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The Great Lakes St. Lawrence Seaway System: Transportation Cost Savings from Ocean Shipping in the Lakes Presented to:: 

The Great Lakes St. Lawrence Seaway System: Transportation Cost Savings from Ocean Shipping in the Lakes Presented to: Great Lakes United 25th Annual General Meeting and Conference: Reflecting Forward Toronto, Ontario June 16, 2007 Dr. John C. Taylor Associate Professor of Marketing and Logistics Seidman College of Business Grand Valley State University Grand Rapids, Michigan and Mr. James L. Roach JL Roach, Inc.

Introduction: 

Introduction Purpose of study Transportation cost benefits of ocean direct Conversely, transportation cost penalties of ocean not used Compares cost of “ocean direct” to Lakes vs. use of laker, rail, barge, truck alternative modes Study based on MLO ocean vessel tonnages Based on 2002 traffic and 2004 charges to shippers/receivers 2002 ocean traffic is more representative than 2003 and 2004 2004 rates more representative Based on savings/costs for all U.S. and Canadian ocean borne tonnages in metric tons and US$ 100 page report with over 100 references – dozens of interviews

Slide3: 

Great Lakes St. Lawrence Seaway System

2002 Traffic Data: 

2002 Traffic Data Great Lakes St. Lawrence Seaway - 180 Million Metric Tons St. Lawrence Seaway MLO Section All Vessels: 2253 vessel passages 30.0 million metric tons St. Lawrence Seaway MLO Section Ocean Vessels 1137 vessel passages 12.3 million metric tons MLO Ocean Vessel Tonnage as % of Great Lakes St. Lawrence Seaway Tonnage 6.8% Seaway MLO Section Ocean Containers into Lakes-Negligible (About 1000)

MLO Section Tonnage History (000’s of tons): 

MLO Section Tonnage History (000’s of tons) Ocean tonnage for 2006 was up at 14955 , but March-May 2007 is down 25% for grain and 65% for steel

2002 MLO Ocean Vessel Port/Commodity Mix: 

2002 MLO Ocean Vessel Port/Commodity Mix Thunder Bay Lakes Grain Shipments 5.1 million metric tons all vessel types 2.1 million metric tons ocean vessels (41.2% of tonnage) Duluth Lakes Grain Shipments 3.3 million metric tons all vessels 2.1 million metric tons ocean vessels (63.6% of tonnage) Iron and Steel Imports 4.6 million metric tons ocean vessels (steel cannot move on most Lakers) Other Commodities (Chemicals, Sugar, Mine, Pulp, Coke) 3.5 million metric tons ocean vessels Total Ocean Vessel Tonnages 12.3 million metric tons 50.4% Canadian O/D and 49.6% U.S. O/D

Slide7: 

Pacific 20.6% Gulf 69.4% Other 5.4% Atlantic .9% Lakes Ocean Direct 1.9% Lakes Lakers 1.8% Figure 2 U.S. Grain Exports By Route

Slide8: 

Churchill/Atlantic 2.2% Lakes Ocean Direct 10.9% Lakes Laker 20.1% Pacific 51% Prairie Direct 15.8% Figure 3 Canadian Grain Exports By Route United States

Estimates of Penalty Transportation Costs Resulting From Cessation of Ocean Shipping (Total Costs in Millions of U.S. Dollars, Metric Tons): 

Estimates of Penalty Transportation Costs Resulting From Cessation of Ocean Shipping (Total Costs in Millions of U.S. Dollars, Metric Tons) Represents costs for total transportation move from product origin to destination. Ie. Steel from Europe to Detroit or grain from Plains to Europe.

Estimates of Transportation Costs for Thunder Bay Grain Exports Via Alternative Modes (Total Costs in Millions of U.S Dollars, Metric Tons): 

Estimates of Transportation Costs for Thunder Bay Grain Exports Via Alternative Modes (Total Costs in Millions of U.S Dollars, Metric Tons)

Slide11: 

Appendix A-1 Canadian Grain Movement From The Prairie Through Thunder Bay To Europe

Other Studies of Seaway Benefits Comparison to Our Findings: 

Other Studies of Seaway Benefits Comparison to Our Findings 2001 U.S. SLSDC Martin Associates study found $1.20 billion cost benefit for 2000 But all calculated annual benefit for “laker” borne commodities US$7.92/ton wheat cost penalty if System closed completely Suggests steel is often more expensive via the Seaway 1997 TVA analysis for Army Corps of Soo Locks benefits Benefits for iron ore moving wholly in Lakes Wheat move by “lakes” costs $4.99/ton more than by rail/barge 1996 Heads and Wilson CTRF Paper on Viability of Thunder Bay Found “all rail move” was C$1.48/metric ton cheaper than Lakes move Concludes “attractiveness of Thunder Bay has been seriously eroded” 1991 CTRF Brodeur and Kibedi Papers Brodeur paper titled “Great Lakes Shipping: A Floundering Industry” Kibedi paper also notes rail to East is highly competitive Our work is in-line with prior studies

Academic and Industry Reaction: 

Academic and Industry Reaction Academic Peer Review Panel - findings reasonable and possibly overstates benefits Industry reaction Does not consider “job impact” benefit of ocean shipping Use of rail and highway would overwhelm available capacity Does not consider air pollution benefits of ocean

Ocean Freight Shift to Other Modes Estimated Domestic Job Impacts: 

Ocean Freight Shift to Other Modes Estimated Domestic Job Impacts Elimination of 891 foreign crew jobs on ocean vessels Elimination of 1001 domestic Lakes port handling, pilot, and SLSDC/SLSMC jobs Addition of 374 St. Lawrence River area port jobs Addition of 374 East Coast, Gulf and River port jobs Addition of 1492 domestic railroad, laker, barge, and truck jobs Net increase of 1319 domestic U.S. and Canadian transportation related jobs Biggest benefit of ocean shipping is for imported steel – which costs U.S. and Canadians steel jobs

Ocean Freight Shift to other Modes Modal Capacity Impacts: 

Ocean Freight Shift to other Modes Modal Capacity Impacts Most Likely Modal Shift Scenario Extra 7.4 Lakers/Tug Barges per year Currently at least 4 laid up vessels Other vessels not fully utilized Potential for additional tug barges Extra 1.6 loaded trains per day Currently 100-150 trains/day on relevant tracks Rail capacity limitations are in West and not East Extra 1.2 million tons of river barge per year Currently over 40 million tons moves Extra 197 trucks per day Spread over eastern U.S. and Canada Currently hundreds of thousands of trucks/day If All Rail Scenario Extra 4.0 loaded trains per day

Ocean Freight Shift to Other Modes Air Pollution Impacts: 

Ocean Freight Shift to Other Modes Air Pollution Impacts Total air pollutant tons are higher with ocean ships than with “most likely scenario” of other modes Ocean ships emit far more PM10, Sulfur Dioxide, VOX and Carbon Monoxide than Rail on a per million ton miles basis Ocean ships are somewhat better on Nitrogen Oxides only Ocean ships are better on CO2 Direct Ocean Ships into Lakes bring high levels of these pollutants into Ocean ships entering Lakes are often older vessels Since Seaway opening in late 50’s, train capacities have increased from 1200 tons to 10000 tons Train locomotives have made large gains in fuel and air pollution efficiency as compared to ocean vessels Ocean vessels are one of the biggest non-auto sources of pollution in the Los Angeles area

Conclusions: 

Conclusions Ocean volumes of 12.3 million tons in 2002 Traffic has declined over the years and fallen short of many forecasts Ocean vessel transportation cost savings estimated at US$54.9 million per year – 5.9% of transportation costs Prior studies support this level of savings Some reaction relates to Seaway job benefits, alternative mode capacity, seasonality, and other issues

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