Ohio Maritime Study (ODOT PID: )

Transcription

1 Working Paper Ohio (ODOT PID: ) Working Paper 3 Role of the Maritime Transportation System in Ohio s Economy Prepared for: Ohio Department of Transportation Prepared by: CPCS Transcom Inc. In association with: W.R. Coles and Associates Dr. Peter Lindquist, University of Toledo CPCS Ref: Revised June 4, 2017

2 Ohio Working Paper 3 Role of MTS in Ohio s Economy Working Paper 1 and Supporting GIS Maps of Ohio s MTS Working Paper 2 on Ohio MTS Governance Working Paper 3 on Role of MTS in Ohio s Economy Working Paper 4 on MTS Demand and Associated Requirements Working Paper 5 on Options for Expanding MTS Use Working Paper 6 on Best Practices and Related Options for ODOT Working Paper 7 on ODOT Role Ohio Report Ohio The overarching objective of the Ohio is to inform the Ohio Department of Transportation (ODOT) as it seeks to best leverage Ohio s maritime transportation system (MTS) to enable Ohio s economic competitiveness and growth. Working Paper This Working Paper is the third of seven that together inform the Ohio. This third Working Paper provides an overview of the role of Ohio s MTS in the Ohio economy and an overview of the economic sectors that use directly and indirectly Ohio s MTS. Acknowledgments The CPCS Team acknowledges and is thankful for the input of those consulted in the development of this Working Paper, as well as the guidance and input of representatives from ODOT. Opinions Unless otherwise indicated, the opinions herein are those of the authors and do not necessarily reflect the views of ODOT, the Ohio Steering Committee, or the State of Ohio. Contact Questions and comments on this Working Paper can be directed to: Marc-André Roy Project Manager T: x 306 mroy@cpcstrans.com Cover image source: CPCS

3 Ohio Working Paper 3 Role of MTS in Ohio s Economy Table of Contents Acronyms / Abbreviations... i Executive Summary... ii 1 Overview of Ohio Economic Sectors that Use the MTS... 1 Ohio Freight Reliant Industries and Key MTS Users Description of Economic Sectors that Use the MTS... 4 Construction and Civil Works Sector Overview Role of the MTS in Supply Chains Role of the MTS in Supporting Competitiveness... 7 Utilities and Energy Sector Overview Role of the MTS in Supply Chains Role of the MTS in Supporting Competitiveness Primary Metals Sector Overview Role of the MTS in Supply Chains Role of the MTS in Supporting Competitiveness Heavy Manufacturing Sector Overview Role of the MTS in Supply Chains Role of the MTS in Supporting Competitiveness Petroleum, Chemical and Plastics Products Manufacturing Sector Overview Role of the MTS in Supply Chains Role of the MTS in Supporting Competitiveness Other Sectors Using Ohio s MTS Sector Overview Role of MTS in Supply Chains Role of the MTS in Supporting Competitiveness Economic Contribution of Ohio s MTS Economic Impact of Ohio s MTS... 29

4 Ohio Working Paper 3 Role of MTS in Ohio s Economy Lake Erie MTS Ohio River MTS Conclusion... 33

5 Ohio Working Paper 3 Role of MTS in Ohio s Economy List of Figures Figure 1-1: Key MTS RelatedFreight Reliant Sectors... 2 Figure 1-2: Composition of Ohio Freight Reliant Gross Domestic Product, Figure 1-3: Composition of Ohio Freight Reliant Employment, Figure 2-1: Example Crude Materials Facility on the Cuyahoga River... 5 Figure 2-2: Location of Ohio Primary Metals Jobs Figure 2-3: Coiled Steel Plate Figure 2-4: Two Steel Coils Being Unloaded from a Barge at the Pier 48 Columbiana County Port Authority Complex at Wellsville Figure 2-5: Uncoiling Steel prior to Secondary Processing Figure 2-6: Other Freight Reliant Sectors GDP (2014) Figure 2-7: Ohio Grain Overview of Production and Sales Figure 3-1 Economic Impacts of Maritime Transportation on Ohio s Lake Erie MTS (000s)... 30

6 Ohio Working Paper 3 Role of MTS in Ohio s Economy Acronyms / Abbreviations APEG BCO BEA BOF BU CB&RT COB DRI EAF EPA GDP GLSLSS HBI MTS NAICS NEO NGL ODOT TEU US USDA USEIA Appalachian Partnership for Economic Growth Beneficial Cargo Owner Bureau of Economic Analysis Basic Oxygen Furnace Bushels Cincinnati Barge & Rail Terminal Container on Barge Direct- Reduced- Iron Electric Arc Furnace Environmental Protection Agency Gross Domestic Product Great Lakes and St. Lawrence Seaway System Hard- Briquetted-Iron Maritime Transportation System North American Industry Classification System Northeast Ohio Natural Gas Liquids Ohio Department of Transportation Twenty Foot Equivalent Unit (container) United States U.S. Department of Agriculture U.S. Energy Information Agency i

7 Ohio Working Paper 3 Role of MTS in Ohio s Economy Executive Summary Major Economic Sectors that Use Ohio s MTS Ohio s freight reliant industries defined for purposes of the Ohio as including all goods-producing industries together with utilities, wholesale and retail trade, and transportation and warehousing produced $238 billion in Gross Domestic Product (GDP) in 2014, or about 40 percent of Ohio s total GDP. The freight reliant industries also account for approximately 1.9 million jobs (2015), or about 35 percent of total employment in Ohio. From the freight reliant industries, we have identified five key sectors as being most dependent directly or indirectly on Ohio s MTS. These include: Key MTS Reliant Sectors Construction and Civil Works GDP / Jobs* (% of Ohio freight reliant industries) GDP: $26 billion (11%) Jobs: 238,000 (12%) Examples of Ohio MTS Traffic (not comprehensive) Limestone, other construction rocks and minerals, cement, asphalt, steel and rebar Utilities and Energy GDP: $17 billion (7%) Jobs: 21,000 (1%) Primary Metals GDP: $5.6 billion (2%) Jobs: 39,000 (2%) Heavy Manufacturing GDP: $37 billion (16%) Jobs: 305,000 (16%) Petroleum, Chemical and Plastics Manufacturing Source: CPCS analysis GDP: $33 billion (14%) Jobs: 104,000 (6%) Coal, oil, frac sand, barite, pipe, drilling supplies Metal ore (e.g. iron ore), scrap metal, steel (coils, pig iron, slabs, blooms), aluminium Steel coils, coiled wire rod, steel plates and shapes, aluminum, chemicals, petroleum products, minerals and alloys Chemicals, plastics, petroleum and coal products, rubber products *GDP data is for 2014 (Bureau of Economic Analysis Regional Data); jobs data is for 2015 (Bureau of Labor Statistics State Employment Data) Together, the above five key MTS dependent sectors generate GDP of $119 billion (2015), or half of Ohio s freight reliant GDP (i.e. $238 billion). These five key sectors also account for employment of 707,000, or 37 percent of jobs relating to Ohio s freight reliant industries (i.e. 1.9 million). Agriculture, forestry, and mining (also freight reliant industries) are among other important users of Ohio s MTS. Although these contribute relatively less to Ohio s overall economy in terms of GDP and jobs, their share of Ohio s MTS traffic is higher. Maritime transportation is critical to the competitiveness of many of these other industries, and in particular grain which needs access to Ohio s MTS to competitively reach global markets. Importance of Low Cost Transportation for Major Sectors Using Ohio s MTS The supply chains of those sectors that use the Ohio MTS vary greatly from inbound thermal coal for coal-fired power production, to steel coil shipments for heavy manufacturing, to outbound grain destined to global markets. But what is consistent is that these sectors use the MTS predominantly because of the low cost of maritime transportation relative to other ii

8 Ohio Working Paper 3 Role of MTS in Ohio s Economy transportation modes; particularly for large volume, low cost per ton mile freight flows. Most sectors that use Ohio s MTS are highly price sensitive, capital intensive, and need to keep transportation costs low to remain competitive, particularly when trading in commodities that have prices determined by world market forces. Certain sectors, including steel production, have organized their supply chains around maritime access, and their viability is likewise closely tied to maintaining low-cost maritime transportation. The low transportation costs afforded by Ohio s MTS are not only important to the competitiveness of those sectors that are direct users of the MTS, for example, the primary metals sector. It also benefits indirect users of the MTS such as automotive parts producers that benefit from lower cost aluminum, plastics, and other products manufactured by direct users of the MTS. This in turn enables more competitive goods-producing sectors in Ohio relative to jurisdictions lacking access to maritime transportation. One study on the economic importance of inland waterways in the US (not strictly Ohio s Ohio River MTS) found that the reduction in shipping costs, measured as the difference between barge rates and those of the cheapest alternative mode (normally rail) exceed $3 billion annually. These substantial savings and the improved connectivity enabled by maritime transportation options enable shippers and producers to increase productivity and to be more competitive in the global economy. The total economic value of these savings to the US economy was estimated at more than $17 billion each year. 1 Economic Impacts of Maritime Sector Correlated to Performance of Sectors Using the MTS The level of activity in the maritime industry in Ohio, including ports, terminals, marine carriers and related service providers, and its impact on the Ohio economy, is closely correlated with that of the sectors that are directly and indirectly reliant on maritime transportation. If the output of the sectors using the MTS declines, so too does the economic impact of the maritime industry itself. Based on 2015 traffic figures, it is estimated that Ohio s Lake Erie MTS generated approximately 25 million jobs, of which 7 million were direct jobs. 1 Dr. Larry Bray. Toward A Full Accounting of the Beneficiaries of Navigable Waterways. January, iii

9 Ohio Working Paper 3 Role of MTS in Ohio s Economy 1Overview of Ohio Economic Sectors that Use the MTS Key Messages Ohio s freight reliant industries defined here as the goods producing industries plus utilities, wholesale and retail trade, and transportation and warehousing produced $238 billion of GDP in 2014, or about 40 percent of Ohio s GDP. These same sectors account for close to 2 million jobs, or about 35 percent of total Ohio employment. The freight reliant sectors identified as most reliant on Ohio s MTS include: Construction and civil works, which generates limestone, and other construction rocks and minerals traffic, among other MTS volumes; Utilities and energy, which generates coal, and oil and gas traffic, among other MTS volumes ; Primary metals, which generates important volumes of iron ore, coal and coke, among other MTS traffic; Heavy manufacturing, reliant on water transportation largely indirectly for raw and processed materials including steel; and Petroleum, chemicals and plastics manufacturing, reliant on the MTS for movement of finished products and feedstock. Together, these five key MTS dependent sectors generate half of Ohio s total freight reliant GDP and more than one third of employment in Ohio s freight reliant industries. Agriculture, forestry, and mining (also freight reliant industries) are among other important users of Ohio s MTS. Although these contribute relatively less to Ohio s overall economy in terms of GDP and jobs, their share of Ohio s MTS traffic is higher. 1

10 Ohio Working Paper 3 Role of MTS in Ohio s Economy Ohio Freight Reliant Industries and Key MTS Users This Working Paper is concerned with the role played by Ohio s Maritime Transportation System (MTS) in the economy of the State. Accordingly, we begin by identifying the economic sectors that use, directly and indirectly, the Ohio MTS. These key MTS related sectors naturally fall within the universe of Ohio s freight reliant industries defined here as the goodsproducing sectors of the economy plus utilities, wholesale and retail trade, and transportation and warehousing. All told, Ohio s freight reliant industries produced $238.1 billion of GDP in 2014, or close to 40 percent of the State s GDP. 2 Employment in Ohio s freight reliant industries was 1,914 million jobs in 2015, or about 35 percent of total employment in the State. 3 Within the universe of Ohio s freight reliant industries, we have identified five key sectors that directly or indirectly are most reliant on Ohio s MTS. These are shown in Figure 1-1. Figure 1-1: Key MTS RelatedFreight Reliant Sectors Key MTS Related Sectors Construction and Civil Works Utilities and Energy Primary Metals Heavy Manufacturing Petroleum, Chemicals and Plastics Manufacturing Source: CPCS analysis Examples of MTS Traffic Limestone, other construction rocks and minerals, cement, asphalt, steel and rebar Coal, oil, frac sand, barite, pipe, drilling supplies Metal ore (e.g. iron ore), scrap metal, steel (coils, pig iron, slabs, blooms), aluminum Steel coils, coiled wire rod, steel plates and shapes, aluminum, chemicals, petroleum products, minerals and alloys Chemicals, plastics, petroleum and coal products, rubber products Although it is difficult to determine the specific share of GDP and jobs that are directly dependent on the Ohio MTS, the five key sectors identified in Within the universe of Ohio s freight reliant industries, we have identified five key sectors that directly or indirectly are most reliant on Ohio s MTS. These are shown in Figure 1-1. Figure 1-1 account for 50 percent of the GDP and close to 40 percent of the jobs generated by Ohio s freight reliant industries. This may be seen in Figure 1-2 and Figure 1-3 below. A number of other sectors also generate a range of traffic flows on Ohio s MTS, such as agriculture and forestry, among others, although the economic contribution of these sectors is less than the key sectors identified above. 2 Department of Commerce. Bureau of Economic Analysis. Regional Data. As of the time of writing, GDP estimates for all industries are not yet available for the year Department of Labor. Bureau of Labor Statistics. 2

11 Ohio Working Paper 3 Role of MTS in Ohio s Economy Figure 1-2: Composition of Ohio Freight Reliant Gross Domestic Product, Forestry, fishing, agriculture and food 7% Other manufacturing 6% Transportation and warehousing 7% Contruction and Civil Works 11% Utilities and Energy 7% Primary metals 2% Heavy Manufacturing 16% Wholesale and Retail Trade 30% Petroleum, Chemicals and Plastics Manufacturing 14% Source: CPCS analysis of Bureau of Economic Analysis Gross Domestic Product by State Figure 1-3: Composition of Ohio Freight Reliant Employment, 2015 Food manufacturing 3% Other manufacturing 8% Transportation and Warehousing 10% Contruction and Civil Works 12% Utilities and Energy 1% Primary metals 2% Heavy Manufacturing 16% Wholesale and Retail Trade 42% Petroleum, Chemicals and Plastics Manufacturing 6% Source: CPCS analysis of Bureau of Labor Statistics State and Metro Area Employment, Hours, & Earnings 4 Full GDP estimates by industry for 2015 are not yet available. The 2015 statistics are considered advanced and the BEA is able to provide estimates for the year 2015 only for higher level industry aggregates. 3

12 Ohio Working Paper 3 Role of MTS in Ohio s Economy 2Description of Economic Sectors that Use the MTS Key Messages The supply chains of the sectors relying on the Ohio MTS vary greatly from inbound thermal coal for power generation, to steel coil shipments for heavy manufacturing, to outbound grain destined to global markets. But what is consistent is that these sectors use the MTS predominantly because of maritime transportation s low cost relative to other transport modes. Most sectors using Ohio s MTS are highly price sensitive and must keep transportation costs low to remain competitive. The previous chapter identified five key industrial sectors that rely in important ways on Ohio s MTS: Construction and Civil Works Utilities and Energy Primary Metals Heavy Manufacturing Petroleum, Chemical and Plastics Manufacturing This chapter describes these sectors and their reliance on the Ohio MTS in greater detail, including the role of inherently low cost maritime transportation on their competitiveness. Construction and Civil Works Sector Overview The construction and civil works sector produced $23.8 billion of GDP in Ohio in 2014, contributing 11 percent to Ohio freight reliant GDP. Employment in construction and civil works totaled about 238,000 in Ohio in 2015, accounting for about 12 percent of employment in Ohio s freight reliant sectors. The construction and civil works sector is comprised of the following subsectors: Building construction (residential and non-residential) Heavy and civil engineering construction Specialty trade construction Nonmetallic mineral product manufacturing Mining, except oil and gas (largely aggregate, limestone, etc.) 4

13 Ohio Working Paper 3 Role of MTS in Ohio s Economy Among these subsectors, employment is dominated by building construction Role of the MTS in Supply Chains Barges and lakers are well suited for the movement of large quantities of construction aggregates, such as sand, gravel, and crushed rock. These materials, along with cement and asphalt, are used in the construction and maintenance of roads and highways infrastructure that supports economic growth and development. Steel products moving by barge and lakers that support the construction industry include reinforcing steel, or re-bar, coiled wire rod (used for making re-bar, nails and screws), coiled steel plate (used for building materials and highway guardrails), and steel shapes (beams and angles). There are 30 terminals located in Ohio on the Ohio River between Mile 40.0 and that specifically list handling crude materials (sand, gravel, other aggregates, cement). Several facilities on Lake Erie, including for example along the Cuyahoga River (pictured below) likewise handle various crude materials used in construction. Figure 2-1: Example Crude Materials Facility on the Cuyahoga River Source: CPCS Sand and Gravel Sand and gravel are the most widely produced mineral resources in Ohio. Eighty-four of Ohio s 88 counties have reported commercial sand and gravel production during the past sixty years. 6 According to US Army Corps of Engineers Waterborne Commerce Data, approximately 6.4 million tons of sand and gravel were moved from an Ohio origin to an Ohio destination in 2015 by Ohio River barges. An additional 7.4 million tons were moved to Ohio from other states via the Ohio River, and 5.2 million tons were brought to Ohio via ports on the Great Lakes. 5 CPCS analysis of U.S. Census Bureau, 2012 Economic Census 6 Sand and Gravel. Geofacts No. 19. Accessed February 15,

14 Ohio Working Paper 3 Role of MTS in Ohio s Economy In total, 19 million tons of sand and gravel landed in Ohio by water in 2015, the equivalent of more than 760,000 trucks. In addition to cost savings for construction materials, moving aggregates by water reduces deterioration and maintenance costs for roads and bridges in Ohio. Cement Cement is manufactured by heating lime, silica, iron, and other materials at a very high temperature. The resulting substance is a lump or marble-like ball called clinker, which is then ground and mixed with limestone and gypsum to create cement. Concrete is made from a mixture of aggregates, cement, and water. The Portland Cement Association reported that Ohio consumed over 3 million metric tons of cement in 2015, or three times the amount it produced. About 2 million tons are therefore imported from outside the State. Cement terminals are located on Lake Erie at Toledo and Cleveland, and on the Ohio River near Cincinnati and Marietta. The cement and concrete industry contributes $1.6 billion of revenues to the State s economy each year, and these impacts could be increased with additional production capacity within the State. Asphalt Almost all of the asphalt used today for paving comes from petroleum crude oil. Liquid asphalt is the heaviest part of the crude left over after all the volatile, light fractions are distilled off for products such as gasoline. Premium grades usually have polymers or other modifiers for use in heavy duty applications such as intersections on city streets, airports or in extreme climates. 7 Liquid asphalt is commonly shipped in special heated river barges and stored in heated tanks at river terminals. Ohio-based Marathon Petroleum Company has the largest domestic asphalt production capacity in the United States, producing base asphalt binders from four of its seven refineries which are: Canton, Ohio; Catlettsburg, Kentucky; Detroit, Michigan; and Garyville, Louisiana. 8 Sector Logistics Much of the value in construction aggregates comes from the availability of the product near the construction site. Transportation is a major component of the cost of the salable product. Pre-positioning the aggregate is important, as the product must be quickly delivered to a construction site on demand, or used as part of a concrete mix or asphalt pavement mix and delivered to the customer. 7 What is Liquid Asphalt (Asphalt Cement)? MyAsphaltPavingProject.com. Accessed February 21, Asphalt. Marathon Petroleum Corporation. Accessed February 21,

15 Ohio Working Paper 3 Role of MTS in Ohio s Economy The Shelly Company, for example, sells road building materials such as sand, crushed stone, asphalt and ready-mix concrete. Shelly moves sand, crushed stone, liquid asphalt, and cement by barge for its own use, and has many terminals in Ohio along the Ohio River. Shelly receives asphalt at its terminal near Gallipolis, and receives cement at its river terminal in Belpre, Ohio. Large quantities of basic construction materials are moved long distances by economical barge transportation, and are staged near customers. Upon receipt of an order, Shelly mixes and processes the raw materials into concrete and asphalt pavement material for delivery in a timely manner. Reinforcing steel, or re-bar, another key input for the construction sector, is manufactured by deforming round steel bar stock in a specified manner so that it grips the concrete. A steel product known as coiled wire rod is typically shipped by barge. The wire rod may be shipped from the steel mill directly to a large customer, but often the wire rod is shipped to a distribution point at a river terminal near a cluster of customers where it can be delivered to a processor in a timely manner by truck. In addition to re-bar, wire rod is used to make nails, screws, fencing and other construction related products drawn from the heated steel rod. Steel plate also moves by water in coiled form, often known as hot-band when it leaves the steel mill. Coiled steel plate is processed at an intermediate steel processing plant, and then made into structural building components, highway guard rail and other manufactured construction products Role of the MTS in Supporting Competitiveness Transportation costs are a high percentage of the cost-of-goods-sold for construction materials, and water transportation the lowest cost per ton mile mode over longer distances is important in keeping the cost for basic construction materials low. So long as the materials meet specified parameters for mineral content and other physical criteria, purchase is often based on total delivered cost. Similarly, when a building contractor or road builder purchases asphalt, cement, or sand and gravel, total delivered cost is a primary consideration. Large quantities of construction materials including sand, gravel and crushed stone are moved by water, as well as cement and liquid asphalt. Water is also important for moving steel products used in construction. Companies pre-position inventories near their customers so that the products can be provided quickly in response to demand. This enables suppliers to use water transportation and reduce the costs for construction products. In Ohio, water transportation helps lower construction costs for ODOT roads and other construction projects. Water transportation is often an unseen contributor, as final delivery to the site is by truck but making the long haul by water is important in controlling costs. 7

16 Ohio Working Paper 3 Role of MTS in Ohio s Economy Utilities and Energy Sector Overview The utilities and energy sector includes utilities and oil and gas extraction. The utilities and energy sector produced $18.8 billion of GDP in Ohio in 2014, contributing 7 percent to Ohio freight reliant GDP. Utilities and oil and gas extraction employed about 21,000 jobs in Ohio in 2015, accounting for about 1 percent of employment in Ohio s freight reliant sectors. However, the utilities and energy sector is one of the most heavily reliant MTS users. The utilities and energy sector is comprised of the following subsectors: Electric power generation, transmission and distribution Natural gas distribution Water, sewage and other systems Oil and gas extraction Utilities accounts for nearly all of the output of the sector. The electric power generation, transmission and distribution subsector is the dominant activity, followed by natural gas distribution Role of the MTS in Supply Chains The major energy sources in the US are petroleum (oil), natural gas, coal, nuclear, and renewable energy. The following provides an overview of key sub-sector supply chains. Power Generation Coal dominates Ohio s electric power generation, accounting for 60 percent. This is followed by natural gas (23 percent) and nuclear (14 percent). Renewables and petroleum sources account for the balance. 9 Both coal steam plants and nuclear generating plants benefit from being located on navigable waterways. Lower costs at plants located along the Ohio River are passed on to customers in the form of lower electric rates. A previous study concluded that coal-fired steam plants in the Ohio River Basin are, on average, 17 percent less expensive to operate as a result of being located on water. 10 Coal steam plants benefit from a combination of transportation savings in coal (used for fuel) and limestone (used in air pollution control), and in plant maintenance. Some coal steam plants can be accessed by either rail or barge, and even if serviced by rail rather than barge, the existence of an alternative mode typically causes railroads to price their services more competitively. Several steam plants on the Ohio River have no rail access for coal delivery and are solely dependent on water. 9 USEIA Bray, Larry G., Toward A Full Accounting of the Beneficiaries of Navigable Waterways, January,

17 Ohio Working Paper 3 Role of MTS in Ohio s Economy Coal The Ohio River Basin is a major coal-producing and power-generating area. Ohio produced 17.2 million tons of coal in 2015, making it the 12 th largest coal producing state. Most of the coal for electric power generation moving by barge in the Ohio River Basin originated on the Ohio River. However, some of this coal was mined in the western United States and moved by rail to docks on the Ohio River, where it was loaded onto barges for shipment to power plants. Facts about Ohio Coal-fired electricity: 11 There are 13 coal-fired power plants (with a total of 37 individual coal-fired electric generating units) located in Ohio. Ohio has the nation s third-largest coal-fired electric generating fleet. These plants are primarily owned by American Electric Power, Buckeye Power, Dayton Power and Light, Dynegy, First Energy Corporation, and NRG Energy. In 2014 eight of the ten largest power plants in Ohio were coal fired. Forty coal-fired electric generating units in Ohio have shut down or will be shutting down, due to environmental policies and regulations. Some are being retired because of low prices for natural gases. Ohio has the nation s third-largest coal-fired electric generating fleet. Oil and Natural Gas Ohio sits on a portion of the Utica Shale formation. Shales are fine-grained sedimentary rocks that can be rich sources of petroleum and natural gas. Around a hundred years ago, Standard Oil as well as others were extracting oil and gas in Ohio from relatively shallow wells, and this abundant energy supply was a major factor in growth of industrial jobs in Ohio. Today, the shallow wells are non-productive, but there is abundant supply deeper underground and the key to its successful extraction is horizontal drilling and hydraulic fracturing. Shale drilling can yield three products: oil, dry natural gas (used in stoves and furnaces), and natural gas liquids, such as propane and butane. For a few years, Ohio benefited from its large amounts of natural gas liquids (NGL) from Utica Shale wells, but the price for NGL has now dropped below the cost of separating the liquids from dry gas. Therefore, drilling in eastern Ohio has moved from liquids-rich counties to dry gas in bordering counties on the east, such as Harrison, Monroe, and Belmont counties Ohio. America s Power. Accessed February 7, Ohio s oil and gas industry 9

18 Ohio Working Paper 3 Role of MTS in Ohio s Economy The Utica region is one of the fastest growing natural gas production areas in the nation. The Utica region now has more than 1,700 permitted wells and has the potential to grow to more than 17,000 within the foreseeable future. The Utica formation adjoins and underlies the Marcellus Shale formation. Experts predict that as this resource is tapped, Ohio, along with neighboring states, could produce enough natural gas to meet the nation s needs for years to come. 13 Commodities shipped by barge on the Ohio River for use in the horizontal drilling and fracking methods include pipe, steel for making pipe, proppant (frac sand), minerals such as barite (used for drilling mud), and drilling supplies. There is the potential for transporting brine water and flowback water by barge away from drilling sites to be disposed of or recycled at permitted facilities. Oil, gas, and refined products and byproducts move by barge today, and volumes are expected to increase along with production in the region. Shale energy and petrochemical is one of the nine targeted industry sectors prioritized by the State of Ohio for recruitment and growth. Along the Ohio River, the Appalachian Partnership for Economic Growth (APEG) is the regional partner for Jobs Ohio. APEG has an executive assigned to the shale oil sector, and devotes resources to recruitment of industries in this sector. Opportunities include oil and gas exploration, extraction, transportation and processing. Industries which need the refined products are targeted as well as energy intensive industries which can take advantage of the abundant gas supply. On the Great Lakes, Team Northeast Ohio (NEO) has stated that future opportunities related to the oil/gas industry may require water transport. These activities include extraction, midstream processing, and the capturing of byproducts for manufacturing. Cracker Facility Shell Oil plans to build an ethane cracker facility in Beaver County, Pennsylvania. Beaver County is on the Ohio/Pennsylvania state line, east of Columbiana County, Ohio. A cracker plant takes ethane, a component of natural gas, and breaks it down to produce ethylene, which is used in chemical manufacturing. Numerous manufacturing plants that use the ethylene and other materials produced by the cracker are expected to locate around the facility once it is built. Another potential benefit to the Ohio River resulting from the cracker and second tier manufacturing plants is that the needed barge transportation required for cracker products could spur the US Army Corps of Engineers to upgrade the lock and dam infrastructure on the upper Ohio River State of American Energy. American Petroleum Institute. Accessed February 5, afa3cf29a0c87fcae6f2ae0a r12.cf2.rackcdn.com/API_SOAEReport_2016.pdf. 14 Shell Cracker May Spur $2.38B Upgrade of Locks/Dams on Ohio River. Marcellus Drilling News. Accessed February 6,

19 Ohio Working Paper 3 Role of MTS in Ohio s Economy A second ethane cracker is under consideration for Belmont County, Ohio, on the Ohio River, about 45 minutes southwest of Pittsburgh. PTTGC America is investing $100 million on detailed study and technical investigations of a site in Belmont County which could be suitable for construction of a world-scale ethane cracker to leverage the natural gas supply provided by the Utica shale formation. Ohio Governor John Kasich stated that the plant could take fourand-a-half years to build. This would give the economy a boost, providing thousands of construction jobs, and once the plant is completed, could put 350 people to work full-time Role of the MTS in Supporting Competitiveness Water has long been used to transport coal for power production, and as the lowest cost mode water transportation has helped minimize costs for power users. As for oil, gas and related products, where market price is fundamentally controlled by global prices, close control of costs including transportation is essential. Water transportation in Ohio helps reduce the cost oil, gas and related products all along the supply chain: Materials needed for oil and gas production and transportation such as pipe, steel for making pipe, frac sand, minerals such as barite, and drilling supplies move by barge. Water is used for transportation of oil to the refinery, as well as transportation of certain refined products and petrochemicals. Water transportation has potential for safer and more cost-effective transportation of flowback water and brine water to permitted treatment and disposal sites. Water transportation is used for steel, cement and other building materials for cracker plants and related construction. Primary Metals Sector Overview Primary metals manufacturing produced $5.6 billion of GDP in Ohio in 2014, contributing over 2 percent to the GDP of Ohio s freight reliant sectors. Primary metals manufacturing also employs close to 40,000 jobs in Ohio, accounting for 2 percent of employment in Ohio s freight reliant sectors. Although accounting for a small percentage of Ohio GDP and employment, primary metals manufacturing is one of the heaviest MTS users. Primary metal manufacturing in Ohio is comprised of five subsectors: Iron and Steel Mills and Ferroalloy Manufacturing Steel Product Manufacturing from Purchased Steel Alumina and Aluminum Production and Processing Nonferrous Metal (except Aluminum) Production and Processing Foundries 15 Hundreds of Jobs Coming With Multi-Billion Dollar Cracker Plant. Your Ohio Valley. Accessed February 6,

20 Ohio Working Paper 3 Role of MTS in Ohio s Economy Iron and steel mills and ferroalloy manufacturing (includes production of raw steel and steel products made in establishments where raw steel is produced) dominates primary metal manufacturing in Ohio, accounting for more than two-fifths of the value of shipments and roughly one-third of the employment. However, each of the remaining subsectors steel production from purchased steel, alumina and aluminum production and processing, other nonferrous metals and foundries is also a significant contributor. 16 In terms of location, Ohio s primary metals manufacturing activity is concentrated mainly but not exclusively in northeast Ohio. Figure 2-2: Location of Ohio Primary Metals Jobs Source: CPCS analysis of Department of Labor Bureau of Labor Statistics State and Metropolitan Area Employment, Hours, and Earnings 16. Census Bureau. Annual Survey of Manufactures 12

21 Ohio Working Paper 3 Role of MTS in Ohio s Economy Role of the MTS in Supply Chains The primary metals industries include facilities that produce metal products from metal ore and/or scrap metal. Plants may refine metals, cast molten metal into desired shapes, or produce the inputs for the refining or casting process, to be utilized in the form of end products or stock for use by other industries. In Ohio, 54 counties are home to steel processors or steel mills. Every year for the past ten years, Ohio has ranked second in the US for raw steel production, annually producing between 10 and 16 percent of US output. Based on dollar value-added data compiled in the 2014 Annual Survey of Manufacturers by the US Census Bureau, Ohio ranks third in the iron, steel and ferroalloy products group (NAICS 3311, which includes products made at the mills), and second in manufacturing products made from purchased steel (NAICS 3312). Waterborne transportation supports Ohio s steel industry by lowering transportation costs. In addition to the production in Ohio, Ohio imports primary metal products by water. In 2015, over 2 million tons of primary metal products were shipped to Ohio via the inland waterways and the Ohio River, and 298,000 tons were shipped to the state on Lake Erie. 17 Iron Ore Iron ore is the source of primary iron for the world s iron and steel industries. Nearly all (98 percent) iron ore mined in the US is used in steelmaking. In 2015 mines in Michigan and Minnesota shipped 98 percent of the usable iron ore products in the US. Twelve iron ore mines and three iron metallic plants operated during the year 2015 to supply steelmaking raw materials. The US was estimated to have produced and consumed 2.5 percent of the world s iron ore output. 18 US resources are estimated to be 110 billion tons of iron ore that contain approximately 27 billion tons of iron. These resources are mainly taconite-type ores from the Lake Superior district. The only source of primary iron is iron ore, used directly as concentrate, directreduced-iron (DRI), hard-briquetted-iron (HBI), iron nuggets, pig iron, pellets, or sinter. 19 Steel The steel industry has broad applications, including machinery and equipment, renewable energy infrastructure, defense, transportation and infrastructure. Steel is the backbone of bridges, skyscrapers, railroads, automobiles, and appliances. The steel industry is continually 17 Navigation Data Center 18 Iron Ore. USGS. Accessed February 17, Iron Ore. USGS. 13

22 Ohio Working Paper 3 Role of MTS in Ohio s Economy evolving. For example, the ArcelorMittal Cleveland plant is focused on increasing production for advanced, high-strength steel to make lighter, stronger, safer, and more fuel efficient automobiles. 20 The steelmaking process includes melting iron ore, coke, and limestone in a furnace. Two predominant technologies for steelmaking use either a Basic Oxygen Furnace (BOF) or an Electric Arc Furnace (EAF). In a BOF, an oxygen lance blows pure oxygen into a mixture of molten iron and scrap, combining oxygen with carbon to reduce impurities. The BOF is the most efficient process for large-scale conversion of iron to steel. The BOF, however, cannot utilize as much scrap as the electric arc furnace. In an EAF, scrap is the main raw material. Scrap is placed in the furnace, along with ironenrichment additives, and carbon electrodes are then lowered into the furnace to melt the cold scrap mixture. Electric arcs produce intense heat, transforming scrap into molten steel. A ladle metallurgy center, where the steel s composition is analyzed, enables the properties of the steel to be fine-tuned and customized to customer and government specifications with iron-enriched additives and alloys. Steel destined for plate, sheet, coil, bars or welded pipe and tubing is produced on a continuous caster and then hot-rolled. After being hot rolled, the steel can be sold as hot bands. Figure 2-3: Coiled Steel Plate Source: W. R. Coles and Associates Much of the steel moving by water is hot rolled steel coils or hot band. Coils vary in weight, depending on the customer, but may weigh from 15 tons to 35 tons each. Some steel is sold as it leaves the gate of the mill which produced it. Other steel coils remain in ownership of the mill, and are moved by water to be pre-positioned near mill customers or steel processors. 20 Eric Hauge. ArcelorMittal Cleveland. Stakeholder Consultation. 14

23 Ohio Working Paper 3 Role of MTS in Ohio s Economy Once the coils arrive at a steel processing center, the hot rolled coils are uncoiled using special massive machines, and may be cold rolled to a more precise plate thickness, slit into precise widths, cut into specified lengths, heat treated, or coated. The steel is then sent to manufacturers which may stamp out car door panels, appliance bodies, or roll, cut and weld the steel into pipe or tubing for structural, mechanical and other applications. Steel for bar is cast into shapes known as blooms or billets, and then hot-rolled into different types of cross sections. Further processing may include cold drawing, which is required for sophisticated automotive and aerospace applications. Seamless tubing for applications like oil wells and steam boilers is produced from billets that are heated, pierced and then drawn over a mandrel to reach the desired diameter and wall thickness. Steel slabs, blooms and billets are often moved in large quantities by barge transportation. Role of Water Transport Many companies are investing for the future, recognizing the variability in markets from year to year, but aware of a continuing appetite for steel and steel products in the US. Owners cite dependence on water transportation as a vital factor in site selection, along with the readily available supply of low-cost natural gas generated from fracking. Ohio has access to abundant natural gas supplies, to water transportation on Lake Erie and the Ohio River, and access to instate and regional mills with an appetite for iron. Water transport is used as well to move the raw materials of the steelmaking process, such as scrap, coal, coke, and taconite to steel plants. Water transport is also used to move intermediate steel products to secondary facilities. Steel slab, steel coils, and other hot-rolled products are suitable for transport by barge to other processing plants. The state of Ohio shipped 141,000 tons of iron ore/scrap to Indiana via the Ohio River in Over 10 million tons of iron ore/scrap was shipped to Ohio on Lake Erie, and 70,000 tons were shipped on the Ohio River. The top three sources of iron ore and scrap shipped to Ohio in 2015 were Minnesota (6.9 million tons), Michigan (2.0 million tons), and Canada (1.3 million tons). 21 Steel making is an important sector of Ohio s economy and the availability of economical water transportation should be viewed as an important asset for attracting future growth of this industry to the State. 22 For example, the Cincinnati Barge and Rail Terminal (CB&RT) on the Ohio River primarily handles raw materials and steel products that support the auto and appliance industries and related heavy manufacturing. After traveling hundreds of miles by inland river barge, the raw 21 Navigation Data Center 22 Inland Navigation in the United States. University of Kentucky and University of Tennessee. 15

24 Ohio Working Paper 3 Role of MTS in Ohio s Economy materials are transloaded at CB&RT to a short line rail carrier and move inland by rail for 170 miles to support steel production and processing in northern Ohio. The end products generated by downstream users could be any iron or steel shape. 23 CB&RT also receives steel coils by barge and stores them in a warehouse until they are shipped by rail or truck to the designated recipient. Coiled sheet is used throughout the region by metal forming companies to fabricate end products like auto bodies, doors, hoods, and side panels. Metal fabricators supply engineered parts for the appliance, auto, and truck industries. CB&RT also receives coiled wire rod by barge, much of it for auto engine and spring parts. The Cincinnati Bulk Terminal on the Ohio River also moves steel and bulk products such as pig iron related to steel production. Much of this ultimately goes to the automotive industry and could travel 150 to 200 miles inland from the river. The automotive industry and its supply chain produce a residual steel or aluminum scrap product that goes back into the market. Raw materials are barged in via the river and transloaded for shipment to the inland plants and then residual or scrap metals go back to the river for shipment. The end customer cares about total-delivered-cost and uses water transportation to lower the cost of the long haul. 24 In southeast Ohio, steel coils are handled by Pier 48 Stevedoring at the Columbiana County Port Authority complex in Wellsville. The steel goes to various steel processors and end users in the area, one of which is a nearby manufacturer which manufacture pipe. 23 Jeff Stewart. CB&RT. Stakeholder Consultation. 24 Scott James. Cincinnati Bulk Terminal. Stakeholder Consultation. 16

25 Ohio Working Paper 3 Role of MTS in Ohio s Economy Figure 2-4: Two Steel Coils Being Unloaded from a Barge at the Pier 48 Columbiana County Port Authority Complex at Wellsville Source: W. R. Coles and Associates In northern Ohio, the ArcelorMittal Cleveland plant is an integrated steel mill that uses mostly raw materials such as processed iron ore, as well as some scrap, with a coal blast furnace. Iron ore/taconite pellets from the Minnesota iron range are shipped in via laker and transloaded to smaller ships for transport directly to the mill. The plant/port is not equipped to handle pellets via rail. Maritime is the only option for getting large quantities of raw materials in. Plants not located on the water have shuttered. ArcelorMittal Cleveland relies on maritime shipping for the delivery of iron ore and limestone, both of which are essential raw materials for steel production. In short, the Great Lakes maritime system and the Cuyahoga River Federal Navigation Channel are the lifelines for one of the most productive steel mills in the world and a major engine of the Cleveland and Ohio economies Role of the MTS in Supporting Competitiveness Primary metals production, including steel in particular, is highly cost sensitive and the competitiveness of manufacturers is largely a function of controlling costs, including those of transportation. Steel and the commodities used in making steel such as iron ore, steel scrap, and pig iron, are largely priced on global commodity markets, meaning that primary metals producers have limited control over prices of finished products and raw materials. Production facilities, such as steel mills, can be slowed or shut down when world prices for outputs are 25 Eric Hauge. ArcelorMittal Cleveland. Stakeholder Consultation. 17

26 Ohio Working Paper 3 Role of MTS in Ohio s Economy below costs of production. Steel processors and steel users, on the other hand, may source hot band steel coils from overseas, so long as the quality and reliability parameters are sustained. Economical water transportation is essential to sustaining the steel and other primary metals sector in Ohio and its downstream customers such as automotive, appliances, and heavy manufacturing. Access to maritime transportation, as the lowest cost mode for transporting large volume heavy commodities, is critical in helping primary metals manufacturers maintain a low cost structure. When the cost of maritime transportation goes up, or when manufacturers are forced to use higher cost alternative modes of transportation, this can make the difference between a competitive and non-competitive production process. In a global marketplace, this can be a significant factor in locating or retaining jobs and tax base related to the high-wage steel industry. Heavy Manufacturing Sector Overview Heavy manufacturing includes transportation equipment manufacturing, fabricated metal products manufacturing and machinery manufacturing. The sector produced $37.4 billion of GDP in 2014, contributing approximately 16 percent to Ohio freight reliant GDP. Heavy manufacturing employment totaled about 305,000 in Ohio in 2015, accounting for about 16 percent of employment in Ohio s freight reliant sectors. Heavy manufacturing includes the following subsectors: Motor vehicles, bodies and trailers, and parts manufacturing Other transportation equipment manufacturing Fabricated metal products manufacturing Machinery manufacturing Employment in heavy manufacturing is mostly concentrated in motor vehicle-related manufacturing and fabricated metal products manufacturing, accounting together for close to 70 percent of the employment. Of note, heavy manufacturing generates demand for Ohio s MTS through other sectors (e.g. primary metals), rather than to move products like motor vehicles or parts. In other words, it drives demand for Ohio s MTS indirectly, through inputs that relate to heavy manufacturing supply chains. 18

27 Ohio Working Paper 3 Role of MTS in Ohio s Economy Role of the MTS in Supply Chains Major components of the heavy manufacturing supply chain which move by water, or could move by water, include: Steel coils Coiled wire rod Steel plates and shapes Aluminum Chemicals Petroleum products Minerals and alloys The categories listed above are on the raw materials side of the supply chain. It would be unlikely for finished autos to move from Ohio by water, but large fabricated items, tanks, and large heavy machinery are examples of finished products which have moved by water, and which have potential for future moves. The majority of the volume of freight moved by water has been, and is expected to be in the future, on the input side. As with other sectors, controlling input costs is a key to success for heavy manufacturing. Water transportation is used and is a viable option for transportation of raw materials directly to certain manufacturing plants. In many other cases, important inputs to manufacturing may make a long distance move by water, then are trucked to an intermediate processor before final delivery as an input material to the manufacturer. One example would be steel. Coiled steel plates are often sent from the steel mill as hot-band coils by water for the long-distance haul, then transported by a local trucker to an intermediate steel processor where the coil is unrolled, cleaned, cold rolled to a specified thickness, cut to specified lengths and widths, and possibly heat treated or coated before being taken to a manufacturer. 19

28 Ohio Working Paper 3 Role of MTS in Ohio s Economy Figure 2-5: Uncoiling Steel prior to Secondary Processing Source: W. R. Coles and Associates Essential components of the supply chain are often less visible, but nonetheless make important contributions to the viability of industrial jobs and the tax base in Ohio. Two examples are lubricants and minerals. The auto industry daily uses materials that make the long-distance move by water, but which progress through intermediate manufacturing processes, and often are delivered by truck to the assembly plant. In that context, awareness of the importance of water transportation is somewhat obscured, but those manufacturers which sell to the auto industry rely on water transportation to control costs and maintain their competitive positions. Basic building blocks for the auto industry include steel, aluminum, plastics, rubber, glass, forgings, and castings, all of which either move by water or contain minerals, additives and chemicals which move by water for the long-haul. Water transportation supports the costcompetitive auto industry in Ohio. Large industrial machinery, presses, tacks, etc., can move by water to lessen the burden of over-weight, over-size cargo moving on roads. Water transportation also provides an opportunity for importing and exporting large equipment and fabricated items, and allows more fabrication and assembly to take place in controlled shop condition as less field assembly is required when larger pieces are shipped. 20

29 Ohio Working Paper 3 Role of MTS in Ohio s Economy Role of the MTS in Supporting Competitiveness Similar to other key MTS reliant sectors, maritime transportation is critical to helping heavy manufacturers maintain low production costs. It is generally understood that: Waterborne transportation is the most economical mode. Where waterborne transportation is available, even if another mode (truck/rail) is used, transportation costs are less because the carriers must compete with water. Even if the trucking mode is used to deliver freight to the end user after it is transported by water and transloaded, costs are still less than if waterborne transportation is not used. Products may move long distances by water, and then be stored at a location in proximity to the customer or possibly delivered to an intermediate manufacturer or processor. Large quantities moved by water may be delivered in smaller volumes to the final destinations, where recipients may or may not be aware of the role of water transportation in controlling the delivered cost for the feedstock or product received. Water transportation can be a background or silent mode that provides great value to the competitive position of Ohio in the logistics supply chain. 21

30 Ohio Working Paper 3 Role of MTS in Ohio s Economy Petroleum, Chemical and Plastics Products Manufacturing Sector Overview The petroleum, chemical and plastics products sector includes manufacturing of petroleum and coal products, chemical manufacturing, and manufacturing of plastics and rubber products. The sector produced $33 billion of GDP in Ohio in 2014, contributing 14 percent to Ohio freight reliant GDP. Employment in the sector totaled more than 100,000 in Ohio in 2015, accounting for about 6 percent of employment in Ohio s freight reliant sectors. The petroleum, chemical and plastics products sector is comprised of the following main subsectors: Petroleum and coal products manufacturing Chemical manufacturing Plastics and rubber products manufacturing Employment is mostly concentrated in plastics and rubber products manufacturing, accounting for 62 percent of the overall sector employment. This is followed by chemical manufacturing with 33 percent and petroleum and coal products with about 5 percent Role of the MTS in Supply Chains Petroleum, chemicals and plastic products supply chains are diverse and include both inbound maritime transportation for raw or intermediate resources, as well as outbound delivery of product. Below is a summary of some of these supply chains. Petroleum and Petroleum Products In 2015, Ohio shipped 24,000 tons of petroleum and petroleum products to Canada via Lake Erie. Ohio shipped a total of 2,232,000 tons to other US states on the Ohio River and the inland waterways, of which the great majority (1.8 million tons) was to Kentucky. Several different states shipped 2,265,000 tons of petroleum products to Ohio on the marine system in 2015, in particular from West Virginia and Kentucky. With respect to the oil and gas sector development in Ohio, Nathan Lord of Shale Crescent USA noted that, We see great potential from oil and gas and related industry growth in the Ohio River Valley. The new ethane cracker plant in Pennsylvania is expected to bring in significant revenue. A second plant plans to locate in Belmont County, Ohio. Shale Crescent continues to market the Mid-Ohio Valley to international companies looking to invest, in hopes that more manufacturing companies will relocate. 26 U.S. Census Bureau. American Fact Finder Annual Survey of Manufactures 22

31 Ohio Working Paper 3 Role of MTS in Ohio s Economy Petrochemicals/Chemicals Chemicals derived from petroleum or natural gas are called petrochemicals. The two most common classes are olefins (including ethylene and propylene) and aromatics (including benzene, toluene, and xylene isomers). Oil refineries produce olefins and aromatics by fluid catalytic cracking of petroleum fractions. Chemical plants produce olefins by steam cracking of natural gas liquids like ethane and propane. Olefins and aromatics are used in solvents, detergents, and adhesives. Olefins are also used in plastics, resins, fibers, elastomers, lubricants, and gels. More than 96 percent of all manufactured goods are directly touched by the chemicals industry. Ohio terminals shipped 442,000 tons of chemicals to other states in 2015: Illinois, Missouri, Pennsylvania, and Louisiana. In 2015, Ohio received 1,106,000 tons of chemicals from Louisiana, Texas, Canada, and foreign sources. Of the total, 1,057,000 tons were transported via inland waterways up the Ohio River, and 49,000 tons were shipped on Lake Erie. Plastics The US plastics industry has reversed its past decline and is now enjoying an economic rebound due to more plentiful and affordable natural gas. Ohio s manufacturers can be part of this renaissance by benefiting from the discovery and production of natural gas and natural gas liquids ( wet gas) from the Marcellus and Utica shale formations. Wet gas contains propane, ethane, and other substances including methane. These natural gas liquids are separated from each other at a fractionation facility. The separated liquids are further processed with the ethane being transformed into ethylene at a cracker plant. Ethylene is an important component for making plastic products. The availability of these raw materials at much cheaper prices has changed the US from being among the highest cost producers of plastic to one of the most attractive places to invest in this manufacturing sector. The American Chemical Council estimates that the US could experience investments of nearly $47 billion in its plastics industry during the next decade, resulting in 462,000 new jobs. This expected increase in production will be used by the automotive, building and construction, packaging and other plastic-intensive industries. Furthermore, export markets are projected to grow. Ohio s participation in this growth scenario may depend largely on whether cracker plants and other facilities for processing natural gas liquids are built within the state or adjoining region. Currently there are no cracker plants in the Marcellus/ Utica production area and ethane must be shipped to the Gulf coast for processing. This situation, however, is changing. Shell Oil plans to build an ethane cracker facility in Beaver County, Pennsylvania, near the Ohio/Pennsylvania state line just east of Columbiana County, Ohio. Numerous manufacturing plants that will use the ethylene and other materials produced by the cracker are expected to be attracted to locations near the Shell facility. A second ethane cracker is under consideration for Belmont County, Ohio, on the Ohio River. These plants are capital intensive. The processing of gas locally will not only benefit the state s plastics industry, but these plants and the intermediate products they produce will likely induce other types of industrial 23

32 Ohio Working Paper 3 Role of MTS in Ohio s Economy development that use these by-products in the manufacturing processes, and will increase demand for transportation of bulk liquids. Ohio produces more plastic and rubber products than any other state. This manufacturing subsector contributes some $5 billion to the state s economy each year and employs over 96,000 workers. Exports of plastic products, alone, totaled about $2.9 billion in 2015 of which more than one - third were destined for customers in Canada. Fertilizer In 2015, 854,000 tons of chemical fertilizers were shipped to Ohio with most arriving at river terminals in the Cincinnati area. Of this total, 71,000 tons moved to Lake Erie MTS facilities from Canada. The remaining tonnage was shipped from Louisiana (779,000 tons), Indiana (26,000 tons), Illinois (32,000 tons) and international jurisdictions (17,000 tons) At least ten terminals on the Ohio River mention handling fertilizer, such as Vigoro Industries, River Transportation Bulk Terminal, C. F. Industries, Southside River Rail, Westway Terminal Company, and Arcadian Chemical Corporation, all concentrated in Cincinnati. This is rational in that the majority of productive farmland in Ohio is concentrated northwest of I-71 which runs between Cincinnati and Cleveland. Fertilizers can be shipped in either dry bulk or liquid bulk form Role of the MTS in Supporting Competitiveness Similar to other key MTS reliant sectors where products are priced as commodities and production is capital intensive, controlling production costs in petroleum, chemical and plastics products manufacturing is critical. In addition, many essential inputs to the plastics industry itself, including chemicals and petrochemicals, move by water in order to control delivered costs. Some shipments are moved directly to or from a dedicated terminal at the plant. Other shipments are to a distributor located near the customer base but remote from the chemical manufacturing site. The distributor may transload the products to tank trucks, or may package the product in barrels for final delivery. Either way, when final delivery is made by a local trucker, the recipient may not be aware of water transportation s role in controlling the delivered costs of the product. Other Sectors Using Ohio s MTS Sector Overview Beyond the five key freight reliant sectors described in the previous sections, a number of other sectors have an important role in Ohio s economy, and many of these are users directly or indirectly of the Ohio MTS. These other sectors include: Agriculture, forestry, fishing, and food manufacturing Wholesale and retail trade 24

33 Ohio Working Paper 3 Role of MTS in Ohio s Economy Transportation and warehousing Other manufacturing (manufacturing industries other than food and those already included among the five key sectors) Other manufacturing, it should be noted, covers a wide variety of products ranging from such high value/weight items as electrical equipment, appliances, and computer and electronic products, to low value/weight items such as clothing and textiles. 27 These other sectors require the movement of, or provide for the transportation and handling of, a wide variety of commodities and modes of transport, including bulk (such as corn and soybeans), breakbulk (certain paper and wood products) and containerized transportation (industrial products, consumer electronics, numerous others). The relative importance of the other sectors, measured by GDP, is indicated in Figure 2-6. As may be seen, trade at $71 million accounts for the majority of the other sectors GDP of approximately $119 million, followed by transportation and warehousing ($17 million), forestry, fishing agriculture and food manufacturing ($16 million), and other manufacturing ($15 million). Figure 2-6: Other Freight Reliant Sectors GDP (2014) Sector/Subsector $ millions % of Ohio Total Freight Reliant GDP Wholesale and Retail Trade 71, Wholesale trade 35, Retail trade 35, Other Manufacturing 14, Forestry, Fishing, Agriculture and Food 16, Agriculture 3, Food, beverage and tobacco products manufacturing 11, Forestry, fishing and hunting Transportation and Warehousing 17, Total Other Sectors 119, Source: CPCS analysis of Bureau of Labor Statistics State and Metro Area Employment, Hours, & Earnings As seen earlier in Figure 1-2 and Figure 1-3, the sectors shown in Figure 2-6 contributed 50 percent to Ohio total freight reliant GDP while employment in these sectors, about 1.2 million in 2015, accounted for over 60 percent of employment in Ohio s freight reliant sectors. 27 Other manufacturing includes the following subsectors (in order of importance to GDP): electrical equipment, appliance, and components; computer and electronic products; paper products; miscellaneous manufacturing; printing and related support activities; furniture and related products; wood products; textile mills and textile product mills; and apparel and leather and allied products. 25

34 Ohio Working Paper 3 Role of MTS in Ohio s Economy Role of MTS in Supply Chains A few sectors, not addressed in the preceding sections, are discussed here: agriculture (grain), mining, break bulk and containerized trades. Agriculture (Grain) Ohio s GDP for the agriculture sector was close to $4 billion for In terms of revenue generated, the top five agricultural products are soybeans, corn for grain, dairy products, greenhouse and nursery products, and hogs. 29 In 2015, there were close to 60,000 farm proprietors 30 and 74,400 farm operations 31 in Ohio. Ohio s two largest grain crops are soybeans and corn. In 2015, soybeans contributed $2 billion to the state s economy; corn generated $1.9 billion. 32 Other field crops in Ohio are wheat, hay, oats, and popcorn, most of which provide food for livestock. The following table provides an overview for 2015, showing acres planted, acres harvested, production amounts, and the value of production for each crop commodity. 33 Figure 2-7: Ohio Grain Overview of Production and Sales Commodity Planted Acres Harvested Acres Production Value of Production / Sales in Dollars Soybeans 4,750,000 4,740, ,000,000 bushels 2,097,450,000 Corn, Grain 3,260, ,780,000 bushels 1,895,364,000 Wheat, 520, ,000 32,160,000 bushels 147,936,000 Winter Hay 1,180,000 3,018,000 tons 451,253,000 Oats 70,000 40,000 2,520,000 bushels 8,568,000 Source: CPCS analysis of data from USDA Grain is produced, harvested and transported to market. The producer can sell to a local collection point or to a remote collection point like a seaport or oil mill. Grain companies such as Cargill and Bunge compensate the producer accordingly. Regardless of which party bears the cost of long distance transportation, a high percentage of the delivered cost is transportation. Water transportation is typically used where it is available because it is 28 Gross Domestic Product from Ohio. September, Accessed February 10, Ohio gdp E1001.pdf. 29 Ohio Economy. Netstate.com. Accessed February 9, Bureau of Economic Analysis. Accessed February 10, &7035=-1&7004=naics&7022=4&7005=-1&7023=0&7024=naics&7006=39000&7025=0&7036=- 1&7001=44&7002=1&7031=0&7029=30&7090=70&7093=levels&7007= State Agriculture Overview Ohio. USDA. Accessed February 9, Top 10 Ohio Agriculture Products State Agriculture Overview Ohio. USDA. Accessed February 9,

35 Ohio Working Paper 3 Role of MTS in Ohio s Economy efficient and cost-effective for moving large quantities of commodities like soybeans, corn and wheat. Water transportation also helps lower the cost of producing grain by moving fertilizer from the point of manufacture (or import) to proximity of the user. The Ohio Soybean Coalition notes its focus for transportation is on farm critical infrastructure and as part of this they rely predominantly on the maritime system. They have little to no activity on the Great Lakes, though they are aware that corn is exported out of the Port of Toledo. There is no grain at Cleveland. 34 The primary hub of activity is in/around Cincinnati. The major production area is northwest of I-71 and south of I-70. Most grain is trucked from the production site to the water for transport. Half of the production stays in-state and is processed while half leaves the state. Most exported is to Asian markets from Ohio, barged on the inland waterways system to the Gulf. 35 There are more than 20 terminals on the Ohio River that note handling of grain, fertilizer, and molasses. 36 In 2015, Ohio shipped a total of 2.6 million tons of food and farm products. Of the total, 473,000 tons were shipped to Canada on Lake Erie. The state shipped 2.1 million tons of agricultural products on the Ohio River to Louisiana, Indiana, Alabama, and destined for foreign locations. In 2015, Ohio received 409,000 tons of food and farm products from Canada, Louisiana, and foreign sources. Of this total, 297,000 tons were shipped on Lake Erie. Mining The predominant natural resources mined in Ohio are sand, gravel and coal. These commodities have been discussed in earlier sections in context of construction materials and energy. Break Bulk In shipping, break bulk or general cargo are goods that must be loaded individually, and not in intermodal containers nor in bulk as with oil or grain. The major characterizations of break bulk cargoes shipped to and from Ohio by water include steel slabs, billets and blooms, steel coils, steel plates and shapes, primary aluminum, logs, machinery and oversize/overweight items. On Lake Erie, breakbulk terminals are located within the ports of Toledo and Cleveland. On the Ohio River, there are a total of 118 river terminals, of which 19 are general purpose terminals suitable for breakbulk. 34 The Ohio Soybean Coalition. Consultation. 35 The Ohio Soybean Coalition. Consultation. 36 WRCA Research. 27

36 Ohio Working Paper 3 Role of MTS in Ohio s Economy Wholesale and Retail Trade and Other Manufacturing (Containers) Wholesale and retail trades and other manufacturing sectors tend not to be direct users of Ohio s MTS. Nevertheless, there has been a push to explore opportunities for these sectors to make greater use of Ohio s MTS, using containers. At present, there is a single container shipping service on Ohio s MTS. The Cleveland-Europe Express, developed jointly by the Port of Cleveland and marine carrier Spleithoff. As noted in consultations with the Port of Cleveland, containerized traffic through the Port is largely comprised of industrial goods, rather than consumer packaged goods, as are more typical of container traffic at coastal ports. Feasible waterborne containerized cargoes may include more specialty bulk commodities, steel, wood, industrial supplies, construction materials, and oversize equipment, rather than shelf-ready consumer goods. The goal is better use of waterways for moving freight, thereby lowering costs for shippers, relieving traffic congestion and reducing the carbon footprint while maintaining a productive economic climate. Most necessary infrastructure is in place for Container on Barge (COB) on the Ohio River. Barges, towboats, locks and dams, and channels which are reliable for traditional river commerce should be adequate for COB. The issues for developing container services are two-fold. On the demand side, shippers want to be assured of cost, transit time and reliability advantages that can meet their needs before taking modal shift decisions that could put their supply chains at risk. On the supply side, operators need assurances that there is a sufficient demand for the services such that they can generate the necessary return on their investment Role of the MTS in Supporting Competitiveness Grain Grain is essentially priced as a commodity, with a few exceptions such as genetically unaltered organic grains. This implies the selling price is fixed, often at a specified location like the seaport where the grain will be shipped overseas, or the oil processing plant. The producer and/or shipper (grain company) must therefore control the cost of production as well as the cost of transportation to market. Water transportation provides an economical mode of transportation for the harvested grain. Water transportation also helps control the cost of farm inputs like fertilizer used in grain production. Break Bulk The movement of breakbulk in the context of products such as primary metals and manufactured goods has been addressed earlier. Water transportation also helps in the movement of oversize and overweight objects, not only in terms of cost but also feasibility. A common use of water transportation is for large presses for a new manufacturing plant or other industrial machinery or fabricated steel items. Moving such items by truck requires moving smaller pieces from the factory which then requires more assembly in the field. Rail may be used, but the vibrations from rail transit are often a factor in consideration in modal selection. Water transportation provides a secure and cost-effective mode for the long haul, which can result in lower costs for major construction or equipment installation projects. 28

37 Ohio Working Paper 3 Role of MTS in Ohio s Economy 3Economic Contribution of Ohio s MTS Key Messages The level of maritime industry activity in Ohio, including ports, terminals, marine carriers and related service providers, and its impact on the Ohio economy, is closely correlated with that of the sectors that are, directly and indirectly, heavily reliant on maritime transportation. Based on 2015 traffic figures, it is estimated that Ohio s Lake Erie MTS generated approximately 25 million jobs, of which 7 million were direct jobs. There are no comparable economic impact figures for the Ohio River MTS. Nevertheless, one study on the economic importance of inland waterways (not strictly Ohio s Ohio River MTS) found that the reduction in shipping costs, measured as the difference between barge rates and those of the cheapest alternative mode (normally rail) exceed $3 billion annually, translating into savings to the US economy estimated at more than $17 billion each year. The volume of maritime activity also has implications for the competitiveness of the MTS, which depends on traffic volume to drive economies of scales, lower rates and boost competitiveness. Economic Impact of Ohio s MTS Lake Erie MTS The latest and most comprehensive economic impact assessment of maritime transportation on the Great Lakes and St. Lawrence Seaway System (GLSLSS) revealed that maritime commerce on the GLSLSS generated 227,000 US and Canadian jobs, including 93,000 direct jobs (based on 2010 traffic volumes of 322 million metric tons of cargo). 37 That same study determined that maritime transportation in the GLSLSS generated $14.1 billion in total 37 Martin Associates, The Economic Impacts of the Great Lakes-St. Lawrence Seaway System,