1. Chapter 8 Water Carriers and Pipelines
Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning
Chapter 8
Water Carriers and Pipelines
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.

2. Introduction Domestic water and pipeline carriers Chapter includes
Both account for substantial shares of intercity freight volume
For some commodities, one or both are the dominant modes
Most freight carried tends to be high volume, low value, and of limited variety
Chapter includes
Types of carriers, market structure, competition
Operating and service characteristics, equipment and cost structure
Current issues
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3. Brief History: Water Transport
First principal form of long distance freight and people transport
Important contributor to early U.S. economic and social development
Linked initial population/industrial concentrations along coast and rivers
Waterways are natural ways
Public expenditure for improvements occasionally necessary
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4. Water Transport Industry Overview Significance of Water Transport
A primary transporter of
dry bulk commodities
bulk petroleum, petroleum products and chemicals
13% of intercity freight ton-miles in 2005
Market share decline since 1980s due to
Economy changing from manufacturing to service-based
Supply chain orientation emphasizes faster modes
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5. Water Transport Industry Overview Types of Carriers
Classification by legal form of carriage
Private carriers
Own the freight transported
Own or lease the vessels
May transport exempt commodities on a for-hire basis
Excluded from federal economic regulation
Three or fewer commodities transported in the same barge unit also exempt from economic regulation
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6. Water Transport Industry Overview Types of Carriers
For-hire water carriers are carriers that charge a fee for services. Includes
Exempt carriers
Excluded from federal econ. regulation adm. by STB
Carriers are exempt when transporting dry or liquid bulk commodities
Most goods transported by water are bulk commodities, thus most for-hire carriers are exempt from economic regulations
Regulated common carriers
Common carriers
Contract carriers
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7. Water Transport Industry Overview Types of Carriers
Classification by waterway used
Internal or inland carriers
Operate barges and towboats on principal U.S. rivers
Most found on river systems flowing north to south through central U.S.
Great Lakes carriers
Provide services between ports on Great Lakes
Lake ships tend to remain on lakes
Some lake ships access Atlantic and Gulf coast ports via St. Lawrence Seaway
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8. Water Transport Industry Overview Types of Carriers
Coastal carriers
Operate ocean-going ships and barges along Atlantic, Pacific and Gulf of Mexico coasts
Moves large quantities of crude oil from Alaska ports to refineries along Pacific Coast
Intercoastal carriers
Operate ocean going ships and barges between coasts
Moves large quantities of oil from Gulf to Atlantic ports
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9. Water Transport Industry Overview Number and Categories of Carriers
Relatively small number of small firms
Approx. 680 domestic for-hire carriers in 2006
Number of carriers rapidly declining since 2000
Inland carriers earn highest share of revenues
Inland carrier revenues flat over last decade
Coastal carriers earn next highest share
Great Lakes carrier revenues are growing due to increase in higher valued freight
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10. Water Transport Industry Overview Competition
Moderate intramodal competition
Small number of carriers on each waterway system
Intense intermodal competition
With rail for dry bulk commodities (grain, ores, coal)
Competition focused around central U.S. river system and the Great Lakes
With pipelines for oil and petroleum products
Competition focused along coasts and Mississippi River system
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11. Water Transport Industry Overview Operating and Service Characteristics
Principal competitive advantages
Low cost transport service for large volumes over medium to long distances
Average cost = $.72 per ton-mile
Average shipment distances
400 miles for inland carriers
1,500 miles for coastal carriers
Relatively large carrying capacity
Barges: 1,500-3,000 tons per barge ( truckloads)
Lake vessels: 20,000 tons
Fuel efficient
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12. Water Transport Industry Overview Operating and Service Characteristics
Principal competitive disadvantages
Speed of service
Slowest mode for dry cargoes
Weather-related service disruptions
Vulnerable to ice, flood, and drought conditions
Accessibility limitations
Packaging requirements for high-value goods
Service disadvantages may add cost for user and create tradeoffs with low rate advantage
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13. Water Transport Industry Overview Operating and Service Characteristics
Commodities hauled
Water carriers well suited for low value-to-weight cargoes where transport rates are significant part of total delivered cost
Distribution of waterborne traffic (2007)
Coal and coke 29.3%
Petroleum %
Crude materials 17.6%
Food and farm products 12.5%
Chemicals %
Mfg. goods and equipment 5.7%
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14. Water Transport Industry Overview Equipment
Vessels
Have large openings into cargo holds to facilitate cargo loading and unloading
Watertight walls divide holds enabling carrying of multiple types of commodities
Largest vessel: tanker 18K – 500K ton capacity
Used largely to transport petroleum
Barges – powerless vessel towed by towboat
Used largely on inland waterways
Low marginal cost to add barge to a tow
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15. Water Transport Industry Overview Terminals
Functions
Facilitate intermodal transfers
Provide temporary storage in port area
Require significant capital investment
Facilities include ship loading/unloading equipment, land for storage, road and rail access
Most are publicly provided and operated
Some are owned by large bulk commodity shippers
Recent improvements focus on mechanization
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16. Water Transport Industry Overview Cost Structure
Relatively high variable, low fixed costs
Fixed costs: about 15% of total operating costs
Nature provides ways
Governments provide for improvements to rivers, canals, channels, locks, dams, terminals and ports
Variable costs: about 85% of total
Water transport is not labor intensive
In 1997, 2.72 million ton-miles per water carrier employee (note – rail and pipelines are even less labor intensive)
Carriers pay user charges for portion of publicly provided improvements
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17. Water Transport Industry Overview Current Issues
Drug and alcohol abuse
Random and pre-certification testing
Port development challenges
Economic vs. environmental tradeoffs
Appropriation of port revenues
Inter-port competition
Impact of “mega-ship” emergence
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18. Brief History of Pipelines (Focus on Oil Pipelines)
Highly specialized mode, hauling small variety of products
Initial role, late 1800’s – move crude oil from wells to other modes
Early 1900s – pipelines owned, operated by large oil companies
After WWII – Chaplin Oil Case: pipelines ordered to operate as common carriers
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19. Pipelines Industry Overview Significance of Pipelines
Carry 20% of intercity ton-miles (2005)
Crude oil and petroleum products represent 66% of ton-miles, natural gas 33%
Earn 4% of total intercity transportation revenues
Reflects efficiency of pipeline transport and low value per ton of products transported
About 160,000 miles in oil pipeline network
1,478,000 in natural gas pipeline network
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20. © 2011Cengage Learning. All Rights Reserved
© 2011Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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

22. Pipelines Industry Overview Types of Carriers and Ownership
90% of carriers operate as common carriers
Individual, vertically integrated oil companies own and operate most oil pipelines
Some lines are joint ventures of two or more oil pipeline companies
Other types of ownership
Railroads
Independent oil companies
Other types of industrial companies
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23. Pipelines Industry Overview Number of Carriers (Market Structure)
Small number of large carriers: 2,297 (2006)
Industry tends toward oligopoly
20 integrated oil companies control 66% of crude oil mileage
Entry costs are high: capital intensity, obtaining rights-of-way
Significant economies of scale in investment and operation
Capacity rises more than proportionally with increase in line diameter. Thus, investment cost per ton-mile and operating cost per barrel both decline as size increases.
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24. Pipeline Operating and Service Characteristics
Commodities carried – 4 principal products
Oil and oil products
Natural gas
Coal and coal products
Moves in pulverized form as slurry
Requires large quantities of water – very few such lines
Chemicals
Primarily anhydrous ammonia (used in fertilizer)
Propylene (used to manufacturer detergents)
Ethylene (used to make antifreeze)
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25. Pipeline Operating and Service Characteristics
Relative advantages
Low rates
Low loss and damage rates
Warehousing function (3-5 mph)
High delivery dependability
Relative disadvantages
Slow speed limits responsiveness
Limited geographic flexibility
Limited variety of products carried
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26. Pipeline Competitive Conditions
Very little intramodal competition
Small number of carriers
High capital costs and scale economies
Procedural requirements for entry
Ownership by large oil companies
Limited intermodal competition
Difficult for other modes to match rates
Water carriers are principal competitors
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27. Pipeline Equipment Oil Pipeline Network
Includes system of
Gathering lines and stations
Crude oil and product trunk lines
Pumping stations, refineries, and terminals
Gathering lines
Move oil from wells to gathering stations
Relatively short distance movement
Small diameter, laid on ground surface
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28. Pipeline Equipment Oil Pipeline Network
Crude oil trunk lines
Move crude oil from gathering stations to refineries
Long distance movement
Shipments average 800 miles, may move 1,000s of miles
Large diameter lines laid underground
Pumping stations provide power
Capacity determined by line diameter and pumping station power
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29. Pipeline Equipment Oil Pipeline Network
Finished product trunk lines
Move product from refineries to market area terminals
Long distance movement
Shipments average 400 miles, may move 1,000s of miles
Large diameter lines laid underground
15 grades of finished product, including kerosene, jet fuel and gasoline
Final delivery to customer usually by truck
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30. Pipeline Cost Structure
High % of fixed costs
Pipeline owners provide right-of-way
Capital invested in
Rights-of-way, pumping stations, terminal facilities
Significant economies of scale
Helps explain joint ownership
Very low labor costs
Pipeline industry employs 8,000
Motor carriers employ 10 million to move comparable ton-miles
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31. Pipeline Cost Structure
Rates
Freight classification is not necessary due to small number of products
Conditions are not conducive to differential pricing
One-way movement, limited geographic coverage, limited variety of products
Rates quoted on a per barrel basis
Typically point-to-point or zone-to-zone
Minimum shipment sizes (tenders) required
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