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I I I. __ - -_____ I PORT MANAGEMENT ALTERNATIVES AT DAVISVILLE FOR RHODE ISLAND PORT AUTHORITY AND ECONOMIC DEVELOPMENT CORPORATION FINAL REPORT MARCH 1981 BOOZ-ALLEN & HAMILTON INC., Transportation Consulting Division 4330 East-West Highway, Bethesda, Maryland 20014 (301) 9S 1 -2200 US Department of Commerce NOAA Coastal Services Center Library 2234 South I-Robson Avenue Charleston, SC 29435-2413 "The preparation of this report was financed in part by funds from the Office of Coastal Zone Management, National Oceanic and Atmospheric Administration, U.S. Department of Commerce, administered by the ENERGY OFFICE, EXECUTIVE DEPARTMENT, GOVERNOR'S OFFICE, STATE OF RHODE ISLAND." BOOZ - ALLEN & HAMILTON Inc. T'ransportation Consulting Div is ion 4330 EAST WEST HIGHWAY BETHESDA, MARYLAND 20014 951-2200 AREA CODE 301 March 23, 1981 Mr. Thomas V. Moses Rhode Island Port Authority and Economic Development Corporation 7 Jackson Walkway Providence, RI 02903 Subject: Delivery of Final Report Entitled "A Study of Port Management Alternatives at Davisville" Dear Mr. Moses: Booz, Allen & Hamilton is pleased to present our final report on the Davisville Port Management study. Our report con- sists of two volumes: Volume I includes the final report and OCS bibliography Volume II includes case studies of 5 OCS bases and will be delivered within the next two weeks. Volume I consists of the following chapters: Chapter I is an executive summary Chapter II identifies the implications of OCS develop- ment on management alternatives Chapter III identifies the implications of commercial cargo development on management alternatives Chapter IV presents case studies of OCS and commercial cargo ports Chapter V forwards conclusions and recommendations. Mr. Thomas V. Moses March 23, 1981 Page Two We have appreciated the opportunity to be of service to the Rhode Island Port Authority and Economic Development Corporation on this important port management assignment and look forward to opportunities to be of service in the future. Very truly yours, BOOZ-ALLEN & KA14ILTON Inc. Leo J. Donovan Vice President TABLE OF CONTENTS Page Number INTRODUCTION AND SUMIARY 1- 1 1. OCS Support Base Siting Require- ments Are Not Stringent and Davis- ville Offers Facilities Considerably in Excess of Normal Industry Require- ments 2. A Number of Factors, Including Ease 1- 2 of Entry, a Price Sensitive Industry and an Uncertain Outlook for Develop- ment of the Atlantic Outer Continental Shelf Suggest that Dedicating the Facility Principally for OCS Uses Con- stitutes High Risk 3. Opportunities Exist in the Commercial 1- 3 Cargo Area that Could Potentially Complement the Port of Providence, Reduce the Risk of Underutilization at Davisville and Increase Direct' Economic Impact in North Kingstown 4. A Review of Other Ports Suggests 1- 3 that Davisville Should Develop as a Dual-Purpose Port Facility 5. The RIPAEDC Should Develop a Plan 1- 4 and Organization to Manage Davis- ville as a Multiple Purpose Port 6. Development of Commercial Cargo 1- 7 Operations at Davisville Has Poten- tial Policy Implications that the Port Authority May Need to Address in the Future v Pacre Number THE IMPLICATIONS OF OCS DEVELOPMENT ON II_ 1 FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE 1. From a Shore Facilities Perspective, II_ 1 the OCS Market Evolves From One that Is Large and Diverse During Explora- tion to One that Is Smalle@ and More Concentrated During Production 2. The OCS Support Base Siting Require- 11-6 ments Are Not Stringent, and Davis- ville Offers Facilities Considerably in Excess of Normal Industry Require- ments III. THE IMPLICATIONS OF THE COMMERCIAL CARGO 111- 1 MARKET ON FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE 1. The Roles of Port Agencies and Other 111- 1 Participants Vary Significantly in Commercial Cargo Responsibility 2. Containers, Automobiles and Steel 111- 6 Products Represent the Major Commer- cial Cargo Opportunities for the Port of Davisville 3. Any Commercial Cargo Development at 111-15 Davisville Must Consider Cargoes Currently Moving Through Providence 4. In Terms of Potential Port Revenue ii-rL-17 and Economic Impact, Containers Represent the Best Commercial Cargo Opportunity for Davisville 5. Automobiles Appear to Be the Best 111-20 Development Opportunity for Davis- ville With Containers a Possibility if Traffic Volumes Through the Area Increase Substantially vi Pacre Number IV. IDENTIFICATION OF POTENTIAL MANAGEMENT IV- 1 AND OPERATIONAL ROLES FOR THE RHODE ISLAND PORT AUTHORITY FOR BOTH OCS AND COMMERCIAL CARGO APPLICATIONS 1. The Organization of the Rhode Island IV- 1 Port Authority Has Developed in Re- sponse to the Economic Development Needs of the State 2. Other Public Ports Involved With IV- 4 OCS Operations Are Principally Involved With Commercial Cargo and Industrial Activities and Consider OCS as Incremental Business 3. Commercial Cargo that Has the Poten- IV- 9 tial to Move via Davisville Can Generate More Revenue for a Port Authority and the Private Sector Than Would Be Available From OCS Operations V. CONCLUSIONS AND RECOMMENDATIONS V- 1 1. The Facilities at Davisville Are V- 1 Adequate to Meet the Requirements of Both an OCS Support Base and Limited Purpose General Cargo Applications 2. A Dual-Purpose Facility Will Reduce v- 3 the Financial Risk of the RIPAEDC Without Increasing the Need for Additional Staff or Operating Costs Beyond that Required for a Single Use 3. Private Firms Should Operate the v- 4 Facilities Under Lease to the RIPAEDC APPENDIX A-OCS Bibliography APPENDIX B-Position Descriptions vii LIST OF TABLES Page Number II_ 1 Primary and Secondary Roles 11- 4 of OCS Participants 11- 2 Leading Firms in Major OCS 11- 5 Industry Sections 11- 3 Role of Participants in Shore 11- 5 Facility Sitings 11- 4 Comparison of Organizational and II_ 9 Financing Forms for OCS Support Bases 11- 5 Physical and Service Characteristics II-10 of Nine OCS Support Facilities 11- 6 Minimum Support Base Requirements to II-11 Serve One Offshore Drilling Unit 11- 7 Capacity Indices for Nine OCS Support 11-13 Facilities II_ 8 Schedule of OCS User Charges 11-15 II_ 9 Estimate of Annual Revenue Accrued by 11-16 OCS Facilities in Support of Exploratory Drilling on one Offshore Well 111- 1 Alternative Roles for the Port Authority 111- 2 111- 2 Port Administration of Selected Ports 111- 4 111- 3 Participants in Commercial Cargo Market 111- 5 by Type of Cargo 111- 4 New England Commercial Cargo Market 111- 6 (Thousands of Tons) viii Page Number 111- 5 Commercial Carqoes Handled at 111- 7 New England Ports, 1978 (Thousands of Tons) 111- 6 State of origin/Destination of 111- 9 New England Neobulk Cargoes, by Percentage of Total Tonnage 111-7 Rhode Island Originated/Destined 111- 9 Neobulk Cargoes (Tonnages are in Thousands) 111- 8 Origin/Destination State of III-10 New England General Cargo 111- 9 Facility Requirements of Commercial 111-12 Cargo III-10 Capital Investment Required at 111-13 Davisville to Service Commercial Cargo Market III-11 Typical Vessel Dimensions of 111-14 Selected Commercial Cargoes Indicate Davisville Market 111-12 Principal Commodities Handled at 111-16 the Port of Providence 111-13 Liftings of Key Commercial Cargoes 111-17 .at Providence Public Facilities, 1980 111-14 Commercial Cargo Constraints at the 111-17 Port of Providence Facilities 111-15 Port Revenue and Economic Impact Per 111-19 Ton for a Landlord Port Agency 111-16 Cargo Density and Dwell Time 111-19 111-17 Gross Port Revenue Per Acre for a 111-20 Landlord Port Agency ix P age Number 111-18 Potential Economic Impact Per Acre 111-20 IV- 1 Projected Revenue of the RIPAEDC IV- 3 During FY 1980 IV- 2 Comparison of Port Revenue by Source IV- 3 at Four Large Port Organizations IV- 3 Port of Manatee Operating Statement IV- 6 IV- 4 Sources of Revenue at Manatee IV- 6 IV- 5 Pro-Forma Revenue Estimate for Port IV- 7 Manatee Resulting From OCS Support Activities IV- 6 Financial Performance of Oxnard IV- 8 Harbor District During 1980 IV- 7 Automobile and Steel Products Port IV-10 Charges IV- 8 Per Acre Lease objectives of Selected IV-10 Port Organizations IV- 9 Expected Port Authority Revenue From IV-11 Handling 50,000 Automobiles and 150,000 Tons of Steel IV-10 Estimated Annual Private Sector Revenue IV-12 Resulting From Commercial Cargo Activities V- 1 Annual Revenue Potential of a Dual- V- 3 Purpose Facility at Davisville v- 2 Suggested Tariff Items V:-- 5 C- 1 List of OCS Related Port Facilities C- 2 Studied in This Report LIST OF FIGURES Page Number 1- 1 Davisville Revenue Potential from 1- 2 OCS Sources During Exploration Phase 1- 2 Recommended Facility Use Plan 1- 4 1- 3 Proposed Port Authority organization 1- 6 11- 1 Relative Time Frame for OCS Operations. 11- 2 Phases 11- 2 OCS Operating Budgets at Various 11- 7 Development Cycles 11- 3 Proposed OCS Berthing Plan 11-12 11- 4 Revenue Items at 11 OCS Support 11-14 Facilities II-@5 OCS Development Cost Tree 11-17 11- 6 Planned Levels of OCS Support 11-19 Activities at Davisville to 1990 11- 7 Davisville Revenue Potential from 11-20 OCS Sources During Exploration Phase IV- 1 Organization Chart for Rhode Island IV- 2 Port Authority and Economic Development Corporation and Related Organizations IV- 2 Organization of the Port of Manatee IV- 5 Florida IV- 3 Organization of the Port of Hueneme, IV- 8 California V_ 1 Alternative Facility Use Plan v- 2 v- 2 Proposed Port Authority Organization v- 7 Xi LIST OF EXHIBITS Page Number C_ 1 Layout of Cameron Offshore c- 4 Relative to Gulf of Mexico C- 2 Schedule of Loading Rates for c- 8 Cameron Gffshore (Sample) C- 3 Layout of Sabine Offshore C_ 9 c- 4 Service Charges at Sabine C-12 C- 5 Layout of Port Hueneme C-14 c- 6 OCS Companies on Morgan City C-22 C- 7 Organization Structure of Shell- C-22 Morgan City C- 8 Tubular Goods Loading Operation C-24 xii 1. INTRODUCTION AND SUMMARY I. INTRODUCTION AND SUMMARY In February, 1980 the Rhode Island Port Authority and Economic Development Corporation (RIPAEDC) retained Booz, Allen & Hamilton to study the alternatives available to RIPAEDC concerning management of the Davisvilie piers. A management structure was to be recommended for each or both of the following scenarios: That Davisville was to be a facility dedicated to the oil drilling activity in the Outer Continental Shelf (OCS). This has long been considered to be the major priority of the facility. That Davisville, was to be a commercial cargo handling facility. This alternative has been considered as a secondary priority for the facility. It was not the purpose of the study to develop forecasts and projections of each alternative use but rather to recommend the appropriate management scheme based on currently available information concerning the alternative uses. In the balance of this chapter the principal findings, conclusions and recommendations are forwarded. i. OCS SUPPORT BASE SITING REQUIREMENTS ARE NOT STRINGEL4T AND DAVISVILLE OFFERS FACILITIES CONSIDERABLY IN EXCESS OF NORMAL INDUSTRY REQUIREMENTS The portion of the Davisville facility available for OCS activities includes: 5,000 linear feet of berthing space 28 feet of water depth at the piers 110 acres of open storage 150,000 square feet of covered storage. A facility with these characteristics is far more extensive than has been generally used by OCS support firms in the United States. The industry has generally used make-shift piers, a few acres of land and a portable storage facility on a bayou in the Gulf of Mexico. 2. A NUMBER OF FACTORS, INCLUDING EASE OF ENTRY, A PRICE SENSITIVE INDUSTRY AND AN UNCERTAIN OUTLOOK FOR DEVELOPMENT OF THE ATLANTIC OUTER CONTINENTAL SHELF SUGGEST THAT DEDICATING THE FACILITY PRINCIPALLY FOR OCS USES CONSTITUTES HIGH RISK A number of factors suggest that support of the OCS industry does not constitute the highest and best use of the facility. Exploration of the Baltimore Canyon has been slow and thus far inconclusive. At best the development potential of both the Baltimore Canyon and the Georges Bank region can be termed as highly uncertain. A number of facilities from New Bedford, Massachusetts to the New Jersey coast and Delaware River region can provide the facilities to support a high level of development. This ease of entry combined with the price sensitivity of users suggest that utilization and the income generation potential of Davisville is limited. Figure I-I provides an estimate of Davisville's revenue potential under an optimistic level of exploratory drilling based on the existing pricing practices of the RIPAEDC. FIGURE I-1 Davisville Revenue Potential From OCS Sources During Exploration Phase 2.500 - 2.0ce - C2 1.800 - DAVISVILLE GROSS sea - OCS REVENUE jl,IAVISV'LLE GROSS CS REVENUE 80 81 82 83 84 as 86 By Be as YEAR 1-2 The figure shows that even under an optimistic exploratory drilling scenario, revenue will peak at slightly over $1 million for only one year. Revenue estimates during the development and production phases are not provided, but it is unlikely that levels would approach the peaks achieved during the exploratory phase. 3. OPPORTUNITIES EXIST IN THE COMMERCIAL CARGO AREA THAT COULD POTENTIALLY COMPLEMENT THE PORT OF PROVIDENCE, REDUCE THE RISK OF UNDERUTILIZATION AT DAVISVILLE AND INCREASE DIRECT ECONOMIC IMPACT IN NORTH KINGSTOW14 A number of commercial cargoes were identified that could be handled at a facility with the limited water depth characteristic of Davisville. 'ilhese cargoes could be handled at Davisvilie in a manner complementary to the Port of Providence. The commodities include: Imported automobiles Imported iron and steel products. If one of the piers were dedicated to cargo operations, it could be expected that 50,000 automobiles and 150,000 tons of steel products could be handled per year within one or two years. This activity could generate $1/2 million in direct revenue and provide the following private contractors with nearly $8 million in additional revenues: Stevedores Automobile processing firms Ships agents and chandlers Steel terminal operator and warehousemen. Imported automobiles and steel are proprietary products that would be imported by a very small number of firms. Thus, arrangements between these firms and a port agency would provide these firms with near exclusive use of segments of the facility. Further, these commodities can either not be optimally handled at Providence (automobiles) or could impede development of Providence as a container and general commodity port (steei). Development of Davisviiie as a proprietary facility could complement the continued development of Providence as a public.port facility. 4. A REVIEW OF OTHER PORTS SUGGESTS THAT DAVISVILLE SHOULD DEVELOP AS A DUAL-PURPOSE PORT FACILITY Other public ports that are involved in OCS support activities treat commercial cargo as their principal business and OCS activity as incremental business. The Ports of 1-3 Manatee, Florida and Hueneme, California are similar in size to Davisviiie. During 1980 they generated $2.2 and $2.5 million in revenue respectively. Between 85-90 percent of their revenue is from commercial cargo while the balance is from OCS sources. Further, their small staffs of between 15 and 18 were in place to support cargo and lease operations. The OCS activity required no increase in staff and only limited increase in operating costs. 5. 12HE RIPAEDC SHOULD DEVELOP A PLA14 AND ORGANIZATION TO MANAGE DAVISVILLE AS A MULTIPLE PURPOSE-PORT The facilities at Davisville are adequate to handle a high level of both OCS and commercial cargo activity. Figure 1-2 presents a conceptual layout that shows the Davisviiie piers handling OCS activities on Pier I and automobiles and steel on Pier 2. FIGURE 1-2 Recommended Facility Use Plan ROLL-ON/ ROLL-OFF RAMPS AUTOMOBILE LEASE AREA WAREHOUSE AND TRANSIT SHED 7,@ ..... .... .. . lo. le STEEL PRODUCTS LEASE AREA PIER 1 PIER 2 1-4 (1) The RIPAEDC Should Publish a Marine Terminal Tariff But Should Have tne Facility Operated by Private Firms Under Lease to the Port Authority The Port Authority should attempt to lease the facilities to the most important users such as automobile and steel products importers and the key OCS users. The characteristics of such leases should be as foiiows: Users should be rented parcels of land and should be required to conduct the operations within the iease area. Lease should be from one to five years depending on the extent of leasehold improvements involved. Payment terms could be based on a published tariff with the following exceptions: A fixed land rental would replace storage charges.1 A minimum financial guarantee from the leasee should be specified in order to encourage activity at the site. Conversely incentive rates should be provided in cases where activity exceeds the specified minimum. In addition because the Port Authority is a public agency, it should publish a terminal tariff that would apply to all public users. The tariff must be filed with the Federal Maritime Commission in Washington, D.C. Suggested tariff items are provided in Chapter V of this report. Most port authority revenue would be from the major leases, however, rather than pubiic users that are charged tariff fees. The Port Authority shouid expect an annual revenue of between $750,000 and $2 million per year under a multiple use scenario. A tariff generally has a ch@Lrge for storage on pubiic lands. Such a change would not be required if the land used for storage were leased 1-5 (2) A Director of Maritime Opertaions, and a Limited Staff Should Be Added to the Port Authority organization Figure 1-3 presents a proposed organization alignment for the Rhode Island Port Authority. The following new positions would be required: Director of maritime operations. A tariff and agreements group to publish and administer a tariff and insure proper billing for both tariff and lease charges. Such a group would require no more than three individuals. A harbor master to control berth and security at the piers. FIGURE 1-3 Proposed Port Authority Organization EXECUTIVE DIRECTOR FINANCE 7,N13 ADMINISTR 'TO, L GONSET POINT RATIOj.S FAIIUITIES DIRECTOR] R FIRE TARIFFS AND AGREEMENTS Fccounts Rweinble) Such a change would require the creation of no more than five new positions. The director and the senior staff member in the tariff group would probably need to be recruited as the requisite skills are probably not available within the organization. r0he establishment of a maritime operations group would require an operating budget of approximately $400,000. This would include amounts for maintenance and marketing support which represent current expenditures of the RIPAEDC. 1-6 6. DEVELOPMENT OF COMMERCIAL CARGO OPERATIONS AT DAVISVILLE HAS POTENTIAL POLICY IMPLICATIONS THAT THE PORT AUTHORITY L MAY NEED TO ADDRESS IN THE FUTURE Development of commercial cargo activity at Davisville could have the following implications: Organized labor would handle the commercial cargo and could present the potential for disruption of OCS activity. Successful commercial cargo activity will result in pressure to dredge the Port to accommodate larger vessels. These potential problems are not viewed as serious impediments to development of the Port for commercial cargo because: Tiie International Longshoremen Association (ILA) has no collective bargaining agreement with participants in the OCS industry. Consequently they should have no legal recourse in Rhode Island or disruptive influence in other ports where such activities occur. The facility and lease planning of the Port Authority snould consider the potential impact of local job actions.2, The need to dredge the harbor will generally be an indication of the commercial success of the Port. The potential problems of such activity are environmental. The greater the potential environmental impact the more time consuming and costly the process will be. The Port Authority would have to share the cost of such an activity with the federal government. Details concerning these findings, conclusions and recommendations may be found in the balance of this report which is organized as follows: Ctiapter II presents implications of OCS development on future management alternatives at Davisvilie. Chapter III presents the implications of the commercial cargo market on future management aternatives at Davisville. 2 Leases to the OCS users could include the provision ot a secured fenced area and perhaps the imposition of civil penalties for unauthorized entry into leased areas. 1-7 Chapter IV identifies potential management and operational roles for the Rhode Island Port Authority for both OCS and commercial cargo development. Chapter V presents conclusions and recommendations. In addition, three appendices are provided. Appendix A is a bioiiography. Appendix B includes sample position descriptions for port personnel. Both Appendix A -and B are contained within this document. Appendix C presents case studies of a number of OCS bases surveyed during this study and is separately bound. 1-8 i 11. THE IMPLICATIONS OF OCS DEVELOPMENT ON FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE i E@ i II. THE IMPLICATIONS OF OCS DEVELOPMENT ON FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE Support of the Outer Continental Shelf (OCS) development has been the major planning priority for Davisviiie by the Rhode Island Port Authority and Economic Development Corpora- tion (RIPAEDC). In this chapter the OCS industry is described in such a manner as to provide RIPAEDC with the information necessary to guide its overall planning for Davisville. The chapter does not present a general overview or detailed treat- ment of the OCS industry but rather focuses on questions and issues more reiated to RIPAEDC immediate planning require- ments. Readers desirous of additional information on the industry may refer to the material referenced in Appendix A. This chapter is organized in the following manner: The OCS shore facility market is identified. The facility at Davisville is evaluated in terms of industry siting requirements and comparable sites. The revenue potential of the OCS industry is evaluated. At the end of the chapter, conclusions concerning the implica- tions of the industry's development at Davisville on the organ- izational and facilities planning of RIPAEDC are presented. 1. FROM A SHORE FACILITIES PERSPECTIVE, THE OCS MARKET EVOLVES FROM ONE THAT IS LARGE AND DIVERSE DURING EXPLORATION TO ONE THAT IS SMALLER AND MORE CONCENTRATED DURING PRODUCTION The OCS cycle is depicted in Figure II-1. The figure shows that the full cycle includes three discrete phases: Exploration Development Production. The cycle is no different for offshore than it is for onshore oil and gas fields. The total life cycle of the offshore fields may be longer than that for the onshore field as the pay out period would have to generally be longer to provide a return on the larger investment associated with offshore FIGURE II-1 Relative Time Frame for OCS Operations Phases OBTAIN RIGHT PERFORM OT PROSPECT GEOGRAPHYSICAL FOR HYDROCARBONS GEOLOGICAL PROSPECTING ACQUIRE RIGHT TO BRILL DRILL EXPLORATORY WELL (DRY HOLE) EXPLORATORY PHASE COMPLETE WEL 2-4 YEARS DRILL FURTHER UPDATE TESTWELLS GEOPHYSICAL OR ABANDON WORK PROJECT DRILL CONFIRMATION WELL 4A DEVELOPMENT PHASE 3-5 YEARS BEGIN PRODUCTION PRODUCTION PHASE DRILL ADDITIONAL WELLS, 10-50 YEARS SERVICE WELLS, AND UTILIZE SECONDARY, TERTIARY RECOVERY TECHNIQUES Source: J. Ray McKermott, Inc., "Factbook", 1979. r es Denot steps where substantial po t activity is neces sary. 11-2 development. As shown in Figure II-1, the overall cycle can be up to 60 years3. (1) The OCS Industry Potentially Includes up to Ten Highly Specialized Sectors During the Early Phases of the Cycle The participants in the OCS industry may ue generally categorized into the following groups: The oil company or owner of the drilling rights The drilling contractor The supplier of drilling fluids Cement suppliers Transportation service companies Tool and equipment suppliers Well logging and completion companies Caterers Firms providing labor and shop services Platform and drilling rig construction firms Port agency and/or terminal operator. Table II-1 describes the roles of each of these major participants and provides comments concerning their need for shore facilities. Most of the participants require such facilities for storage or cargo handling operations or simply for access to the waterway. The platform and dril- ling construction firms generally perform their services at a shore base with the platform constructors operating on dedicated facilities while the drilling rig builders are generally shipyards that are often engaged in other forms of ship work. Table 11-2 identifies a number of the lead- ing firms in each of the major OCS sectors. (2) The Major Oil Companies Have the Greatest Influence on the Shore Facility Siting Process While each of the participants identified earlier has a requirement for some degree of shore facility support, the major-oii companies or other principal owners of the oil producing rights exert the greatest influence on the facility siting decision. This is supported by the infor- mation presented in Table 11-3. The key criteria employed by these firms in the facility siting decision are: Geographic proximity to the lease area Good relationship with local governments and institutions, e.g., labor 3 The first commercial offshore well was drilled in 1947 in the Gulf of Mexico by Kerr-McGee. The well is still producing in 1980. 11-3 TABLE II-1 Primary and Secondary Roles of OCS Participants PARTICIPANT PRIMARY ROLES SECONDARY ROLES COMMENTS OIL COMPANY 1. Own drilling rights for lease. 1. At times assume proprietary control of Single most important sector of OCS indus- 2. Principal player in siting decisions for support bases managing all logistics, try for supply base siting decisions. all support bases. material handling, shore labor, etc. 3. All costs for exploration; development (usually only during production phase). and Production are passed through to oil company. DRILLING CONTRACTOR 1. Lease rigs to oil companies for explora, 1. In areas of high drilling activity (e.g., U.S. Most capital intensive sector of OCS indus- tory and some development drilling. Gulf) also provide and manage their own try. Typical new semi-submersibie drilling 2. Provide offshore drilling labor (all phases). waterfront supply bases. rigs cost from $40 to $60 million dollars. aProvide maintenance, and supplies for offshore rig and personnel. DRILLING FLUIDSSUPPLIER 1. Sell drilling fluids (primarily mud) to oil 1. Often try to gain competitive advantage Has substantial requirement for shore company. by establishing support bases, providing facilities. Due to highly competitive nature 2. Often will maintain their own berthing shore labor, berthing, material handling, of this sector. Sector is only willing to pay facilities with adjacent mud tanks. water, etc. This usually would happen limited port user fees. 3. Provide technicians offshore. during early stages of exploration, CEMENTING AND STIMULATION 1. Sell cement to oil company. 1. Provide technicians offshore. Selection of cement company for contract SERVICES 2. Often keep cement tanks and plant dock- to oil company is tied to rig installed equip- side on another company's supply base. ment. TRANSPORTATION COMPANIES 1. Lease boats and helicopters to oil Play very minor role in siting decisions. companies. 2. Provide on-board personnel TOOL COMPANIES AND EQUIPMENT 1. Sell tools and supplies to oil companies 1. Provide professional services offshore. "Hardware Stores"; can be located some SUPPLIERS and drilling contractors. distance from actual port WELL LOGGING AND COMPLETION 1. Sell specialized services to oil companies Highest technology sector of the OCS SERVICES intermittently during offshore operations. industry. Manufacture and maintain their own equipment. CATERER 1. Sells consumable stores to offshore Require refrigerated storage but can be drilling contractor. located some distance from pier area. 2. Provides catering services offshore. LABOR AND SHOP SERVICES 1. Provide shoreside labor for material 1. Al@, provide roustabouts offshore. Highest marine base employment gener- handling, boat loading, docking, etc. ating sector. 2. Provide shop services such as welding, fabrication, testing, et- CONSTRUCTION COMPANIES 1. Design, fabricates and installs offshore 1. Dredging, pile driving and general con- t Require extensive availability of water drilling and production platforms. struction services. front acreage and significant transporting 2. Designs and constructs offshore pipe- 2. Operate pipelaying, derrick and jet clearances - overhead, lateral and water line and onshore oil and gas production barges, as well as dredges used for oil depth facilities. field service. 2. Highest employment concentration in OCS industry. Typical fabrication yard will employ between (1,000 and 2,000 people. PORT AGENCY AND/OR TERMINAL 1. Own port facilities 1. Aid industry participants in setting up OPERATOR 2. Lease port facilities to or operate them their business and interfacing with for oil, mud, cement and transportation governmental authorities and local companies. community. 2. Provide shoreside labor for material handling, shop services, etc. 11-4 Table 11-2 Leading Firms in Major OCS Industry Sectors DRILLING FLUIDS CEMENTING AND TOOL AND EGUIPMENT WELL LOGGING AND CONSTRUCTION OIL COMPANIES DRILLING CONTRACTORS SUPPLIERS STIMULATION SERVICES TRANSPORTATION SUPPLIERS COMPLETION SERVICES CATERERS COMPANIES AMERADA HESS ATWOOD OCEANICS DELTA MUD BJ HUGHES MARINE A-Z INTERNATIONAL CRCWIRELINE -GENERAL MARINE PLATFORMS ASHLAND OIL DIAMOND M. DRESSER MAGCOBAR DOWELL BIG THREE INDUSTRIES DRESSER ATLAS -OCEANIC BUTLER AMOCO DIXIELYN IMCO HALLIBURTON -ACADIAN MARINE BROWN OIL TOOLS SCHLUMBERGER -OFFSHORE AVONDALE AMINOIL GLOBAL MARINE MILCHEM WESTERN CO. -BLACK GOLD CAMERON OIL TOOLS WELEX FOOD SERVICE CHICAGO BRIDGE ARCO ODECO NL BAROID MARINE DRESSER SECURITY -UNIVERSAL ETPM-U.S.A. CHEVRON OFFSHORE CO. OIL BASE INC. -OTTO CANDIES INC. HUGHESTOOL SERVICES BROWN & ROOT CITIES SERVICE PENROD -CHERAMIE BROS. MCJUNKIN 1. RAY McDERMOTT CONOCO POOL OFFSHORE -EURO PIRATES INC. TEXAS IRON WORKS WILLIAMS-McWILLIAMS CROWN READING Be SATES -GULF-MISSISSIPPI EXXON ROWAN *JACKSON MARINE RIGS HOUSTON OIL SANTA FE -OFFSHORE MARATHON SEDCO LOGISTICS AVONDALE MOBIL TRANSWORLD DRILLING -SEAHORSE, INC. BETHLEHEM STEEL PENNZOIL WESTERN OCEANICS -SEAL FLEET BAKER MARINE PHILLIPS ZAPATA OFFSHORE -STATE BOAT INGALLSSHIPYARD SHELL -TIDEWATER LEVINGSTON SHIP SOHIO -ZAPATA MARINE MARATHON MURPHY AIR LETOURNEAU SUNOCO - BRISTOW SUPERIOR OFFSHORE LOGIS. TENNECO PETROLEUM TEXACO HELICOPTERS UNION INC. WHO TABLE 11-3 Role of Participants in Shore Facility Sitings INFLUENCE ON SECTOR MOST IMPORTANT SITE REDUIREMENTS SITING DECISION OIL COMPANIES e GEOGRAPHICAL LOCATION TO MINIMIZE TRANSPOR-' VERY HIGH - MORE TATION COST TO RIG IMPORTANT THAN ALL � GOOD RELATIONSHIP WITH LOCAL INSTITUTIONS TO OTHER SECTORS INSURE "PROBLEM" FREE OPERATIONS COMBINED (EXCEPT � ADEDUATE FACILITIES FOR ALL SECTORS PLATFORM CONSTRUC- TO CONTROL COST OF SUPPORT OPERATIONS TION) DRILLING CONTRACTOR e OFFICE FOR OPERATIONS CENTER LOW 9 OPEN STORAGE FOR RIG EDUIPMENT DRILLING FLUIDS 9 PIER SPACE FOR BULK PLANT MEDIUM e OPEN STORAGE eCOVEREOSTORAGE * FRESH WATER CEMENT SERVICES e PIER SPACE FOR BULK PLANT LOW 0 OPEN STORAGE eCOVEREOSTORAGE TRANSPORTATION COMPANIES 0 GOOD BERTHING CONDITIONS VERY LOW 9 WATER DEPTH TOOL SUPPLIERS e COVERED STORAGE NEAR PORT NONE WELL LOGGING AND TECHNICAL SERVICES 9 COVERED STORAGE NEAR PORT NONE LABOR AND SHOP SERVICES e COVERED STORAGE NEAR PORT NONE PLATFORM CONSTRUCTION * EXTENSIVE FRONTAGE ON WATER SOLE DECISIONMAKER e LARGE LAND AREA FOR ASSEMBLY FOR PLATFORM 9 LABOR MARKET CONSTRUCTION 0 RAIL AND TRUCK ACCESS a AOEDUATE TRANSPORT CLEARANCES FOR ASSEMBLIES 11-5 Adequacy of faciiities4. '-L'hus the shore facility location decision is not based on rigorous criteria, and generally a number of alternatives are available to the decisionmaker. (3) The OCS MarKet Contracts Somewhat and Has aTendency Toward Greater Concentration as the Cycle Progresses From Exploration to Production Figure 11-2 presents an estimate of the annual oper- ating budget associated with a typical OCS operation as it proceeds through the cycle. The figure shows that as the cycle progresses from exploration to production: The annual budget declines The oil company assumes more direct control of L operating expenses, increasing from 22 percent during exploration to 84 percent during production. The figure indicates that the early activity of the many different segments of the OCS industry may be a mis- leading indicator of the size of and the driving forces behind the market. 2. THE OCS SUPPORT BASE SITING REOUIREME14TS ARE NOT STRINGENrll, AND DAVISVILLE OFFERS FACILITIES CONSIDERABLY IN EXCESS OF NORMAL INDUSTRY REQUIREMENTS In order to evaluate the suitability of Davisviiie in terms of the facility requirements of the OCS industry, it was neces- sary to compare Davisville with other active OCS support bases. During the course of this assignment profiles were developed for 8 other active OCS support bases. Summaries of five of these facilities are presented in Appendix C. A comparison of these facilities with Davisville is summarized below. 4 Platform construction site decisions are made independently of support base sitings. The builders make their decisions independent of the oil firms and have a more rigorous set of requirements for facility siting than those shown above. 11-6 FIGURE 11-2 OCS Operating Budgets at Various Development Cycles $35 MILLION TOOLS,LOGGINGAABOR.MISC. $32 MILLION 9% $3.15 MILLION TOOLS, LOGGING, MISC. 11% $3.42 MILLION TRANSPORTATION 14% MARINE & AIR TRANSPORTATION $4.90 MILLION 15% MARINE & AIR $27 MILLION FCT- > CEMENT - $0.70 MILLION $4.90 MILLION ALL OTHER - $0.80 MILLION 8% DRILLING FLUIDS 4% CEMENT - $1.28 MILLION 13% TRANSPORTATION $2.80 MILLION 7% DRILLING FLUIDS MARINE AND AIR - $3.50 MILLION $2.24 MILLION PLATFORM BUILDER 19% $6.08 MILLION DRILLING CONTRACTOR 45% $15.75 MILLION - VESSEL, OFFSHORE LABOR, OIL COMPANY HOTEL SERVICES OPERATIONS, HOTEL 84% SERVICES, FUEL, ANCILLARY EXPENSE OIL COMPANY $22.70 MILLION CASING, EQUIPMENT 44% FUEL, HOTEL SERVICES, CONTRACT DRILLER, OIL COMPANY ANCILLARY EXPENSE 22% $7.70 MILLION - CASING, $14.08 MILLION EOUIPMENT, FUEL, ANCILLARY EXPENSES EXPLORATION DEVELOPMENT PRODUCTION (1) There Is No Uniform Ownership, Operating or Funding Mechanisms For OCS Support Bases During the course of the assignment, Davisville was compared with eight other facilities offering services to the OCS industry. These include: Sheii Oil's facility at Morgan City, LA Cameron Offshore Services at Cameron, LA Sabine Offshore Inc., at Sabine Pass, TX Rig Tenders Docks at Kenai, Alaska Newfoundland Offshore Services (Seabase) St. Johns, Newfoundland Seaforth Maritime Ltd., Aberdeen, Scotland Aberdeen Service Co. (ASCo.), Peterhead, Scotland North Sea Exploration Services (Norsea), Stavanger, Norway. Table 11-4 compares the organization and ownership forms and funding sources used by these facilities with Davis- viiie. 12he table indicates that there are no uniform methods of operating or financing facilities of this type. The table shows, however, that Davisviiie is similar in some respects to Port Manatee on the Gulf Coast of Florida and Port Hueneme in California. (2) While No Uniform Standards Exist Concerning the Characteristics of OCS Support Faciiities, Davisviile Compares Favorably to Other Sites in Terms of Physical Characteristics The portion of the Davisville facility that is potentially available as an OCS support base may be summarized as follows: 5,000 linear feet of berthing space 28 feet of water depth alongside 110 acres of open space 150,000 square feet of covered storage. Table 11-5 compares the facilities and services offered at Davisviile with those at the eigilit OCS support bases identified earlier. 11-8 TABLE 11-4 Comparison of Organizational and Financing Forms for OCS Support Bases SOURCE OF PRINCIPAL INVESTMENT ROLE OF PUBLIC FACILITY TYPE OWNERSHIP FUNDS AGENCY SHELL, MORGAN CITY PROPRIETARY/ LONG TERM SHELL OIL NONE EXCLUSIVE USE LEASE FROM CITY CAMERON OFFSHORE TERMINAL PRIVATE PRIVATE FUNDS NONE OPERATOR SABINE PASS TERMINAL PRIVATE PRIVATE FUNDS NONE OPERATOR PORT MANATEE PORT AUTHORITY/ PORT AUTHORITY PUBLIC BONDS ALL OPERATIONS TENANTS EXCEPT STEVEDORING KENAI TERMINAL LONG TERM LEASE OIL COMPANY NONE OPERATOR FROM STATE CONSORTIUM PORT HUENEME PORT AUTHORITY/ PORT AUTHORITY PUBLIC BONDS ALL OPERATIONS TENANTS EXCEPT STEVEDORING SEABASE, ST. JOHN'S PORT AUTHORITY/ PORT AUTHORITY PRIVATE FUNDS MAINTENANCE & JURISDICTION TERMINAL OPERATOR OVER HARBOR SEAFORTH,ABEROEEN PORT AUTHORITY/ PORT AUTHORITY PRIVATE FUNDS MAINTENANCE & JURISDICTION TERMINAL OPERATOR OVER HARBOR ASCo, PETERHEAD TERMINAL PRIVATE DEVELOPMENT GRANT NONE OPERATOR FROM SCOTTISH GOV'T. NORSEA TERMINAL PRIVATE DEVELOPMENT GRANT LICENSED TERMINAL OPERATOR FROM NORWEGIAN GOV'r. OPERATOR BY NORWAY DAVISVILLE PORT AUTHORITY/ PORT AUTHORITY PUBLIC BONDS MAINTENANCE OF FACILITIES TENANTS The table shows that the facilities at Davisville would appear to be more extensive than others in the United States and are comparable with those in the North Sea. The table also iiiustra 'tes that currently Davisviiie does not provide the services that are typically offered by the owner/operators of other facilities. In order to determine the capability of Davisvilie to service the industry, a rating or ratio system was devei- oped whereby Davisviiie can be compared with the other faciiities serving the same function. Table 11-6 provides a listing of minimum shoreside requirements to serve one offshore rig and against which the OCS bases can be compared. Comparing the physical characteristics of Davisville and the eight comparabie facilities shown in Table 11-5 with the minimum requirements for dock frontage, 11-9 TABLE 11-5 Physical and Service Characteristics of Nine OCS Support Facilities BERTHS STORAGE FACILITIES SERVICES OFFSHORE TOTAL BASE UNITS ACRES Number Frontage Depth Open Covered Mud Cement Water Fuel Power Rail Labor Shop Logistics Schedule SHELL Is 42 7 1300 It 20 ft 35 acres 14K sq.ft. Near 0 411 0 Direct CAMERON 26 65 11 2400 ft 35 ft. 40 acres 2OK sq. ft. Near Free 0 0 0 0 Sale SABINE 16 25 9 1800 ft 118 ft. 18 acres 60K sq. ft 0 0 0 0 0 KENAI 15 10 53 1000 16 ft 7 acres 30K sq. ft 0 0 0 0 0 SEABASE 0 0 0 0 0 ST.JOHN`S N.A. Is 3 640 fL 30 ft. 15 Acres'! 34K sq. ft. SEAFORTH 0 0 0 0 0 ABERDEEN 20 41 3 65611. 20 ft 40 acres'! ILA. ASCo 0 0 411 0 0 0 0 PETERHEAD Is 23 7 1500 ft 24 fit. 15 acres2 150K sq. ft. NORSEA 0 0 0 0 0 0 0 0 STAYANGER 30 ISO 12 3000 ft N. A. 110 owes SOOK sq. ft DAVISVILLE 2 110 19 5000 ft. 28 fL 90+ ecres ISOK+sq.ft. 1 - REMOTE STORAGE 2 - AUD`L IGOACRES REMOTE STORAGE 3- ONLY 3 BERTHS AT ALL STAGES OF TIDE open storage and covered storage shown above in Table 11-6 results in certain capacity indices as shown in Table 11-75. The overall capacity index in the table is derived by giving the dock frontage ratio a weighting of three and the open and covered storage ratios a weighting of one each. It is apparent from the data presented in the three previous tables that at least in terms of docking space, open storage and covered storage, the Davisville facility is more extensive than other facilities serving the OCS industry. TABLE 11-6 Minimum Support Base Requirements to Serve One Offshore Drilling Unit REQUIREMENT AMOUNT DOCK FRONTAGE 200 FT. OPEN STO RAGE 3 ACRES COVEREOSTORAGE 20,000 FT.2 WATER DEPTH ALONGSIDE 16 FT. OTHER FRESH WATER FUEL ROAD ACCESS Another way to examine the ability of the Davisville piers to support the OCS requirements is to develop a sim- pie berthing plan. Figure 11-3 shows a proposed berthing plan for Davisvilie under maximum congestion conditions. The figure shows that up to 47 offshore supply, crew and work boats can be berthed simultaneously at Davisville if necessary. I.-L-1his indicates that as many as 30 offshore drilling units can be supported from Davisvilie given the existing faciiities.6 5 The capacity indices are developed by dividing the actual characteristics of a facility with the minimum required to support one rig. 6 As a general rule of thumb, two supply boats are used to support one offshore rig. FIGURE 11-3 Proposed OCS Berthing Plan "5 @@-7 TOTAL 19 BERT H S 47 BOA S ESSUPPORT 85+ ACR PIER ONE 1,200'x 250 PIER TWO 1,200'x 650' 15 WTR. H 4 PWR. 9 WTR. CONN. ...... 8 PWR. CONN. MM, 2SPURS I RAIL SPUR 7 ACRES ......... 18 ACRES M.: TABLE 11-7 Capacity Indices for Nine OCS Support Facilities DOCK FRONTAGE OPENSTORAGE COVEREDSTORAGE CAPACITY FACILITY RATIO RATIO RATIO INDEX SHELL 6.5 11.7 0.7 31.9 CAMERON 12.0 U.3 1.0 50.3 SABINE 9.0 6.0 3.0 36.0 KENAI 5.0 2.3 1.5 18.8 SEABASE ST. JOHN'S 3.2 5.0 1.7 16.3 SEAFORTH ABERDEEN 3.3 13.3 - 23.2 ASCo PETERHEAD 5.0 5.0 7.5 27.5 NORSEA STAVANGER 15.0 36.7 25.0 106.7 DAVISVILLE 25.0 30.D+ 7.5+ 112.5+ (3) Whiie There Are Opportunities For Revenue Growth at Davisvilie, OCS Port Revenue Potential Is Limited An examination was made of the revenue generation characteristics and potential of the eight OCS bases anaiyzed during the study. The results of the examination were compared with the existing situation at Davisvilie to determine revenue growth potential. Finaliy, findings are forwarded concerning the overall revenue potential of a port serving the OCS industry. 1. OCS Support Bases Generate Revenue From a Variety of Sources Figure 11-4 identifies the various sources of revenues for OCS support bases analyzed in the study. The figure stiows that the bases generate revenue through the provision of a variety of facilities and services. The figure shows that Davisvilie generates revenue from a more limited number of sources when compared to similar facilities. Table 11-8 presents a table of charges at the various facilities. 11-13 2. The Potential OCS Revenue at DavisvillIs Considerably Less Than That at Other Facilities Given Existing Pricing Practices In order to determine the total OCS revenue potential at Davisville and compare the results with similar facilities, Table 11-9 presents the annual revenues that would result from supporting a single drilling operation. The table is developed based on the table of charges shown in Table 11-8 plus an estimate of the activity that would be required to support the drilling of a single well. Ali of the revenue items were summarized into four categories. The table may be summarized as follows: The revenue potential of an OCS support base is limited. The table indicates that the average port revenue is ap roximately $73,000 per well per year. FIGURE 11-4 Revenue Items at 11 OCS Support Facilities SHELL, MORGAN CITY CAMERON OFFSHORE 0 0 0 0 SAIIINE OFFSHORE 0 0 0 0 PORT MANATEE 0 0 KENAI 0 0 0 0 0 0 0 0 PORT HUENEME 0 0 0 0 0 SEABASE 0 0 0 0 0 0 0 0 0 0 SEAFORTH AOERBEEN 0 0 0 Is 0 0 0 0 0 0 ASCo, PETERHEAD 0 0 0 0 1 01 0 0 0 0 0 NorSea 0 0 0 0 0 0 0 0 0 0 DAVISVILLE 0 o It Kenai, Norway and Davisville were removed, the average port revenue would be $48,000 per well. 11-14 T.ABLF 11-8 Schedule of OCS User Charaes AGAINST BOAT AGAINST CARGO OTHER FACILITY HARBOR WHARFAGE DEMMURAGE RENTALS DUES DOCKAGE Des BULK RATE '- FREE TIME WATER OPEN -F`OVERE0 OFFICE COMMENTS CAMERON FREE NEGOTIATED REVENUE COMES FROM LABOR, MATERIAL HANDLING AND SALE OF MUD AND FUEL SABINE $5/70N 0.55/TON 0.06/o/mo. NEGO. 0.500MO. ADDITIONAL REVENUE FROM LABOR AND MATERIAL HANDLING. MANATEE COMBINED $4001BOAT/MONTH 0.11 PER TON 10 DAYS 0.70frON 0.0057/Vf 0.13igi/MO N.A. 0.20 PER TON PER MONTH I KENAI - $180/OAY $3/rON $3/TON $300/BOAT 0.100MO. 0.40/Vf/MO 0.200MO. ADDITIONAL REVENUE FROM I PER MONTH LABOR HUENEME - $1000/MO. $2.45/TON $.25/TON 0.60/TON 6 DAYS 0.20/TON 0.021/o/MO 0.15/o/MO N.A. I.29/TON ST. JOHN'S $20/CALL $40/11AY $1.55/TON $.92/TON 0.751TON 8 DAYS 0.100MO. 0.2210 /MO 1.5O/TON SCOTLAND $460/CALL - $2.201TON $1.90/TON $0.18/TON NORWAY $110/CALL $1001DAY 0.60/TON 0.6OjWMO. 0.064*MO. N.A. ADDITIONAL REVENUE FROM MATERIAL HANDLING AND LABOR. DAVISVILLE $0.17/TON I 0.00530MO. 0.064#MO. 0.25@VMO. ADDITIONAL SERVICE FEE +$1000 FOR WATER APPROX. $1000/MO. PER MONTH This estimate is based on a relatively low level of usage and would be less per unit as volume increases. Revenue at Davisville (which is based on existing charges) is only two-thirds of the revenue of the facility with the next lowest total revenue. Consequently while there is an opportunity to increase revenues at Davisviiie, it appears that the total revenue potential of an OCS support facility is limited. 'L"his is illustrated further in the next section. 3. While Port Revenues Represent a Very Small Share of Total OCS Development Costs, the Potentially Large Number of Alternative Sources of Supply Places Considerable Pressure on Port Pricing Figure 11-5 is a cost tree that represents the cost to drill one exploratory well. The figure TABLE 11-9 Estimate of Annual Revenue Accrued by OCS Facilities in Support of Exploratory Drilling of One Offshore Well FACILITY AGAINST BOAT AGAINST CARGO WATER RENTALS TOTAL SABINE - S4,500 $2,750 $41,320 S48,500+ MANATEE $4,800 - S3,500 $34,175 $42,475 KENAI $32,400 $10,800 $3,600 $148,200 $195,000 HUENEME $12,000 $2,880 $1,000 $46,962 $66,134 ST. JOHN'S $9,120 S3,879 - $26,250 $39,249 SCOTLAND $44,160 $7,110 $1,000 N.A. $52,270+ NORWAY $28,560 - $3,000 $93,720 $125,280 OAVISVILLE S4,850 $22,166 $27,016 N.A. - NOT AVAILABLE indicates that of the $12.5 million it costs to drill the typical exploratory well: A port authority or terminal owner/operator would receive revenue of up to $130,000, or 11-16 FIGURE 11-5 OCS Development Cost Tree TOTAL WELL COST - 12,500 Oli,-1:017- T EXPENSE r 320 misc. OTHER SERVICE DRILLING I COMPANIES MATERIALS 1.540 2,000 EXPENSES ANCILLARY TO PORT EXPENSES AUTHORITY 540 75 POLLUT ON & DIVING LOCATI@ [ON SALVAGE OR WEATIHER SURVEY ABANDONMENT MONITOR SERVICES 50 20 70 200 FUEL 300 EXPENSES BY EACH SECTOR 0----PAID TO PORT AUTHORITY MATERIAL POSSIBLY SUBJECT TO DOCKAGE OR WHARFAGE 1 percent of the total cost of the well. This revenue would typically be generated from the following sources: $35,000 in rents from the project manager $20,000 for water $55,000 in payments from subcontractors and suppliers. Approximately $4.4 million in materials and supplies would be subject to a wharfage fee or other user charges levied by the port authority or terminal operator. Overall the total revenue potential of a public agency involved in OCS support operation would be small. The ability of a port facility to increase total revenue through increases in unit charges is limited by the ease of entry into the field. Such ease of entry due to the limited capital investment required places a ceiling on the level of rates that can be charged by such operations. 4. The OCS Revenue Potential of Davisviiie During the Exploratory Phase Will Vary From Less Than $500,OUO Per Year During Periods of Low Activity to Over $2 Million During Years of High Activity Figure 11-6 presents a schedule of OCS activity at both Georges Bank and Baltimore Canyon during the 198Os8. The figure indicates that the existing facilities at Davisviiie should be adequate to handle the ex- pected demand during the exploration period (refer to the earlier berthing pian--Figure 11-3). 8 The figure is developed based on expected exploration of lease sales 40, 49, 59 and 76 at Baltimore Canyon and lease sales 42, 52 and 82 at Georges Bank. Further it assumes a rig will drill 3-4 holes per year and each will be sup- ported by 2-3 boats. II_i8 Figure 11-6 can be expressed in terms of total revenue by combining it with the revenue estimates developed for a typical weii (Table 11-9). The foiiowing Figure 11-7 presents such an estimate for Davisville as well as the comparative ports at Manatee and Port Hueneme. FIGURE 11-6 Planned Levels of OCS Support Activities at Davisville to 1990 40 HOLES PER YEAR (�2) 30 - BOATS OPERATING OUT OF DAVISVILLE (�31 20 - NUMBER RIGS MAKING HOLE OFFSHORE (�I) j j j j j -L 78 79 80 81 82 83 84 85 86 87 88 89 90 YEAR Figure 11-7 indicates that depending on the pricing action that is taken by RIPAEDC at Davisville annual revenue could be less than $500,000 per year during periods of low activity (regardless of the unit pricing action that is taken) and could be greater than $2 million per year during periods of high activity (if prices are raised to Hueneme levels and assuming that a variable pricing policy is adapted). The figure also underscores the need for replacement revenue as expioration declines during the iatter 1980s. Such replacement revenues would be expected to be generated from more fixed sources during the development and production phases. 11-19 FIGURE 11-7 Davisville Revenue Potential From OCS Sources During Exploratiofi Phase 2.500 2,000 - UFNEME" GROSS R""EVENUE 1,500 - "MANATEE" GROSS REVENUE 1,000 BAVISVILLE GROSS Sao - OCS REVENUE STREAM 0 80 81 82 83 81 85 86 87 Be 89 YEAR In this chapter the impact of OCS operations at the Balti- more Canyon and Georges Bank on the Port of Davisville and the Rhode Island Port Authority and Economic Development Corpora- tion has been treated. The following major conclusions have been developed: The OCS industry is a diverse and highly specialized sector of the petroleum industry. While a large number of participants are evident during the explor- atory phase, activities are concentrated around the major oil companies during the development and pro- duction phases. The requirements of an OCS base are not stringent. Consequently existing facilities range from large dedicated facilities in the North Sea to smaller ad hoc facilities on the U.S. Gulf of Mexico. In terms of industry requirements, Davisviiie has the potential to be a superior support facility. Based on industry practice, Davisvilie has the poten- tiai to increase its revenues realized through OCS operations. The total revenue potential of the industry is, however, limited due to the competitive nature ot the industry caused by ease of entry. 11-20 The limited revenue potential coupled with the highly uncertain outlook for outer continental shelf development off the East Coast warrants an investigation into other potential business opportunities for Davisvilie. In the next chapter of this report, some commercial cargo business opportunities are identified and evaluated. 11-21 111. THE IMPLICATIONS OF THE COMMERCIAL CARGO MARKET ON FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE III. THE IMPLICATIONS OF THE COMMERCIAL CARGO MARKET ON FUTURE MANAGEMENT ALTERNATIVES AT DAVISVILLE The second development alternative for RIPAEDC to consider for Davisville is to diversifv into commercial cargo activity. This chapter will address the commercial cargo options for Davisville. The chapter is organized in the following sequence: Identification of the participants in the commercial market and alternate roles for port agencies Description of the commercial cargo market, its facil- ity requirements and areas of opportunity for Davisville Review of the Port of Providence's role in the market and potential conflicts with Davisville Evaluation of the revenue potential and economic impact of potential commercial markets. At the end of the chapter, the implications of the commercial market on development alternatives for Davisville will be presented. 1. THE ROLES OF PORT AGENCIES AND OTHER PARTICIPANTS VARY @7IGNIFICANTLY IN COMMERCIAL CARGO ACTIVITY The functions performed by port agencies vary from port to port and by type of cargo. The functions of other participants in commercial cargo activity also varies by cargo type and port. An understanding of these alternate roles is important in understanding the commercial market. (1) The Involvement of Port Agencies in Commercial Cargo Operations Ranges From a "Hands Off" Landlord Approach to Total Operating Responsibility Port agencies perform alternate functions in the com- mercial cargo market. The alternate roles generally fall into three categories as follows: Landlord Operating port authority Semi-operating port authority. The landlord port authority owns the port property and leases it to terminal operators or other users. The operating port agency owns the port property and operates all or part of the facilities. A semi-operating port administration owns the port property but performs only partial operating functions such as operating major cargo handling equipment. The alternate roles of port agencies are described in Table III-1. TABLE III-1 Alternative Roles for the Port Authority ROLE DESCRIPTION LANDLORD OWN PROPERTY AND NEGOTIATE LEASES TO TERMINAL OPERATOR OR PRIVATE USERS OPERATING PORT AUTHORITY OWN PROPERTY MANAGE TERMINAL OPERATE STORAGE FACILITIES CONTRACT IN STEVEDORING LABOR BERTHS ASSIGNED ON A FIRST COME, FIRST SERVED BASIS SEMI-OPERATING PROVIDE MATERIAL HANDLING EQUIPMENT CONTROL MATERIAL HANDLING EQUIPMENT ASSIGN BERTHS AND ARRANGE PREFERENTIAL BERTHING All public port agenices involved in the commercial cargo market perform a marketing function and are involved with promotional activities as well. (2) Port Orqanizations in New England Are Generally Agencies of State Government But Have Widely Varying Roles in the Overall Port Operations' Most port organizations in the New England area are legal entities of the state. The exceptions to this include Providence, which is a city department or agency, and two ports in Connecticut which are privately owned. Both the landlord and operating type of port admini- stration exist in New England. The Massachusetts Port Authority is the only operating port agency in New England. 111-2 The legal and operational nature of the New England ports is presented in Table 111-2. The table also shows the legal and operational nature of the four major Atlantic Coast ports. (3) Other Participants in the Commercial Cargo Market Range From Shipper to Vessel Operator and Their Functions Vary by Cargo Type The participants in the commercial cargo distribution chain are shown in Table 111-3. The shipper or consignee represents the cargo interest and generally owns the cargo. The shipper/consignee role ranges from no invest- ment in port facilities and simply booking their cargo on a common carrier (general cargo) to owning and operating port facilities and vessels as in the case in some bulk car- goes. In the case of neobulk cargoes9f shippers often invest in sites or facilities at the port. Neobulk ship- pers often charter whole or parts of vessels. The stevedore or terminal operator usually represents the manager and operator of terminal facilities and dock operations for commercial cargo. For general and neobulk cargoes, the terminal operator is often a tenant of the port authority. However, the port authority functions as the terminal operator in some ports. The shipper or con- signee of bulk cargoes can function as terminal operator. The longshoremen are laborers who load or discharge the cargo to/from the vessel. Union labor is usually used for general and neobulk cargoes while non-union labor is often used for bulk cargo activity. The vessel operator as a participant in commercial cargo ranges from a regularly scheduled common carrier to charter operations and proprietary fleets. The regularly scheduled common carriers attract the general cargo. Semi-regular charter or contract operators attract the neobulk cargo while proprietary or charter fleets carry almost all bulk commercial cargoes. In this section the participants and their functions in the commercial cargo market were reviewed. The role of port agen- cies in this market was shown to vary from little involvement to full operational responsibility. The next section of this chapter will address the market, its facility requirements and potential opportunities for Davisville. 9 Neobulk refers to general cargo that moves in large unit volumes and often uses chartered vessels rather than common carriers. 111-3 TABLE 111-2 Port Administrations of Selected Ports NATURE OF PORT PORT AUTHORITY LEGAL ENTITY OPERATIONS New Eniland Ports Boston, Mass. Massachusetts Port QuasiwState Operating Authority Fall River, Mass. Fall River Line QuasimMunicipal Landlord Pier, Inc. New Bedford, MaSL State Division of State Landlord Waterways Harbor Development City Landlord Commission Portsmouth, N.H. New Hampshire Port State Landlord Authority Searsport, Maine Bangor and Aroostook Private Operating Railroad Department of State Marketing Transportation, Bureau Only of Waterways Portland, Maine DOT, Bureau of State Landlord Waterways Providence.. R. 1. Department of City Landlord PublicWorks New London, Conn. DOT, Bureau of State Landlord Waterways New Haven, Conn. (New Haven Terminal Private Pier) Bridgeport, Conn. (CI LCO Terminal) Private Other Major Atlantic Ports New York, N.Y. Port Authority of New State Landlord York and New Jersey New York City Dept. of City Landlord Ports and Terminals Philadelphia Philadelphia Port Corp. Private Landlord Delaware River Port Regional Marketing Authority Only Baltimore Maryland Port Administration State Semi-Operating Hampton Raods Virginia Port Authority State Landlord 111-4 TABLE 111-3 Participants in Commercial Cargo Market by Type of Cargo TYPE OF CARGO BREAK BULK NEO-BULK BULK SECTOR & CONTAINER SHIPPER/CONSIGNEE e ROUTING DECISIONS FOR *MAKE ROUTING DECISIONS e SITING DECISIONS FOR PORT FACI- ALLCARGO FOR CARGOANFLUENCE LITIES e LITTLE INVESTMENT IN' SITING DECISIONS FOR PORT 0 HEAVY INVESTMENT IN PORT FACI- PORT FACILITIES FACILITIES LITIES *INVEST IN PORT FACILITIES e LEASE OR OWN PORT FACILITY *USUALLY CHARTER WHOLE e CHARTER OR OWN SHIPS OR PART OF.VESSEL STEVEDOREfTERMINAL *MANAGER OF MULTIPLE *MANAGER OF FOCUSED USE e MANAGER OF SINGLE PURPOSE OPERATOR USER FACILITY FACILITY FACILITY *TENANT OF PORT AUTHOR- '0 CAN BE PRIVATE OWNERSHIP e OPERATING RESPONSIBILITY OFTEN ul ITY OR PORT AUTHORITY OR LONG TERM LEASE WITH ASSUMED BY SHIPPER/CONSIGNEE ASSUME DIRECT OPERA- STATE OR PORT AUTHORITY TION LONGSHOREMEN * "HIRING HALL" LABOR 9 UNIONIZED OR NONUNION *USUALLY PRIVATE LABOR SUPPLIED ON DEMAND LABOR SUPPLIED ON CON- *MINIMUM GANG SIZES FOR SPECIAL * FIXED GANG SIZES, 20-25 TRACT BASIS COMMODITIES MEN 0 GANG SIZES TAILORED TO COMMODITIES VESSEL OPERATOR o COMMON CARRIER *SPACE CHARTERS OR e CHARTER ARRANGEMENTS *REGULAR SCHEDULES CONTRACTS OF AFFREIGHT- OR PROPRIETARY FLkETS INFLUENCE SHIPPER MENT 0IRREGULAR SCHEDULES ROUTING DECISIONS SEMI-REGULAR SCHEDULES @ TYPE 0F CARG 0 SECTOR 2. CONTAINERS, AUTOMOBILES AND STEEL PRODUCTS REPRESENT THE MAJOR COMMERCIAL CARGO OPPORTUNITIES FOR THE PORT OF DAVISVILLE Certain types of commercial cargoes are suitable to Davisville and represent areas of opportunity. This section describes the New England commercial cargo market. The phy- sical characteristics and facility requirements of the dif- ferent types of commercial cargo are described to identify opportunity areas for Davisville. (1) Th e New England Commercial Cargo Market Is Estimated to Be in Excess of 84 Million Tons The New England commercial market by cargo type is presented in Table 111-4. TABLE 111-4 New England Commercial Cargo Market (Thousands of Tons) ESTIMATED CARGO TYPE ANNUALTONNAGE BULK 82,000 - 85,000 NEOBULK 1,400 - 1,700 GENERAL 700- 1,000 TOTAL 84,100 - 87,700 The market is estimated at more than 84 million tons. Table 111-5 shows the commercial cargoes handled at New England ports in 1978. Table 111-5 will be referred to throughout the following discussion of the market. 1. Bulk Cargoes Represent 97 Percent of the Commercial Market and Generally Move Through Proprietary Terminals Bulk cargoes are by far the largest sector of the commercial market accounting for 97 percent of the tonnage. Bulk cargoes generally move through propri- etary terminals rather than through public terminals. Bulk cargoes have a low value per ton and thus require a low freight cost. Bulk cargo is loaded/discharged as close as possible to its source or use point. The lot sizes of these cargoes are generally full vessel load. 111-6 TABLE 111-5 Commercial Cargoes Handled at New England Ports, 1978 PORT A, Bulk Commodities Petroleum 1,076 22,120 2,864 23,545 4,771 113 7,190 2,618 10,320 3,047 77,664 Chemicals 31 - - 89 35 - 20 75 508 - 758 Building Materials 29 158 480 20 242 - 103 100 1,132 Scrap - - 619 - - 514 - 173 24 1,330 Salt 159 - 198 109 - 85 - - - 551 Sugar & Molasses - - - 437 - - 77 - - 514 Nonmetalic Minerals - - - - 25 - - 46 71 Neo Bulk Commodities Steel Products 85 32 - 2 195 176 270 859 Forest Products 12 14 - 134 - 114 42 82 436 Metals and Ores 14 - - 64 - - - 45 106 229 Automobiles - - - 63 - 68 - - 131 General Cargo Commodities Food and Beverages 18 - - 102 16 - 3 - 139 Fish Products - 17 - 88 67 - 172 Machinery & Manuf. Goods - 15 - 103 2 5 127 Rubber - - - 14 14 - 28 Textiles - - I 1 2 - 2 35 Other - - 183 4 2 1 1 4 194 Total$ 1,339 3,305 26,073 8qF4,82o 8,459 2,839 1 11,408 3,736 84,370 General cargo liftings at Providence do not reflect the container feeder service begun in October 1979. Source: Waterborne Commerce Statistics, 1978 Petroleum and petroleum products represent 95 percent of New England's commercial bulk cargoes and 92 percent of all commercial cargoes. Petroleum and its products are handled at each of the ten New England ports. This cargo moves through proprietary facilities sited at the port to reduce cost and handling. The other major bulk commodities in this market include iron and steel scrap, cement and various chemicals. PORT COMMODITY 111-7 2. Neobulk Cargoes Represent 2 Percent of the Commercial Market and Move Through Both Private and Public Terminals The neobulk cargoes moving into New England rep- resent 2 percent of the commercial market. Neobulk commodities move through private and public terminals in lot sizes of 1,000 to 8,000 tons. The value per ton of cargo varies in this sector with some cargoes of high value. Four commodities comprise the New England neobulk market. These commodities are steel products, forest products, metals and ore and automobiles. The ton- nages of each commodity group were shown in Table 111-5. In this market, metals and ores are exciu- sively proprietary movements through private terminals. The state of ultimate origin and destination of the three main neohulk cargoes are presented in Table 111-6. The origin/destination represents the inland location the cargo moves to or from as opposed to the ocean port the cargo moved through. The largest pro- portion (33 percent) of automobile imports are act- ually destined for the State of Rhode Island. Of the steel products moving into New England, only 1 percent of the tonnage is destined for Rhode Island. TABLE 111-6 State of Origin/Destination of New England Neobulk Cargoes, by Percentage of Total Tonnage STATE OF ORIGIN/DESTINATION NEW RHODE COMMODITY MAINE HAMPSHIRE VERMONT MASSACHUSETTS ISLAND CONNECTICUT FOREST PRODUCTS 32% 7% 80/0 26% 131/o 14% STEEL PRODUCTS - 101/0 - 14% 1% 75% AUTOMOBILES 3% 3% 3% 3 2% 33% 27% Source: Domestic and International Transportation of U.S. Foreign Trade: 1976, Bureau of the Census. 111-8 Table 111-7 shows these percentages converted to approximate tonnages origined or destined in Rhode Island. These tonnages indicate which neobulk cargoes are more susceptible to movement over a Rhode Island port. TABLE 111-7 Rhode Island Originated/Destined Neobulk Cargoes (Tonnages are in Thousands) ESTIMATED % ORIGINED/ ESTIMATED TOTAL DESTINED TO RHODE ISLAND COMMODITY MARKET RHODE ISLAND TONNAGE FOREST PRODUCTS 440 13% 57.2 STEEL PRODUCTS 860 1% 8.6 AUTOMOBILES 135 33% 44.6 3. General Cargo Represents 1 Percent of the Commerci 1 Market and Moves Through Public Terminals Almost Exclusively New England general cargo equals 700,000 to 1 million tons annually and represents 1 percent of the commercial cargo market. Almost all general cargo moves through public, common user terminals. The general cargo market is made up of a variety of commodities and is generally categorized as contain- erized and breakbulk cargo. General cargo movements have lot sizes ranging from less than one ton to several hundred tons. General cargo has a relatively high value per ton and can be moved over long distances to/from its origin/destination point. General cargo tends to con- solidate at one or few ports to allow efficiencies in common carrier services. As shown in Table 111-5, almost all general cargo moving over New England ports moves through the Port of Boston. However, the 1978 data does not reflect Providence liftings of general cargo with its current container feeder service which began in October 1979. The general cargo that moves via the New England ports is not all of the general cargo that moves into the New England region. A considerable amount of cargo, particularly in containers, move into New 111-9 England from Canadian ports, New York and West Coast ports via minilandbridge.10 These large ports offer a level and frequency of ocean service that are difficult to compete with. The ultimate origin/destination of the New England general cargo is shown in Table 111-8. Approximately 8 percent of the general cargo tonnage is destined or origined in Rhode Island. This equates to 56 to 80 thousand tons of general cargo per year moving to or from Rhode Island. TABLE 111-8 Origin/Destination State of New England General Cargo AS% OF NEW STATE ENGLAND GENERAL CARGO MASSACHUSETTS 72% MAINE 1% NEW HAMPSHIRE 3% VERMONT 4Yo RHODE ISLAND r/0 CONNECTICUT' 12Yo Southwest Connecticut excluded as that tonnage cannot be compared by New England ports. Source: Journal of Commerce ISIS/EXIT Statistics. This section has described the New England com- mercial cargo market. The operating requirements of commercial cargoes will be addressed next in order to identify opportunity areas for Davisville. (2) The Facility Requirements of Many Commercial Cargoes Mav Prohibit Their Movement Via Davisville The facility requirements of the various commercial cargo types are presented in Table 111-9. These require- ments fall into three categories and vary by cargo type: Terminal requirements Specialized equipment requirements Waterside requirements. 10 Minilandbridge is a joint intermodal movement by rail and water carriers where the port range closest to the overseas trade area is selected as the port of exit or entry. III-10 The terminal requirements relate to the type of term- inal facilities and handling equipment needed to handle the cargo. These requirements include type of storage, access to domestic transportation and size of terminal apron. Terminal requirements are the responsibility of all oper- ating and landlord port agencies. Specialized equipment refers to equipment used to handle one, or a select group, of cargoes. The need for specialized equipment is greatest for bulk commodities. General and neobulk cargoes require special equipment to a lesser degree. Port authority involvement in providing special equipment varies. Often cargoes with these requirements move through proprietary terminals or leased terminals. Some port administrations do provide special handling equipment and special facilities such as grain elevators. Waterside requirements reflect the water depth and berth size needs of the vessel. The responsibility for these characteristics rests with the port authority or terminal owner and the U.S. Army Corps of Engineersli. The operational requirements of the cargoes in the New England commercial market were presented in Table 111-9. Those requirements will not be elaborated upon except as they represent potential constraints for the Port of Davisville. The next section discusses the Davisville constraints and identifies areas of potential opportunity. (3) The Present 29-1/2 Foot Water Depth Alongside the Pier at Davisville Will Limit the Market to Three Commodities The 29 1/2 foot water depth at the pier is Davisville's constraining factor in the commercial cargo market. All other operational requirements are presently met or could be met with capital investments in facilities and equipment. Table III-10 outlines the capital invest- ments required to serve the major commercial cargoes. It is assumed that the specialized equipment needs of the bulk cargoes would be met by private investment if such cargo were to move via Davisville. The Corps is responsible for the depth of the channel, while the local authority is responsible for the depth alongside a dock or pier. TABLE 111-9 Facility Requirements of Commercial Cargo GENERALCARGO NEOBULK BULK CARGOS STEEL FOREST METALS& FACILITY CRITERIA CONTAINERS BREAKSULK PRODUCTS PRODUCTS ORES AUTOS PETROLEUM CHEMICALS CEMENT SCRAP SALT SUGAR Terminal Requirements outdoor Storage Yes Yes Yes Yes Yes Yes No No No Yes No No Covered Storage NO Yes Partial Partial Yes No No No No No Yes Yes Forklifts, Handling Equipment Yes Yes Yes Yes No No No No No No Yes Yes Crane Yes Yes Partial Partial Partial No No No No Yes Partial Partial F-A Major Highway Access Yes Yes No No No No No No No No No No F--I I Rail Access Partial Partial Yes Yes Yes No Yes Yes No Partial No No Minimum Apron Width >10(y 5(r 51Y 5(y >100, VY (Y 01 >100, >100, >100, >100, Paved Area Yes No No No No Yes No No No No No No Specialized Equipment Bins/Silos No No No No No No No No Yes No Partial Partial Tanks/Piping No No No No No No Yes Yes Yes No No No Waterside Requirements Depth of Water 3D-39 30'-33' 29-33' 32-38' 3(Y-33' 22'-26 35'-80' 29-35' 30*-38' 30'-351 35'-38 51-M, Vessel LOA 2 45U-75(Y 450'- 600' 475-55(Y 5W- 625' 1 475'-550' 1 40W-60011 600% 1100' 1 400'-600' 1 450'-550' 500' -WO'500'-700 500'-700' Does not include feeder barge service in waterside requirements. For a barge the water depth is 12'-16' and vessel LOA is 280'-3401. 2 LOA indicates length overall (of the vessel). TABLE III-10 Capital Investment Required at Davisville To Service Commercial Cargo Market CARGO TYPE CAPITAL INVESTMENT ITEMS ESTIMATED COSTS GENERALCARGO CONTAINER (FEEDER) SHORE CRANE, FORKLIFTS, STRAOO LES, PAVED AREA $2.2-4.5 MILLIONII BREAKBULK WAREHOUSE, FORKLIFTS 3.0-3.5 MILLIONI NEOBULK AUTOMOBILES PAVED AREA $300,000-4001,00011 LUMBER PAVED AREA, FORKLIFTS OR STRADDLES 750,000-1,000,00? STEEL PRODUCTS WAREHOUSE, FORKLIFTS 1.0-1.5 MILLION BULK OIL TANKAGE, PIPING $ 5.2 MILLION2 SALT, PUMICE BULLDOZERS, MOBILE CRANE 21.0 MILLION2 CEMENT SILOS, PIPING 21.0 MILLION2 STEEL SCRAP CRANE 4.0-5.0 MILLIONI I Cost estimated by Booz, Allen & Hamilton. Costs do not reflect the construction of a pier or improvements on existing piers. Estimated costs reflect only the capital investment items listed. 2 From National Port Assessment 1980/1990, Maritime Administration, 1980. In 1977 dollars. Three cargoes, containers by feeder, steel products and automobiles, are not constrained by the 29-1/2 foot water depth at Davisville. Typical vessels serving the New England and Atlantic Coast commercial market are presented in Table III-11. The three potential cargoes based on vessel draft requirements are highlighted. This section of the chapter presented the commercial markets, the facility requirements of the market and areas of opportunity for the Port of Davisville. The potential commercial cargoes for Davisville include: Containers by feeder Steel products Automobiles. Several factors are important in considering devel- opment of Davisville for commercial cargoes. These factors include the Port of Providence's current liftings and cap- abilities and the commercial market revenue potential. The next section addresses current commercial cargo activity at the Port of Providence. 111-13 TABLE III-11 Typical Vessel Dimensions of Selected Commercial Cargoes Indicate Davisville Market CARGO VESSEL DEADWEIGHT CARGO TYPE NAME LENGTH BEAM DRAFT CARRYING CAPACITY General Cargo Containerized McAllister Transporter 1 300 .72' 3840 approx. SS Boston (Sea- Land) .523 72' 31' 9317 Breakbulk Mormacal-ta-ir 666 75' 317' 24,477 Neobulk Automobiles Saronita (Haegh-Ugland) 59(r3" 8014r, 7730 Lumber Troll Park 60115" 87'11" 375" 33,363 Steel Products Irene's Friendship 4824!* 727' 15,061 Bulk Oil Products Esso Providence 628`6" 9(r 36`10" 38,371 Salt Pumice Captain Demosthenes 59(rr 86r 37#1#' 35,326 Cement Havkatt 535'5" 85,11, 36'1" 26,842 Scrap Metal Kostis Prois 5872" 7175" 3Z7" 24,635 Feeder barge Indicates commodities with water depth requirements less than 0 that prevailing at Davisvill'e. 111-14 3. ANY COMMERCIAL CARGO DEVELOPMENT AT DAVISVILLE MUST CONSIDER CARGOES CURRENTI@Y MOVING THROUGH PROVIDE14CE Davisville is located just south of the Port of Providence on Narragansett Bay. Any cargo development at Davisville should complement, rather than compete with, activity at Providence. This means that commercial cargoes attracted to Davisville must be either new to Rhode Island or would have difficulty with continued or expanded operations at Providence. (i) Providence Presently Handles All Types of Commercial Cargoes Including Bulk The Port of Providence's historical liftings by com- modity are presented in Table 111-12. The water depth at Providence is sufficient to handle bulk commodities. The channel up to Providence from the mouth of Narragansett Bay is dredged to a depth of 40 feet. The water depth at the Municipal Pier in Providence is maintained at between 35-40 feet alongside. This depth permits tankers and dry bulk carriers to load or discharge at Providence. After petroleum and its products, Providence's major liftings include metal scrap, cement, steel products and forest products. Cargo trends at Providence indicate increases in bulk*cargoes, steel products and automobiles. iviore recent information shows an increase in general cargo containers handled at Providence. Table 111-13 presents Providence's 1980 movements of containers, steel and automobiles. (2) Automobiles Are the Major Commercial Cargo Potentially Constrained at Providence Table 111-14 identifies potential constraints of the Providence facilities for the major commercial cargoes. The Port has a potential land constraint that could inhibit the handling of automobiles in the future. The existing facilities appear capable of handling all other commercial cargoes moving through Providence. 111-15 TABLE 111-12 Principal Commodities Handled at the Port of Providence (Thousands of Tons) AVERAGE ANNUAL COMMODITY 1971 1973 1975 1977 1978 GROWTH Petroleum & Product 7,988 9,233 7,5.46 7,561 7,190 -1% Cement 175 237 201 254 242 + 5% Salt 140 25 23 105 85 -6% Scrap Metal 223 409 293 390 514 +19% Pig Iron - - - 16 - - Nonmetalic Minerals 12 26 16 6 25 +15% Steel Products 14 81 38 134 194 +184% Chemicals & Minerals 30 40 26 18 16 -7% Sodium Hydroxide 48 35 31 12 4 -13% Forest Products 124 139 75 76 114 -1% Automobiles - 26 29 48 68 +32% General Cargo 20 11 4 11 6 -10% I Totals 1 8,762 10,236 .8,266 8,624 8,459 -.5% Source: Waterborne Commerce Statistics. TABLE 111-13 Liftings of Key Commercial Cargoes at Providence Public Facilities, 19801 COMMODITY TONNAGE CONTAINERS 12,5502 STEEL PRODUCTS 146,605 AUTOMOBILES 61,048 Port of Providence's fiscal year (July 1, 1979 - June 1, 1980) 2 Estimates based on 1,046 units handled at 12 tons each. 111-16 TABLE 111-14 Commercial Cargo Constraints at the Port of Providence Facilities CARGO TYPE CONSTRAINT GENERALCARGO CONTAINER (FEEDER) PARTIAL - IF VOLUME INCREASED BREAKBULK NONE - MUNICIPAL WHARF NEOBULK AUTOMOBILES LAND CONSTRAINTS LUMBER NONE - SEABOARD TERMINAL STEEL PRODUCTS NONE -MUNICIPAL WHARF BULK OIL NONE- NUMEROUS TERMINALS SALT, PUMICE NONE - PROMET TERMINAL CEMENT NONE - MARaUETTE, LEHIGH TERMINAL STEEL SCRAP NONE - METAL PROCESSING Interviews with automobile importers currently using Providence indicated several other potential problems. The main problems cited include the following: High cost at Providence Exposure to flood waters at high tide Security problems Lack of height for tri-level rail cars at Providence. Several of these potential constraints on automobile traf- fic would not exist at Davisville. This will be addressed further at the end of the chapter in the discussion of com- mercial market implications for Davisville. The next section will address the revenue potential and economic impact of the three potential commercial cargo types for Davisville. 4. IN TERMS OF POTENTIAL PORT REVENUE AND ECONOMIC IMPACT, REPRESENT THE BEST COMMERCIAL CARGO OPPORTUNITY FOR DAVISVILLE Containers represent the best commercial cargo opportunity for the Port of Davisville when considering potential port 111-17 revenue and economic impact per acre. Using this criterion, steel products rank second and automobiles third in attract- iveness for Davisville. Port revenues as here discussed represent the direct rev- enue flows to the port administration. Average revenues for a landlord port agency are used as it is assumed Davisville would not be in an operating role. The revenues discussed are gross revenues. Economic impact of a port is the flow of revenue into the port and maritime community. Direct economic impact includes the revenues of firms directly involved in port oper- ations and direct port related employment. Examples of these firms and employment groups are stevedore firms, longshoremen, ship repair establishments, freight forwarders, steamship agents and others. Revenue and economic impact per acre were calculated based on revenue and economic impact per ton for the three commercial cargo types. Table 111-15 presents the revenue and economic impact per ton. Cargo density or storage requirements in tons per acre and average dwell time12 of the cargoes were used to determine revenue and economic impact per acre instantaneously and per acre per year. Table 111-16 presents the cargo density and dwell time information. ,2able 111-15 Port Revenue and Economic Impact Per Ton for a Landlord Port Agency ESTIMATED ECONOMIC PORT AUTHORITY IMPACT PER TON CARGO REVENUE PER TON (DIRECT ONLY) CONTAINERS $446 $45-$75 STEEL PRODUCTS $142 $14.$21 AUTOMOBILES $8-$9 $110-$120 Source: Based on actual findings at a range of other ports (Boston, Tampa, Chicago). 12 Dwell time presents the average time that cargo remains in the port facility. TABLE 111-16 Cargo Density and Dwell Time CARGO AVERAGE CARGO DENSITY DWELL TIME TURNS CARGO (TONS PER ACRE)' IN DAYS PER YEAR CONTAINERS 7202 5 72 STEEL PRODUCTS 10,000 25 14 AUTOMOBILES 260 15 24 1 Based on actual experience at other parts. 2 Based on a chassis operation. Containers represent the best commercial cargo on a revenue per acre per year basis. The estimated revenue on containers is in excess of $250,000 per acre per year. Steel products rank second with estimated revenue of $210,000 per year per acre. On an instantaneous basis, steel represents the best revenue. However, the slow turn of steel and the high turn of containers changes that relationship on an annual basis. The port revenue per acre is shown in Table 111-17. TABLE 111-17 Gross Port Revenue Per Acre for a Landlord Port Agency REVENUE REVENUE PER ACRE PER ACRE CARGO INSTANTANEOUSLY PER YEAR CONTAINERS $3,600 $259,200 STEEL PRODUCTS 210,000 AUTOMOBILES 2,210 53,040 Containers also represent the best cargo on an economic impact per acre per ton basis. Again, this is due to the fast turn around of containers in the port. Automobiles rank last in economic impact per acre per year. On a per ton basis, the economic impact of automobiles is very high. However, the den- sity and turn time of automobiles is low. Table 111-18 pre- sents the economic impact per acre of the potential commercial cargoes. 111-19 TABLE 111-13 Potential Economic Impact Per Acre ECONOMIC IMPACT ECONOMIC IMPACT PER ACRE PER ACRE CARGO INSTANTANEOUSLY PER YEAR CONTAINERS $ 43,200 $3,110,000 STEEL PRODUCTS 2,520,000 AUTOMOBILES 29,900 717,600 The last section of this chapter will evaluate the impli- cations of the commercial cargo market on RIPAEDC's development alternatives for Davisville. 5. AUTOMOBILES APPEAR TO BE THE BEST DEVELOPMENT OPPORTUNITY FOR DAVISVILLE WITH CONTAINERS A POSSIBILITY IF TRAFFIC VOLUMES THROUGH THE AREA INCREASE SUBSTANTIALLY The best commercial cargo development opportunity for the Port of Davisville appears to be automobiles. Containers are a possibility if the volumes through the area increase to the degree that Providence is constrained and the investment is warranted at Davisville. These findings are supported in the following section. (1) Revenue and Economic Impact Are of Secondary Importance When Evaluating Business Opportunities, Some of Which Are Already Handled at Rhode Island Ports In most cases of port development and expansions, potential revenue and economic impact are very important selection criteria. The situation at Davisville is unusual and revenue and economic impact are less important. Davisville is unusual in that its 29-1/2 foot water depth restricts the commercial cargo opportunities. Also, Davisville is in close proximity to another Rhode Island port, Providence, which currently handles those commercial cargoes vvith the potential to move via Davisville. Revenue and economic impact are inappropriate criteria if Davisville is simply diverting cargo from Providence. Revenue and economic impact would simply be transferred from one Rhode Island port to another. Consequently other factors should weigh more heavily in the final analysis. 111-20 (2) The Port of Providence Is Not Ideally Suited for the Handling of Automobiles. Davisville Offers the Potential to Retain This Business in Rhode Island Automobiles represent the greatest potential for Davisville, given that Davisville's development into com- mercial cargo should complement commercial activity at Providence. Automobiles are one potential area where Providence's capacity may be constrained. Providence has land constraints while Davisville has sufficient area to provide back-up land to automobile importers. Several other shortcomings were identified in Provi- dence's automobile service. At least one of these, lack of sufficient rail clearance height, could be overcome at Davisville. According to ConRail, rail service to the Providence docks provides a vertical clearance of 1516", while clearance to Davisville is 1614". .A second possible commercial market for Davisville is con- tainers. Providence may have insufficient adjacent back-up land to accommodate appreciable increases in container tonnage at Rhode Island. (3) Steel Products Are an Important and Growing MarKet for Providence. Davisville Could Handle Overflow Business if Handling It at Providence Impeded Future Development at the Fort Steel products are important to the Port of Provi- dence. Over the last seven years, steel represented the fastest growing tonnage through that port. After petroleum and related products, steel products represent an estimated 12-15 percent of Providence's business. No constraint on continued steel liftings at Providence is anticipated but continued growth in this area could impede Providence's growth as a container port. (4) Automobiles Would Require Minimal Capital Investment and RIPAEDC Involvement Of the three potential commercial cargoes, automobiles would require the least capital investment and probably the least RIPAEDC involvement. The investment would consist primarily of providing a paved area at an estimated cost of less than $500,000. The facility would, in all likelihood, be leased. This minimal involvement is attractive to a small port agency new to the commercial cargo business. 111-21 In this chapter the implications of commercial cargo opportunities on the Port of Davisville and the Rhode Island Port Authority and Economic Development Corporation have been addressed. The following conclusions can be drawn: Port organizations in New England and throughout the country vary significantly in terms of organization, financial ability and operating responsibilities. Containers, automobiles and steel products represent the major commercial cargo opportunities for the Port of Davisville. Containers represent the most productive cargo on a revenue per acre basis; however, the Port of Providence handles nearly all the container busi- ness in Rhode Island. Automobiles represent the greatest potential for Davisville because the Port of Providence is not ideally suited for the trade while Davisville meets all the requirements to handle a large volume of this business. The Port Authority should evaluate the feasibility of handling automobiles at Davisville. Further, any significant increase in the amount of containerized cargo entering or exiting the state via Rhode Island ports could strain Provi- dence's capacity. Container business, then, represents an alternative commercial cargo for Davisville. If Providence continues to develop its container business, then Davisville could consider handling overflow business in steel products. The Port Authority should compare the feasibility of handling this business either with or instead of the OCS support business. In the next chapter of this report, the implication of both OCS and commercial cargo development on the Davisville facili- ties and Port Authority organizaton is explored. 111-22 IV. IDENTIFICATION OF POTENTIAL MANAGEMENT AND OPERATIONAL ROLES FOR THE RHODE ISLAND PORT AUTHORITY FOR BOTH OCS AND COMMERCIAL CARGO APPLICATIONS IV. IDENTIFICATION OF POTENTIAL MANAGEMENT AND OPERATIONAL ROLES FOR THE RHODE ISLAND PORT AUTHORITY FOR BOTH OCS AND COMMERCIAL CARGO APPLICATIONS In this chapter the existing organization of the Rhode Island Port Authority and Economic Development Corporation is identified and compared with Ports involved in both OCS and commercial cargo that can serve as potential role models. 1. THE ORGANIZATION OF THE RHODE ISLAND PORT AUTHORITY HAS '5EVELOPED IN RESPONSE TO THE ECONOMIC DEVELOPMENT NEEDS OF THE STATE Figure IV-1 presents a visual representation of the organi- zations that are affiliated with the Rhode Island Port Author- ity and Economic Development Corporation. T@,o conclusions are immediately apparent from review of the figure: The organization is heavily economic and industrial development oriented. Certain individuals have multiple responsibilities throughout the organization. The balance of this section will focus on the Department of Economic Development and the Port Authority as the satellite organizations were developed to accomplish narrowly focused development objectives of little interest to this study. (1) The Department of Economic D@-velopment and the Port Authority Have Been Created in Response to a Need to Provide Marketing, Site Planning and Finance and Con- trol Services The economic development needs of the State of Rhode Island, and particularly after the cessation of military activity at Quonset Point/Davisville, have been the driving forces behind the organizational development of both the Department of Economic Development and the Port Authority Staff. The principal mission of the DED Staff has been to market the Quonset Point/Davisville Facilities while that of the Port Authority Staff has been the preservation and maintenance of the Facilities. Table IV-1 is a breakdown of the RIPAEDC revenue budget for the year ended June 1980. IV-1 FIGURF IV-1 organization Chart for Rhode Island Port Authority and Economic Development Corporation and Related Organizations R.I. INDUSTRIAL HOWARD R.I. DEPARTMENT OF R.I. PORT AUTHORITY R.I. INDUSTRIAL R.I. RECREATIONAL BUILDINGS DEVELOPMENT ECONOMIC AND ECONOMIC FACILITIES BUILDING AUTHORITY CORPORATION DEVELOPMENT DEVELOPMENT CORPORATION CORPORATION AUTHORITY MEMBERS BOARD ECONOMIC BOARD BOARD MEMBERS OF THE OF DEVELOPMENT 01 OF OF THE AUTHORITY DIRECTORS COUNCIL DIRECTORS DIRECTORS AUTHORITY DIRECTOR OF EXECUTIVE EXECUTIVE - MIC EXECUTIVE EXECUTIVE EXECUTIVE DIRECTOR DIRECTOR DEVELOPMENT DIRECTOR DIRECTOR DIRECTOR FINANCE A FINANCE & AUNINISTRATIORf ADMINISTRATION I-A F IQ OLIONSET PT. FINANCE FINANCE TOURISM DAVISVILLE ADMINISTRA, 100 ADMINISTRATION DIRECTOR INDICATES SAME PERSON OR GROUP TABLE IV-1 Projected Revenue of the RIPAEDC During FY 1980 (Dollars in Thousands) REVENUESOURCE AMOUNT PERCENT OF TOTAL UTILITY SALES (NET OF COSTS) $ 376.5 6% COMMERCIAL AND INDUSTRIAL PROPERTY RENTAL 2,712.7 42% OTHER RENTALS 2,589.6 40% GOVERNMENT GRANTS AND APPROPRIATIONS 372.8 5% OTHER REVENUE AND RECREATIONAL INCOME 478.9 7% TOTAL $6,530.5 100% The table indicates that the revenue budget of the RIPAEDC is heavily dependent upon rentals and the sale of utilities, e.g., steam, water, electricity. (2) The RIPAEDC Is Not Organized to Either Conduct or Manage a Maritime Operation at Davisvilie The activities of the Rhode Island Port Authority may be described as in the midpoint between a landlord port authority and a public utility. As shown in the following table, other Port Authorities generate a major share of their revenues from the collection of cargo usage fees or the Provision of Maritime Services. TABLE IV-2 Comparison of Port Revenue by Source at Four Large Port Organizations MASSPORT BALTIMORE GEORGIA PORTLAND ANNUAL MARITIME REVENUE (IN MILLIONS OF DOLLARS) $16.0 $21.1 $34.1 $22.7 APPROXIMATE PERCENT FROM DOCKAGE, WHARFAGE, ETC. 25% 32% 31% 40% RENTALS& LEASES 5% 62% 22% 2% LABOR SOURCES 70% 6% 47% 58% IV-3 The RIPAEDC is not currently organized to effectively manage or oversee a significant level of either OCS or commercial cargo activity. In the next section of this chapter, information on OCS and commercial cargo ports is presented in case study form so that specific elements of interest to RIPAEDC may be identified and evaluated for potential applicability to Davisville. 2. OTHER PUBLIC PORTS INVOLVED WITH OCS OPERATIONS ARE PRINCIPALLY INVOLVED WITH COMMERCIAL CARGO AND INDUSTRIAL ACTIVITIES AND CONSIDER OCS AS INCREMENTAL BUSINESS In the United States the facilities that are dedicated exclusively to OCS support activities are privately owned and operated. In those cases where public port agencies are involved, OCS activity represents an incremental activity. In order to better understand the management implications of OCS activity on a public port, case studies of two public ports are presented in this section. The two ports studied are Manatee on the Florida Gulf Coast and Port Hueneme in Southern Cali- fornia. These were the OCS ports selected in Chapter II as being most comparable to Davisville. (1) Port Manatee Has a Small Staff Organized.to Support Commercial Cargo Operations. OCS Activities Have Represented Incremental Business Requiring No Organizational Changes Port Manatee is a small port roughly equal in physical size to Davisville. It is located in Tampa Bay several miles from the Port of Tampa. It is a new port that began operating in 1970. Its principal activity is the handling and storage of bulk cargos. As shown in Figure IV-2, the staff is very small and includes only 18 people. The operating responsibilities of the port are summarized below: Berth assignment Warehouse and land lease management Operation of a switching railroad Maintenance lo In 1980 the Port Earned $700,000 on Revenue of $2.3 Million Table IV-3 provides a summary of the financial performance of the Port of Manatee during 1980. IV-4 FIGURE IV-2 Organization of the Port of Manatee, Florida COUNTY COMMISSION PORT DIRECTOR SECRETA7RY OPERATIONS ACCOUNTING MANAGER MANAGER SEC RETARY I TERMINAL ASSISTANT UPERINTENDENT RAILROAD F_ MAINTENANCE OPERATION V I 11 EMPLOYEES Note: The Commission contracts in legal, engineering, and traffic consulting services. During 1980 all of the port's revenue and expenses resulted from cargo operations. Sources of revenue are shown in Table IV-4. The table shows that charges resulting from pro- vision of facilities (wharfage, dockage, leases, stor- age) represented 75 percent of revenue, while the pro- vision of services (rail operating, line handling) generated the remaining 25 percent. r ERM SUPTERINI IV-5 TABLE IV-3 Port of Manatee Operating Statement (Dollars in Thousands) REVENUE $2,288 OPERATING EXPENSES 806 DEPRECIATION 436 TOTAL EXPENSE 1,242 GROSS MARGIN 1,047 INTEREST EARININGS1 1,048 INTEREST EXPENSE2 1,396 NETINCOME 699 1 Represents earnings on a Port Escrow Account of $8.5 Million. 2 Represents Debt Services on $13 Million in outstanding debts. TABLE IV-4 Sources of Revenue at Manatee (Dollars in Thousands) REVENUEITEM AMOUNT PERCENT WHARFAGE $ 837 36% DOCKAGE 685 30% RAIL OP5 RATION 362 16% LEASES 177 8% LINE HANDLING 127 51% STORAGE FEES 24 1% SALE OF FRESHWATER 16 1% MISCELLANEOUS 60 3% TOTAL 2,288 100% 2. It Is Projected That OCS Revenue May Represent $250,000 in 198F -But Will Require No Additional Staff or Major Expense During 1981 Manatee will support three offshore rigs. it is likely that this could be increased to five. Table IV-5 is a pro-forma revenue estimate based on a full year's support of five rigs. IV-6 TABLE IV-5 Pro-Forma Revenue Estimate for Port Manatee Resulting From OCS Support Activities ESTIMATED ANNUAL ITEM RATE REVENUE RENT 8 ACRES $4,000/ACRE $ 32,000 WHARFAGE $.88/TON $188,000 DOCKAGE $1.20/LINEAR FOOT HARBOR MASTER FEE $10 PER ARRIVAL AND DEPARTUREE POTABLE WATER $.77/TON $ 30,000 AW WATER $.25/TON TOTAL $250,000 The table shows that an additional $250,000 of revenue can be generated as a result of providing facilities to OCS support activities. This is 11 per- cent of current revenues and represents a substan- tial new business opportunity. The port has indicated that it anticipates that no additional staff would be required to handle the OCS business but that the work responsibilities of the terminal superintendent would increase as a result of a potential berth congestion and conflict between the OCS craft and cargo vessels. (2) Port Hueneme Employs a Staff of 15 to Administer a Dual-Purpose Cargo and OCS Facility Port Hueneme is a public port just north of Los Ange- les and is engaged in both cargo and OCS operations. Figure IV-3 illustrates the organization of the Oxnard Harbor District (which operates Port Hueneme). The staff of the port district totals 15. While the district is empowered to operate, they serve as a landlord port with most operations conducted by a terminal operator, Marine Terminals Corporation. 1. The Port Had a Net Income of $1.2 Million on Total Revenue of $2.5 Million in 1980 Table IV-6 is a summary of the financial perfor- mance of the harbor district during fiscal year 1980. IV-7 FIGURE IV-3 Organization, of the Port of Hueneme, California BOARD OF COMMISSIONERS 5 MEMBERS GENERAL MANAGER I ASSISTANT MANAGER F BOARD SECRETARY CHIEFWHARFINGER MAINTENANCE MANAGER (STAFF = 3) (STAFF = 5) (STAFF = 2) Accounting -Berth Use Administration - Security TABLE IV-6 Financial Performance of Oxnard Harbor District During 1980 (Dollars in Thousands) TOTAL REVENUE $2,500 OPERATING EXPENSES $1,110 DEPRECIATION AND AMORTIZATION 230 TOTAL OPERATING EXPENSES 1,340 NETINCOME $1,160 @7AANAGER 2) IV-8 The port handled approximately 2 million tons of cargo during 1980, 75 percent of which was petroleum and related products. The balance consisted of: Automobiles Bananas Citrus products Other general cargo. Over 80 percent of the port's revenue is from usage charges resulting from the handling of these. cargos, while the balance is from leases. 2. OCS Activity Contributed Over 25 Percent of Port Hueneme Revenue Without a Need for Additional Staff During 1980 OCS activity represented $650,000 in revenue to Port Hueneme, or 25 percent of total rev- enue. The port was required to make no capital improvements to handle the OCS business and only upgraded a part time clerical staff to full time to handle the business. The increment of maintenance expense required to handle the OSC business is not known, but it is estimated that it is very small when compared to revenue. In the next section of this chapter, the financial impact of commercial cargo operations on both the public and private sector at Davisville is treated. 3. COMMERCIAL CARGO THAT HAS THE POTENTIAL TO MOVE VIA 5AVISVILLE CAN GENERATE MORE REVENUE FOR A PORT AUTHORITY AND THE PRIVATE SECTOR THAN WOULD BE AVAILABLE FROM OCS OPERATIONS A number of ports that handle steel and automobiles were studied to determine the revenue and organizational implica- ions associated with these commodities.13 The experiences of these ports were used to develop a hypothetical cargo case study at Davisville and is treated below. 13 Steel and automobiles in addition to containers were indi- cated in Chapter III to have the greatest potential to move via Davisville. IV-9 (1) The Use of Pier Two as a Commercial Cargo Facility Has the Near Term Potential to Generate $1/2 Million in Annual Port Authority Revenue and Nearly $8 Million in Private Sector Revenue Pier Two has nearly 14 acres of storage on the pier alone. This is more than adequate to handle 50,000 automo- biles and 150,000 tons of imported steel products per year. Those represent a relatively low level of utilization for such port capacity. Table IV-7 identifies unit charges that prevail at nearby ports for these types of cargo. TABLE IV-7 Automobile and Steel Products Port Charges TARIFF ITEM CHARGES AUTOMOBILE WHARFAGE $1.00/UNIT STEEL WHARFAGE .70/TON DOCKAGE .12 PER NET REGISTERED TON (NRT) OF THE VESSEL PER DAY OF BERTH AUTOMOBILE USAGE 2.00/UNIT Steel and automobiles in addition to containers were indicated in Chapter I I I to have the greatest potential to move via Davisville. In addition, Table IV-8 provides the lease revenue objectives of several port authorities. TABLE IV-8 Per Acre Lease Objectives of Selected Port Organizations ANNUAL LEASE PAYMENT PER ACRE PORT AUTHORITY ON WATERFRONT PROJECT TAMPA $ 6,500 PORTLAND,OREGON 6,500 GEORGIA PORTS AUTHORITY 10,800 MARYLAND PORT ADMINISTRATION 15,000 MASSPORT1 11,500 Based on MASSPORT's report to the American Association of Port Authorities' most recent port survey. IV-10 As an alternative to lease, the port could levy a storage charge of approximately $.25 per automobile and per ton of steel after a free time allowance of 5 days. For the purposes of this study a lease situation was used and $10,000 per acre was considered to represent a reasonable lease payment. If it is assumed that the automobiles are delivered via 35 voyages per year of a vessel of 12,000 Net Regis- tered Tons (NRT) carrying 1,400 automobiles per voyage and the steel is delivered in 12,000 ton lots on a monthly fre- quency, the resulting Port Authority revenue would be as is indicated in Table IV-9. TABLE IV-9 Expected Port Authority Revenue From Handling 50,000 Automobiles and 150,000 Tons of Steel REVENUEITEM AUTOMOBILES STEEL TOTAL DOCKAGE1 $ 5OA00 $ 51,840 $102,240 WHARFAGE 50,000 105,000 155,000 USAGE 100,000 0 100,000 RENTAL2 60,000 1 80,000 140,000 TOTAL $260,400 1 $236,840 $497,240 1 Dockage assumes 35 automobile ships unloaded in one day each and similar sized steel vessel make 12 voyages per year each requiring 3 days to unload. 2 Automobile rental is based on 250 units per acre or a need for 6 acres while steel storage required 8 acres. Under this scenario the Port Authority would not oper- ate the Pier and a significant amount of contract labor would be required for stevedoring, final assembly of auto- mobiles and storage and terminal handling of steel (all contracted by the exporter or importer). The annual reve- nue of these private contract operations are estimated in Table IV-10 below. The table shows that the private sector would realize an additional $7.7 million in revenue from operating on one of the Davisville piers and handling a modest volume of automobiles and steel products. IV-11 TABLE IV-10 Estimated Annual Private Sector Revenue Resulting From Commercial Carqo Activities (Dollars are in Thousands) AUTOMOBILES STEEL BENEFIT CATEGORY PER UNIT TOTAL PER UNIT TOTAL TOTAL SHIP DISBURSEMENTS $11.50 $ 575 $10.00 $1,500 $2,075 STEVEDORING 10.00 500 6.00 900 1,400 TERMINAL LABOR - 0 5.00 750 750 ASSEMBLY 50.00 2,500 - 0 2,500 INLAND TRANSPORT 5.00 250 5.00 750 1,000 TOTAL $76.50 $3,825 $26.00 $3,900 $7,725 (2) The Organizational and Budget Implication of a Non- Operating Port Authority Are Minor When Compared to Revenue Potential and Other Direct Economic Benefits Given that a facility is in place and the Port Author- ity would not be involved with cargo operations, the impact on the existing RIPAEDC organization would be minor. The following additions would probably be required. An overall manager would be required. A tariff and agreements group that is knowledge- able with port use tariffs and terms would be required. Accounts receivable could be attached to this group. This group need not require more than a staff of three. A harbor master may also be required to control berth assignments, provide harbor security and insure that facilities usage and services are being billed properly. Marketing, security and maintenance support could be provided from the existing organization, within DED and Quonset Point. The operation could be established with a budget of approximately $450,000, which will consist of the following elements: Staff salary and benefits - $160,000 Maintenance Expense - $100,000 IV-12 Marketing and Public Relations - $ 50,000 Security - $125,000 Miscellaneous - $ 15,000 Much of these expenses would be in the form of allocations from other elements of RIPAEDC. This tentative budget assumes that major capital projects would be in the form of leasehold improvements by tenants. In the next and final chapter of this report, conclu- sions and recommendations are forwarded. IV-13 V. CONCLUSIONS AND RECOMMENDATIONS V. CONCLUSIONS AND RECOMMENDATIONS In previous chapters information and findings were presen- ted concerning the OCS and commercial cargo potential of Davis- viiie, and comparisons were made between the organization of the Rhode Island Port Authority and Economic Development Corp- oration and other port authorities. In this chapter conclu- sions and recommendations are forwarded relative to: Appropriate uses of the Davisville piers Financial implications of alternative uses of the piers organizational and financial alternatives available to RIPAEDC. These conclusions and recommendations are elaborated upon below. 1. THE FACILITIES AT DAVISVILLE ARE ADEQUATE TO MEET THE REQUIREMENTS OF BOTH AN OCS SUPPORT BASE AND LIMITED PURPOSE GENERAL CARGO APPLICATIONS The facilities at Davisville are adequate to support multi- ple uses. Figure V-1 shows one possible way in which the faci- iities could be allocated to multipie uses. The figure shows that: Pier 1 could be used as the OCS support pier because the relationship of berthing space to adjacent land area is high. This is appropriate because berthing space is the critical requirement of this sector of the industry@ Pier 2 could support limited general cargo applica- tions such as automobiles and steel products. Pier 2 has more back-up space per unit of berthing space and thus is responsive to the unique requirements of this sector of the commercial cargo industry. The back-up area could be leased to one or more automobile impor- ters and steel terminal operators. other configurations are also available to RIPAEDC. If leasing of the pier area limits the flexibility of the Port Authority, then the commercial cargo interests can be leased areas behind the pier and the piers can be left open for public use. Lease of the area immediately adjacent to the berth may be a unique marketing strategy that could attract potential users immedi- ateiy. It could be leased at premium rates as well. V-1 FIGURE V-1 Alternative Facility Use Plan ROLL-ON/ ROLL-OFF RAMPS AUTOMOBILE LEASE AREA WAREHOUSE AND TRANSIT SHED .. . .... ...... .. . .......... .... .......... STEEL PRODUCTS LEASE AREA PIER 1 PIER 2 In our judgment no major facility modification would be required to meet the needs of potential users over the next several years. Any improvements such as a steel warehouse and special cranes should be provided by leaseholders. Major modifications for OCS applications should not be made unless they are guaranteed by potential users. This is parti- cularly important due to both the uncertain business outlook for the industry and the availability of a number of suitable competitive sites in the regionl4. 2. A DUAL-PURPOSE FACILITY WILL REDUCE THE FINANCIAL RISK OF THE RIPAEDC WITHOUT INCREASING THE NEED FOR ADDITIONAL STAFF OR OPERATING COSTS BEYOND THAT REQUIRED FOR A SINGLE USE A duai-purpose use strategy will reduce the business risk that would result if the facility were dedicated to a single use such as OCS support. Table V-1 identifies the potential revenue range that could result from pursuing a dual-use stra- tegy. TABLE V-1 Annual Revenue Potential of a Dual-Purpose Facility at Davisville (Dollars in Thousands) APPLICATION LOW ESTIMATE1 HIGH ESTIMATE2 OCS $250 $1,000 ALCARGO 1,000 TOTAL $750 $2,000 1 The low estimate for OCS use represents support of approximately three offshore rigs. The low estimate for commercial cargo represents the handling of 50,000 imported automobiles and 150,000 tons of steel products per year. 2 The high estimate for OCS support represents support of 10 offshore rigs using Pier 1 only. This probably represents the maximum revenue potential of a one pier operation. The high commercial cargo estimate represents a doubling of throughput' but dues not represent the capacity limit of Pier 2. 14 There are not as many suitable commercial cargo sites available in the region as there are potential OCS bases. Davisviiie's commercial cargo capabilities are unique. V-3 A diversified strategy is sensible for a new entry into the commercial port industry and is similar to the strategy of other similar ports like Manatee and Hueneme. Based on the experience of these other ports, it also appears that the same staff can administer both the commercial cargo and OCS pro- grams. This is treated more fully in the next section of this report. 3. PRIVATE FIRMS SHOULD OPERATE THE FACILITIES U14DER LEASE TO THE RIPAEDC The potential uses treated in this report suggest that the operating strategy of RIPAEDC should be different from ports such as Providence. Providence, like many ports, is a public user port. This means that the facility is available to any user and the agency responsible for the port has a signifi- cant operating and maintenance obligation. The OCS and impor- ted automobile and steel sectors are more proprietary in nature. Due to both the specialized nature of these sectors and'tneir need for guaranteed access at port facilities, it has been a practice that these industries' operate designated areas within a port under lease.with a port authority. Such a lease also provides the leasee with preferential use of one or more ship berths. (1) The RIPAEDC Should Publish a Terminal Tariff But Most Revenue Could Be Generated From Leases The Port Authority should publish a tariff that anti- cipates a wide variety of maritime activity. Table V-2 identifies a number of the key elements in the tariff and provides a suggested list of charges based on the experi- ence at other ports. The tariff would apply to all users of a facility. The principal sources of revenue, however, should be from tenants with whom trie Port Authority has negotiated leases. These would include the most important users such as automobile and steel products importers and the key OCS users. The characteristics of such ieases should be as fol- lows: Users should be rented parcels of land and should be required to conduct the operations within the lease area. v-4 TABLE V-2 Suggested Tariff Items ITEM CHARGE DOCKAGE %12 PER NET REGISTERED TON OF VESSEL OR $1.00 PER FOOT OF VESSEL LENGTH WHICH- EVER IS GREATER WHARFAGE -AUTOMOBILES $1.00 PER UNIT -STEEL $ .70 PER TON OTHER CARGO $1.25 PER TON AUTOMOBILE USAGE $2.00 PER UNIT STORAGE - AUTOMOBILES $ .25 PER UNIT AFTER 5 DAYS OF FREE TIME - OTHER CARGO $ .25 PER TON AFTER 5 DAYS OF FREE TIME HARBOR MASTER FEE $10 PER VESSEL ARRIVAL AND DEPARTURE Leases should be from one to five years depending on the extent of leasehold improvements invoived.1 5 Payment terias coulcl be based on the tariff with the following exceptions; The fixed land rental would replace storage charges. A minimum guarantee from the leasee should be specified in order to encourage activity at the site. Conversely incentive rates should be provided in cases where activity exceeds the specified minimum. Under lease conditions, the Port Authority's responsibility for operating and.maintenance would be clearly stated and would be minor. Under tariff circumstances, the Port Authority's responsibility, while unclear, would be sub- stantiai. 15 A steel importer may have to construct a warehouse/transit shed and the appropriate lease would require a minimum of 5 years with renewal options. V-5 (2) A Director of Martime Operations, and a Limited Staff Shouid Be Added to the Port Authority Organization In the previous chapter the impact of commercial cargo and OCS operations on the organization of the Rhode Island Port Authority was determined. It is recommended that the following policy and organizational changes be impiemented: The Rhode Island Port Authority should consider actively marketing one of the piers to commercial cargo interests and particularly those sectors where the limited harbor depth is not a con- straint. The Port Authority should, through the negotia- tion of leases, require that tenant/users operate the facilities in connection with both commercial cargo and OCS activity. The Davisviile piers should be operated as a separate profit center and staff with the appro- priate training and experience snouid be provided to manage the maritime operations. Figure V-2 presents a proposed organization aiignment for the Rhode Island Port Authority. The following new positions wouid be required: Director of maritime operations. A tariff and agreements group to publish and administer a tariff and insure proper billing for both tariff and lease charges. Such a group would require no more than three individuals. A harbor master to control berth and security at the piers. Such a change would require the creation of no more than five new positions. The director and the senior staff member in the tariff group would probably need to be recruited as the requisite skills are not available within the organization. Suggested requirements for these positions are provided in Appendix B. The other positions can be filied with internai staff. V-6 FIGURE V-2 Proposed Port Authority Organization EXECUTIVE DIRECTOR FINANCE AND MINISTRATION QUONSETPOINT FACILITIES DIRECTOR NIA ITIM OPERA IONS 01 ECTOR ENGINEERING FIRE (3) The Financial Implications of the New Organization Would Be Less T-h-an$1/2 Million in Annual operating Expenses But Could Require Significant Capital Expenses in the Future The establishment of a maritime operations group would require an operating budget of approximately $450,000. '11his would inciude amounts for maintenance and marketing support which represent current expenditures of the RIPAEDC. An estimate of the operating budget was presented in the previous chapter. The organization would be required to administer botil the commercial cargo and OCS operations but would probably spend most of its time in cargo reiated activities. 14o significant capital expenditures would be required by RIPAEDC. Most capital equipment should be provided by tenants under the terms of leases. In the near term, how- ever, and particularly if commercial cargo activity increa- ses at Davisviile, there would probably be a need for dred- ging the channel and the berthing area to at least 35 feet at mean-low water, or 5 feet more than the current author- ized depth. The federal government would be responsible for dredging the main channel while the Port Authority would be responsible for the berthing area and perhaps the immediate approach area and turning basin. If efforts were R I T R 2_" ...... ES v-7 successful and the federal government dredged the main channel, the Rhode Island Port Authority would be required to dredge from 320,000 to 1 million cubic yards of material depending on the intersection of federal/state responsibil- ity. Such a project could cost the Authority from $1-3 miiiioni6 and would only be warranted based on the business volume that would result from such a project. 16 Cost is based on a 1980 estimate of $3 per cubic yard. It is not known at this time if the piers would maintain their structural stability after dredging to 35 feet. V-8 APPENDIX A - OCS BIBLIOGRAPHY OCS BIBLIOGRAPHY Publications Baldwin, Pamela L. and Malcolm F. Baldwin 1975. Onshore Planning for Offshore Oil: Lessons From Scotland. The Conservation Foundation. Washington, DC Macpherson, George S. and Charles A. Bookman 1979. Outer Continental Shelf oil and Gas Activ- ities iiT-the Mid-Atlantic and Their Onshore Impacts: A Summary Report, November 1979. U.S. Department of the Interior, Geological Survey. Mitchell, James K. 1976. Onshore Impacts of Scottish Offshore Oil: Planning Implications for the Middle Atlantic States. AIP Journal. October 1976. pp. 386-397. New England River Basins Commission and U.S. Depart- ment of the Interior, Geological Survey 1978. Onshore Facilities Related to Offshore Oil and Gas Development: Case Studies in OCS Pla-nning New England River Basins Commission and U.S. Department of the Interior, Geological Survey 1976. Onshore Facilities Related to Offshore Oil and Gas Development: Estimates for New England New England River Basins Commission and U.S. Department of the Interior, Geological Survey 1976. Onshore Facilities Related to Offshore Oil and Gas Development: Factbook New England River Basins Commission and U.S. Department of the Interior, Geological Survey 1978. Onshore Facilities Related to Offshore Oil and Gas Development: Methodologies for OCS-Related Facilities Planning New Hampshire Department of Resources and Economic Development 1975. The Impact of Offshore Oil, New Hampshire and the North Sea Experience A-1 Port Authority of New York and New Jersey 1977. Support Bases for Offshore Drilling: The Port of New York Potential. New York Department of Environmental Conservation Whitehead, Harvey 1976. An A-Z of offshore Oil and Gas. Gulf Publishing Company, Houston, Texas. Periodicals Drilling Contractor. International Association of Drilling Contractors. Houston, Texas (monthly) Ocean Industry. Gulf Publishing Co., Houston, Texas (monthly) 1. Petroleum Engineer International. Energy Publications Division, Harcourt Brace Jovanovich. Dallas, Texas (15 times yearly) Sea Technology. Compass Publications, Inc. 'Arlington, Virginia (monthly). A-2 I r I I i I 11 APPENDIX B - POSITION DESCRIPTIONS t ppendix B position Descriptions Presented below is the position description for a maritime operations director. Education: Requirements--B.S. in Business Administrat.ion, Engineering or equivalent areas. Prefer--Graduate of federai or state merchant marine academy.or equivalent. Experience: Requirements--5-10 years in any of the following industry positions: Generai manager of a private cargo stevedoring firm or terminal operating company Operations manager of a steamship line Operations manager of an operating public port authority. Prefer--More then 10 years of experience in any of the above positions or some experience as the executive director of 2 small- to medium-sized Public Port agencies. General: The individual should be thoroughly knowledgeable of international shipping and cargo handling methods and technology. Such knowiedge shouid have been gained through direct involvement in the chain of ship to shore cargo handling. Aiternatively, and particulariy if OCS activities are more important to the future development of the Port of Davisviiie, the individual should have experience in the exploration department of 2 medium- to large- sized petroleum companies with emphasis on logistics of offshore operations. Salary Range: $30,000-$40,000 per year B-1 Presented below is the position description for the supervisor of tariffs and agreements. Education: Requirements--Credits toward a bachelor degree in Business Administration with a major in Accounting or Financial Management. Prefer--A bachelor degree in the above areas plus some formal training in the administrative proceedings of the Interstate Commerce Commission and/or the Federal Maritime Commission Experience: Requirertients--One to three years of experience in any of the following positions: Director of traffic for a port authority A rate examiner in a motor carrier or rail freight rate bureau Management Position in the traffic department or tariff group of a water carrier. Prefer--An ICC or FMC licensed practitioner. General: The individual should be knowledgeable, through hands-on experience, in publishing tariffs for water carrier, ppr-ts and marine terminals. The individual should also have experience or knowledge of the deveiopment and administration of port lease and use terms. The individuai should also be somewhat familiar with accounting and billing procedures. Salary Range: $25,000-$30,000 per year Presented below is the position description for the Harbor Master. Education: High school diploma or equivalency. No higher, formal education required. Experience: This position does not require experience in the maritime industry. The individual should have 5-10 years of work experience and some familiarity with security force operations. B-2 General: The individual will b *e responsible for berth assignments and use ' and for providing harbor security. Other duties will include responsibility for port provided vessel services such as electricity and water and insuring that port charges and services are recorded and billed properly. This position is not a full-time job and could be assumed by another RIPAEDC employee. Salary Range: $16,000-$22,000 per year NOTE: The salary ranges are estimated, based on salaries at small Atlantic and Gulf Coast ports. B-3 NOAA COASTAL SERVICES CTR LIBRARY 3 6668 14110827 6