Container-on-Barge for Illinois Fueled by Biodiesel An Operating Plan and Business Plan August 27, 2011 Table of Contents 1.0 Introduction and Overview ------------------------------------------------------------------- 4 2.0 Research/Investigation/Reports -------------------------------------------------------------------- 6 3.0 Lessons to Consider -------------------------------------------------------------------- 8 4.0 Inland Rivers Operations -------------------------------------------------------------------- 9 4.1 Ownership -------------------------------------------------------------------- 9 4.2 Towboats/Barges -------------------------------------------------------------------- 9 4.3 River Operations Modes -------------------------------------------------------------------- 10 4.4 The “Power Split” -------------------------------------------------------------------- 12 4.5 River Freight Pricing -------------------------------------------------------------------- 13 5.0 Designing Illinois COB -------------------------------------------------------------------- 15 5.1 Design Alternatives -------------------------------------------------------------------- 15 5.1.1 Purchased -------------------------------------------------------------------- 15 5.1.2 Leased -------------------------------------------------------------------- 18 5.1.3 Unit Tow -------------------------------------------------------------------- 19 6.0 Gulf COB – Cargo Flexibility -------------------------------------------------------------------- 21 7.0 COB Program Synergy -------------------------------------------------------------------- 23 8.0 Demurrage Issues -------------------------------------------------------------------- 25 9.0 Calling Ports -------------------------------------------------------------------- 27 9.1 Shuttle COB -------------------------------------------------------------------- 27 9.1.1 North -------------------------------------------------------------------- 28 9.1.2 South -------------------------------------------------------------------- 31 9.2 Gulf COB -------------------------------------------------------------------- 34 9.2.1 North ------------------------------------------------------------------- 35 9.2.2 South ------------------------------------------------------------------- 37 10.0 COB Operating Plans ------------------------------------------------------------------- 43 10.1 COB Itineraries ------------------------------------------------------------------- 44 11.0 Component Specifications ------------------------------------------------------------------- 50 11.1 Shuttle COB ------------------------------------------------------------------- 50 11.2 Gulf COB ------------------------------------------------------------------- 54 11.3 Crew/Supplies ------------------------------------------------------------------- 55 11.3.1 Crew ------------------------------------------------------------------- 55 11.3.2 Insurance ------------------------------------------------------------------- 57 11.3.3 O&M ------------------------------------------------------------------- 57 11.3.4 OH Reserve ------------------------------------------------------------------- 57 11.3.5 Admin. O/H ------------------------------------------------------------------- 58 11.3.6 Fuel ------------------------------------------------------------------- 58 12.0 COB Expense Models ------------------------------------------------------------------- 59 13.0 COB Outside Revenue ------------------------------------------------------------------- 59 13.1 Gulf COB ------------------------------------------------------------------- 59 13.2 Shuttle COB ------------------------------------------------------------------- 62 14.0 Bringing It All Together ------------------------------------------------------------------- 63 15.0 Biodiesel ------------------------------------------------------------------- 70 1 16.0 Findings/Recommendations ------------------------------------------------------------------- 74 Appendix 1 – Business Plan and Financial Projections Appendix 2 – Grants/Loans /DERA Application 2 Executive Summary This report addresses the concept of Container-on-Barge (COB) from the perspective of inland river operations on behalf of, and funded by, the Illinois Soybean Association. A number of reports and studies have been completed in recent years regarding broad aspects of COB. In most cases, these earlier works on COB focus on the COB market potential within a specific geographic region of the US. Very little has been written (or at least published), however, where actual river operations of COB are revealed and/or applied in detail. As the river movement of container barges is the most costly and complex element of COB, this has been a curious oversight. We begin our work by reviewing the history and general progression (and, sometimes, regression) of inland river transportation is the US. We then move on to a review of COB work by others that has preceded our efforts, and in some cases provides pointers to where we should be going. This leads to a discussion of COB successes and failures to date (more of the latter and less of the former); and, lessons that should have been learned (but often were not) from those early attempts at COB. There are several such lessons that are recognized and incorporated in the proposed plans and programs presented. We then review the structure of the inland river transportation industry from river carrier ownership, to types of equipment, operating modes, and freight pricing practices. All of those subjects bear on the design of a successful COB program. COB Program design alternatives are presented for both Illinois Waterway Shuttle COB and a Illinois-to-Gulf COB programs, including strategies, ports of call, equipment, provisions and crewing specifications/costs, and itineraries. The sum of these components is then presented in spread sheet form to reveal the projected cost of COB - as designed - per Twenty Foot Equivalent Unit (TEU) of the several strategies; and, how that cost compares with respective competitive transportation modes. The program design then introduces use of biodiesel to power the COB strategies, including prior industry experience and mandatory required equipment modifications to successfully incorporate biodiesel at high ratios. Finally, we list a series of findings and recommendations, including: • Both COB on the Illinois Waterway (shuttle), and Illinois-to-Gulf COB can be efficient and competitive with other inland container transportation modes with conventional river equipment – even at reduced container volumes that could be expected initially – if creative (but not radical) strategies are utilized in COB river operations. • Use of biodiesel in the COB program appears to be viable, particularly in the context of a COB dedicated unit tow. • Organization and management of COB may be best served from the platform of a non-profit shippers association to see the programs through formative years without the pressure of risk/return that has contributed to most of the historic COB failures. 3 • While the Shuttle COB on the Illinois River can function as a stand-alone, the Illinois-to-Gulf COB may require coordination with a Shuttle COB to function competitively. Our recommendation is that the two programs function in unison with common ownership and management. 1.0 Introduction and Overview Water transportation, both blue water, ocean and river, has remained an important asset of nature to man throughout the history of civilization. Indeed, it is likely that man utilized the water for transportation even before the evolution of the wheel. Civilizations with access to water transportation prospered while those that did not, or failed to fully develop use of this natural asset, generally do not appear in our history books with stories of glory and grandeur. As one inventories the regions of the world in a 21st Century context, it can still be said that those regions that both have access to, and utilize, water transportation resources are those regions that also demonstrate robust economies. While the Mediterranean Basin represents the earliest recorded example of economies and civilizations based on water transportation, Europe later became the finest example of utilizing rivers as a transportation artery. Over the centuries the Rhine River (and tributaries) as well as the Danube River (and its tributaries) have moved people, commerce and armies. Control of those transportation arteries became strategic focus of battles between tribes and nations. Much later in history Russia (hampered by north flowing rivers), and later still, China, have developed their river systems to move significant commerce internally and to ocean ports. The latest realization of the value of river transport has been South America. Over the last three decades it has been the development of river transportation in Brazil and Argentina that has contributed heavily to the ability of agricultural interests in those countries to bring commodities to export markets – bringing serious competition to US agricultural producers in the process. European immigrants brought centuries of river transport experience to the New World. Early explorers of North America quickly recognized the ease of travel and exploration accorded by the natural North American river systems. Their Native American guides/vendors/customers also had, for centuries, utilized the North American river system. Much of the movement west from the