presentation to: hosted by 12th annual southwestern rail
TRANSCRIPT
JANUARY 22, 2016
Presentation By: Dr. Alexander Metcalf
Transportation Economics & Management Systems, Inc.
IMPACTOFTHE PANAMACANALANDMARKET
OPPORTUNITYFORTEXAS
PresentationTo:
12thAnnual
SouthwesternRailConference
HOSTEDBY
TEMS, Inc.. !2
TEMSKEYEXPERIENCE
TEMS, Inc.. !3
TEXASISGROWINGSTRONGLY
• TexasGDPhasbeengrowingby7percenteachyear
• Texasadded1.3millionpeoplefrom2010to2013
• Populationtogrowfrom26milliontodayto40millionby2050.
TexasTransportation
Systemneedsincrease
efficiencyandcapacityto
meetfutureneeds.
FEASIBILITY
TEMS, Inc.. !4
SUSTAINEDGROWTHISFORECASTEDFEASIBILITY
Historically,TexasGDPgrowthratehasbeensignificantlyhigherthanUSgrowthRate.“Forecasts
fromtheTexasComptrollerofPublicAccountspredictthattheU.S.andTexaseconomieswillrebound
fromthecurrentrecession(intermsofGSPandGDP),andgrowat2.6percentand3.37percent,
respectively,onaverage,peryearbetween2010and2035(Figure2-1).7Anefficientandwell-
maintainedtransportationsystemisvitaltothestate‘sabilitytoremaineconomicallycompetitiveat
homeandabroad.”
TheTexasComptroller
ForecastisinREALDOLLARS
Addinga2%annualinflation
getsusrightbackintothe5+%
range.
Averagegrowthratewillbe
5.4%(NOMINALDOLLARS)
fortheTexasmarketarea*Source:TexasStatewideLong-RangeTransportationPlan2035at:
http://ftp.dot.state.tx.us/pub/txdot-info/tpp/rural_2035/report/slrtp_final_ch2.pdf
TEMS, Inc.. !5
CONTAINERIMPORTSARECLOSELYLINKEDTO
NOMINALGDP
Growthratehasonlybeenmoderatedbyrecentrecession.
FEASIBILITY
TEMS, Inc.. !6
TEXASMARKETIS3RDLARGESTINTHEUSONLYAFTERCALIFORNIAANDNY/NJ(WHICHISDIVIDEDBETWEENTHETWOSTATES)
FEASIBILITY
NewYorkPortisdivided
betweentwostates
TEMS, Inc.. !7
HOWEVER,DFWANDMOSTOFTEXAS
ARECURRENTLYSERVEDOUTOFLA/LB
ThisisduetobigshipsontheWestCoastversussmallshipsinHouston;butHoustonfares
noworsethanEastCoastPortsinregardtoservingonlyitslocal(truck)porthinterland
area.MostofHouston’straffictodayisEuropeanandCaribbean-based.
USAsiaPortHinterlandsToday
FEASIBILITY
TEMS, Inc.. !8
CURRENTLYHOUSTON’SSHAREOFASIAN
CONTAINERSIS22%OFTEXASMARKET
Thisresultsfromtheeconomicsofsmallships,wheresmallvesselscurrentlyholdmore
than50%marketsharevs.theWestCoastinHouston.Houstoncurrentlyhasonlya
negligibleshareofDFWmarket,butTexasportssharewillincreasewithlargeships
providedtheyhaveeffectiveaccesstotheDFWmarket.
FEASIBILITY
HOUSTON DALLAS-FORTWORTH
TEMS, Inc.. !9
DFWASIANCONTAINERMARKETWILLGROWBYA
FACTOROFTHREE
FEASIBILITY
Thisgrowthwillputalotofstrainonexistingrailinfrastructureandcapacity
TEMS, Inc.. !10
CURRENTCOSTTRADEOFF:SMALLSHIPS
ChinaLA/LB$180
liftcost
DFW
Houston$180
liftcost
7,350x.02=
$147
11,994x.04=
$479
1,452x.12+
$125=$299
300x.12+
$125=$1611,601x.12+
$125=$317
DeliveredCostperTEUfromChina:
ToDFW:
ViaLA/LB:$147+$180+$299= $626
ViaHouston:$479+$180+$161= $820
ToHouston
ViaLA/LB:$147+$180+$317= $644
ViaHoustonDirect:$479+$180= $659
AboutEqual
Clear
Advantage
toLA/LB
FEASIBILITY
TEMS, Inc.. !11
PANAMACANALWILLCHANGETHESITUATION
CapacityofNewPanamaxshipwillincrease2-3times,butrequires48-51feetdraft.
OnlyafewGulfandEastCoastportscansupportthis,butinthelongtermFreeport
willbeabletoaccommodatetheselargerships.
33
41
43
50
51
WaterDepth(ft)
48
FEASIBILITY
TEMS, Inc.. !12
ECONOMIESOFSCALEFORBIGGERSHIPS
• 2015Shippingcostwilldecreasefrom$0.04/TEU·Mileto$0.02/TEU·Mile
(70%loadingfactorandinflationsince2001).
• Thiscutsshippingline-haulcostsinhalf.
• EastCoastPortsareexpandingtheircapabilities,soBigShipswillbeusedin
bothPacificandAtlantic(e.g.Suez)tradelanes.
Source:Reproduced
basedonFigure4.3
Impactsof
ContainershipSize,
ServiceRoutes,and
DemandOnTexasGulf
Ports,TXDOT,2001
FEASIBILITY
TEMS, Inc.. !13
BIGSHIPSCOMETOTHEGULFANDEASTCOAST
FROMASIA.THISTIPSTHECOMPETITIVEBALANCEAfterPanamaCanalExpansion
FEASIBILITY
TheCompetitiveBalancewiththeWestCoastPortswillchangedramaticallyifaSouth
Texasporthas50feetofwaterandaneffectiveinlanddistributionnetwork
TEMS, Inc.. !14
FUTURECOSTTRADEOFF:LARGESHIPS
ChinaLA/LB$180
liftcost
DFW
Houston$180
liftcost
7,350x.02=
$147
11,994x.02=
$240
1,452x.12+
$125=$299
300x.12+
$125=$1611,601x.12+
$125=$317
DeliveredCostperTEUfromChina:
ToDFW:
ViaLA/LB:$147+$180+$299= $626
ViaHouston:$240+$180+$161= $581
ToHouston
ViaLA/LB:$147+$180+$317= $644
ViaHoustonDirect:$240+$180= $420
Advantage
toHouston
Clear
Advantage
toHouston
FEASIBILITY
TEMS, Inc.. !15
CONTAINERMARKETSHAREATDFWFEASIBILITY
Notes:
1. Estimateapprox.750,000containerstotalIMXmarketinandoutofDFWtoday.
2. Freeportwillcomeonlinebetween2020and2025.By2025fullyoperational.
3. FreeportwouldaddrailEuropeanboxesthatarecurrentlytruckedwhichresultsinanimmediateboostinrailtraffic
WithLarge-Vessel
economicsandarail
connection,Freeport
cancompeteatDFW.
Aforecastedmore
thantriplingofrail
intermodaldemandby
2035willput
considerablepressure
onbothraillineand
terminalcapacityin
Texas
9trainsperday
(fromWestCoast)
16trainsperday,
6fromFPT
27trainsperday,
11fromFPT
SystemUnder
Construction
ExistingRailFEU
FreeportAsiaFEU
FreeportEuropeFEU
TEMS, Inc.. !16
OVERALLFREEPORTCONTAINERMARKETFORECASTFEASIBILITY
TEMS, Inc.. !17
RAILINTEGRATIONFORPORTFREEPORT
ConceptStudyenvisioned– PortFreeport
Improvements– RailLinktoInlandPorts
at:• Dallas
• FortWorth
• SanAntonio
– IntegratedHubat:• Rosenberg
FEASIBILITY
(FORTHOOD)
TEMS, Inc.. !18
PRELIMINARYFINANCIALANALYSIS
• ConceptualAnalysisundertakenfromthepointofviewoftheRailroadAuthority,innominalyearof
expenditure(YOE)dollars.FreeporttoCaldwellest.cost$880millionassumedinoperationby2025
• Thisanalysisisbasedon40¢percarmileand$28.41perLoadedTEU(assuming100%emptyreturn)
• Duetothelengthoftherouteandforecastedtonnage,operatingandcapitalmaintenanceisasignificant
componentofthecorridor’scoststructure,whichmustberecoveredthroughusagefees.
• AtacompetitivetollinglevelandexistingcarloadtrafficnorthofRosenbergtoCaldwell;4.4%interest
and1.4%inflationtheNPVis$567millionpositive:thissuggeststhataninfrastructureauthoritycould
fullyserviceitsBondsfromfeeswithoutneedingsubsidyorgrantassistance.
• Morestudyisneededtopositivelyconfirmcostsandrevenues,butsuggestspotentialforaRRIFloanor
useofRevenueBondsasalow-costfinancingvehiclefordevelopingneededinfrastructureimprovements
FEASIBILITY
TEMS, Inc.. !19
SH36ARAILCORRIDORJOBCREATION
PortofFreeport2035:
10,000-20,000jobs.
RosenbergHub2035:
5,000-10,000jobs
• Currentmodelingsuggestsrailtraffic
volumeswillcontinuetoincreaseand
UPandBNSFwillneedtodevelop
additionalrailyardcapacityinthe
Houstonarea.• Rosenbergiswellpositionedinthe
futuretobecomeamajorraillogistics
hub.Shiftingintermodalactivityfrom
UPEnglewoodandBNSFPearlandto
Rosenbergwouldreducerail
congestionindowntownHouston.• Overall,potentialis15,000-
30,000jobslikelyintheSH36A
corridor,mostlyconsistingof
distributionandindustrialjobs.
FEASIBILITY
TEMS, Inc.. !20
SH36ARAILINCOMEIMPACTS–
INCOMEANDSALESTAXREVENUESBY2035
TotalIncomeIncrease
(million$perYear)
TotalStateSalesTaxIncrease
(million$perYear)
IncomeIncrease(million$)
$-
$200
$400
$600
$800
JobsUnderExisgngPahernofDistribugon
768.022
424.6654
DirectJobs DirectJobsand
IndirectJobs
SalesTaxIncrease(m
illion$)
$-
$11
$22
$33
$44
JobsUnderExisgngPahernofDistribugon
43.5568
24.0841
DirectJobs DirectJobsand
IndirectJobs
FEASIBILITY
TEMS, Inc.. !21
• TheportsofSeattleandTacomajoinedforcesinAugust2015tounifymanagementofourmarinecargofacilitiesandbusinesstostrengthenthePugetSoundgatewayandattractmoremarinecargoandjobsfortheregion
• Theportstogetherhaveninecontainerterminals,butnoneofthemarecurrentlyabletoeffectivelyhandlebigships.
• “Weusedtothink,themorecompetitionthebetter,”saidJockO’Connell,aninternationaltradeeconomist.Buttheadventofultra-largeships,someofwhichcancarryupto20,000cargocontainers,hasthrownportoperationsforaloop,hesaid.
• BookoutsaysiftheseaportsinSeattleandTacomawanttoremainadestinationforcargoships,theymustinvest."Wedon'thaveachoice,"shesaid."Wecan'tchoosetojusthandlesmallships.Weneedtohavethefacilitiesthatwillhandletheshipsofthefuture."
PORTSALLIANCEFORTEXAS?
PortsofSeattle,TacomaAgreetoAllianceathttp://www.wsj.com/articles/ports-of-seattle-tacoma-agree-to-
alliance-1433542075;Seattle,TacomaPortsVotetoFormAlliancehttp://www.wsj.com/articles/seattle-tacoma-ports-
vote-to-form-alliance-1438714867;https://www.nwseaportalliance.com;https://www.linkedin.com/pulse/seattle-
tacoma-gateway-development-strategy-unfolds-shawn-goh?forceNoSplash=true;http://kuow.org/post/notice-fewer-
containers-puget-sound-ports-canada-grabbed-our-business
FEASIBILITY
TEMS, Inc.. !22
THANKYOU
FORMOREINFORMATIONCONTACT
ALEXANDERE.METCALF,PHD
PRESIDENT
301-846-0700