31 LOG321ch8

TRANSPORTATION
CHAPTER 8: WATER CARRIERS AND PIPELINES
Prepared by: Nguyễn Duy Hồng

Email: Hongnd5@fe.edu.vn
Date: 21 Dec 2022 Ver: 3.0
LEARNING OBJECTIVES
1. Understand the importance of domestic waterways in the development of the economy of the United States
and particularly of cities located contiguous to the waterways
2. Appreciate the role and significance of the water carrier industry at the present time in the U.S. economy
and how it complements and competes with the other basic modes of transportation
3. Discuss the various types of water carriers and their roles in the overall water carrier system
4. Understand the competitive environment for water carriers on an intra-modal as well as an intermodal basis
5. Discuss the service and operating characteristics of water carriers as well as their cost structure and
equipment challenges
6. Understand the current issues faced by the water carrier industry in the 21st century
7. Appreciate the development and current position of the pipeline industry in the economy
8. Discuss the types of pipeline companies and their role in the transportation system
9. Understand the nature of the operating and service characteristics of pipeline carriers and what makes them
unique in the transportation system
10. Discuss the cost structure and rates of pipelines
2
Transportation: A Global Supply Chain Perspective (9th Edition), By: Robert A. Novack, Brian Gibson, Yoshinori Suzuki, John J. Coyle.
CHAPTER OUTLINE
NO CONTENTS
1 Introduction
2 Brief History of Water Transportation
3 Water Transport Industry Overview
4 Brief History of Pipelines
3
1. Introduction
• Domestic water and pipeline carriers
– Both account for substantial shares of intercity freight volume
• For some commodities, one or both are the dominant modes
– Most freight carried tends to be high volume, low value, and of limited variety
Brief History: Water Transport
• First principal form of long distance freight and people transport
• Important contributor to early U.S. economic and social development
– Linked initial population/industrial concentrations along coast and rivers
• Waterways are natural ways
– Public expenditure for improvements occasionally necessary
4
2. Water Transport Industry Overview
Significance of Water Transport
• A primary transporter of
– dry bulk commodities
– bulk petroleum, petroleum products and chemicals
• 13% of intercity freight ton-miles in 2005
• Market share decline since 1980s due to
– Economy changing from manufacturing to service- based
– Supply chain orientation emphasizes faster modes
5
Types of Carriers
• Classification by legal form of carriage
– Private carriers
• Own the freight transported
• Own or lease the vessels
• May transport exempt commodities on a for-hire basis
• Excluded from federal economic regulation
• Three or fewer commodities transported in the same barge unit also exempt from economic
regulation
6
Types of Carriers
– For-hire water carriers are carriers that charge a fee for services. Includes
• Exempt carriers
– Excluded from federal econ. regulation adm. by STB
– Carriers are exempt when transporting dry or liquid bulk commodities
– Most goods transported by water are bulk commodities, thus most for-hire carriers are exempt
from economic regulations
• Regulated common carriers
– Common carriers
– Contract carriers
7
Types of Carriers
• Classification by waterway used
– Internal or inland carriers
• Operate barges and towboats on principal U.S. rivers
• Most found on river systems flowing north to south through central U.S.
– Great Lakes carriers
• Provide services between ports on Great Lakes
• Lake ships tend to remain on lakes
• Some lake ships access Atlantic and Gulf coast ports via St. Lawrence Seaway
8
Types of Carriers
– Coastal carriers
• Operate ocean-going ships and barges along Atlantic, Pacific and Gulf of Mexico coasts
• Moves large quantities of crude oil from Alaska ports to refineries along Pacific Coast
– Intercoastal carriers
• Operate ocean going ships and barges between coasts
• Moves large quantities of oil from Gulf to Atlantic ports
9
Number and Categories of Carriers
• Relatively small number of small firms
– Approx. 680 domestic for-hire carriers in 2006
• Number of carriers rapidly declining since 2000
• Inland carriers earn highest share of revenues
– Inland carrier revenues flat over last decade
– Coastal carriers earn next highest share
– Great Lakes carrier revenues are growing due to increase in higher valued freight
10
Competition
• Moderate intramodal competition
– Small number of carriers on each waterway system
• Intense intermodal competition
– With rail for dry bulk commodities (grain, ores, coal)
• Competition focused around central U.S. river system and the Great Lakes
– With pipelines for oil and petroleum products
• Competition focused along coasts and Mississippi River system
11
Operating and Service Characteristics
• Principal competitive advantages
– Low cost transport service for large volumes over medium to long distances
• Average cost = $.72 per ton-mile
• Average shipment distances
– 400 miles for inland carriers
– 1,500 miles for coastal carriers
– Relatively large carrying capacity
• Barges: 1,500-3,000 tons per barge (50-100 truckloads)
• Lake vessels: 20,000 tons
– Fuel efficient
12
• Principal competitive disadvantages

– Speed of service
• Slowest mode for dry cargoes
– Weather-related service disruptions

• Vulnerable to ice, flood, and drought conditions
– Accessibility limitations
– Packaging requirements for high-value goods
• Service disadvantages may add cost for user and create tradeoffs with low rate advantage
13
• Commodities hauled
– Water carriers well suited for low value-to- weight cargoes where transport rates are significant part of
total delivered cost
14
Equipment
• Vessels
– Have large openings into cargo holds to facilitate cargo loading and unloading
– Watertight walls divide holds enabling carrying of multiple types of commodities
– Largest vessel: tanker 18K – 500K ton capacity
• Used largely to transport petroleum
– Barges – powerless vessel towed by towboat
• Used largely on inland waterways
• Low marginal cost to add barge to a tow
15
Terminals
• Functions
– Facilitate intermodal transfers
– Provide temporary storage in port area
• Require significant capital investment
– Facilities include ship loading/unloading equipment, land for storage, road and rail access
– Most are publicly provided and operated
– Some are owned by large bulk commodity shippers
• Recent improvements focus on mechanization
16
Cost Structure
• Relatively high variable, low fixed costs
– Fixed costs: about 15% of total operating costs
• Nature provides ways
• Governments provide for improvements to rivers, canals, channels, locks, dams, terminals and
ports
– Variable costs: about 85% of total
• Water transport is not labor intensive
– In 1997, 2.72 million ton-miles per water carrier employee (note – rail and pipelines are even less
labor intensive)
• Carriers pay user charges for portion of publicly provided improvements
17
Current Issues
• Drug and alcohol abuse
– Random and pre-certification

testing
• Port development challenges
– Economic vs. environmental

tradeoffs
– Appropriation of port revenues
– Inter-port competition
– Impact of “mega-ship” emergence
18
3. Pipelines Industry Overview
(Focus on Oil Pipelines)
• Highly specialized mode, hauling small variety of products
• Initial role, late 1800’s – move crude oil from wells to other modes
• Early 1900s – pipelines owned, operated by large oil companies
• After WWII – Chaplin Oil Case: pipelines ordered to operate as common carriers
19
Significance of Pipelines
• Carry 20% of intercity ton-miles (2005)
– Crude oil and petroleum products represent 66% of ton-miles, natural gas 33%
• Earn 4% of total intercity transportation revenues

– Reflects efficiency of pipeline transport and low value per ton of products transported
• About 160,000 miles in oil pipeline network
– 1,478,000 in natural gas pipeline network
20
© 2011Cengage Learning. All Rights Reserved. May not be scanned,

copied or duplicated, or posted to a publicly accessible website, in 21
whole or in part.
© 2011Cengage Learning. All Rights Reserved. May not be scanned,

copied or duplicated, or posted to a publicly accessible website, in 22
whole or in part.
Types of Carriers and Ownership
• 90% of carriers operate as common carriers
• Individual, vertically integrated oil companies own and operate most oil pipelines
• Some lines are joint ventures of two or more oil pipeline companies
• Other types of ownership
– Railroads
– Independent oil companies
– Other types of industrial companies
23
Number of Carriers (Market Structure)
• Small number of large carriers: 2,297 (2006)

• Industry tends toward oligopoly
– 20 integrated oil companies control 66% of crude oil mileage
– Entry costs are high: capital intensity, obtaining rights-of-way
– Significant economies of scale in investment and operation
• Capacity rises more than proportionally with increase in line diameter. Thus, investment cost
per ton-mile and operating cost per barrel both decline as size increases.
24
4. Pipeline Operating and Service Characteristics
• Commodities carried – 4 principal products
– Oil and oil products
– Natural gas
– Coal and coal products
• Moves in pulverized form as slurry
• Requires large quantities of water – very few such lines
– Chemicals
• Primarily anhydrous ammonia (used in fertilizer)
• Propylene (used to manufacturer detergents)
• Ethylene (used to make antifreeze)
25
4. Pipeline Operating and Service Characteristics
Pipeline Operating and Service Characteristics
 Relative advantages
 Low rates
 Low loss and damage rates
 Warehousing function (3-5 mph)

 High delivery dependability
 Relative disadvantages
 Slow speed limits responsiveness

 Limited geographic flexibility
 Limited variety of products carried
26
4. Pipeline Competitive Conditions
• Very little intramodal competition
– Small number of carriers
– High capital costs and scale economies
– Procedural requirements for entry
– Ownership by large oil companies
• Limited intermodal competition
– Difficult for other modes to match rates
– Water carriers are principal competitors
27
5. Pipeline Equipment
Oil Pipeline Network
• Includes system of
– Gathering lines and stations
– Crude oil and product trunk lines

– Pumping stations, refineries, and terminals
• Gathering lines
– Move oil from wells to gathering stations
– Relatively short distance movement
– Small diameter, laid on ground surface
28
• Crude oil trunk lines
– Move crude oil from gathering stations to refineries

– Long distance movement
• Shipments average 800 miles, may move 1,000s of miles

– Large diameter lines laid underground
– Pumping stations provide power
– Capacity determined by line diameter and pumping station power
29
• Finished product trunk lines
– Move product from refineries to market area terminals

– Long distance movement
• Shipments average 400 miles, may move 1,000s of miles

– Large diameter lines laid underground
– 15 grades of finished product, including kerosene, jet fuel and gasoline

– Final delivery to customer usually by truck
30
6. Pipeline Cost Structure
• High % of fixed costs
– Pipeline owners provide right-of-way
– Capital invested in
• Rights-of-way, pumping stations, terminal facilities
– Significant economies of scale
• Helps explain joint ownership
• Very low labor costs
– Pipeline industry employs 8,000
– Motor carriers employ 10 million to move comparable ton-miles
31
6. Pipeline Cost Structure
Rates
– Freight classification is not necessary due to small number of products
– Conditions are not conducive to differential pricing
• One-way movement, limited geographic coverage, limited variety of products
– Rates quoted on a per barrel basis
• Typically point-to-point or zone-to-zone
• Minimum shipment sizes (tenders) required
32
REVISION
QN=1 Which statement is incorrect?

a. Water transport offers high cost transport service for large volumes
over medium to long distances
b. Water carriers are well suited for low value-to- weight cargoes
where transport rates are significant part of total delivered cost
c. Water transport is relatively high variable and low fixed costs
d. in term of speed of service, water transport is slowest mode for dry

cargoes
33
REVISION
QN=2 For-hire water carriers includes exempt carriers and regulated

common carriers
a. True
b. False
34
REVISION
QN=3 Water transport offers low cost transport service for large volumes
over medium to long distances
a. True
b. False
35
REVISION
QN=4 in term of speed of service, water transport is slowest mode for dry
cargoes
a. True
b. False
36
REVISION
QN=5 Water carriers are well suited for low value-to- weight cargoes where
transport rates are significant part of total delivered cost
a. True
b. False
37
THANK FOR YOUR ATTENTION!

31 LOG321ch8

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

31 LOG321ch8

Uploaded by

Copyright:

Available Formats

TRANSPORTATION

CHAPTER 8: WATER CARRIERS AND PIPELINES

Prepared by: Nguyễn Duy Hồng

2 Brief History of Water Transportation

3 Water Transport Industry Overview

4 Brief History of Pipelines

– Both account for substantial shares of intercity freight volume

• For some commodities, one or both are the dominant modes

Brief History: Water Transport

• First principal form of long distance freight and people transport

• Important contributor to early U.S. economic and social development

– Linked initial population/industrial concentrations along coast and rivers

• Waterways are natural ways

– Public expenditure for improvements occasionally necessary

– dry bulk commodities

– bulk petroleum, petroleum products and chemicals

• 13% of intercity freight ton-miles in 2005

• Market share decline since 1980s due to

– Economy changing from manufacturing to service- based

– Supply chain orientation emphasizes faster modes

• Classification by legal form of carriage

• Own the freight transported

• Own or lease the vessels

• May transport exempt commodities on a for-hire basis

• Excluded from federal economic regulation

– Excluded from federal econ. regulation adm. by STB

– Carriers are exempt when transporting dry or liquid bulk commodities

• Classification by waterway used

– Internal or inland carriers

• Operate barges and towboats on principal U.S. rivers

– Great Lakes carriers

• Provide services between ports on Great Lakes

• Lake ships tend to remain on lakes

• Operate ocean going ships and barges between coasts

• Moves large quantities of oil from Gulf to Atlantic ports

• Relatively small number of small firms

– Approx. 680 domestic for-hire carriers in 2006

• Number of carriers rapidly declining since 2000

• Inland carriers earn highest share of revenues

– Inland carrier revenues flat over last decade

– Coastal carriers earn next highest share

• Moderate intramodal competition

– Small number of carriers on each waterway system

• Intense intermodal competition

– With rail for dry bulk commodities (grain, ores, coal)

– With pipelines for oil and petroleum products

• Competition focused along coasts and Mississippi River system

• Average cost = $.72 per ton-mile

• Average shipment distances

– 400 miles for inland carriers

– 1,500 miles for coastal carriers

– Relatively large carrying capacity

• Barges: 1,500-3,000 tons per barge (50-100 truckloads)

• Lake vessels: 20,000 tons

• Principal competitive disadvantages

– Weather-related service disruptions

– Packaging requirements for high-value goods

– Watertight walls divide holds enabling carrying of multiple types of commodities

– Largest vessel: tanker 18K – 500K ton capacity

• Used largely to transport petroleum

– Barges – powerless vessel towed by towboat

• Used largely on inland waterways

• Low marginal cost to add barge to a tow