APPENDIX D EXECUTIVE SUMMARY OF THE DEVELOPMENT MASTER PLAN

APPENDIX D EXECUTIVE SUMMARY OF THE DEVELOPMENT MASTER PLAN

1 BACKGROUND In recent years, the Alabama State Port Authority (ASPA) has witnessed a growing statewide move away from heavy industry to light manufacturing and value-added activities. Traditionally, the Port has been an import and export location for high volume bulk products, such as coal and iron ore, with a lesser emphasis on the classes of cargo needed by modern light industrial activities. The Port has become a distribution center for forest products, steel, iron and aluminum cargoes. However, it has not endeavored to be a major player in the all-important area of container handling and consequently has been eclipsed by other Gulf ports in this area of operation. The facilities at the Port of Mobile represent the principal asset in the creation of new economic activities in the Mobile area, and also in support of similar opportunities at a statewide level. The inter-relationship between statewide economic growth and its port and intermodal system has long been recognized by development agencies and governments, but few ports have any real jurisdiction beyond the marine terminals inside their physical boundaries. In order to position the Port as an economic generator for the Mobile area, the ASPA initiated a study to create a Development Master Plan. 2 OBJECTIVES OF THE DEVELOPMENT MASTER PLAN The objective of the ASPA Development Master Plan is to address the need to effectively and efficiently channel containers to Alabama industry in support of the impressive recent successes in attracting new businesses, such as Mercedes, Honda and others, to the State. However, in order to meet the challenges of changing trade, product distribution and economic development patterns, within and outside Alabama, the Board of Commissioners have concluded that future port development must go hand in hand with the provision, expansion and marketing of value-added services to be of real value to the state. This development plan then addresses both the need to provide high volume container facilities at the Port, and also generate the employment opportunities that can accompany the flow of trade through the area. 3 COMPETITIVE CONSIDERATIONS Study results show that Mobile has the potential to become a World Class Container Port and Intermodal Transfer Location. This is because it offers: Fast access to the Gulf of Mexico through a deep water channel 1

The best port rail connections in the Mid - Gulf Region Port - Interstate Highway Connections Available land for development Excellent water connections Strong Community State Federal Support When the proposed marine terminal and uplands development projects are in place, the Port of Mobile can provide a cost effective means for ocean freight to access a distribution network that would serve the State and a hinterland market extending to Canada. The main focal point for these facilities would be a modern container facility to support a value added warehousing and distribution area. Analyses indicate that such a facility would provide access to and from world markets for firms through out Alabama and provide added incentives for manufacturing firms with container capable products, to locate in the State. 4 DEVELOPMENT PLAN GOALS The development goals established by the State and ASPA for this project are: Economic benefits from the development must be statewide Value-added activity is a high priority The plan must be viable from a marketing and financial standpoint All elements of the development must be environmentally acceptable The goal of the ASPA Board is to use public and private funding in a manner that creates employment opportunities in Mobile and the areas served by its network of highway, marine, waterway, rail and air connections. In this way, the projects developed under this plan will become the catalyst for regional development, in a similar fashion to the State Government initiative that brought Mercedes Benz to Alabama. To offer the highest level of integrated development and attraction to potential participants, the plan will require the following components, all working together to provide seamless transportation links that encourage business to locate within the trade zone, and also increase container and other cargo levels through the Port. The long-term plan includes the following key elements: A series of industrial parks, logistic centers and distribution facilities 2

Efficient Port terminal(s) offering frequent shipping services to major markets, and planned to accommodate growth beyond the forecasting horizons Efficient intermodal links between the value-added warehousing and distribution centers, the Port, rail services and air cargo facilities Support infrastructure for each element of the development plan 5 DEVELOPMENT PLAN STRATEGY The overall development plan is a twenty-year initiative, broken down into five-year phases. The development strategy for the first phase includes: Development of the Choctaw Point site for a container terminal Construction of intermodal connections to the main rail system Investment in capacity Improvements at the existing Port facilities Land preparation for value-added development and the intermodal terminal Marketing of the New Container Terminals and the Value-added Development Area. The Berth 2 Container Terminal will be the incubator project and ultimately offer flexibility and additional capacity for container cargoes once the Choctaw Point Terminal is on line. 6 THE PROJECTS The general location of the projects included in the Phase 1 Development Program is shown in Figure 6-1. 6.1 GARROWS BEND ENHANCEMENT PROJECT As part of the overall development, ASPA will implement the Garrows Bend enhancement project with the intention of removing and containing contaminated sediments in the Basin to the west of the McDuffie island coal terminal. Material removed from the basin and possibly from the dredging work at the Choctaw Point terminal will be placed within a containment area, which in turn will be used to restructure and enhance the shoreline of the Garrows Bend area. Noncontaminated dredged material may also be placed in the containment area, thereby extending the useful life of the ASPA McDuffie Island dredged materials receiving area. 3

Figure 6-1: General Location Plan of Phase 1 Projects Container Terminal Distribution/Value Added Activities CSX CSX I - 10 10 Intermodal Terminal McDuffie Island Coal Terminal 6.2 CHOCTAW POINT CONTAINER TERMINAL The centerpiece of the Phase 1 development will be the construction of a two-berth container terminal at the Choctaw Point location, as indicated in Figure 6-2. The terminal will be approximately 92 acres with 2,000 ft of berth space dredged to a 45 ft depth. It will be connected to the proposed Intermodal Terminal and Value-added Warehousing and Distribution area by a dedicated highway with an overpass at the intersection of the main rail line and road into McDuffie Island. Based on the initial market projections, the Phase 1 container terminal should offer sufficient throughput capacity to meet the projected level of demand until approximately 2015. 6.3 GARROWS BEND INTERMODAL TERMINAL The Choctaw Point Container terminal will be linked to a 57-acre Intermodal Terminal (IT) with capacity to meet the projected level of throughput beyond 2030. As can be seen in Figure 6-3, unit container trains will be able to exit the main line track adjacent to the project area and pick up or drop off containers efficiently from the marine terminal and value-added development areas. With an extension of the track to connect into or run alongside the existing McDuffie 4

Island loop, trains of up to 9,000 ft can be pulled into the IT without blocking rail traffic on the main line. As part of the Garrows Bend Enhancement project, public access and green areas will be created directly to the east of the Intermodal Terminal and outside the terminal boundaries. Early discussions with interested local groups have indicated that a bicycle trail or walking area are strong candidates for this area. Figure 6-2: Choctaw Point Container Terminal 5

Figure 6-3: Garrows Bend Intermodal Terminal 6.4 GARROWS BEND VALUE-ADDED WAREHOUSING AND DISTRIBUTION CENTER The development of the Value-Added Warehousing and Distribution (VAD) area in the mid term of the 20 year program, constitutes one of the most attractive elements of the entire program. In the early years of operation, the flow of containers through the marine terminal and intermodal terminal is expected to encourage businesses to locate their facilities in the VAD area. In the mid term, these businesses will generate their own container traffic, thereby increasing terminal throughput and providing additional employment opportunities for local residents. In the long term, it is recognized that the Garrows Bend area may be unable to accommodate the demand for space in the trade zone. At this time, it is expected that state or regional initiatives will be implemented in order to support and encourage the development of economic activity clusters location along the main intermodal corridors linking the marine terminal and intermodal terminal to the rest of Alabama and points outside the state. 6

7 FUTURE EXPANSION Clearly the primary future expansion requirement will involve the construction of additional container terminals, to be on line by approximately 2015, or when demand exceeds 300,000 TEU s 1 per year. As noted earlier, the McDuffie coal terminal offers one location for a new container terminal, and would increase capacity by some 750,000 TEU s per year. However the location may or may not be available for conversion to other use at that time. Other sites with potential for container terminal development include land immediately north of the proposed Choctaw Point Terminal and the DRI/Bulk facility area south of the inlet. It is expected that expansion of the VAD area will move outside the Phase 1 area as demand grows. In the long term, the successful expansion of the overall program is likely to lead to development of VAD clusters in the Mobile area and also statewide, connected by the intermodal corridors serving the primary maritime center at Choctaw Point. Figure 7-1: Choctaw Point Container Terminal Expansion Potential Future Expansion Area (> 1.25 million TEU s) Phase 1 Development (250,000 TEU s) Potential Expansion Area (>500,000 TEU s) 1 TEU a standard unit of measure for containerized cargo based on twenty-foot long container (Twenty foot Equivalent Unit). 7

8 COST ESTIMATES The summarized cost of the four primary project elements within the Phase 1 development plan is presented in Table 8-1. Work has already begun on the permitting and preliminary engineering aspects of the projects, and ASPA is actively working with a number of potential stakeholders or operators of the Container Terminal and Intermodal Yard elements. Table 8-1: Estimated Capital Cost of Phase 1 Development Plan Project Capital Cost Garrows Bend Restoration Storm Water Channel Re-route 230,000 Containment Dikes 2,000,000 Dredging 3,000,000 Contaminated Materials Treatment 12,000,000 Site Capping 1,350,000 Intertidal Dike and Wetlands Creation 450,000 Public Access Development 1,090,000 Permitting, Engineering Design & Admin 3,000,000 Project Total 23,120,000 Choctaw Point Container Terminal Planning, Marketing & Financials 975,000 Demolition & Site Clearance 3,975,000 Remediation 12,000,000 Mitigation 1,000,000 Dredging & Reclamation 21,275,000 Marine Structures 38,812,500 Site Work, Paving, Roads, Utilities, Buildings 30,744,000 Cranes 25,000,000 Relocation of Rail Ferry 6,500,000 Permitting, Engineering Design & Admin 13,725,000 Sub Total 153,506,500 Garrows Bend Intermodal Yard Demolition & Site clearance 576,000 Intermodal Rail Yard 29,960,000 Site Work, Paving, Roads, Utilities, Buildings 16,820,000 Permitting, Engineering Design & Admin 7,500,000 Sub Total 54,856,000 Value Added/Distribution Area Primary Road Network 3,900,000 Secondary Roads 1,250,000 Utilities (Local Network) 1,000,000 Public Access Areas 1,000,000 Permitting, Engineering Design & Admin 850,000 Sub Total 8,000,000 Totals $238,482,500 8

9 IMPLEMENTATION SCHEDULE The schedule for the Phase 1 development is shown in 9-1. From the chart, it can be seen that the immediate priority is the permitting of the various project elements, with the goal of completing the construction of the Choctaw Point Container Terminal before the end of fiscal year 2005. Description Program Requirements 2002 Qtr 1 Qtr 2 Qtr 3 Qtr 4 2003 2004 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 2005 2006 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Complete & Adapt Strategic Plan Permitting Agreement to Lease Operate Choctaw Point Port Capacity Improvements Garrows Bend Enhancement Design Construction Choctaw Point Container Terminal Design Site Improvements/Reclamation Construction - Container Yard Choctaw Point Intermodal Terminal Design Site Improvements/Reclamation Construction Added Value/Distribution Park Design Site Improvements/Reclamation Construction 9

10 CONTAINERIZED TRADE DEMAND FOR PORT DEVELOPMENT At the request of the Alabama State Port Authority (ASPA), Moffatt & Nichol Engineers has conducted an analysis of the potential future market for containerized international trade that could be handled in a new container terminal complex (marine container terminal in association with adjacent dock intermodal rail facilities and extensive near dock consolidation/distribution warehousing) in the Port of Mobile, Alabama. The basic approach of this analysis was to identify a potential inland market area that could be reasonably served by Mobile, identify international trade routes for which Mobile would provide a logical and competitive alternative, and then identify the geographic areas where Mobile offers a lower cost alternative, considering all relevant transportation costs, as compared to other ports competing for the trade. Having identified the geographic areas where Mobile can offer a cost advantage, the volume of trade in those areas is estimated using a database of U.S. international containerized trade developed from the Journal of Commerce s Port Import/Export Reporting Service (PIERS) database. These volume estimates then form the basis of developing longer-term forecasts, building on growth rates for the various trade routes supplied by DRI-WEFA. The following sections describe this estimation and forecast methodology in some detail, and then reviews the results of the analysis as well as discussing the implications of and any factors to consider in the interpretation of these results. In addition, an analysis of the potential for capturing a portion of the current overland truck traffic between the U.S. and Mexico for a waterborne service to Mobile is presented. 11 DEFINITION OF POTENTIAL MARKET AREA While it is conceivable that Mobile could serve all inland U.S. regions to or from all world regions, the realities of shipping routes, domination by other U.S. ports, and the practical need to manage the scope of the analysis, requires that a set of market boundaries for the analysis be defined. These market boundary conditions are reflected in the following parameters of the analysis: International Regions In addition to the immediate local markets, Gulf ports have been historically most competitive for trade on North-South trade routes serving Latin America as well as trans-pacific trade that is routed through the Panama Canal. These trade routes are particularly relevant for Mobile because of the north-south rail connections available out of Mobile that offer the advantage of serving the mid-america region efficiently. Consequently the trade routes indicated in Figure 11-1 have been chosen for the market analysis. 10

Figure 11-1: Definition of International Regions Domestic Market Region A twenty-two state region of the U.S., as shown in Figure 11-2, reflects the market area that the Port of Mobile is most likely to serve on a competitive basis, and has been identified as the area where a detailed cost based market analysis will be performed. This is not to say however, that other states outside of the Moffatt & Nichol identified study area could not contribute additional volume on certain trade routes. Competitive U.S. Ports Having identified a market delineated by the international and domestic regions described, it is necessary to specify the ports that Mobile will be competing with to capture the trade of this market. The analysis method requires that a number of competing ports be identified that are representative of those that Mobile will be competing with. It is not necessary to identify every port that is a possible competitor. A review of the geography of the specified market region, and the activity levels of potential competitors resulted in the identification of the ports indicated in Figure 11-3. 11

Figure 11-2: Definition of Domestic Region Mid-America 16,564 16,564 Zip Zip Codes Codes Port Port of of Mobile Mobile North-South North-South Trade Trade Routes Routes Figure 11-3: Competitive U.S. Ports 12

12 DETERMINATION OF LEAST COST MARKET AREA With the parameters of the potential Mobile market having been defined as described above, the next step in the analysis is to determine the specific geographic locations where Mobile has a competitive advantage in the market. This determination is done in a very rigorous and systematic fashion, at a level of great detail. The methodology consists of the following steps: For each of the 16,564 zip codes in the Mobile domestic market potential area, total transportation costs are computed for trade through Mobile, and through each of the competing ports. These total transportation costs are computed for both truck and intermodal rail. These cost calculations are performed for each of the international trade routes. The total cost calculation for each zip code consists of the following cost elements: The Ocean Freight Costs to Each of the Competing Ports Ocean freight cost estimates are prepared based on assumptions regarding a ship size forecast for each of the trade routes. These assumptions are presented in Figure 12-1. Cost estimates are then prepared for each trade route considering the various elements contributing to system costs for a particular service. An average cost/teu is then Figure 12-1: Ship Size Forecast By Trade Route Trans-Continental North-South Corridor Service Avg Vessel Size (TEU s) Forecast for Latin America Trade Central America Caribbean Trans -Pacific via Panama Canal East Coast South America West Coast South America 2000 2020 900 1,500 790 1,200 3,219 4,000 1,456 4,000 1,500 3,500 13

computed. Figure 12-2 presents an example of this analysis based on the Caribbean trade route. The least cost for each competing port is selected as the ocean freight cost to be used in computing total cost through that port, for that trade route. Figure 12-2: Shipping Cost Estimates Trade Route: Caribbean to South Atlantic/Gulf Service 1 2 3 4 5 6 US Trade Route: East Coast Gulf Miami Direct Mobile Direct New Orleans Direct Houston Direct Rotation: Charleston Miami Miami Mobile New Orleans Houston Miami Mobile San Juan San Juan San Juan San Juan San Juan New Orleans Rio Haina Rio Haina RioHaina Rio Haina RioHaina Houston Port au Prince Port au Prince Port au Prince Port au Prince Port au Prince Vera Cruz San Juan Rio Haina Port au Prince Ship Size TEUs 1000 1000 1000 1000 1000 1000 Fleet Size 2 3 2 2 2 2 Voyage Length 2841 4929 2255 2790 3474 3910 Average Speed 11 19.6 8.6 11.5 13.3 15 TEUs Moved 93,600 93,600 93,600 93,600 93,600 93,600 Sys. Cost($MM) 7.93 11.3 7.42 8 8.4 8.94 Ave.Cost/TEU($) 85 121 79 86 90 96 U.S. Port of Call Costs Transportation costs to each port include ship related charges and an average all-in stevedoring charge for terminal services of $125/TEU. Prior to determining the proposed financial price, $125 is used for the Port of Mobile. Reductions or increases will impact on the port s market forecast accordingly. Inland transportation costs are computed for both truck and intermodal rail alternatives. For truck transport, the appropriate highway routing from each port to each zip code is calculated. A trucking unit cost per mile is then applied to that distance to arrive at the trucking cost for each port-zip code combination. The unit trucking cost is comprised of a cost per mile for a loaded trip, for an empty trip, and an assumption regarding the percent of trips with return loads. Trucking cost assumptions are based on Moffatt & Nichol Engineers surveys of trucking companies, supplemented by data provided by the American Trucking Association. The resulting unit cost used in the calculations is $2.30 per mile of one way distance from port to zip code, per container. All other costs associated with truck transport including customer premises costs (drop-off) are assumed equal for all ports and origin/destination (O/D) zip codes. They are therefore a wash and not relevant in comparisons among competing ports. Figure 12-3 displays the highway network from the competing ports to the market region, as well as the trucking cost assumptions utilized in the analysis. 14

Figure 12-3: Container Trucking Routes Mobile AL Notes: $2.30/mile of one-way distance/feu Includes cost of empty return Truckers have a return load on 15% of their trips $1.41/mile for loaded trip $1.04/mile for empty trip Port costs (stevedoring, assessments); customer premises costs (drop-off) all assumed equal for all ports, O/D Intermodal rail transport costs are made up of two components, a double stack unit train line haul cost between each port and an inter-modal rail yard closest to each zip code O/D, and a truck drayage cost between the zip code and the intermodal yard. The most practical rail routings were identified to a selection of intermodal yards serving the market area. A unit cost of $0.22 per mile per FEU 2 was used. This cost represents a calculation of the average costs of providing line haul services. Drayage from the intermodal terminal to the zip code O/D was computed in the same manner as trucking costs described above. All other costs associated with rail transport including intermodal yard costs were assumed to be the same for all ports, intermodal yards and O/D zip codes and were therefore not relevant in comparisons among competing ports. Figure 12-4 displays the rail network and intermodal yards used for the market region and competing ports, as well as the intermodal rail cost assumptions utilized in the analysis. 2 FEU a standard unit of measure for containerized cargo based on forty-foot long container (Forty foot Equivalent Unit). Note, 1 FEU = 2 TEU s 15

Figure 12-4: Container Intermodal Rail Service Rail Service Legend Local Truck Drayage RR Intermodal Transfer Terminal Stack Train Route Mobile AL Port RR Yard Notes: $0.22/mile of one-way distance/feu All routes are cleared for double stack Based on average cost/mile for unit trains Trucking costs between ICD and O/D estimated at trucking rates Port costs (stevedoring, assessments, drayage); ICD costs (load/unload, yard costs); customer premises costs (drop - off) all assumed equal for all ports, ICD, O/D For each zip code, the least cost port and inland modal routing is identified. That zip code is then assigned to that port and mode. For example, the least cost routing for a particular zip code may be intermodal rail from Charleston. Another zip code may have a least cost routing by truck from New Orleans. Utilizing GIS 3 mapping software, maps are created that aggregate all of the zip codes for which a port and mode is least cost into market advantage areas. For example Figure 12-5 presents the market areas for each port for truck transport, for the Caribbean trade route. Figure 12-6 presents the market areas for intermodal rail, and Figure 12-7 presents the market areas for each competing port when the least cost transport method (truck or rail) is chosen. Although all of the example maps included in the executive summary are based on the Caribbean trade route, similar maps were prepared for each trade route to complete the analysis. 3 GIS Geographic Information System 16

Figure 12-5: Caribbean Trade: Inland Transport Mode Truck Cost Differential: $ 0 LEGEND: Truck Market Areas Port of Mobile Port of Charleston Port of Miami Port of New Orleans Port of Houston Mobile AL Figure 12-6: Caribbean Trade: Inland Transport Mode Intermodal Rail Cost Differential: $ 0 LEGEND: Intermodal Rail Market Areas Port of Mobile Port of Charleston Port of Houston Mobile AL 17

Figure 12-7: Caribbean Trade: Inland Transport Mode Least-Cost Split Cost Differential: $ 0 (Area of Long - Term Potential) LEGEND: Market Areas Mobile Truck Mobile AL Mobile Rail Charleston Truck Charleston Rail Miami Truck* New Orleans Truck* Houston Truck Houston Rail Inland Transport Mode Least - Cost Split The market areas described above define markets where each port has at least some marginal cost advantage as compared to its competitors. In addition, it is of interest to identify for Mobile, those areas where Mobile has a greater margin of cost advantage as compared to its competitors. The definition of these areas will allow identification of that trade where a larger cost advantage indicates a greater likelihood that Mobile can capture this trade. Calculations were performed for each trade route to determine the areas where Mobile had a cost differential of at least $10 per TEU over competing ports, and a differential of at least $20 per TEU. The maps showing these areas for the Caribbean trade route, as an example, are presented in Figures 12-8 and 12-9. It can be seen that the market area with at least a $10 advantage is 5,659 zip codes smaller than the market area were a marginal (break even) cost advantage is maintained. When a $20 cost advantage is imposed, Mobile s market area is further reduced by an additional 91 zip codes. 18

Figure 12-8: Caribbean Trade: Cost Differential +$10 (Ar ea of Mid-Term Potential) LEGEND: Lost Zip Codes: 5,659 Lost Depots: Waterloo, IA Chicago, IL Cincinnati, OH Nashville, TN Memphis, TN Port of Mobile Trucking Market Area Port of Mobile Intermodal Rail Market Area Market Area Lost to Other Ports Mobile, AL Inland Transport Mode Least - Cost Split Figure 12-9: Caribbean Trade: Cost Differential +$20 LEGEND: Lost Zip Codes: 5,750 Lost Depots: Waterloo, IA Chicago, IL Cincinnati, OH Nashville, TN Memphis, TN Port of Mobile Trucking Market Area Port of Mobile Intermodal Rail Market Area Market Area Lost to Other Ports Mobile, AL Inland Transport Mode Least - Cost Split 19

13 ESTIMATING POTENTIAL AND PHASED MARKET SHARE Thus far, the method for determining those market advantage areas, as defined by a collection of zip codes, where the Port of Mobile enjoys a cost advantage for total cost of transporting international marine cargo, as compared to its likely U.S. port competitors has been described. 13.1 PIERS DATA In order to estimate the market size that these market advantage areas represent, the Journal of Commerce PIERS database of U.S. international marine trade was utilized. PIERS data for the year 2000 was acquired and used as the source of market estimates. The PIERS data represented world trade through U.S. ports for the year 2000, including the following data elements: U.S. Port Foreign Country of Origin or Destination Foreign Port of Origin or Destination Customs District U.S. Origin or Destination of Trade Shipper/Consignee Name and Address Shipping Line Volume of Shipment in TEU s Commodity In order to identify the trade recorded in the PIERS transaction data according to the market advantage areas that have been identified, it is necessary to locate the U.S. origin or destination of the trade by zip code. For many PIERS transactions, however, the zip code, and in many cases the city and/or state of origin or destination are not provided. In order to address this situation, a methodology has been developed to impute the most likely origin or destination, (and zip code) of the transaction based on relevant information that is available for the transaction. This imputation methodology essentially matches a transaction for which O/D is not available with similar transactions that include O/D, using a hierarchy of matching criteria. A more detailed description of the imputation methodology is provided in the appendix. 13.2 MARKET ESTIMATES With the market advantage areas identified, and the adjusted PIERS data prepared so it can be located by zip code, estimates for trade that may be captured by the Port of Mobile can be developed. As a preliminary step, the total trade for the 22 state market area that the five trade routes encompass has been identified. This total is presented in Figure 13-1. As can be seen in Figure 13-1, the five trade routes total almost 2 million TEU s of trade in the 22 midwestern states that have been analyzed. The trade-by-trade route ranges from 84,000 TEU s, or 4.3% 20

for the West Coast of South America to 838,000 TEU s, or 42.9% for the Caribbean. (Note that for all these estimates, trade carried by the Great White Fleet, and by Dole Fresh Fruit Company has been excluded from the totals due to the dedicated and commodity specific nature of the trade.) Figure 13-1: Total Containerized Trade Market Total Market in TEUs: N-S Trade Routes To/From 22 Midwest States Year 2000 Trade Route Exports Imports Total Caribbean 675,325 162,726 838,050 Trans-Pacific via Panama Canal 218,958 191,191 410,149 Central America 223,700 171,536 395,236 East Coast South America 136,224 91,347 227,571 West Coast South America 51,957 32,120 84,077 TOTAL 1,306,163 648,919 1,955,083 WCSA: 4.3% Carib: 42.9% ECSA: 11.6% Tpac: 20.2% CA: 21.0% Because the nearly 2 million TEUs of trade for these trade routes in the 22 states have been located by zip code, we are able to determine which of these TEU s are within the Port of Mobile market advantage areas that we identified earlier. Figure 13-2 presents a summary of that portion of the trade for each of the trade routes that is located in the Port of Mobile breakeven market advantage area. Recall that this is the market area where the Port of Mobile has a least a marginal advantage over its competing ports in terms of total transportation cost. As can be seen in Figure 13-2, of the nearly 2 million TEU s in the 22 states, the Port of Mobile market advantage area (breakeven) includes about 451,000 TEU s, or 23.1% of the total North-South market of the five trade routes. Mobile s market by trade route ranges from 28,000 TEU s for the West Coast of South America, or 6.3% of Mobile s total (and 33.6% of the WCSA portion of the North-South market) to 165,000 TEU s for the trans-pacific trade through the Panama Canal, or 36.6% of the Mobile total (and 40.3% of the Tpac trade in the N-S market). 21

Figure 13-2: Market Area Potential: Breakeven Trade Route Exports Imports Total % of Total N-S Market Trans-Pacific via Panama Canal 95,524 69,818 165,342 40.3% Caribbean 100,108 31,250 131,358 15.7% East Coast South America 41,720 32,901 74,621 32.8% Central America 27,772 24,176 51,948 13.1% West Coast South America 17,309 10,933 28,242 33.6% TOTAL 282,433 169,078 451,511 23.1% WCSA: 6.3% Tpac: 36.6% CA: 11.5% ECSA: 16.5% Carib : 29.1% A similar summary is presented in Figures 13-3 and 13-4 for the Mobile market area defined by larger cost advantage thresholds compared to competing ports. It can be seen in Figure 13-3, that with a cost differential of $10, the Mobile market advantage area is reduced to about 340,000 TEUs, and Figure 13-4 shows that with a $20 cost differential, the Mobile market is further reduced to about 298,000 TEUs. Figure 13-3: Market Area Potential: +$10 Cost Differential Trade Route Exports Imports Total % of Total N-S Market Trans-Pacific via Panama Canal 95,516 69,818 165,334 40.3% East Coast South America 38,100 27,875 65,975 29.0% Central America 25,584 22,259 47,843 12.1% Caribbean 28,951 5,472 34,422 4.1% West Coast South America 15,609 10,550 26,159 31.1% TOTAL 203,759 135,973 339,732 17.4% WCSA: 7.7% Tpac: 48.7% Carib: 10.1% CA: 14.1% ECSA: 19.4% 22

Figure 13-4: Market Area Potential: +$20 Cost Differential Trade Route Exports Imports Total % of Total N-S Market Trans-Pacific via Panama Canal 90,577 66,619 157,196 38.3% East Coast South America 33,399 23,827 57,226 25.1% Central America 18,482 20,165 38,647 9.8% Caribbean 27,209 5,102 32,311 19.9% West Coast South America 8,027 5,069 13,097 15.6% TOTAL 177,694 120,783 298,477 15.3% WCSA: 4.4% Tpac: 52.7% Carib: 10.8% CA: 12.9% ECSA: 19.2% This information can also be displayed graphically. Figure 13-5 presents the combined N-S trade route trade, in Mobile s breakeven market, and Figure 13-6 presents the Trans-Pacific Panama Canal trade in Mobile s breakeven market area. Similar graphical presentations have been prepared for each trade route market advantage threshold combination. Figure 13-5: Combined N-S Trade Routes Cost Differential: Breakeven TEUs per Zipcode 0 500 501 5,000 5,001 10,000 10,001 20,000 20,001 403,000 Total N - S TEUs via Port of Mobile: Import 169,078 Export 282,433 Total TEUs 451,511 Mobile, AL Note: Note: Excludes Great Great White Fleet Fleet Ltd. Ltd. (GWFL) and and Dole Dole Fresh Fresh Fruit Fruit Company (DFFC) 23

Figure 13-6: Trans-Pacific via Panama Canal TEUs per Zipcode 0 500 501 5,000 5,001 10,000 10,001 20,000 20,001 403,000 Total Tpac TEUs via Port of Mobile: Import 69,818 Export 95,524 Total TEUs 165,342 Mobile, AL Note: Excludes Great White Fleet Fleet Ltd. Ltd. (GWFL) and and Dole Dole Fresh Fruit Fruit Company (DFFC) 14 MARKET DERIVED PORT DEVELOPMENT CRITERIA The market estimates that have been prepared provide the foundation for establishing port development criteria. These market estimates have provided the data to identify priority inland destinations for containerized cargo, for forecasting the growth of containerized trade over the port development phases, for estimating the potential for value-added warehousing/distribution center development in the port, and to estimate modal split for the forecasted trade. 14.1 DENSE TRADE CLUSTERS (DTC S) In order to determine priority areas for the marketing of Mobile trade, eleven dense trade clusters, were identified. These represent areas of trade focused within an 80-mile radius that represent geographically concentrated markets, with convenient rail access. Figure 14-1 presents a graphical display of these DTCs. In Figure 14-2 a summary of the Mobile market in each of the eleven DTCs is presented. As can be seen, the Atlanta area, which is served by the CSXT railroad from Mobile, with about 129,000 TEUs is the largest concentrated inland market 24

for Mobile. (Note that many of the DTCs are served by more than one railroad from Mobile, with Atlanta, for example, also being served by the Norfolk-Southern railroad (NS). For the purposes of this study only the shortest or most direct routing was considered.) The eleven DTCs total about 380,000 TEUs, or 84% of Mobile s breakeven market of 451,000 described earlier. Figure 14-3 provides a more detailed analysis of the Atlanta DTC, showing a summary of imports, exports and empties, as well as the totals by trade route and by shipping line. Similar analyses have been prepared for each of the DTCs. Figure 14-1: Dense Trade Clusters Combined N - S Routes: Breakeven Cost Differential TEU s per Zipcode 0 500 501 5,000 5,001 10,000 10,001 20,000 20,001 403,000 11 Dense Trade Clusters: Import 152,714 Export 227,976 Total TEU s 380,690 r DTC Radius = 80 miles Mobile, AL Note: Excludes Great White Fleet Ltd. Ltd. (GWFL) and and Dole Fresh Fruit Company (DFFC) 25

Figure 14-2: Dense Trade Clusters Table DTC Export Import Total % Share RR Service Atlanta, GA 73,463 55,853 129,316 28.6% CSXT Chicago, IL 40,877 25,354 66,231 14.7% CN/NS Detroit, MI 23,589 12,226 35,815 7.9% CSXT Memphis, TN 21,356 9,232 30,588 6.8% CN Nashville, TN 10,840 19,128 29,968 6.6% CSXT St. Louis, MO 10,211 8,807 19,018 4.2% BNSF Cincinnati, OH 12,040 6,761 18,801 4.2% NS Cleveland, OH 12,932 4,844 17,776 3.9% NS Minneapolis, MN 9,645 3,876 13,521 3.0% BNSF Milwaukee, WI 6,070 4,147 10,217 2.3% CN/NS Mobile, AL 6,953 2,486 9,439 2.1% Truck Total 227,976 152,714 380,690 84.3% Figure 14-3: Atlanta Dense Trade Cluster #1 Inland Destination of Mobile s Trade 2000 Total: 129,316 Loaded TEUs Year 2000 Trade N-S Trade Route Empties 38,795 TEUs Exports 73,463 TEUs Imports 55,853 TEUs WCSA 4.9% CA 7.4% Tpac 45.2% ECSA 7.6% Carib 34.9% Top 5 Shipping Lines CRLS MLSL YMAL EVER NDPR Subtotal TEUs 15,169 11,346 10,301 7,391 7,367 51,575 % of Total 11.7% 8.8% 8.0% 5.7% 5.7% 39.9% 26

15 CONTAINERIZED TRADE GROWTH FORECAST AND DEVELOPMENT PHASES A forty-five year Mobile trade forecast was developed to provide a port development planning framework. This forecast used the Mobile market advantage area estimates as a basis, and was forecasted based on growth rates for Latin American trade derived from DRI-WEFA, and adjusted based on the experience and analysis of Moffatt & Nichol Engineers. The resulting CAGR (compound annual growth rates) are presented in Figure 15-1. As can be seen, an average weighted CAGR of 4.6% for Mobile was established. Figure 15-1: U.S. Latin America Trade Forecast: 2000 to 2044 Trade Route CAGR Trans-Pacific via Panama Canal Central America Caribbean East Coast South America West Coast South America Average Weighted CAGR 5.50% 7.11% 2.10% 6.24% 8.55% 4.6% Source: DRI-WEFA/M&N Long Range Latin American Trade The containerized trade growth forecast was prepared by applying the weighted average CAGR over several development phases. After projected completion of initial port development in 2005 (nominal) a relatively rapid ramp up over the initial five years followed by another five years of more modest growth to a capture of the $20 cost advantaged market is projected. This will be followed by a ten-year growth to capture the more challenging $10 market. And finally, the forecast includes a twenty-year period over which the most challenging breakeven market is captured. This growth profile is presented in Figure 15-2. As can be seen, the total market potential under this scenario is displayed, as well as the market size captured if only 50% of this growth is actually achieved. Figure 15-3 presents a table of the Port of Mobile Containerized trade forecast for the more conservative 50% market capture. As can be seen, under this scenario, Mobile has a total volume of about 291,000 TEUs in 2010, growing to 614,000 in 2020, more than one million in 2030 and more than two million TEUs in 2045. 27

Figure 15-2: Containerized Trade Growth Forecast 5,000,000 Phase I Phase II Phase III Phase IV 4,000,000 Total Potential 50% Capture Rate CAGR = 4.6% 3,000,000 2,000,000 1,000,000 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 Note: Includes imports, exports and empties. Excludes Great White Fleet Ltd. (GWFL) and Dole Fresh Fruit Company (DFFC) Figure 15-3: Mobile Containerized Trade Growth Forecast at 50% Market Capture 2005 2010 2015 2020 2025 Exports 4,157 133,177 166,758 291,165 415,572 Imports 4,034 90,523 113,349 181,065 248,781 Empties 2,457 67,110 84,033 141,670 199,306 Total 10,648 290,810 364,140 613,900 863,659 2030 2035 2040 2045 Exports 520,360 651,572 815,870 1,021,597 Imports 311,513 390,063 488,419 611,577 Empties 249,562 312,491 391,287 489,952 Total 1,081,435 1,354,126 1,695,576 2,123,126 28

16 VALUE-ADDED DISTRIBUTION AND MODAL SPLIT FORECAST Since it is expected that warehouse development and intermodal rail development will be important elements of the Port of Mobile development, estimates of the dimensions of these elements have been prepared. Figure 16-1 presents the results of these estimates. Figure 16-1: Value-Added Distribution Forecast & Modal Split Warehouse Intermodal Rail Truck 2015 2025 2015 2025 2015 2025 Exports -- -- 146,747 365,703 20,011 49,869 Imports 62,519 102,730 99,747 218,927 13,602 29,854 Empties -- -- 73,949 175,389 10,084 23,917 Total 62,519 102,730 320,443 760,019 43,697 103,640 Truck 12% Intermodal Rail 88% Notes: 1) Warehoused TEUs equals Tpac imports. 2) Assumes 50% market capture and 4.6% CAGR. 3) Year 2000 modal split of 88% intermodal rail and 12% truck assumed constant. 4) Excludes Great White Fleet Ltd. (GWFL) and Dole Fresh Fruit Company (DFFC) The volume of TPAC imports was used to estimate the volume of trade that will require valueadded warehouse space. Asian imports typically undergo value-added processing. The total for 2025 is over 102,000 TEUs of trade. This Figure also summarizes the trade in the market advantage areas by mode. The resulting modal split is 88% rail and 12% truck. This distribution was established based on the projected cost of inland transportation calculated by the methodology outlined in Section 12 of this executive summary. Accordingly if the 88% rail allocation was achievable and could be sustained, by 2025, more than 760,000 TEU s of intermodal rail traffic could be generated in the Port of Mobile. 29

17 EUROPEAN TRADE OPPORTUNITIES While the focus of this analysis has been north south trade routes as described above, there may be opportunities to develop additional market areas. One example is the European market. Alabama State Port Authority staff has identified a large number of chemical firms within a 150 mile radius of Mobile that currently export to Europe. In addition, analysis of the adjusted PIERS database shows that there are about 283,000 TEU s of volume between the 22 state Mobile market area and Europe that is currently moving through Gulf ports, with about 75% of that total moving through Houston. These facts indicate the Europe market is one that could supplement the findings described in the previous analysis. 18 MEXICAN TRADE ROUTE ANALYSIS - AN ADDITIONAL OPPORTUNITY The ratification of the terms of the North American Free Trade Agreement (NAFTA) between Mexico, the United States and Canada greatly expanded trade between the three countries. Nowhere has this expansion been more visible than on the burgeoning overland roadway border crossings between the United States and Mexico. In fact, so massive has been the expansion that consequent congestion and pollution on the I-35 highway corridor in the United States has become a national issue being dealt with by all levels of government: local, state and federal. A U.S. Department of Transportation (DOT) program (Borders and Corridors) has been established to fund projects (with grants and soft loans) that can be proven to mitigate the impacts of the seemingly ever-increasing stream of trucks from this source. Thus, it is not only in the cargo expansion interests of the Port of Mobile, but also that of national (Mexico and the United States) economic development and environmental protection that the Port seriously examine the opportunity of diverting some of this flow on to waterborne transportation for delivery to regions of the United States. In order to make a preliminary estimate of the volume of cargo that might be diverted from current overland routing to a waterborne service from the Mexican Port of Veracruz through the Port of Mobile, the relative costs of alternative routings were estimated and compared. For those origins and destinations in the two countries where the waterborne alternative through Mobile appears to offer a comparative economic advantage, the volume of trade as reported by the US Bureau of Transportation Statistics (BTS) was identified. Using this data as a basis, assumptions were made regarding the share of this potential market that might be captured by a waterborne service. 30

This analysis has identified a current year potential for waterborne transportation between the Port of Veracruz and the Port of Mobile of approximately 195,000 TEUs. The following describes the methodology and assumptions used in developing the estimated market for diversions from Mexico US overland transportation to Veracruz via US Gulf Ports waterborne transportation: The previously described Mobile market area was considered. Truck distances were calculated between a central point in each Mexican state and each of the potential US states. A trucking cost for each of these routings was computed using estimated US trucking rates, and assuming that 85% of the trips have a backhaul load. Costs were also computed for each Mexican state US state trips based on a waterborne service between Veracruz and US Gulf Coast Ports. Houston, New Orleans, Mobile and Tampa were considered. The costs for this alternative included the inland delivery to or from the Mexican state to Veracruz, the ocean freight cost between Veracruz and the US port, port costs, and inland delivery in the US between the port and the ultimate state of origin or destination. It should be noted that while cost based on existing ocean services have been used for this analysis, alternative and potentially lower cost systems could be used, most notably the Sea-Bridge Roll-Off, Roll-On system currently being used to link Jacksonville, Florida and San Juan, Puerto Rico. BTS Trans-Border data on US Mexico trade was used to estimate the imports and exports between each Mexican state and each of the 22 US states considered in this analysis. This analysis entailed estimating the volume of US imports based on their dollar value, and estimating the distribution of US imports by Mexican state based on the distribution of exports, which is provided by Mexican state. For each US state Mexican state routing where the waterborne cost estimate through Mobile was less than the overland cost estimate and competing ports waterborne cost, the corresponding estimated trade volume for that routing was tallied. The resulting total represents the potential volume of year 2000 US Mexico overland trade that might have the potential for diversion to a waterborne service from Veracruz through Mobile. Because of the difficulty in overcoming the market s path dependency on the use of current trucking methods, a capture of 50% of this potential market has been assumed. Figure 18-1 displays the diversion potential for each location where the Mobile routing was the least costly and summarizes the total diversions. In addition, as can be seen in the 31

figure, Mobile also represents the least cost routing for about 6,000 TEUs of cargo currently served by marine transit. It should be emphasized that this analysis is conceptual, and based on very preliminary cost and market data, that has been subject to an array of cumulative assumptions. This being said, however, the analysis does indicate that given the volume of US Mexico overland trade, and the inherent difficulties in truck transportation, it is a market that deserves further consideration and may offer a significant opportunity for the Port of Mobile. Because of the complexity of this opportunity, it may take a joint venture between the Port of Veracruz and the Port of Mobile to overcome the path dependency of the truck. Since the economics of waterborne transportation are dependent on a level of volume that represents an effective capacity utilization, initiation of this type of service may require interim funding assistance for the waterborne alternative to assist in a ramp up to a viable economic level of volume. It may be possible to seek government support for the initiation of such a waterborne alternative in view of the public benefits that result from removing significant truck miles from the highways of the two countries. Benefits in terms of congestion reduction, equivalent highway capacity created and pollution reduction are likely to be identifiable. Figure 18-1: Potential US Mexico Overland Freight Diversion via Mobile Diversion: 1,544 Diversion: 55,806 TEUs per Zipcode 1 4,000 4,001 15,000 15,001 30,000 30,001 60,000 60,001 212,500 Potential Traffic via Port of Mobile: Marine Import Marine Export SubtotalTEUs Overland Diversion Import Export 1,076 1,820 2,896 149,310 47,150 Total TEUs 196,460 Diversion: 60,050 Diversion: 7,824 Diversion: 15,774 Diversion: 12,528 Diversion: 23,316 Diversion: 1,440 Diversion: 18,178 32

19 CONCLUSION The Port of Mobile is positioned to exploit an advantageous geographical location on North South trade routes and capture a significant portion of containerized trade to the Mid American region of the United States. Based on a detailed analysis of the relative economics of shipping through the Port of Mobile as compared to its competing ports, it is projected that, with an appropriate marketing and development effort, the Port of Mobile could realize a growth in TEU volume from today s 8,000 to about 290,000 in 2010, growing ultimately to more than two million in 2045. A key factor that contributes to the potential of the Port of Mobile is railroad accessibility. The economic analysis that supports these forecasts also indicate that the trade projected for the Port will be primarily served by intermodal rail. With a modal share of 88%, by 2025 more than 760,000 TEU s of intermodal rail traffic will be generated in the Port of Mobile. Warehousing should also play a key role in the development of the Port of Mobile. Growth in Asian trade on all-water routes through the Panama Canal, facilitated by planned expansion of the Canal, can contribute to the development of value-added warehousing activity in the Port of Mobile complex. Asian imports are largely comprised of consumer products that require additional value-added processing (bar-coding, packaging, assembly, etc.) prior to delivery to final retail destinations. By 2025, more than 102,000 TEUs of trade in Mobile will be likely candidates for this activity. The market for trade through the Port of Mobile is concentrated in eleven dense trade clusters that encompasses 84% of Mobile s potential market. These clusters, with Atlanta, Chicago and Detroit being the three largest, all have convenient rail access from Mobile, and represent marketing targets for the development of the Mobile port complex. The port is well situated to service the mid-american market, as well as support the evergrowing industrial development within the State of Alabama. The Port offers some of the best road, rail and inland waterway access of any port within the Gulf region with the added advantage of available land to develop value-added warehousing and distribution centers with excellent access to the marine terminal facilities. The marine/rail and distribution network is further enhanced by the close proximity of the Brookley Airport & Industrial Park. The close proximity of a cargo airport opens or expands the desirability of Mobile as a value-added and distribution Center. 33