal 47 foot draft would soon be restored.
   In addition to having to light-load at the mouth of the river, navigation was restricted upriver in some locations by the New Orleans-Baton Rouge Steamship Pilots, which required ships to light-load in one area and not navigate at night in another.
   'The Mississippi is becoming a poster child for the country's need to put its dollars where its talk is,' said Wells, adding it is essential if President Obama's plan to double exports in five years is to succeed.
   The Mississippi is used by companies in some 30 states to ship goods worth more than $100 billion a year to export markets, he said.
   The Great Lakes is another area greatly affected by the lack of dredge funding.
   The Great Lakes Maritime Task Force declared a 'state of emergency' in March, saying the Obama administration's proposed fiscal year 2012 budget would provide funds to dredge only 11 ports and remove the smallest amount of sediment since the Corps began keeping records more than 50 years ago.
   The task force estimates that 3.5 million cubic yards of sediment build up in Great Lakes ports and waterways annually, and that 15.5 million cubic yards need to be removed, rising to 17 million cubic yards next year.
   'Decades of underfunding have left a backlog so great that it will cost an estimated $180 million to restore project dimensions system-wide,' the group said.
   U.S.-flag operators estimate that three of every four loads of cargo they've carried have been less than full loads, the task force said.
   The group complains that the Great Lakes have been short-changed when compared to other waterways, saying the Ohio River system gets $1.10 appropriated for every ton handled compared to 52 cents per ton of cargo on the Great Lakes.
   Ships that can deliver up to 70,000 tons of iron ore are trimming loads by 5,000 tons said Eugene Caldwell, first vice president of the task force.
   A 70,000-ton ship carrying coal to the Belle River power plant in St. Clair, Mich., was only loaded to 60,400 tons on Jan. 1, said Tom Orzechowski, vice president of lakes and inland waters for the Seafarers International Union.
   Employers who depend on shipments through ports in western Michigan potentially face a cessation of waterborne deliveries if ports such as St. Joseph aren't dredged in 2012, the task force warned.
   'The river carries a significant amount of sediment which over time builds shoals throughout the inner and outer harbor,' said Pete Berghoff, president of Dock 63 Inc. on the St. Joseph River. 'In 2008, a combination of flood-level runoff due to rapid snowmelt and unusually heavy rainfall pushed so much sediment into the inner harbor we lost more than 16 feet of draft between Jan. 1 and mid-March. We need regular maintenance dredging to keep the ships coming, especially in this period of low water levels.'

Legislative Fixes. Bills have been reintroduced in both the House and Senate to 'ensure that amounts credited to the Harbor Maintenance Trust Fund are used for harbor maintenance.'
   The Realize America's Maritime Promise Act or RAMP Act (H.R. 104), in the House was introduced by Charles Boustany, R-La., and the Harbor Maintenance Act of 2011 (S. 412) was introduced in the Senate by Carl Levin, D-Mich. The bills have broad bipartisan support from 73 cosponsors in the House and 17 cosponsors in the Senate.
   The legislation has also drawn wide support from the shipping industry through the RAMP Coalition, which has been working since 2008 to get such a law passed.
   'If the Corps had full access to the harbor maintenance trust fund there would not be an issue,' Holliday said.
   He said a similar bill did not meet success last year because Congress was unable to pass a Water Resources Development Act (WRDA), in part because of the call last year for a ban on 'earmarks.'
   'The whole dialog about earmarks has lost track of the reality that the Army Corps of Engineer's budget is line item project funded, year in, year out, whether it's in a WRDA bill project authorizations or even the existing authorized projects,' he said.
   'Those projects go through a phenomenal amount of scrutiny, and clearly identifying funding for those projects are what congressmen and senators are there for to represent their constituency,' he said. 'So I think there is a lot of rethinking about the earmark situation.
   'Certainly there are historic earmarks that never should have been, but as far as the Corps' annual program, it definitely doesn't belong in the earmark dialog. I think there are some good senators and congressmen who understand that and hopefully they will prevail.'
   'We support the efforts of the RAMP Coalition,' said Dave Sanford, AAPA's director of navigation policy and legislation. 'We're not members, but we think what Rep. Boustany and Sen. Levin are doing is very helpful in raising awareness of the issue.'
   He notes another initiative to get more money for maintenance dredging does not involve legislation and 'may be the most promising.'
   A bipartisan group of 34 congressmen led by Rep. Jeff Landry, R-La., sent a letter to the House budget committee on April 1, requesting that all proceeds of HMTF be utilized for harbor dredging.

'The Mississippi is becoming a poster child for the country's need to put dollars where its talk is.'

ken Wells coordinator, Big River Coalition

   They said President Obama's fiscal year 2012 budget request 'continues this trend, estimating that the tax will take in almost $1.5 billion while only allocating $789 million to harbor and channel dredging and other authorized fund uses.
   'The vast majority of our nation's harbors, including eight of the top 10 largest ports, are not being maintained to their fully authorized width and depth, thus constricting our ability to export products, engage in international trade and create jobs,' they argued.

New Dredge Tax Uses? Meanwhile, there is concern over a proposal by the Army Corps of Engineers to allow expansion of authorized uses of the HMTF.
   At the March 8 House Water Resources and Environment subcommittee hearing, Jo-Ellen Darcy, assistant secretary of the Army for Civil Works, said the Obama administration 'plans to develop legislation to expand the authorized uses of the trust fund, so that its receipts are available to finance the federal share of other efforts in support of commercial navigation through the nation's ports.
   'No decisions have been made yet on what additional costs would be proposed to be paid from receipts into the Harbor Maintenance Trust Fund,' Darcy said, adding 'development of proposed legislation will proceed in the coming months.'
   The letter from the congressmen said, 'At a time when the unemployment rate continues to hover around 9 percent, we believe the best way to utilize the revenue in the HMTF is by fully committing these resources to activities which increase U.S. job-producing international trade, namely, dredging of our nations harbors.
   'On a more basic level, it is fundamentally wrong for the government to impose a tax for one purpose, only to utilize the proceeds from this tax to fund an entirely different program,' wrote Landry and his colleagues.
   Sanford said AAPA agrees. 'We don't know what they're thinking, because we cannot cover maintenance dredging needs now. Why would they be looking to use that for other purposes before all the harbor maintenance needs were met? We don't get it.'

Competitive Advantage. Norman F. Anderson, president and CEO of the Washington-based consulting firm CG/LA Infrastructure, said ports and waterways are a key competitive advantage for the country ' 'the only other comparable thing is inexpensive electricity.'
   But he said the country tends 'to look at ports as a way to absorb stuff from around the world, rather than a way to augment U.S. competitiveness. That's how we used to look at ports.
   'Ports used to have this incredible logic of: How do you get stuff out as cheaply as you can, as quickly as you can, because the world wants it? Now the logic is: how do you get stuff in as cheaply as possible because we want it and have credit cards?
   'We have a 60 to 70-year-old transportation matrix that is not optimized for the global economy and nobody is thinking about how to optimize it. Sixty to 70 years ago the whole objective was to get it out of Erie, Pa. Now we are looking at exporting grains and commodities and much less in terms of industrial goods. We need to try and come up with a way to think about the U.S. infrastructure where there is an overall competitive vision, and that sets the priorities for projects is what we have to do.'
   But Walker said the Corps of Engineers doesn't really look at whether a port is used primarily for imports or exports. 'Then you get to playing favorites with one sector of the economy versus another.'
   The Corps does consider the commercial importance of a port when allocating funds, ranking ports into three tiers according to how much commercial cargo they handle: those that handle 10 million tons or more, those with 1 million to 10 million tons, and those with less than 1 million tons.
   They 'aren't hard and fast numbers,' Walker said, but the difference is recognized when the budget is put together. And the Corps of Engineers is looking at whether the economic value of cargo might be a better way to evaluate port projects.
   Another consideration is whether a harbor is a 'critical harbor of refuge' that a fishing boat, for example, might seek shelter in during a storm, or a 'subsistence harbor' that is the only way for a remote population (Alaska or Hawaii, for example) can receive or load products.
   'We're spreading out these dollars across a wide number of projects, trying to keep them all maintained to some level of service that's allowing shipping to continue,' he said.

New Construction. Funds for new coastal navigation construction projects have fallen in recent Corps budgets, even as interest by ports readying themselves for the expanded Panama Canal has increased.
   The Corps of Engineers' budget new coastal navigation construction has gone from $180 million in fiscal year 2009, to $119 million in 2010, $115 million in 2011, and $117 million in the fiscal year 2012 budget.
   There are only a few deep harbor navigation projects under way. New York Harbor continues to dredge a 50-foot channel to its container terminals; a channel from San Francisco Bay to Stockton and West Sacramento, Calif., is being dredged; and work is underway on deepening the Delaware River to the Port of Philadelphia.
   But no money was allocated to the Delaware River Project in the president's fiscal year 2012 budget, and the AAPA's Nagle, in a letter to the leadership of the House Subcommittee on Energy and Water Development, said the president's budget request 'falls far short of meeting the nation's water resource development needs. In particular, the request fails to include new starts for deepening projects that are ready for construction and needed to allow the nation to capture the benefits of an expanding Panama Canal.
   'In fact, when the deepening projects currently under construction for New York-New Jersey and Stockton, Calif., complete, it appears that the Corps will be out of the navigation channel construction business,' Nagle wrote.
   But Walker said completion of the New York project could make funds available for new work on other harbors. The Corps has navigation projects under study in several ports including Savannah, Ga.; Boston; Jacksonville and Palm Beach in Fla.; Freeport, Brazos Island and the Sabine-Neches Waterway in Texas; and a Great Lakes-wide study.

Long Wait. Mike Leone, director of the Port of Boston and immediate past chairman of the AAPA, said one of the frustrations for ports is the lengthy time that it takes for Corps of Engineer reports to be completed so that deepening projects can be authorized.
   'There's always going to be a battle over appropriations and funding, but some of the biggest frustration that we are facing is getting to an answer as to whether individual projects are feasible or not,' Leone said.
   The Massachusetts Port Authority has spent more than a decade and several million dollars of its own money to study deepening its channels beyond 40 feet. Today ships ride the tides to reach its berths that are dredged to 45 feet.

Leone

   Leone said his port has had to grapple with 'ever-changing requirements of the Corps of Engineers to decide whether or not we have established whether the project is economically feasible ' They keep changing the parameters, changing what they are looking for. You can go from one district to another and you get different rulings they want. At headquarters they seem to change their mind.'
   He said AAPA would like to see a see a center of expertise for deep-draft navigation that would do the economic analysis on the feasibility of projects and would have a consistent method for determining the cost-benefit ratio of port projects.
   Leone notes that while there is 'a lot of concern in this Congress about earmarks, most in the port industry, myself included, believe that these projects, even though they may be directed at a particular port, are really regional and potentially national economic improvement projects that are going to drive the economy.'
   The Corps of Engineers first performs a reconnaissance study to determine if a project would have an economic benefit to the nation, then follows that with a feasibility study that performs a cost benefit analysis. If positive, that leads to a report that goes before Congress, which must authorize the project.
   The Corps then does an engineering and design study and eventually awards dredging contracts, with work proceeding at a pace determined by congressional authorizations for each project.
   Projects can take years, even decades to complete. The $1.6 billion project to deepen channels in the Port of New York and New Jersey to 50 feet was authorized in 2000, construction began in March 2005, and work continues.
   Walker said the Corps only pays a portion of the cost of a harbor improvement. The local sponsor must be willing to foot the bill for its share ' not only for the initial deepening, but in some cases, the cost of future maintenance dredging.
   Projects greater than 45 feet require the nonfederal sponsor to pay half the cost of maintenance dredging, Walker said. This may be part of the reason why even though Congress has authorized deepening the lower Mississippi to 55 feet, the channel remains at 45 feet. Maintenance is a huge, ongoing expense on the Mississippi. The local sponsor must pay 60 percent of the construction cost of projects deeper than 45 feet.
   Ports and terminal operators must also make heavy investment in dockside infrastructure.
   'The Corps' role is to step in and quantify what the national economic benefits would be in pursuing that, and then there is a decision that is really left between the administration and Congress as to where they want to make those investments for the good of the nation Walker said.'
   New York, Norfolk, Baltimore and Halifax already have or expect to have 50-foot berths by the time the Panama Canal opens in 2014, and there are plenty of ports, particularly in the Southeast, that want deeper water as well. (click here to continue)