Reducing Fuel Use in the Tropical Shrimp Fishery withCambered Doors, Sapphire® Webbing, and Skewed Propellers

1

Reducing Fuel Use in the Tropical Shrimp Fishery with Cambered Doors, Sapphire®

Webbing, and Skewed Propellers1

Prepared by

Michael G. Haby2 & Gary L. Graham2

Narrated by

Nathan P. Kemper3

1. This work was supported with funds provided by: (a) the U.S. Department of Agriculture to the Texas AgriLife Extension Service, part of the Texas A&M University System (award number 2005-48605-03347) and (b) the Texas Energy Conservation Office, headquartered within the State of Texas Comptroller’s Office, to the Sea Grant College Program at Texas A&M University (award number 0000421118).

2. Texas AgriLife Extension Service / Sea Grant College Program / Texas A&M University

3. Trade Adjustment Assistance Coordinator, Southern Risk Management Education Center, University of Arkansas

An Overview of The Presentation

■ Introduction

● Why address ways to save fuel when the industry is experiencing record catch rates?

● A review of historical fuel-saving efforts undertaken by shrimp fishermen and the Sea Grant College Program.

■ A look at the topics covered in this presentation

● Adaptation & testing of trawl gear new to the shrimp fishery.

● Comments about a preliminary propeller-comparison study.

● Measuring and comparing economic results of new trawl and propeller gear.

● Next steps for the Southeastern shrimp-trawl fishery...

2

Catch rates are at record levels so whyaddress fuel savings? Things change ...

■ Before 2001 ...● Low-cost inputs were used to

harvest high-dollar shrimp. ● In all but “banner” years catching

enough shrimp generally limited profitability.

● The formula for success focused on creating the capacity to catch more shrimp. This meant investing in larger more powerful vessels that could pull larger nets faster, and stay offshore longer.

■ Since 2001 ... ● Skyrocketing catch rates, but

high-cost inputs are used to harvest lower-valued product.

● Profitability requires operators to reduce avoidable costs.

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

-60%

-40%

-20%

0%

20%

40%

60%

Average Percentage Change in Offshore Production Compared to the 45-year Mean

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Ex-vessel price (dollars / lb.)

50

100

150

200

250

300

350

Diesel Price (cents / gal.)

Ex-vessel shrimp price

Diesel price

Historical Review of Fuel EfficiencyEfforts in the Shrimp-trawl Fishery

■ Post WWII − operators installed military-surplus, diesel engines.

■ In the 50s − industry began using double rigs.

■ In the 60s − cotton webbing was replaced by nylon.

■ In the 70s − offshore trawlers converted to quad rigs.

■ In the 70s & 80s − many vessels added propeller nozzles.

■ In 89 & 90 − nets made from high-tensile-strength, small-diameter fibers demonstrated fuel savings over nylon-based webbing.

■ In the 90s − some operators switched to more modern propellers.

3

Trawl Gear Track: Comparing the Efficiency of Different Trawl Doors and Webbing

A Cambered Door Uses the Same Principle of Pressure Difference as an Airplane Wing

■ As the door (or plane) travels forward, less water (or air) pressure on the curved surface allows the door (or plane) to pull outward (or lift).

■ Outward pull is created by a pressure difference; not resistance generated with a large angle of attack using a four-chain bridle system.

Air moving over the top of the wing must travel farther, and must move faster than air moving under the wing.

As air moves faster, pressure is reduced. This causes a low-pressure area across the top of the wing. Lower pressure across the top of the wing is less than atmospheric pressure which creates lift with forward movement.

Air pressure across the bottom of the wing equals atmospheric pressure

Direction of travel

4

Hydrodynamics Applied to Door Design

Pioneers Who “Found A Better Way”

Clockwise from top right: Patrick Riley, General Mgr. – Western SeafoodCaptain Manuel Calderón – Western SeafoodCaptain Louis Stephenson – F/V Master Brandon

In 2008 each of these men received the NMFS Sustainable Fisheries Leadership Award

5

Initial Sea Trials (“Proof of Concept”)

■ Work began April 2005 aboard the F/V Isabel Maier

● Baseline:

□ Caterpillar® 3412 (500 hp)

□ Kort nozzle with skewed Rice wheel

□ 4 – 47½ ft. two-seam trawls

□ Spectra® webbing

□ 9' x 40" wooden doors (2.79 m²) [9' x (40" ÷ 12"/ft.) x (1m² ÷ 10.76 ft.²)]

■ Initial findings:

● Experienced difficulty in setting.

● Doors laid in outward position.

● After numerous tows, got gear to bottom & the nets to open.

● Sled (“dummy door”) sank faster than trawl doors.

Initial Trials Showed Proof of Concept, and Identified Several Required Changes

■ Trial and error for choosing right door size

■ Attaching the door to the towing cable was problematic.

■ Shoe on the bottom of the oval door needed to be modified.

■ Quad rig sled needed to be modified.

6

Trawl Gear Modifications from Sea Trials (1)

■ Rethinking the required size of cambered trawl doors was the first modification:

● Cambered doors generated tremendous spreading power.

● Initially evaluated 2.1m2 cambered doors in place of the 2.79m2 flat doors (108" x 40").

● Each door weighed 330 to 616 lb. with weight added.

New Doors are Fifty Percent SmallerThan Traditional Wooden Ones

■ Trial and error demonstrated the 1.4m2 cambered doors properly opened 2 – 47½ ft. two-seam nets

■ Compared to the area of the 108" x 40" traditional flat door (2.79 m2), the area of the 1.4m2 cambered door is 50 percent smaller.

7

Holes in the Brail Connect TrawlDoors to the Towing Cables

Brail shown with different attachment points ... These points control the angle of attack

Trawl Gear Modifications from Sea Trials (2)

■ Connecting trawl doors to the towing cables

● To create the angle of attack with flat doors, a 4-chain bridle system is required. The 4-chain bridle establishes both the angle of attack and the amount of “cut” in the door.

● This 4-chain approach does not work with the vented, cambered doors.

□ Initially, cambered doors had just one connection point on the brail. This is the most common connection method worldwide.

□ Ultimately the new doors were connected with 2-point chain bridles, one at the brail, and the other at the aft bottom position of the door.

8

Two-chain Bridle Connected toa Vented, Cambered Door

Bridle Configuration for 1.4m2 Door

Front HoleChain

Chain

8 Links+

2 ShacklesBig Shackle inDoor to Swivel

Using Front Hole

Inside View

Top View

Swivel

9

View of Vented, Cambered Door Showing Two-chain Bridle & Angle of Attack

Trawl Gear Modifications from Sea Trials (3)

■ “Stock” doors with curved shoes resulted in a 19% shrimp loss because of elevated lead line and tickler chain.

■ Once curved “shoes” were replaced with flat ones, the lead line and tickler chain attachment points were lowered, & shrimp loss ended.

“Curved” Shoe

“After-market”,

Flat Shoe

Padeye welded to the back of the shoe is the

second connection point

10

Net Attachment Positions for 1.4m2 Door

Tickler ChainBottom Line

Cork Line

Outside View

Attachment for lazy line

Headrope Attachment■ Several horizontal holes on the

back of the doors connect the trawl.

■ Moving headrope & footrope to an adjacent hole alters the angle of attack by about 2 ½ degrees.

■ Adjustments on the aft end of the door work opposite to the towing points on the brail.

● Connecting the net in the forward-most point increases angle of attack.

● Attaching the net further aft decreases angle of attack.

11

Trawl Gear Modifications from Sea Trials (4)

■ The traditional sled sank faster than the cambered trawl doors.

■ New sled designs slowed descent to the sea floor:● Original modification (left) incorporated a buoyancy tank.● Subsequent modification (right) used lower-cost, flat-bar

stock with a much wider shoe which “skied” to the bottom.

40.0"

46.0"

16.0"

ø 0.8"

ø 0.8"

ø 0.8"

ø 0.8"

35.00°

0.8"

10.0"

Trawl Sled built from 1"x10" Flat bar and 3/4" x 3" Flat Bar.

59.0"

Two Views of the Buoyancy-tank Sled in a Double-rigged Trawl System

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Essential Periodic Maintenance Ensures Continuous Production Effectiveness

Stress elongates towing holes in the doors! To keep the gear fishing

correctly, the original diameter must be maintained.

Friction can compromise shackles in a single cruise! Extra shackles

should be aboard.

Double-rigged, Energy-conserving Trawl System Being Retrieved & Loaded

13

Fuel Flow Meter

■ Meter had to be matched to the engine brand and horsepower

■ The meter measured fuel consumption in gallons per hour, and indicated current consumption with a dial.

■ Very basic design

■ Worked well in most cases

During fishing operations aboard the F/V Isabel

Maier with a Caterpillar® 3412 (500 hp) …

Wooden Cambered Difference

Door size 2.79 m² 1.4 m² Area reduced by 50%

RPM @ 3 Kt. 1,525 – 1,550 RPM 1,400 – 1,425 RPM RPM reduced by ~ 125 (8%)

Fuel Use 19.5 – 20.0 GPH 14.0 – 14.5 GPH GPH reduced by 5.5 (28%)

During fishing operations aboard the F/V Master

Brandon with a Cummins® KTA 19 (500 hp) …

For every 50 RPM reduction in engine speed … fuel use dropped by 1.5 – 2.0 GPH. These values are consistent with the F/V Isabel Maier.

Engine Performance & Fuel Comparison: Wooden vs. Vented, Cambered Doors

14

Three-week Cruise Aboard the Isabel Maier with Traditional & Experimental Gear

■ After all four modifications were completed, a production cruise was conducted between mid-April and early-May 2006.

■ During this cruise the first-ever performance information was collected during an actual fishing trip.

● To assess shrimp production differences:□ both gear types were fished simultaneously,□ gear position was swapped after 15 good tows to

control for side bias, □ cambered doors generated a 2.6% shrimp gain, but it

was not a statistically significant difference.

■ No shrimp loss was encountered with the cambered doors.

Cooperative Research by Elite Producers

■ Intensive Technical Assistance

● Tim Adams – Bon Secour

● David Chauvin – Chauvin

● Juan Gaona – Brownsville

● Bobby Pendarvis – Irvington

● Tom Williams – Tarpon Springs

■ Texas Energy Conservation Office

● Delbert Bull, Jr. – Sabine Pass

● Charles Burnell – Brownsville

● Manuel Calderón – Freeport

● Frank Lasseigne – Brownsville

● Louis Stephenson – Hitchcock

Areas Tested

● The doors have been fished on all sides of the Gulf.

● Muddy, offshore substrate.

● Hard Florida bottom.

● Offshore on an the beach.

15

■ Each cooperator was asked to record fuel use and engine RPM across steps one, two, and four of a four-step procedure.● Step 1 – Baseline (current complement of nets and doors).● Step 2 – Sapphire® nets spread with traditional doors.● Step 3 – Side-by-side prod. equivalency (traditional vs. cambered).● Step 4 – Sapphire® nets spread with cambered doors.

■ Approach● Cooperators pre-selected a speed-over-ground rate and attempted to

hold it (±) for all tows across steps 1, 2, & 4 of the four-step protocol.● Each half hour the cooperator recorded:

□ Time of day□ Actual speed-over-ground□ Engine RPM□ Fuel consumption (from the indicating fuel-flow meter)□ “Current” sea conditions (With, Against, Across, Slack)

● Eight 3½ hr. tows are required for steps 1,2, & 4.● 15 good tows per side are required for the prod. equivalency step.

Study Protocol for Evaluating New Gear

Helping Cooperators Address the“Learning Curve” for Cambered Doors

■ In more profitable times, most operators could experiment with the new doors & reach production equivalency.

■ Today, such experimentation is economically impractical due to:● an abbreviated production window &● record prices – on the high side for

fuel and on the low side for outputs.

■ Two elite, consulting fishermen, Captain Louis Stephenson and Captain Manuel Calderón, have:● helped the cadre of cooperators

complete their 4-step protocols &● sped conversion to this new gear.

16

South Atlantic Experiences withVented, Cambered Doors

■ One smaller boat in South Carolina that exclusively fishes the beach has been using the cambered doors for several years. The gear was tested for how well it handled very hard turns, and the doors maintained their spread.

■ Using traditional gear this vessel burned 10½ – 11 gph. After switching to the cambered doors, fuel consumption dropped to 9 – 9½ gph; a reduction of 13 to 14 percent.

■ In addition to the fuel savings, less drag with cambered gear enables this operator to fish against the current while others pulling traditional flat doors must trawl, pick up, run up sea, and re-deploy in a following sea. Much more fuel and time is used with the traditional gear.

■ Little work has been done inshore.

■ Greg Falkner in Louisiana did some early work that showed positive results.

What About The Inshore Fleet?

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A Potential Door for Smaller Nets

■ High Aspect (taller than long)

■ Vented

■ Very Short

■ Used worldwide

■ ... But needs to be evaluated

Replacement Considerationsfor Cambered Doors (1)

■ Cambered doors should be roughly ½ as long as what you now pull, but net size, net style, and webbing material also influence door size. For example, 2 – 45’ nylon nets require 1.4m2 doors but that same nets made from Spectra® or Sapphire® can be spread with 1.1m2 doors.

■ Evaluation by elite fishermen suggest the following rules of thumb:● If you are pulling 2 – 40’ to 45’ nets, then use 1.1m2 doors● If you are pulling 2 – 45’ to 50’ nets, then use 1.4m2 doors

■ Sea trials of doors required to spread 2 – 50’ to 55’ nets are preliminary and suggest that 1.4m2 doors are marginal at the 2nd

tow point. Sea trials of doors required to spread 2 – 55’ to 60’ nets have not taken place.

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Replacement Considerationsfor Cambered Doors (2)

■ Remember ... The smaller the angle of attack, the less the resistance and the greater the fuel economy!

■ Therefore, choose the door size that allows your nets to spread fully when the doors are pulled from the most forward hole in the brail. This will ensure the smallest angle of attack.

■ Cost differences between 1.1m2 – 1.4m2 and 1.4m2 – 1.6m2

doors are about $50 per door, a minor issue. When in doubt, choose the next larger size.

Sapphire® Fiber, Webbing, and Nets

■ Characteristics of Sapphire® used on our evaluations:● Small-diameter (2.1mm), high-tensile-strength material.● Fibers are braided, not twisted. ● No dipping is ever required with Sapphire® webbing. ● High-density polyethylene (HDPE) − recyclable.● Our work has shown that active vessels get more than

3 years use with braided Sapphire® webbing.

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Why Sapphire® Webbing??

■ In 1990, Sea Grant did extensive work with Spectra®. Excellent results were achieved, and many boats converted to it.

■ The original cost of Spectra® was $28.00/lb. As a component in personal body armor, military demand pushed the price to over $60.00/lb. at the time our cambered door project began.

■ Sapphire® webbing cost $8.50/lb. and was chosen because of its durability and price.

■ Other high-tensile-strength, small-diameter fibers are available which can reduce drag and generate fuel efficiency, but they are more costly than Sapphire®.

■ Keep in mind that all of these new fibers weigh less than nylon, so you get more webbing per pound purchased.

Twine Size Advantages

■ Early Spectra® evaluations used #11 which replaced #18 nylon.

■ This reduced twine area of the entire trawl by about 23.5%.

■ The Sapphire® used in the new study had a diameter of about 2.1mm − roughly equivalent to #15 nylon.

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Saving Additional Fuel with Sapphire®

Nets: Cooperators’ Results

■ Step two of the evaluation protocol demonstrated the proportional fuel saving attributable to Sapphire® nets when spread with traditional doors.

■ Being braided instead of twisted appears to be an important contribution to fuel savings.

■ Sapphire® generated fuel saving!

● Captain Tim Adams reported 1 gal./hr. savings.

● Captain Manuel Calderón reported ½ to 1 gal./hr. savings.

● Captain David Chauvin reported 1 gal./hr. savings.

● Captain Louis Stephenson reported 1½ gal./hr. savings.

■ The doors have been in continuous use since 2006, and shrimp production has not suffered! Some operators still resist.

■ Among our cooperator base, when help was requested, problems were quickly solved.

■ Doors are not difficult to use, but adjustments are different.

■ Doors are effective across all Southeastern shrimp fisheries (nearshore or offshore, muddy substrate or hard bottom, brown or white shrimp). Gear can handle sharp turns, etc.

■ Shackles and swivels need frequent replacement. Also, the diameter of towing points in the brail need to be maintained.

■ At very slow speed-over-ground rates (around 2.2 kt.)questions arise about effectiveness.

Performance Summary: Cambered Doors

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Propeller Track: Comparing Efficiency of “Nozzled” Kaplan and Skewed Propellers

The Skewed Propeller …

■ Is not the newest technology. The Rice Speed Wheel has been introduced since the skewed propeller was designed.

■ Some vessel owners have switched to the skewed propeller, but no comparative performance data were ever collected from fishermen for public use.

■ At industry’s suggestion, RPM and fuel consumption was compared between Kaplan-style and skewed propellers.

● Kaplan-style performance data were collected in early fall.

● Skewed performance data were collected in winter when seas are stronger/heavier, and currents are faster.

● Therefore, reported differences of 0.9 GPH savings (6.1%) with the skewed wheel are conservative!

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Additional Fuel Savings Documented with Initial, Comparative Wheel Trials

1,250 1,300 1,325 1,350 1,375 1,400 1,425 1,450 1,475 1,500 1,525 1,550 1,600

RPM

8

10

12

14

16

18

20

22

Gallons per Hour

Kaplan-style wheel Skewed wheel

Economic Results Track: Current Operating Conditions Facing U.S. Shrimp Fishermen

■ Significant reduction in operators and thus fishing effort between 2002 and 2006 has boosted catch rates. But …

● Shrimp fishing is a fuel-intensive enterprise.

● Producers have paid record prices for fuel while receiving historically-low prices for their shrimp which has squeezed margins to razor-thin levels.□ Imports continue relatively unabated and □ Short-term “shocks” have also affected local prices.

● Since 2001, remaining operators’ main objective has been “to remain liquid enough to fish another day.”

● “Non-essential” maintenance has been deferred.

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Fuel: A Large, Growing Production Expense for Wild-harvested Shrimp

■ Between 1986 & 1997 the median offshore shrimp trawler used 66,101 gallons of diesel each year (TAMU Standardized Performance Analysis project).● In 1997 those 66,101 gallons cost $49,576 ($0.72/gal.)● In 2006 those 66,101 gallons cost $140,400 ($2.12/gal.)● In 2008 those 66,101 gallons cost $209,776 ($3.17/gal.)

■ In 2006, roughly 40% of the 2,666 permitted offshore trawlers remained idle due to high fuel costs & low ex-vessel prices.

■ In 2007, days fished across the Gulf in the 10 to 30 fathom range had declined by 78% compared with the ’01 to ’03 base.

■ In 2008, roughly 20% of shrimp fishermen gulf-wide did notgenerate a trip ticket … they did not fish.

■ Results from offshore cooperators indicate the new trawl gear generates immediate, significant fuel savings.

● S&S Sales (fleet): 375 hp. pulling 4 – 42 ft. nets reduced fuel use by 28 to 39%.

● Western Seafood (fleet): 500 hp. pulling 4 – 47½ ft. nets reduced fuel use by 28 to 33%.

● F/V Mariah Jade: 600 hp. pulling 4 – 32 ft. nets reduced fuel use by 27%.

● F/V Master Brandon: 500 hp. pulling 4 – 50 ft. 2-seam nets reduced fuel use by 20% inshore & 24% offshore.

A Summary of Fuel Savings Reported Through Cooperative Research

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■ Documented fuel savings ranged from 10% to 39%. Consider the “middle half” of that range.

● The median fuel-savings value is 24%.

● 25% above and below that mid-point we find a 28% savings and a 20% savings.

● This “middle 50%” of fuel-savings values (20% – 28%) is the range in fuel-savings most offshore operators can expect!

Expected Range in Fuel Savingsfrom Cooperative Research

75th percentile28% red.

Median24% red.

25th percentile20% red.

Highest percentage of fuel saved: 39%

Middle Half

Lowest percentage of fuel saved: 10%

Actual & Forecasted Nominal Industrial Price for No. 2 Diesel by All Sellers: 1994 – 2035

94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34

Year (1994 - 2035)

0

100

200

300

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700

Nominal prices (cents per gal.)

Actual annual prices

Forecasted annual prices

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■ From 2010 to 2035, forecasts suggest diesel prices will increase by about 15¢ per gallon each year.

■ About every seven years, the forecasted price will increase by roughly $1.00 per gallon.

■ This forecast only reflects trend … supply interruptions, additional regulations further limiting sulfur, etc. can dramatically influence actual prices.

■ Current diesel prices exceed the 2011 forecast by $1.00 per gallon.

■ Energy price changes will affect the cost of virtually all activities.

Long-run Outlook for Fuel (2010 – 2035)

Cost-reducing Effects of Cambered Doors, HDPE Webbing, and Skewed Propellers

■ Cambered doors & small-diameter HDPE webbing drive production costs out of the shrimp-trawling enterprise. How?

● Less drag (mostly from the doors) requires fewer RPM to reach speed-over-ground towing rates so GPH decreases.

● Fewer RPM reduce engine-service hours per hr. operated.

● Reduced fuel use extends time between overhauls.

■ The new trawl doors and HDPE webbing are longer lasting:

● Wooden doors last 12 to 18 months but cambered steel doors last 7 to 8 years if maintained.

● Nylon nets last 1 to 2 years but Sapphire® nets last 3 to 4+ years. HDPE nets do not require dipping – a huge savings!!

■ A skewed propeller can further reduce fuel consumption.

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Measuring Economic Results fromFuel-efficient Trawl Gear

■ Pro-forma analysis of individual decisions

■ Short-term:

● payback or break-even analysis – limited to assessing a small slice of asset life & cost-saving benefits. Shows relationships among unit fuel prices, estimated fuel savings, & gallons required to recoup investment. Payback gauges how fast the initial investment is recovered. It does not measure overall profitability.

■ Long-run:

● capital budgeting – evaluates the adoption of a cost-reducing investment to produce a given volume of output. (Remember ... the new trawl gear catches the same volume of shrimp, but at a lower cost).

Short-term Analysis (graphical)■ Doors & Sapphire® nets cost $10,600. With fuel @ $3.00/gal. and with a

20% reduction, the investment will be recouped after burning 17,667 gal.; with a 24% reduction after burning 14,722 gal.; and with a 28% reduction after burning 12,619 gal.

$2.00 $2.20 $2.40 $2.60 $2.80 $3.00 $3.20 $3.40 $3.60 $3.80 $4.00

Price (Dollars per Gallon)

0

5

10

15

20

25

30

Gallons required to recoup cost of doors & nets (thousands)

28% Red.

24% Red.

20% Red.

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Gallons required to recoup door & net cost given different diesel prices & different levels of fuel saving within the “middle” 50

percent of reported savings by industry

$ / gal. 20% Reduction 24% Reduction 28% Reduction

$2.00 26,500 22,083 18,929

$2.20 24,091 20,076 17,208

$2.40 22,083 18,403 15,774

$2.60 20,385 16,987 14,560

$2.80 18,929 15,774 13,520

$3.00 17,667 14,722 12,619

$3.20 16,563 13,802 11,830

$3.40 15,588 12,990 11,134

$3.60 14,722 12,269 10,516

$3.80 13,947 11,623 9,962

$4.00 13,250 11,042 9,464

Short-term Analysis (tabular)

A Summary of Short-term Performance

■ In the short term, reducing fuel consumption rapidly pays back the cost of the new gear in lower fuel expense. The quantity of fuel required to do so depends upon:● unit prices for diesel and● the amount of expected fuel savings.

■ This work was based on the experiences of offshore fishermen operating across the Gulf. With smaller, inshore vessels, the gallons of fuel required to payback the investment may be greater, and may take longer.

■ Remember … a short-term analysis for equipment that lasts more than one year provides an incomplete picture. An analysis to estimate the economic feasibility needs to be done over the expected life of the equipment being considered. Only then can we estimate the benefits generated.

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The Three Major Investment Types

■ Maintenance & replacement investments.● Replacing a main engine is one example.

■ Income-increasing investments.● Investing in a larger vessel that enables you to fish harder −

stay out longer, cover more bottom with larger gear, etc.● Investing in on-board, plate-freezing capability to pack and

freeze at sea to support direct marketing.

■ Cost-reducing investments.● Investing in fuel-saving trawl gear to reduce production

expenses. (Remember … cooperative research showed catches remain the same, but fewer dollars are required to generate those catches.)

● Investing in more modern propellers and nozzles.

Analyzing Expected Investment Profitability

■ Investing in equipment today will result in cash flow changes over the life of that equipment. So …

● What is the Net Present Value (NPV) method of investment analysis?

● What is the time value of money, and why is it important in evaluating an investment?

● What information is needed to use the NPV method?

● What are the primary steps in the process?

● Once the calculations are done, how do we use the NPV number to interpret results and choose from investment alternatives?

29

What is The Net Present Value (NPV)Method of Investment Analysis?

■ Net Present Value is one of only two approaches that addresses the issue of WHEN cash flow changes occur over the useful life of an investment.

■ What is the time value of money, and why is it important in investment analysis?

● Money you have today is worth more than money you will (or may) receive in the future. Why?

□ Opportunity – money today can be invested and interest can be earned. “Expected” money cannot be used now.

□ Risk – money in hand is not at risk. Money forecasted to arrive in the future is less certain.

□ Inflation – money will likely buy more today than at some time in the future.

Information Needed, Steps Required, and Interpretation of Results

■ What information is needed to use the NPV method?

● Initial investment

● Cash flows expected from the investment in each period

● Planning horizon (expected useful life of the equipment).

● Expected interest rate, req. rate of return, or cost of capital.

■ What are the primary steps in the process?

● Estimate cash flows across all periods in planning horizon.

● Discount each projected cash flow to its present value.

● Sum all present values to determine NPV of the investment.

■ Once the calculations are done, how do we use the NPV number to interpret results and choose from investment alternatives?

30

Analyzing a Cost-reducing Investment in Fuel-saving Trawl Gear with NPV – How?

■ Compare the present values of projected cash flows generated by traditionally-used gear and more modern gear over:

● a 7 yr. span (2010 to 2016) – approximate useful life of the cambered doors

● a 14 yr. span (2010 to 2023) – includes about two replacement cycles of the cambered doors

■ Key assumptions have been made about:

● Inflation – diesel forecast from DOE & price index ● Fuel – quantities used with traditional & cambered gear● Overhauls – frequency driven by cumulative fuel use● Trawl Doors – cost and expected life of wood & cambered● Nets – cost and expected life of nylon & Sapphire®

Forecasted Price for Diesel: 2010 – 2035■ Besides the forecast of diesel prices, an index was also created

from that time series to inflate expenditures for engine overhauls, net purchases, and annual net-dipping costs.

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 20340

100

200

300

400

500

600

700

Cents per Gallon

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Price Index (from Cents per Gallon)

Cents/gal. Index

31

Figuring & Comparing Net Present Values

■ Use the same procedure for each gear type and planning horizon:

● Estimate projected cash outlays over the planning horizon● Discount projected cash outlays to their present value● For this comparison, discount rates ranged from 5% to 15%● Sum these annual present values by each discount rate to

arrive at total project NPV across all discount rates considered.

■ NPV comparison by discount rate & gear type

● For each discount rate, subtract the present value of cash outlays for traditional gear from that of cambered gear.

● If the difference between NPVs is positive, this represents the amount of cash at each discount rate that can be withdrawn and used for something else … other efficiency investments, maintenance, etc.

Estimating Projected Cash Flows■ Projected cash flows are estimated for each of seven years:

● Top – projected, annual cash outlays with traditional trawl gear

● Bottom – projected, annual cash outlays with cambered gear

Overhauls

Ann. Use Cum. Use Ann. Cost Cost: Top-end Acq. Cost Maint. Acq. Cost Dipping0 66,101 66,101 -$134,713.84 $0.00 -$3,500.00 $0.00 -$5,465.00 -$2,000.00 $145,678.841 66,101 132,202 -$145,620.50 $0.00 $0.00 -$2,161.92 $147,782.422 66,101 198,303 -$158,972.91 $0.00 -$3,500.00 $0.00 -$6,449.13 -$2,360.16 $171,282.203 66,101 264,404 -$171,994.80 -$10,852.31 $0.00 -$2,553.48 $185,400.594 66,101 330,505 -$182,108.26 $0.00 -$3,500.00 $0.00 -$7,387.67 -$2,703.63 $195,699.565 66,101 396,606 -$192,155.61 $0.00 $0.00 -$2,852.80 $195,008.416 66,101 462,707 -$203,855.48 $0.00 -$3,500.00 $0.00 -$8,269.90 -$3,026.50 $218,651.88

-$1,189,421.40 -$10,852.31 -$14,000.00 $0.00 -$27,571.70 -$17,658.49 $1,259,503.90Total

Fuel Total, Annual Future Cash

Outflow

Doors Nets

YY

Overhauls

Ann. Use Cum. Use Ann. Cost Cost: Top-end Acq. Cost Maint. Acq. Cost Dipping

0 50,237 50,237 -$102,383.01 0.00 -7,000.00 -234.00 -6,570.00 0.00 -116,187.011 50,237 100,474 -$110,672.11 0.00 0.00 -234.00 0.00 0.00 -110,906.112 50,237 150,711 -$120,819.99 0.00 0.00 -234.00 0.00 0.00 -121,053.993 50,237 200,948 -$130,716.67 0.00 0.00 -234.00 0.00 0.00 -130,950.674 50,237 251,185 -$138,402.94 -11,490.43 0.00 -234.00 -8,881.43 0.00 -159,008.805 50,237 301,422 -$146,038.96 0.00 0.00 -234.00 0.00 0.00 -146,272.966 50,237 351,659 -$154,930.91 0.00 0.00 -234.00 0.00 0.00 -155,164.91

-$903,964.59 -11,490.43 -7,000.00 -1,638.00 -15,451.43 0.00 -939,544.45

Nets Total, Annual Future Cash

Outflow

Total

YY

Fuel Doors

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Summary of Projected CashFlows: 2010 – 2016

■ Over 7 years, the accumulated projected cash flows attributed to the cambered gear were $319,959 (25%) less than projected cash flows incurred when traditional gear was used.

■ But more importantly, what is the present value of this savings?

A Comparison of Projected Cash Flows: 2010 – 2016

Traditional Gear Cambered Gear Savings

Fuel -$1,189,421 -$903,965 $285,457

Engine Overhauls -$10,852 -$11,490 -$638

Doors (Acq. & Maint.) -$14,000 -$8,638 $5,362

Nets -$27,572 -$15,451 $12,121

Net Dip -$17,658 $0 $17,658

Total -$1,259,503 -$939,544 $319,959

Discounting Projected Cash Flows■ Projected cash flows are estimated for each of seven years:

● Top – Discounted, annual cash outlays with traditional trawl gear

● Bottom – Discounted, annual cash outlays with cambered gear

5% 7% 9% 11% 13% 15%0 -145,678.84 -145,678.84 -145,678.84 -145,678.84 -145,678.84 -145,678.84 -145,678.841 -147,782.42 -140,745.17 -138,114.41 -135,580.21 -133,137.32 -130,780.91 -128,506.462 -171,282.20 -155,358.00 -149,604.50 -144,164.80 -139,016.47 -134,139.08 -129,513.953 -185,400.59 -160,156.00 -151,342.11 -143,163.28 -135,563.32 -128,491.91 -121,903.904 -195,699.56 -161,002.51 -149,298.26 -138,638.50 -128,913.36 -120,026.21 -111,891.865 -195,008.41 -152,794.19 -139,038.30 -126,742.08 -115,728.00 -105,842.75 -96,953.646 -218,651.88 -163,161.40 -145,696.98 -130,374.97 -116,900.22 -105,022.55 -94,529.24Total -1,259,503.90 -1,078,896.11 -1,018,773.41 -964,342.68 -914,937.53 -869,982.25 -828,977.89

Discount Rates used to Convert Annual Future Cash OutflowsTotal, Annual Future Cash

OutflowsYY

Present Values of Projected Cash Outflows for Each Period - Traditional Gear

5% 7% 9% 11% 13% 15%0 -116,187.01 -116,187.01 -116,187.01 -116,187.01 -116,187.01 -116,187.01 -116,187.011 -110,906.11 -105,624.87 -103,650.57 -101,748.72 -99,915.41 -98,147.00 -96,440.102 -121,053.99 -109,799.54 -105,733.24 -101,888.72 -98,250.13 -94,803.03 -91,534.213 -130,950.67 -113,120.11 -106,894.75 -101,117.94 -95,750.00 -90,755.38 -86,102.194 -159,008.80 -130,816.93 -121,307.05 -112,645.84 -104,744.02 -97,523.07 -90,913.805 -146,272.96 -114,608.69 -104,290.60 -95,067.39 -86,805.88 -79,391.10 -72,723.516 -155,164.91 -115,786.44 -103,392.93 -92,519.77 -82,957.50 -74,528.58 -67,082.07Total -939,544.45 -805,943.60 -761,456.16 -721,175.40 -684,609.96 -651,335.18 -620,982.89

YY

Total, Annual Future Cash

Outflows

Present Values of Projected Cash Outflows for Each Period - Modern GearDiscount Rates used to Convert Annual Future Cash Outflows

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Investment Analysis: 2010 – 2016

■ Summary: NPV of costs saved with the cambered gear were consistently positive over a broad range of discount rates. Discounted at 5%, the NPV of costs saved was $272,953. Discounted at 15%, the NPV of costs saved was $207,995.

5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

Discount Rate

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Present Value of Cost-savings With Cambered Gear -- 7 years

Summary of Projected CashFlows: 2010 – 2023

■ Over 14 years, the accumulated projected cash flows attributed to the cambered gear were $770,075 (25%) less than projected cash flows incurred when traditional gear was used.

■ But more importantly, what is the present value of this savings?

A Comparison of Projected Cash Flows: 2010 – 2023

Traditional Gear Cambered Gear Savings

Fuel -$2,879,756 -$2,188,625 $691,131

Engine Overhauls -$71,934 -$60,939 $10,995

Doors (Acq. & Maint.) -$24,500 -$17,276 $7,224

Nets -$57,026 -$39,056 $17,970

Net Dip -$42,754 $0 $42,754

Total -$3,027,292 -$2,305,896 $770,075

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Investment Analysis: 2010 – 2023■ Summary: The NPV of costs saved with the cambered doors were

consistently positive over a broad range of discount rates. Discounted at 5%, the NPV of costs saved was $550,454. Discounted at 15%, the NPV of cost saved was $323,917.

5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%

Discount Rate

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

Present Value of Cost-savings With Cambered Gear -- 14 years

What Drives Long-term Performance?■ Reduced fuel use & expense accounted for most of the cost

savings. Using less fuel drove down engine overhaul costs too.

■ Cash outlays from cambered gear returned a lower net present value of cash outlays across time and discount rates. Why?

● With a 24% reduction in fuel use, using less of something that increases in cost over time reduces expenses.

● The longer useful life of cambered doors and Sapphire®

webbing also reduced cash outlays over both time periods.

● Not dipping nets returned the 2nd highest savings after fuel.

■ Reducing expenses while catching the same quantity of shrimp increases your “bottom line”.

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■ Cambered doors neither help nor hurt shrimp production.

■ NPV analysis demonstrated that projected cash outlays for fuel, overhauls, and trawl gear are reduced over time when cambered doors and Sapphire® webbing replace traditional trawl gear. Why? … fewer RPM are needed to reach speed-over-ground towing rates which sharply reduces fuel consumption.

■ Cambered doors and Sapphire® webbing cost more than traditional gear. However, longer life spans and reduced net maintenance costs reduced replacement costs over time.

■ Over 7 and 14 year planning horizons, differences in NPV of projected cash outflows between traditional and cambered gear generated tremendous, estimated savings for the enterprise.

■ These cost savings can fund previously-deferred maintenance, other efficiency projects, etc.

Summary & Conclusions: Economics

■ In certain ports conversion to cambered doors and Sapphire® webbing has been rapid.

■ Between late 2007 and early 2008, roughly 80% of the Brownsville/Port Isabel fleet (132 vessels) converted to the new trawl gear.

■ Between 2008 and 2009, the new trawl gear collectively saved Brownsville/Port Isabel shrimp fishermen an estimated 4.2 million gallons valued at $10.4 million ... but shrimp production did not suffer!

Broad-scale Economic Effects

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■ A program funded by the Sustainable Fisheries Partnership & the Ocean Conservancy can help you get the gear aboard!

● In ports where the gear is not being used, a cost-share approach exists:□ Half of the gear cost is covered,□ Funds also cover an experienced fishermen to troubleshoot

start-up problems,□ Up to $2,500 is available during the Sea Trials phase□ You must agree to use a more aggressive BRD

● In locations where the gear is already being used, financing is available.

● For more information contact Ms. Jaimy Norris at 727/369-6611 or by email at jnorris@oceanconservancy.org

Next Steps ... Changing to The New Gear

■ Doors and webbing, please contact Gary Graham● Phone 979/292-6120● Email: glgshrimp@embarqmail.com

■ Economic performance, please contact Mike Haby● Phone: 361/265-9203● Email: m-haby@tamu.edu

■ The gear cost-share or financing program offered jointly by the Sustainable Fisheries Partnership and the Ocean Conservancy, please contact Ms. Jaimy Norris● Phone: 727/369-6611 ● Email: jnorris@oceanconservancy.org

For Specific Questions About ...

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Thanks for your interest!