1. The Case for the Federal Hopper Dredge Fleet On the Pacific Coast

2. Issue Areas:  Goals of Public Law 95-269  Importance of hopper dredging to West Coast ports  Cost of the federal dredge fleet  Competitiveness in the hopper dredge industry  Impact of operating limitations on cost effectiveness  The cost of the ready reserve  Data gaps

3. Key Findings and Conclusions  Goals: u Develop a domestic commercial hopper capability u Reasonable prices in a timely manner u Emergency and national response capability The Goals of PL 95-269

4. Number of Vessels  Findings: u Corps hopper dredges decreased from 14 to 4 u Industry hopper dredges increased from 0 to 17 Industry now owns over 80% of the national hopper fleet. Key Findings and Conclusions The Goals of PL 95-262 (continued)

5.  Industry: u Performs 83% of federal dredging (volume) u Accounts for 89% of program (expenditures) u Performs about 75% of all hopper dredging u Hopper contracts average $135 million per year Key Findings and Conclusions The Goals of PL 95-262 (continued)

6.  Conclusions: u The goal to establish a commercial hopper dredge industry has been met. u No further restrictions on the Corps fleet are necessary. Key Findings and Conclusions The Goals of PL 95-262 (continued) Can the program be more responsive and cost effective?

7. Key Findings and Conclusions The Importance of Hopper Dredging to West Coast Ports

8. Key Findings and Conclusions  Findings: u Hopper dredging:  50-60% of all West Coast dredging  85% of Oregon dredging  Corps dredges = 60% u Unique conditions:  High proportion of small projects  High incidence of adverse weather  Only one private firm on West Coast  5 to 12 weeks to move dredge from East Coast... The Importance of Hopper Dredging to West Coast Ports

9. Mobilization Times and Distances to West Coast Florida to Texas 1400 Miles, 1 Week 6 East Coast N-S 2100 Miles, 1-2 Weeks Portland to Alaska 1500 Miles, 1 Week Between East and West Coast via Panama Canal 8400 Miles, 5 Weeks Between East an d West Coast via Cape Horn 20000 Miles, 12 Weeks Portland to Hawaii 2000 Miles, 1 ½ Weeks Great Lakes to East Coast, 2000-3000 miles, 1-2 Weeks Key Findings and Conclusions = Corps = Industry

10. Key Findings and Conclusions The Cost of the Federal Dredge Fleet

11. Hopper Fleet Cost Comparisons Average cost per cubic yard - current policy On average, Corps hopper dredges cost $.08 per yard more (3%) than private hopper dredges Key Findings and Conclusions

12. The Cost of the Federal Dredge Fleet (continued) CHR = Chetco River COQ = Coquille River ROG = Rogue River SIU = Siuslaw River YAQ = Yaquina River GRH = Grays Harbor

13. Impact of Removing Operating Limits Corps rates can be reduced 12%-16% by increasing the number of days in the operating year Key Findings and Conclusions

14. Competitiveness in the Hopper Dredge Industry

15. Key Findings and Conclusions Competitiveness in the Hopper Dredge Industry (continued)

16. } ~ 17% of contracts exceed estimate due to limited competition Key Findings and Conclusions

17. Competitiveness in the Hopper Dredge Industry (continued)

18. Criterion for an Open Competitive Market  Large number of independent buyers and sellers  Freedom to enter or leave the market  Substitutability of product  All participants have equal access to information Key Findings and Conclusions

19. Commercial Hopper Fleet Industry Consolidations 1980s  GLDD / NATCO  Manson / Osberg Co.  C.F. Bean Co.  Williams - McWilliams  American Dredging  T.L. James ( Gulf Coast Tr.)  Roger J. Au Co. 1990s  GLDD / NATCO  Manson Construction Co.  Bean - Stuyvesant LLC  Weeks Marine Inc.  B+B Dredging Corp. Key Findings and Conclusions Increased capability Decreased competition

20. Private Hopper Dredge Ownership Great Lakes Dock & Dredge 40% Bean Stuyvesant 13% Weeks 13% B+B 13% Manson 20%  17 total vessels  15 available for routine maintenance  1 firm owns 40% of private capability u Awarded 37% of work  1 firm on West Coast u Awarded 60% of work Key Findings and Conclusions Consolidation in ownership of small and large class vessels….

21. Hopper Dredge Ownership By Class of Vessel * Three GLDD vessels have not participated in federal maintenance dredging: 2 for sand mining 1 for out-of-country dredging ** Note effort to repeal Jones Act grandfather clause for Stuyvesant Key Findings and Conclusions

22. Criterion for an Open Competitive Market Assessment: 8 Large number of independent buyers and sellers u Only five firms have hopper dredge capability u 40% of fleet in one firm u Consolidation of large and small dredges u One firm on West Coast 8 Freedom to enter or leave the market u Cost of new dredge = $30-$60 Million u Relatively fixed demand (average 68 mcy / year) u Uncertainty of annual funding 8 Substitutability of product u Limited, due to specialized nature of equipment 4 All participants have equal access to information Key Findings and Conclusions If not an open competitive market, then what is it?

23. Elements of “Natural” Monopoly  High level of initial capital investment  Decrease in marginal cost as output increases u Capital costs greatly outweigh operating costs u Economy of scale exists over entire demand range  Example: u Utilities  Typical Government Responses: u Regulated pricing u Direct Ownership Key Findings and Conclusions

24. The Impact of Corps Operating Year Limitations on Program Cost Effectiveness

25. Key Findings and Conclusions The Impact of Corps Operating Year Limitations on Program Cost Effectiveness (continued)  Nationwide: ChangeFrom FY 90-92 to FY 93-01 Average No. Private Average Average Volume Industry Bidders Bid as % Advertised Firms per Contract of Gov Est INCREASED! DECREASED! DECREASED! INCREASED! 37.2 MCY 3.0784% 51.1 MCY 95%2.45

26. Key Findings and Conclusions The Impact of Corps Operating Year Limitations on Program Cost Effectiveness (continued)  Impacts of 1993 - West Coast: 4.3 MCY 2.9189% 5.6 MCY 98%2.41 Change From FY 90-92 to FY 93-01 Average No. Private Average Average Volume Industry Bidders Bid as % Advertised Firms per Contract of Gov Est INCREASED! NO CHANGE! DECREASED! INCREASED!

27. Trends in Demand  Dredging demand fairly stable since 1996 u Total demand ~ 270 mcy per year u Hopper demand ~ 68 mcy per year  Expansion of existing ports  Deeper harbors and channels  Operating constraints due to environmental windows Trend: An increasing amount of work chasing a limited number of dredge firms over a decreasing amount of time Key Findings and Conclusions

28.  Conclusions: u New restrictions on McFarland + increased demand will result in more work for industry u More work for industry will result in fewer bidders per project and increased bid prices unless… u More work results in additional competing firms Key Findings and Conclusions The Impact of Corps Operating Year Limitations on Program Cost Effectiveness (continued) Allocating more work to Corps vessels will result in: - More competitive bidding - Increased efficiency of Corps fleet - Lower program cost

29. Recommendations  Impose no further operating restrictions on the Corps hopper dredge fleet.  Repeal the restrictions on the number of days the Yaquina and Essayons are allowed to operate each year.  Ensure the Yaquina and Essayons are maintained to a level consistent with the safe and efficient performance of their missions.

30. Closing Thought: “As in the case of public power, a limited government role in a predominately private industry can generate benefits that flow in both directions. The public company is constrained and tested by the record of the private companies, while the private ones are obliged to measure up to the yardstick established by the public activity.” From A.K. Okun, Equality and Efficiency, Brookings Institute, 1975.

31. Questions? The Case for the Federal Hopper Dredge Fleet On the Pacific Coast