TxDOT Panama Canal Stakeholder Working Group Port of Houston – Bayport Container Terminal August 27, 2012 Draft Meeting Summary Prepared by the Texas A&M Transportation Institute

1. Panama Canal Stakeholder Working Group Members and Alternates Present: Honorable Ed Emmett, Harris County Judge Honorable Carlos H. Cascos, Cameron County Judge, Vice Chair Mr. Jack Todd, Texas Association of Manufacturers Mr. John LaRue, Texas Port Association Colonel Leonard Waterworth, Port of Houston Authority Mr. Rick Wilson for Mr. Fred Malesa, BNSF Mr. Eddie Miranda for Mr. Carlton Schwab, Texas Economic Development Corporation Mr. Jim Greenwood, Texas Oil and Gas Association Mr. Kenneth Dierschke, Texas Farm Bureau Mr. Rigoberto Villarreal, City of McAllen Mr. Steve Boecking, Alliance Texas Mr. Joseph Adams, Union Pacific Mr. Jim Griffin, East Harris County Manufacturers Association Mr. Amir Mirabi for Mr. Aaron Demerson, Office of the Governor, Economic Development & Tourism

Other individuals attending the meeting are listed in Appendix A

2. Welcome, Introductions, and Review of Agenda – PCSWG Chair, Judge Ed Emmett PCSWG Chair Judge Ed Emmett opened the meeting by thanking Colonel Waterworth and other members of Port of Houston Authority for hosting the Sunday boat tour of the Houston Ship Chanel and dinner as well as the meeting today. He welcomed PCSWG members, invited speakers, and other attendees to the meeting. Judge Emmett introduced Kippy Caraway, Intergovernmental Relations Director for the City of Houston.

3. Open Public Comment Period - PCSWG Chair Judge Ed Emmett Matt Tajata, Air Alliance Houston Matt Tajata complemented TxDOT for establishing the working group to examine transportation issues in the state associated with the Panama Canal expansion. He noted the importance of considering environmental issues and the quality of life for local residents in port expansion plans and transportation projects. Matt voiced concerns over possible air quality impacts around ports.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 1 Al Navarro Al Navarro noted he was attending the meeting as a private citizen. He expressed interest in the scope of the working group and commended TxDOT for forming the group. Representative Armando Walle, 140th District in north Houston Representative Walle noted that many residents in the 140th District work for port-related businesses. He thanked Jud Emmett for his leadership in chairing the PCSWG and TxDOT in establishing the group. Representative Walle noted the importance of the Houston port to the economy of the area and the state.

4. Invited Speakers

Bruce Carlton, National Industrial Transportation League Bruce Carlton provided an overview of possible implications of the Panama Canal expansion from a national perspective and how the expansion may influence ports in Texas. He commended TxDOT on establishing the PCSWG and thanked Judge Emmett for his leadership with the group. Bruce covered the following topics in his presentation.  The working group is taking the right approach in listening to shippers, carriers, ports, and industry groups on the potential impacts of the Panama Canal expansion. Transportation improvements can then be formulated to address identified needs. Given limited resources, it is important to invest wisely in projects that will provide the greatest benefits.  There is still a lot of uncertainty about the impacts of the Panama Canal expansion. Predicting the future is always difficult, and there are a lot of unknowns related to fees to use the expanded canal, the global economy, and the movement of jobs and trade flows. In the 1950s, most of the U.S. trade with Asia focused on Japan. China has been the dominant trading partner recently, but it appears there is a shift to Vietnam for some products. Brazil appears to be poised to take off economically, and other countries in Latin America are doing well. Mexico also appears to be recovering. As a result, north-south trade may become more important. There is a need to have a 360 degree view of trade opportunities.  Focusing on exports, which this group is doing, is a good approach. Too much emphasis may be being placed on imports, especially possible shifts of container traffic to Gulf and East Coast ports. Exports expand the country’s industrial base.  It is important to communicate with port stakeholders, including importers/exporters, third party logistic firms, shippers, carriers, and other groups. All these groups have their own plans and ideas. While not all groups will provide information on their plans, seeking input – as the PCSWG is doing – is important.  Considering what shippers want is important. In general, shippers want speed, reliability, efficiency, and flexibility. Reliability is often more important than speed. The ability to respond to dynamic changes in the market is also important.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 2  Ports do not all provide the same services. Ports also have different issues and needs. Ongoing dredging is more important at some ports than others, although all ports need ongoing maintenance, as well as periodic capital improvements. There is a lot of competition among ports in the U.S. – Texas needs to be strategic in making investments and focusing on the strengths of different ports.  The Panama Canal expansion is being undertaken to support Panama’s future economic development, not the U.S. The Panama Canal expansion will provide more options and more flexibility for shippers. Changes in shipping patterns may not happen immediately, but changes are likely to occur over time.  The first and last mile is important in shipping. Examining roadway and rail links is important to ensure bottlenecks to freight flows do not exist. Addressing bottlenecks that do exist is important. China and other countries spend more on infrastructure than the U.S. does. Ports do not stand still, and shipper and carriers will respond to changing conditions. It is a competitive environment and cargo diversions will occur to follow the marketplace. There is no single answer – maintaining flexibility to respond to different conditions will be important. PCSWG members asked a number of questions and discussed a number of topics. Maintaining flexibility and a regional perspective was discussed, as was federal funding, typical contracts with shippers, and the markets for different exports. Continuing to build on and expand existing partnerships with public and private sector groups was also discussed, along with working with the Texas Congressional delegation for port funding.

Colonel Christopher W. Sallese, Commander, Galveston District Colonel Sallese summarized the value Texas ports bring to the state and the country. He described the major imports and exports at Texas ports, federal navigation funding, and the health of the navigation system. Colonel Sallese presented key statistics on Texas ports, the GIWW, and inland waterways. He discussed the recent U.S. Port and Inland Waterways Modernization Report. Colonel Sallese covered the following points in his presentation.  Texas ranks first among states in the Nation for maritime commerce. There are 13 shallow draft ports and 15 deep draft ports in the state. The GIWW links the entire system. Texas ports accounts for over $300 billion in economic value to the state. The ports provide over 1 million direct jobs. Four Texas ports rank among the top 10 ports in the country. Approximately $20 billion in private investment is underway at ports throughout the state.  The Texas coast is home to the major concentration of refinery capacity and petrochemical companies in the country. Maintaining and improving Texas navigation channels is important to the country. Texas ports export 22 percent of the nation’s total maritime export tonnage. Approximately 43 percent of maritime imported crude oil comes through Texas ports.  Texas ports create over 1 million direct jobs regionally and approximately 1.3 million indirect jobs nationally. The ports generate $4.5 billion in local and state tax revenue annually. The GIWW provides an intermodal linkage to domestic

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 3 and international markets and facilities. One foot of draft restriction results in lost benefits due to lightering and lightening loads, however. Texas ports receive less than $.25 on the dollar of the Harbor Maintenance Trust Fund (HMTF) contributions for operations and maintenance. Currently, two channels are authorized at a depth of 50 feet or greater, with two more pending. The current channel depths do not optimize transportation or supply chain efficiencies.  Federal navigation funding has declined in recent years. It is important to understand the current funding challenges and to make long-term plans for operations and maintenance and justified investments that are critical to the future. It is important to maintain the resiliency of the system. Adequate funding is needed to support dredging to project depth and advanced maintenance, constructing incremental levee capacity, operational and maintenance improvements to locks and gated facilities on the GIWW, and jetty repairs. Other needed improvements are preparing placement areas for dredge materials, conducting operations and maintenance discretionary studies and implementing Department of the Army Mobilization Processing activities. Ensuring environmental sustainability and navigation safety are also important. Other funding sources will be needed to address these needs.  The report, U.S. Port and Inland Waterways Modernization: Preparing for Post- Panamax Vessels, includes a number of observations. The report, which is available at http://tinyurl.com/953xc57, notes that world trade and U.S. trade is expected to continue to grow and that post-Panamax size vessels will dominate the world fleet in the future. The report also suggests that these vessels will call in increasing numbers at U.S. ports that can accommodate them. Along the Southeast and Gulf Coast there may be opportunities for economically-justified port expansion projects to accommodate post-Panamax vessels. The report also suggests that investment opportunities at specific ports should be examined, but preliminary estimates indicate the total investment opportunities may be in the $3- $5 billion range.  Transportation cost saving using post-Panamax size vessels to ship to Asia through the Panama Canal may lead to an increase in grain traffic on the Mississippi River for export at Gulf ports. Environmental mitigation costs associated with port expansion can be significant and will play an important role in investment decisions. The primary challenge with the current process to deliver navigation improvements is to ensure adequate and timely funding to take advantage of potential opportunities.  The Panama Canal expansion includes the need for more multi-modal connectivity and capacity of the intermodal freight transportation corridors, and the need to examine environmental impacts. There may be opportunities to contribute to the Administration’s initiative to increase exports, energy independence, and enhance national security. Local sponsor commitment to cost sharing and community support will continue to be important.  Ports that are ready now to accommodate larger vessels include the Port of Virginia (Norfolk) and New York. Other ports are investing in major

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 4 improvements. Baltimore will be ready by 2015. Miami is investing $2 billion in improvements. Savannah has a $652 million deepening project and the South Carolina Legislature has committed $300 million to dredging for Charleston. Numerous activities are underway in Texas. Corpus Christi has received construction general (CG) funding to continue Preliminary Design Engineering (PDE) on the main channel. Cedar Bayou has received CG for new start construction. The Sabine-Neches Waterway has received General Investigation (GI) funding for new start PDE. Brazos Island Harbor has received GI to finish its ongoing study in 2014. The Freeport Channel deepening has received GI to start PDE.  There are a number of reasons why Texas ports will experience increases in exports and imports. External factors include the Panama Canal expansion, Gulf and Brazil oil reserves, LNG, and the Eagle Ford Shale. Private industry is postured to invest over $20 billion into infrastructure on the Texas coast. The number of post-Panamax vessels in the world fleet is expected to more than double. These post-Panamax vessels typically have a minimum hull draft of 39 feet to 60 feet. For liquid bulkers, the world vessel fleet is expected to see a similar increase. The tankers on order typically have a hull draft of 49 feet to 70 feet. These large tankers are currently lightered or lightened at Gulf ports. No Gulf port has a draft greater than 50 feet. Completed navigation studies posture ports for real investment, however. The Texas Gulf navigation system health is getting out of balance and losing resiliency. The rising price of oil, the demand for grain, and the worldwide demand to for low-priced natural gas bodes well for Texas ports.  In conclusion, Texas is a ready and supportive partner for federal investment into required navigation improvements, which have national benefits. Keys to success include state-level involvement in the federal authorization and funding process, port partnerships, and partnership with the dredging industry. Other key to success include managing expectations, strategic communications, and facilitating private investment. Further, Texas needs a comprehensive coastal study to mitigate hurricane risks, protect its industrial base, and insure the future navigation infrastructure.

Colonel Leonard Waterworth, Executive Director, Port of Houston Authority. Colonel Waterworth described some of the opportunities associated with the Port of Houston. He noted that PCSWG members had the opportunity to see many of the port facilities on the tour of the Houston Ship Channel Sunday evening. Colonel Waterworth noted the importance of providing a low-cost logistics chain to a growing market place. An integrated approach would increase economic development and jobs in the region and the state. Texas is well positioned to take advantage of numerous opportunities, including the Panama Canal expansion. It is important for all groups to work together to take advantage of these opportunities.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 5 Phyllis Saathoff, Interim Executive Director/CEO, Port Freeport. Phyllis Saathoff provided an overview of Port Freeport. She summarized the economic impact of the port, described recent and planned projects, and highlighted private industry investments in the area. She noted that Port Freeport is investing in the future and has a vision of being the port of the future. A copy of her PowerPoint presentation is provided as a separate attachment. Phyllis covered the following topics in her presentation.  Port Freeport ranks 16th among U.S. ports in international tonnage and 10th in chemical tankers. Approximately 34 million tons of cargo is shipped annually through Port Freeport. The port generates 56,000 total jobs, including direct, indirect and induced positions, which generate $4.4 billion in personal income. Port Freeport has accounted for $1.7 billion of investment in the local economy in the p ast 10 years.  A number of new developments are underway at Port Freeport. The Velasco Terminal will include 2,400 linear feet of berthing; 800 feet are currently under construction. The channel depth at the terminal is 45 feet and is designed for 50 feet. There are 90 acres of stabilized backlands with rail access, of which 20 acres is developed. The terminal is designed to handle new containerized and breakbulk cargo activity. The Velasco Terminal will add 7,500 direct, indirect, and induced jobs and will generate $1 billion in annual economic value to the area.  There are two major Freeport Harbor channel improvement projects moving forward. The first is the federal deepening project. This project will increase the port depth to 55 feet. The feasibility study is in state and agency review, with the Chief’s report expected before the end of the year. This $291 million project has a benefit/cost ratio of 1.9. The deepening project is environmentally friendly, and there are no overhead obstructions and no pipeline issues. Adequate dredge material placement areas are available. The project involves 11.8 miles of dredging. It provides a strategic local and national investment.  Port Freeport is also pursuing a separate project to widen the Freeport harbor entrance channel to 600 feet. The $35 million project is being funded by local interests. The wider entrance will accommodate the largest LNG tankers in service today, providing additional economies of scale. It will also allow for two- way traffic for certain classes of vessels. The Freeport harbor entrance channel widening project is scheduled to begin in the spring of 2013.  There is a lot of private industry investment in the area. Port Freeport is located in one of the world’s largest petrochemical complexes. There is a good working relationship between the port and industries in the area.  Dow Chemical Texas Operations in Freeport is currently in a joint venture with Mitsui to build a new chlor-alkali plant valued at $1.4 billion. Production is scheduled to begin in mid-2013. Dow is also constructing a new, world-scale, propylene production facility that will start-up in 2015 and a new ethylene production plant, which is scheduled for start-up in 2017. Dow exports 48 percent of all manufactured products by deep draft vessels.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 6  Phillips 66/Enterprise provides another example of industry investment. Phillips 66/Enterprise imports approximately 12 million tons of crude oil annually. The oil is pumped by pipeline to the Phillips 66 refinery in Sweeny, Texas, and to refineries throughout the mid-west, Oklahoma, Missouri, Illinois, Ohio, and Michigan. Phillips 66, in a joint venture with Chevron, is currently building two new polyethylene facilities valued at $1.1 billion. Production is scheduled to begin in 2016.  Freeport LNG recently announced a $4 billion liquefaction project to export domestic LNG in addition to their current LNG import/export operations. Agreements have been reached with Osaka Gas Company and Chubu Electric Power Company and negotiations are underway with Shell. The first LNG train is scheduled to be operational in 2017.  There are numerous opportunities and challenges for ports in Texas, even without the Panama Canal expansion. Freight in Texas is expected to grow by 15 percent a year for the next 10 years. The state’s population is projected to grow by 35 percent in next 15 years. Over 90 percent of all international cargo passes through the Houston-Galveston region, but the area receives no extra funding. Infrastructure project costs far exceed available funding. The SH 36 and SH 288 are strategic links to Port Freeport. Improvements to these highways and other roadways in the area are needed.

Captain John Peterlin, Senior Director of Marketing and Administration, Port of Galveston. Captain John Peterlin provided an overview of the Port of Galveston. He described the economic impacts from the port, current freight statistics, the cruise industry, and projects being developed. He also discussed shipments currently using the Panama Canal and possible impacts of the expansion. A copy of his PowerPoint presentation is provided as a separate attachment. Captain Peterlin covered the following topics in his presentation.  A 2007 study estimated that 9,749 jobs in Texas are in some way related to the Port of Galveston, including direct, induced, and indirect jobs. In 2007, 8.5 million tons of domestic and foreign waterborne cargo moved via the public and private marine terminals in the ports. Cargo types included bulk grains, bulk fertilizers, and bulk liquids. Other cargo types are Ro-Ro cargo, refrigerated fruit, general cargo/steel, containers, and livestock.  Approximately $75 million has been invested in port improvement projects since 2009. Examples of recent projects include improvements to the Del Monte fresh produce facility, additions to the Gulf Copper Drydock and Rig Repair facility, and improvements to the cruise terminal.  The Port of Galveston is the sixth busiest cruise ship port in the country. It is the year round homeport to Carnival Cruise Lines’ Carnival Magic and Carnival Triumph, and the seasonal homeport to Royal Caribbean International’s Mariner of the Seas, Disney Cruise Line’s Disney Magic, and Princess Cruises’ Crown Princess. The cruise lines carry over 1.1 million passengers annually from Texas

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 7 and account for $1 billion in direct spending and 16,450 jobs paying $828 million in income for Texas workers.  A number of projects are underway at the port. Examples of current projects include the Pelican Island rail and bulk facility, the East End Pier 12/14 and Pier 14/15 slip closure and terminal expansion, and future slip closures in the West End. Cargo terminal development is also planned for 100 acres on Pelican Island.  The Port of Galveston currently handles two-to-four Ro-Ro calls per month inbound from the Far East via the Panama Canal. The Port of Galveston is the first port of discharge for these vessels, which carry construction and agricultural equipment. The port also handles monthly Ro-Ro service from Galveston to Oceania, Australia, and New Zealand via the Panama Canal. Cargo is mostly mining and agricultural equipment. In addition, some export grain cargo travel westbound via the Panama Canal.  The Port of Galveston currently has an authorized depth of 45 feet. The deeper draft in the Panama Canal should provide opportunities for more export grain cargo westbound via the Panama Canal due to ability to load to 44 feet, which is deeper than current Panama Canal draft of 39 feet 6 inches. This capacity should provide for more competitive freight rates to some markets in Asia.  The deeper draft in the Panama Canal should also provide opportunities for direct export of liquid bulk products from Pelican Island storage terminals in larger vessels. That cargo now trans-ships around the Cape of Good Hope via the Caribbean terminals after loading to smaller ships in Galveston. There may also be opportunities for bulk products to ship directly to the Far East from the new Pelican Island bulk terminal when constructed.  Three improvements to the transportation system are key to maintaining the visibility of Texas ports. Improvements are needed to ensure adequate rail capacity in Class One manifest yards and main lines to and from the ports to handle increases in exports and imports. Adequate maintenance dredging of the channels is needed to ensure consistent authorized depths. Providing additional deepening to the match the expanded Panama Canal would also be beneficial. “First Mile and “Last Mile” highway and roadway connectors are needed to reduce congestion and improve port productivity.

Sue Collins, Liquid Logistics Director, Styrolution America, LLC Sue Collins provided an overview of Styrolution America, LLC. She described the products developed by Styrolution, current shipping patterns, and possible impacts of the Panama Canal expansion. A copy of her PowerPoint presentation is provided as a separate attachment. Sue covered the following topics in her presentation.  Styrolution’s tradition of industry leadership combines the styrenics assets of two of the largest chemical companies in the world. It builds on over 70 years of experience in styrenics. Styrolution serves markets with different business models according to customer needs.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 8  Styrolution is a global leader in producing styrene monomer, polystyrene, ABS, and copolymers. The company has 19 manufacturing sites across 10 countries; Styrolution’s headquarters are in Frankfurt, Germany. Styrolution serves customers in more than 100 countries, with approximately 3,400 employees. Styrolution began operation on October 1, 2011.  Styrolution has a global footprint, with facilities in major regions. Styrolution has a diversified industry base. Product groups focus on packaging, household, electrical and electronics, and toys, sports, and leisure. Other product groups are automotive, building and construction, and health care and diagnostics.  The Bayport facility has a production capability of 1.7 billion pounds of styrene monomer, which is produced with ethylene delivered by pipeline and benzene delivered by rail, barge, and ship. All marine and rail shipments comes through the LBC terminal. The Texas City plant has a production capability of 1.2 billion pounds of styrene monomer. At this facility, ethylene is brought in by pipeline, and benzene is brought in by pipeline from the BP refinery, as well as through oil tankers in Texas City.  Styrolution utilizes east coast ports to ship a limited number of containers to Asia. Issues with rail carriage to the west coast and congestion at west coast ports have been issues in the past. Shipping from east coast ports provide us with a better ability to provide customers realistic arrival dates.  Currently, benzene is shipped from Asia through the Panama Canal. The Panama Canal expansion should cut transit times and reduce inventory carrying costs. Consistency of transit days is most important for Styrolution in selecting a route. Consistency is more important than speed. On sales to Asia, reducing transit times saves the ship owners, reduces the price risk on products, and enhances customer service. Traffic congestion in the Houston port area and the silt build up at the LBC dock, which requires more dredging, were noted as concerns Ron Beeson, Global Logistics Manager, The Lubrizol Corporation Ron provided an overview of Lubrizol, including the company’s products, global offices and workforce, and current shipping through the Panama Canal. He discussed opportunities to increase exports through the Port of Houston and suggested transportation improvements in the region to support these opportunities. Joe covered the following points in his presentation.  Lubrizol has a balanced global presence, with sales in more than 100 countries. More than half of the company’s total sales are generated outside of North America. Lubrizol has annual revenues of approximately $6.1 billion, with 34 percent in North America, 28 percent in Asia/Pacific/Middle East, 30 percent in Europe, and 8 percent in Latin America. Lubrizol has some 7,100 employees, with 52 percent in North America, 22 percent in Asia/Pacific/Middle East, 23 percent in Europe, and 3 percent in Latin America. Lubrizol has an extensive international supply chain, providing support to customers anywhere in the world. Lubrizol is firmly established in emerging markets, including China and India.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 9  Lubrizol’s headquarters are in Wickliffe, Ohio. The company owns and operates manufacturing facilities in 17 countries, and has sales and technical offices around the world. Lubrizol is part of Berkshire Hathaway, one of the world’s largest public companies. In 2011, Berkshire Hathaway had revenues of $144 billion, and a net income of $10 billion. With headquarters in Omaha, Berkshire Hathaway owns more than 70 businesses internationally in insurance and financial services, utilities and energy, manufacturing, service, and retail, sectors.  Lubrizol current uses the Panama Canal for shipping benzene from Texas plants through the Port of Houston to Singapore, Japan, Korea, and Australia. These shipments total approximately 72,000 metric tons at a value of $240 million.  Possible opportunities associated with exports to Asia from Lubrizol Texas plants include resourcing some shipments from west coast ports of exit to all water service from Houston. Imports from Asia represent a smaller market focusing on vessels arriving in Long Beach destined to Texas and Louisiana.  The Panama Canal expansion may provide opportunities for increased exports from the Port of Houston. Lubrizol is actively looking at all water service using COSCO GME service. A key will be if transit times are equivalent to west coast moves. Trial shipments are being made in the third quarter of 2012. The post expansion economics should improve further with faster transit times. For example, vessel economics could improve with 30-to-50 percent greater carrying capacity. If the land bridge rail rates to the west coast for Asian exports continues to escalate at rates higher than inflation, all water service through the Panama Canal becomes more attractive.  Suggested transportation improvements include investing in corridors to move container imports through Houston faster and isolated from commuters, and routing through train traffic around Houston. Maximizing the use of existing rail for business growth in imports and exports was also suggested. The Gulf Coast Rail District (GCRD) and class I railroads have $170 million in projects. Examining freight rail improvements for the area, speeding up arrivals and departures, and increasing capacity of the PTRA were also suggested.

Tony Davis, Academy Sports Tony Davis provided an overview of Academy Sports and general shipping patterns for their sporting goods. He summarized Academy’s current store locations, anticipated growth, existing shipping patterns, and possible impacts of the Panama Canal expansion. Tony covered the following topics in his presentation.  Academy current has 144 stores in 11 states and distribution centers in Katy and Twiggs County, Georgia. The company has been growing at a rate of 14-to-16 new stores a year. The first store in North Carolina opened this year. It is anticipated that the number of new stores will increase even more in the next few years.  Approximately 56 percent of Academy’s imported goods arrive through the Ports of Los Angeles and Long Beach and are transported by rail to the Katy, Texas

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 10 Distribution Center. Approximately 31 percent of imported goods are shipped through the Port of Savannah to the Twiggs County Distribution Center. Approximately 11 percent of Academy’s imported goods are shipped through the Port of Houston to the Katy Distribution Center. Shipping though the Port of Houston requires a little more time and the cost is a little higher. China accounts for 87 percent of imported cargo, with 42 percent shipped through the Panama Canal to Savannah or Houston.  Service impacts, especially service consistency, and cost impacts will influence use of the expanded Panama Canal. If the expansion results in more options for shipping goods at a lower cost, it will be used more. Academy, similar to other shippers, does not want to put “all its eggs in one basket.” Having options for shipping goods is valued. Factors that would influence Academy’s supply chain include improved transit times, competitive costs, and increased capacity. Transportation improvements that provide more service options and competitive prices to Texas ports would be of benefit. The supply chain for athletic goods follows the availability of products. There may be gradual changes in the production of some products, such as footwear to Vietnam; that may influence future supply chains. The Panama Canal expansion and shipping to the Port of Houston may benefit from these types of changes. Ian Cairns, CMA CGM Ian Cairns provide an overview of CMA CGM’s current use of the Panama Canal, and possible changes in future shipping patterns based on the Panama Canal expansion. He covered the following topics in his presentation.  CMA CGM is a global shipping company, which operates approximately 400 ships worldwide. Shippers want reliability and flexibility. The Panama Canal expansion will provide greater flexibility for shippers. The Port of Houston may benefit from the expansion. The current channel can accommodate 8,000 TEU ships. The current channel depth is not a major problem, but ongoing dredging is needed.  Although the fees for using the Panama Canal after expansion have not been set, the charges must be reasonable or shippers will not use it. Houston is well positioned for increases in imports, although growth may occur slowly over time. Reliability and flexibility are keys for shippers. Michael Casey, Global Logistics Senior Manager, Halliburton Michal Casey provided an overview of Halliburton. He described key elements of the transportation and logistics system and possible benefits from the Panama Canal expansion. Michael covered the following topics in his presentation.  Halliburton is the world’s second largest provider of products and services to the energy industry, with $25 billion in annual revenue. The company provides services and products to the energy industry related to the exploration, development, and production of oil and natural gas. Examples of services include locating hydrocarbons and managing geological data, drilling and formation

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 11 evaluation, well construction and completion, and optimizing production through the life of the field.  Halliburton was founded in 1919. It currently has nearly 70,000 employees in 80 countries. The corporate headquarters of Halliburton are in Houston and Dubai, and the company has 14 research centers located throughout the world.  Transportation and logistics account for over 12 percent of the total cost of goods at Halliburton. Over 84 percent of Halliburton U.S. ocean imports and 21 percent of ocean exports use the Panama Canal. The majority of U.S. import goods continue on to over 115 Halliburton warehouses, plants, and field camp locations throughout the U.S.  The Panama Canal expansion may provide a number of benefits. Lower cost and quicker delivery times may be realized using post-Panamax vessels and economies of scale. The expansion should also provide more choices in shipping options and better opportunities for diversification. It may also allow for economic development opportunities and supply chain infrastructure enhancements.

Captain Bill Diehl, U. S. Coast Guard (Retired), Greater Houston Port Bureau Bill Diehl described the current process of moving vessels through the Panama Canal and changes in operation after the expansion. He described the changes in the size of vessels that can be accommodated and possible savings to shippers after the expansion. A copy of his PowerPoint presentation is provided as a separate attachment. Captain Diehl covered the following topics in his presentation.  The Panama Canal expansion will accommodate larger ships. There is some question on changes in the total throughput of vessels, however, due to “flushing” water in the locks after each passage. The world container fleet capacity and vessel size composition is expected to change after the expansion, with more larger post-Panamax vessels in operation.  East coast ports – including New York Charleston, Savannah, Jacksonville, and Miami – are making significant investments in deepening channels to accommodate the post-Panamax vessel. All of these ports received funding through the 2012 Federal Aid to Ports. No Gulf ports were included in the recently announced funding.

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 12 Appendix A – Other Individuals Attending

Richard Zientek, Harris County Judge’s Office Eduardo Hagert, Texas Department of Transportation Jay Bond, Texas Department of Transportation Katie Turnbull, Texas A&M Transportation Institute Jim Kruse, Texas A&M Transportation Institute Marty Rozelle, The Rozelle Group, Ltd. Mary Cearly, Texas A&M Transportation Institute Nick Norboge, Texas A&M Transportation Institute Gary Bushell, Alliance for I-69 Texas David Garcia, Cameron County Glen Jones, Texas Farm Bureau Shareen Larmond, West Gulf/Maritime Association Bob Sechler, WSJ Rob Harrison, Center for Transportation Research Alan Clark, Houston-Galveston Area Council John Durkey, Southeast Texas Plant Managers Forum Al Navarro, Self Employed Patty Enrico, Exxon Mobile Robert Sakowitz, Hazak Corp. Hugh McCulley, BNSF Charlie Jenkins, Port of Houston Ryan Walsh, Harris County Judge Jimmy Jamison, Port of Houston Roger Guenthel, Port of Houston Pete Perez, U.S. Army Corp of Engineers Joe Hrametz, U.S. Army Corp of Engineers – Galveston District Kippy Caraway, City of Houston Phyllis Saathoff, Port of Freeport Matthew Tajata, Air Alliance Houston Gus Kankarli, Texas Department of Transportation Terry Clower, University of North Texas State Representative Armando Walle Brian Hill, U.S. Maritime Administration Bruce Carlson, NITL John Hoss, Port of Freeport Felicia Harris, Self-Employed John Peterlin, Port of Galveston

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 13 Jim Lewis, Jim Lewis LLC Ian Cairns, CMA CGM Ashby Johnson, Houston-Galveston Area Council John Roby, Port of Beaumont Jim Fontana, Port of Houston Authority Spencer Chambers, Port of Houston Authority Sue Collins, Styrolution Michael Casey, Halliburton Bill Diehl, Greater Houston Port Bureau Patricia Seebe, Greater Houston Port Bureau Tony Davis, Academy Sports Ron Beeson, Lubrizol Ricky Kunz, Port of Houston Authority Colonel Christopher Sallese, U.S. Army Corps of Engineers, Galveston District

Panama Canal Stakeholder Working Group – August 27, 2012 Meeting Summary 14