Final Market Assessment629 - Alabama State Port AuthorityFinal Market Analysis & Forecasts December...

Maritime Strategic Development Study

Phase IIFinal Market Analysis & Forecasts

December 2007

ALABAMA STATE PORT AUTHORITY, MOBILE, ALABAMA

Market Assessment i June 29, 2007

CONTENTS

1 Introduction...........................................................................................................1-1

2 Existing Business Profile.....................................................................................2-1

2.1 Recent Cargo History ......................................................................................2-1

2.2 Terminals .........................................................................................................2-2

2.3 General Cargo .................................................................................................2-2

2.4 Containers .......................................................................................................2-3

3 Market Analyses ...................................................................................................3-3

3.1 Coal .................................................................................................................3-4

3.1.1 Historical Movements through Mobile ........................................................3-4

3.1.2 World Trade in coal ....................................................................................3-5

3.1.3 Historical Import Demand...........................................................................3-6

3.1.4 Growth in Exports .......................................................................................3-7

3.1.5 Projections for Future Growth.....................................................................3-9

3.1.6 The Market for Coal Imports through Mobile ............................................3-10

Competitive Costs of Imports versus US Coals ....................................................3-13

3.1.7 Import Tonnage Projections .....................................................................3-15

3.1.8 Summary of Import Tonnage Prospects...................................................3-16

3.1.9 Steam Coal Supply for Imports.................................................................3-17

3.1.10 Prospects for Coal Exports through Mobile ..........................................3-17

3.1.11 Overall Outlook for Mobile ....................................................................3-17

Market Assessment ii June 29, 2007

3.2 Containers .....................................................................................................3-19

3.2.1 Introduction...............................................................................................3-19

3.2.2 Existing Situation......................................................................................3-19

3.2.3 Potential Market Area...............................................................................3-20

3.2.4 Least Cost Market Area............................................................................3-21

3.2.5 Forecast Methodology..............................................................................3-23

3.2.6 Port of Mobile Container Demand Forecast .............................................3-24

3.2.7 Summary of Results .................................................................................3-25

3.3 Forest Products .............................................................................................3-27

3.3.1 Introduction...............................................................................................3-27

3.3.2 The Global Market Perspective ................................................................3-28

3.3.3 Cargo Handling Trends ............................................................................3-28

3.3.4 Product Assessments...............................................................................3-29

3.4 Ro/Ro Cargoes and Automobiles ..................................................................3-39

3.4.1 Global Automotive Trade Overview..........................................................3-39

3.4.2 Vehicle Trade Lanes.................................................................................3-40

3.4.3 Emerging Production Markets ..................................................................3-41

3.4.4 Competitive Port Analysis – Southeast and Gulf......................................3-42

3.4.5 Marketing Opportunities ...........................................................................3-45

3.5 General Non-Containerized cargoes .............................................................3-46

3.5.1 Iron & Steel products ................................................................................3-46

Market Assessment iii June 29, 2007

3.5.2 Aluminum..................................................................................................3-48

3.5.3 Other Dry Bulks ........................................................................................3-51

3.5.4 Grain.........................................................................................................3-55

3.5.5 Cement/Clinkers .......................................................................................3-56

4 Summary of Cargo Expectations to 2025.........................................................4-57

4.1 Overview........................................................................................................4-57

4.1.1 Coal ..........................................................................................................4-58

4.1.2 Containers ................................................................................................4-58

4.1.3 Forest Products ........................................................................................4-58

4.1.4 Ro/Ro Cargoes and Automobiles .............................................................4-59

4.1.5 Steel .........................................................................................................4-59

4.1.6 Other Cargoes..........................................................................................4-59

LIST OF TABLES

Table 3-1: Coal Imported to Plants Served by Mobile 1998 to 2006 (tonsx1000).......3-11

Table 3-2: Competitive Import Tons under Various Cost Scenarios ...........................3-14

Table 3-3: Market for Coal Imports through Mobile (Million Short Tons/Year)............3-16

Table 3-4: Competitive US Ports for Mobile Container Market Area...........................3-21

Table 3-5: Total Volume – Port of Mobile Least Cost Market Area.............................3-25

Table 3-6: Current Prices for Bleached Hardwood Kraft Pulp – 2007.........................3-30

Market Assessment iv June 29, 2007

Table 3-7: Planned Near Term Production Increases – S. American Suppliers (tons) ...3-31

Table 3-8: Potential Mid Term Production Increases – S. American Suppliers (tons) 3-32

Table 3-9: Potential Near Term Increases in Demand for Wood Pulp Imports through Mobile (tons) .........................................................................................................3-33

Table 3-10: Wood Pulp Market Potential to 2025 - Imports (Optimistic Case) (tons) .3-33

Table 3-11: Wood Pulp Market Potential to 2025 - Imports (Pessimistic Case) (tons)3-34

Table 3-12: Market Expectations for Mobile - Paper (tons)..........................................3-37

Table 3-13: Market Expectations for Mobile - Lumber (tons) .......................................3-39

Table 3-14: Projected Global Automobile Production by Region (2005 to 2013)........3-39

Table 3-15: Projected Automobile Exports from Veracruz to 2010 .............................3-42

Table 3-16: Potential Market for Steel Coils through Mobile 2010 - 2025 (tons) ........3-48

Table 3-17: Potential Exports of Steel Coils from TK plant through Mobile (tons) ......3-48

Table 3-18: Potential Market for Steel Slabs (imports) through Mobile 2010-2025 (tons)..............................................................................................................................3-48

Table 3-19: US Consumption of Aluminum, by Industry (2006)..................................3-50

Table 3-20: World Aluminum Production (MTx1,000) .................................................3-50

Table 3-21: US Industrial Consumption in 2005 by Type of Furnace (Thousand MT) 3-52

Table 3-22: US Imports of Iron in 2005 by Country of Origin (MT) .............................3-53

Table 3-23: US Maritime Imports of Iron & Steel Scrap (MTx1,000)...........................3-54

Table 3-24: Steel Mills within 300 Miles of Mobile ......................................................3-55

Table 3-25: Projected Markets for Scrap, Pig Iron & DRI for Mobile 2010-2025 (tons) ..3-55

Market Assessment v June 29, 2007

LIST OF FIGURES

Figure 2-1: Total ASPA Cargo - 2001 to 2006 (tons) ....................................................2-1

Figure 2-2: General Cargo through ASPA Facilities - FY2006 (tons) ...........................2-2

Figure 2-3: Breakdown of General Cargo Commodities - Main Port Complex - FY20062-3

Figure 3-1: Coal Movements through ASPA Facilities FY2001-2005 (million tons)......3-5

Figure 3-2: Growth in Seaborne Coal Trade since 1982...............................................3-6

Figure 3-3: Steam Coal Imports by Region...................................................................3-8

Figure 3-4: Coking Coal Imports by Region ..................................................................3-8

Figure 3-5: Steam Coal Exports by Region...................................................................3-8

Figure 3-6: Coking Coal Exports by Region..................................................................3-9

Figure 3-7: Coal Imports to Plants Served by Mobile..................................................3-11

Figure 3-8: Plants that have taken coal through Mobile..............................................3-12

Figure 3-9: Spot Prices for Colombian Steam Coal ....................................................3-13

Figure 3-10: Market for Coal Imports through Mobile .................................................3-15

Figure 3-11: Low Range Coal Market Expectations for Mobile to 2025 (million ST)...3-18

Figure 3-12: High Range Coal Market Expectations for Mobile to 2025 (million ST)..3-18

Figure 3-13: Container Movements through Mobile - 2000 to 2006 (TEUs) ...............3-19

Figure 3-14: International Regions for Container Traffic through Mobile ....................3-20

Figure 3-15: ECSA Region Least Cost Market Area - Imports....................................3-22

Market Assessment vi June 29, 2007

Figure 3-16: ECSA Region Least Cost Market Area - $30 Cost Advantage ...............3-23

Figure 3-17: Relationship between TEU and GDP Historical Growth (1981 to 2005).3-24

Figure 3-18: Total Projected Container Market for Mobile to 2025 (TEUs).................3-26

Figure 3-19: Comparison of Container Forecasts with Earlier Study Efforts...............3-27

Figure 3-20: Wood Pulp Movements through Mobile - 2001 to 2006 (tons) ...............3-29

Figure 3-21: Paper & Paper Products through Port of Mobile FY2001-2006 (tons)....3-36

Figure 3-22: Lumber & Wood through the Port of Mobile - FY2001-2006 (tons) ........3-37

Figure 3-23: Automobile Imports & Exports through Veracruz, Mexico 1995-2005 ....3-41

Figure 3-24: Steel Products through the Port of Mobile FY2001-2006 (tons) .............3-46

Figure 3-25: Pig Iron and Scrap Metals through Mobile FY2001-2006 (tons).............3-51

Figure 3-26: Grains through Port of Mobile FY2001-2006 (tons)................................3-56

Market Assessment 2-1 June 29, 2007

11 IINNTTRROODDUUCCTTIIOONN

This report examines the market opportunities facing the Alabama State Port Authority (ASPA) as it continues its transition from a traditional bulk handling port to a more diverse portfolio covering general cargo, forest products, coal, and containers.

22 EEXXIISSTTIINNGG BBUUSSIINNEESSSS PPRROOFFIILLEE

In FY2006, the Port of Mobile handled some 48.4 million tons of cargo, with incoming traffic at 27.8 million tons slightly exceeding outgoing trade. Of this total, 22.9 million tons moved through ASPA owned and leased facilities in the main port area and the McDuffie Coal terminal with a further 1.62 million tons moving through the Theodore Industrial Port. For the ASPA traffic, outbound cargo was dominated by coal imports and exports that totaled more than 18 million tons, with the remainder being general cargo, forest products, and containers.

The non-ASPA traffic of 23.80 million tons is dominated by 10.13 million tons of petroleum products, followed by 5.9 million tons of coal. Wood chips, limestone, and other bulk commodities are also handled through several private terminals in the immediate Port area.

2.1 Recent Cargo History

As can be seen in Figure 2-1, total cargo movements through the ASPA facilities have increased from 20.57 million tons per year (MTY) in 2001 to 24.2 MTY in 2006. Almost 3.0 million tons of the increased volume has been coal, with most of the remainder being growth in forest products and containers.

Figure 2-1: Total ASPA Cargo - 2001 to 2006 (tons)

INBOUND, 7,426,255, 30%

OUTBOUND, 17,164,534, 70%


2.2 Terminals

Commodity totals handled through the ASPA owned or operated properties in FY2006 were:

Main Port Area (General Cargo & Containers) ...................................... 3.65 million tons Grain Terminal (leased) ......................................................................... 1.15 million tons Bulk Plant (Coal & Ores) ........................................................................ 2.92 million tons McDuffie Coal Terminal ....................................................................... 15.18 million tons Theodore Terminals (Chemicals, Agri products, Bulks)......................... 1.72 million tons

TOTAL FY2006.................................................................................. 24.62 million tons

2.3 General Cargo

General cargo movements through the Port reached 3.65 million tons in FY2006, as indicated in Figure 2-2

Figure 2-2: General Cargo through ASPA Facilities - FY2006 (tons)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006

TON

S

IN OUT


As seen in Figure 2-3 almost 50% of the commodities handled through the Main Port Complex are forest products. Wood chips are also handled through a private terminal.

Figure 2-3: Breakdown of General Cargo Commodities - Main Port Complex - FY2006

CONTAINERIZED (TONS), 422,545, 12%

ALUMINUM, 158,445, 4%

CHEMICALS, 0, 0%

MISC. DRY BULKS, 170, 0%

FOOD & AGRI PRODUCTS, 347,372, 10%

FOREST PRODUCTS, 1,784,760, 48%

IRON & STEEL, 604,293, 17%

LIQUID BULKS, 176,292, 5%

MISC. BREAK BULKS, 148,676, 4%

MACHINERY & VEHICLES, 6,876, 0%

PROJECT CARGO, 0, 0%

2.4 Containers

Container volumes have increased dramatically from 16,500 TEUs in 2005 to 36,700 TEUs in 2006 in spite of the loss of the container crane at Pier 2. The commencement of operations at the new Choctaw Point Container Terminal in 2008 is expected to generate a substantial increase in container throughput.

33 MMAARRKKEETT AANNAALLYYSSEESS

The following analysis examines the major existing lines of business for ASPA and also evaluates future potential markets that may be of interest. In later sections, the potential economic benefits of these new lines of activity are also assessed, as are the functional and facility requirements, and the investments that will be required to meet these opportunities.


Clearly, it is not possible to cover all specific commodities that may form part of future markets for the ports. However, wherever the potential opportunity appears to merit a detailed assessment, these are addressed individually. Where a commodity or cargo handling grouping may include several lower volume products, these are then allocated to a compatible cargo handling and storage classifications in order to evaluate the potential needs for multi-purpose or specialized cargo facilities.

Using this approach, the primary groups of activity addressed in the following chapters are:

• Coal • Containers • Forest Products • Ro/Ro cargoes and automobiles • General non-containerized cargoes, including:

o Iron & Steel products o Aluminum

• Other Dry Bulks

o Ores o Pig Iron o Grain o DRI products

Analysis of any US import/export terminal introduces a dilemma of convention; that is, inland movements, prices, and costs are frequently identified in units of short tons (2,000 lbs.), whereas international movements, prices, and costs are usually identified in units of metric tons (1,000 kilograms, or 2,204.6 lbs). Readers will find references to both short and metric tons in this report, as appropriate. Since the ASPA recorded of terminal throughput and its tariff base is presented in short tons, all historical analyses and cargo

3.1 Coal

3.1.1 Historical Movements through Mobile

Coal movements through the McDuffie Terminal and the Bulk plant have varied from a low of 6.66 million tons in FY2002 to 18.34 million tons in FY2005 as shown in Figure 3-1.


Figure 3-1: Coal Movements through ASPA Facilities FY2001-2005 (million tons)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005

Mill

ion

tons

IMPORT EXPORT

DOMESTIC BULK PLANT

The wide fluctuations over relatively short periods of time are an indication of the close relationship between oil and gas prices and coal imports. In this respect, the Port operator has little control over the potential market and demand, but must also respond quickly to major short term variations in throughput requirements. However, the long term trend since the late 1970’s has been steady growth, although characterized by short term variations dependent on global energy prices and international policies.

3.1.2 World Trade in coal

World coal trade has seen steady growth since the interruptions in oil supply during the 1970’s. Prior to that time, the bulk of trade was in coking coal used to produce pig iron and then steel. However, as many countries switched from oil-fired electricity generation to coal, steam coal trade began to grow rapidly. In fact, steam coal now dominates the trade tonnage. Figure 3-2 shows that while coking coal trade has grown at a steady


2.6% per year since 1982, steam coal has grown at a much stronger rate of 7.5% over that same period.

Figure 3-2: Growth in Seaborne Coal Trade since 1982

3.1.3 Historical Import Demand

Although steam coal imports have increased into all regions, the Asian countries’ demand for imports has grown by the most, in terms of total tonnage and on a percentage basis as well. Asia’s demand for steam coal imports has grown from only 21 million MT per year in 1981 to over 313 million MT in 2005. Japan, China, and India have accounted for most of the increase in this region. Japan had very little domestic coal production, so the many new power plants built there had to rely on imports. China and India both have large domestic coal production, but not enough to meet the needs of the many new power plants being built along their coasts.

Europe’s demand has also grown strongly, more than doubling from 88 million to over 187 million during the same period. In Europe, the countries showing the most growth are the United Kingdom, Spain, and Germany. In all of these countries, there was some substitution of coal for oil-fired generation, but all three have also substituted coal

0100200300400500600700800

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Steam Coal Coking Coal

Steam Growth = 7.5% /year

Coking Growth = 2.6% /Year


imports for domestic production as high-cost mines in all three countries were shut down. Figure 3-3 shows the changes for each major region.

The main growth in coking coal trade has also come in Asia. India and China have led a surge in that region’s coking coal imports from 75 to 118 million MT per year during the 1981 – 2005 period. Latin America (primarily Brazil) has grown from 6 to 16 million MT, but there was little change in any of the other regions. The comparisons of tonnages for all regions are shown in Figure 3-4.

3.1.4 Growth in Exports

The growth in steam coal exports has been wide-spread; every region in the world except North America has seen an increase in tonnage since 1981. Once again, Asia has been the leader in growth, as both Indonesia and China have developed coal export industries from scratch. Australia also accounts for a large increase, as do Latin America (Colombia and Venezuela), the former Soviet Union, and South Africa. Europe has shown only a slight gain.

North America has shown a decline in steam coal exports. This change came about because of the decline in US purchases by Ontario Hydro and because the US steam mines are being knocked out of the international market by high mine costs (Central

Appalachia), high sulfur, or high transportation costs to the ports (the western mines). In Australia, Indonesia, Latin America, and South Africa, easy mining conditions have

combined with relatively easy access to tidewater to produce low costs at the port. In China, Eastern Europe and the former USSR, low labor costs and (apparently)

subsidized railroad rates are the main drivers in keeping costs at the port competitive.

Figure 3-5 shows the growth in steam coal exports by region.

In contrast to the situation in steam coal, almost all the growth in coking coal exports has come from Australia and New Zealand As Figure 6 shows, these two countries combined (mostly Australia) have grown from 37 million MT of coking coal exports in 1981 up to 127 million in 2005. At the same time, exports of coking coal from North America (the US and Canada) declined from 73 million MT to about 52 million. However, the superior quality of some of the US and Canadian coals, as well as the need for diversification of supply sources keeps the steel mills in the market for North American coals. Also, the US has a transportation advantage to Europe and Brazil.


Figure 3-3: Steam Coal Imports by Region

Figure 3-4: Coking Coal Imports by Region

Figure 3-5: Steam Coal Exports by Region

0 50 100 150 200 250 300 350

Africa

Latin America

Former USSR

North America

Europe

Asia

Million Tonnes Per Year

2005 1981

Coking Coal Imports - By Region

0 20 40 60 80 100 120 140

Africa

North America

Former USSR

Latin America

Europe

Asia


2005 1981


Steam Coal Exports - By Region

0 50 100 150 200

North America

Europe

Latin America

Africa

Former USSR

Australia/NZ

Asia


2005 1981

Figure 3-6: Coking Coal Exports by Region

Coking Coal Exports - By Region

0 20 40 60 80 100 120 140

Africa

Asia

Europe

Former USSR

North America

Australia/NZ


2005 1981

3.1.5 Projections for Future Growth

Unless there are massive changes in energy policies around the world, international trade in steam coal will continue to grow, with the exception of Europe where concerns


over global warming indicate that demand will be flat or possibly declining slightly. Rapidly growing economies in Asia need more energy, and coal is the economic alternative. In the US, coal imports should continue to grow as Central Appalachian production shrinks and the low sulfur of Latin American and Indonesian coals will let power plants minimize their costs for pollution control.

Coking coal trade is likely to continue to grow more or less in line with the growth of world-wide steel production, which will follow the same general trends as overall economic growth. India and China lead the countries that will be increasing coking coal imports, but there is likely to be an increase in all regions.

The Energy Information Administration’s International Energy Outlook 2006 indicates both steam and coking coal trade will grow at average annual rates just over 1.0% per year. The latest edition of Hill & Associates’ annual report, International Coal Trade: Supply, Demand & Prices to 2015 is more optimistic. The study projects growth rates through 2015 of 2.3% per year for steam coal, and 3.2% for coking coal.

3.1.6 The Market for Coal Imports through Mobile

The Port of Mobile has never imported any significant tonnage of coking coal, and it does not appear likely that it will do so in the foreseeable future. Therefore, this discussion looks solely at steam coal markets.

Three sets of data were reviewed:

• Historical imports through the port. • Comparison of competitive costs for imported coals versus the US coals now

supplying the plants that can economically use imports through Mobile. • Projection of import demand on a plant-by-plant basis from an integrated analysis

of the US steam coal market.

Recent Coal Imports Into Mobile’s Market Figure 3-7 shows the growth in import tonnages from 1998 through 2005, with an estimate for 2006.

Table 3-1 shows the tonnage by plant for each year.


Figure 3-7: Coal Imports to Plants Served by Mobile

Coal Imports to Plants Served by Mobile Historical Data

0100020003000400050006000700080009000

1998

1999

2000

2001

2002

2003

2004

2005

20

06(e)

Shor

t Ton

s Pe

r Y

ear

(000

)

Table 3-1: Coal Imported to Plants Served by Mobile 1998 to 2006 (tonsx1000)

Utility Plant Name 1998 1999 2000 2001 2002 2003 2004 2005 2006(1) Alabama Elec. Coop

Lowman 256 728 356 489 459 466 377 206

Barry 0 231 2311 1772 2400 2866 2751 3145 2207Alabama Power Green County 0 0 0 0 0 101 388 18 565Progress Corp.

Crystal River (2) 0 0 0 0 0 0 230 558 501

Crist 375 219 34 121 545 1585 1269 1208 1965Scholz 0 51 0 0 0 0 0 0 0Gulf Power Smith (FL) 0 3 235 422 618 188 150 191 1064Daniel 0 98 142 200 0 80 159 134 294Mississippi

Power Watson 120 532 538 1001 889 1303 1316 1223 1092TVA GRT Terminal 0 0 0 0 0 0 0 0 223Totals 525 1390 3988 3872 4941 6582 6729 6854 8117

Figure 3-8 then shows the locations of the plants that have taken coal through Mobile, as well as those that might be customers in the future.


Figure 3-8: Plants that have taken coal through Mobile


Competitive Costs of Imports versus US Coals

The first method of evaluating the prospects for imports through Mobile is to compare the costs in the import coal chain from Colombia with the costs of US coals delivered into the plants served by Mobile.

According to the Coalbase©

database, spot market prices at the port in Colombia for an 11,300 Btu coal have ranged from a low of $41 per MT to a high of $63 per MT, over the past three years, as shown in Figure 3-9. The projected prices for this coal range between $45 and $50 per MT over the next 10 years. The top end of the Colombian supply curve is $35, representing a price during periods of excess supply capacity.

Figure 3-9: Spot Prices for Colombian Steam Coal

Spot Prices For 11,300 Btu Colombian Steam Coal

$0

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$40

$50

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$70

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The ocean freight market has historically been unstable, moving from highs to lows over one or two year periods, depending on the rate of new vessel building, scrap rates for old vessels, the price of oil, demand for bulk products throughout the world and other factors. The average rate from Colombia to the US Gulf Coast during 2006 has been about $8 per MT. Currently, it is around $10, and it has been as low as $6 in the recent past. The handling charge at the port in Mobile is assumed at $2.50 per short ton charge.


Because some of the plants are close to Mobile and others several hundred miles away, the inland transport charges vary widely. The range is from just less than $1.50 per short ton up to more than $30 per short ton for some of the more distant plants reviewed.

The final element of cost is the price of SO2 emission allowances. At the time of this

writing, allowances are worth around $520 and expected to remain in that range over the forecast period, but the NYMEX futures market prices them well below that level.

Using these estimated costs and assumptions, the tonnage of imports that can be competitive to the Mobile service area are presented in Table 3-2.

Table 3-2: Competitive Import Tons under Various Cost Scenarios

SO2 Allowance $/Ton

$/Tonne FOBT Colombia

Ocean Freight $/Tonne

Competitive Import Tons*

$520 $50 $10 6.2 “ $50 $8 7.8 “ $45 $10 16.1 “ $45 $8 21.0 “ $40 $6 43.0 “ $35 $6 54.9

$220 $50 $10 3.3 “ $50 $8 4.7 “ $45 $10 8.7 “ $45 $8 12.6 “ $40 $6 43.0 “ $35 $6 43.0

*million short tons

The numbers in the table show there is a substantial downside tonnage risk if the foreign coal prices and ocean freight are high and SO2 emission allowance prices are low. In the worst case, the competitive tonnage drops to only 3.3 million tons per year. In periods when US prices remain high and foreign prices drop to low levels, say $34 - $40 per MT, imports could climb to 40 million or more, but this is an unlikely long term scenario. In the more reasonable range of expectations for prices and ocean freight charges, the competitive tonnages run from 8 to 17 million.


3.1.7 Import Tonnage Projections

Figure 3-10 shows the results for the plants that can be served by Mobile under the scenarios input to the model. In all cases, the “market” starts in 2006 at around 18 million tons per year. This large figure represents the latent market for coal if Mobile’s import coal capacity were unconstrained. In all cases, the tonnage increases to more than 20 million tons per year. In Cases B and C the tonnage stabilizes at around 22 million tons per year. In Case A, tonnage declines to 16 million in 2014 and remains at that level or lower throughout the forecast period. This case is based on a scenario that leads to more scrubbing at all power plants, thereby making low-sulfur imports less attractive.

Figure 3-10: Market for Coal Imports through Mobile

Market for Coal Imports Through Mobile - With Unconstrained Port Capacity

0

5

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2006

2007

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Case A Case B Case C

1. Source: Hill & Associates, PRISM M odel2. Includes tons at Crystal River and Ga. Power

It should be noted that the tons shown in this graph include all of the import coal taken by the Crystal River Plant in Florida and the Georgia Power plants around Atlanta. It is likely that about half of the Crystal River tons will continue to move through the IMT Terminal and that Georgia Power will take some of the coal for the Atlanta-area plants through Charleston and/or Savannah. Therefore, the tons projected in the chart should be reduced by about 7 million tons to account for the likely movements through other ports. Some of the tons forecast by the PRISM™

model are predicted to go to new


Integrated Gasification Combined Cycle (IGCC) power plants. These plants are not yet sited, but represent a market opportunity for Mobile.

3.1.8 Summary of Import Tonnage Prospects

While there are many variables, it appears that the unconstrained1 market for coal imports through Mobile will average around 15 million tons per year, but could range from a low of around 8 million up to 20 million or more. Table 3-3 shows the year-by-year projection of the ranges.

Table 3-3: Market for Coal Imports through Mobile (Million Short Tons/Year)

0.00

5.00

10.00

15.00

20.00

25.00

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2121

2022

2023

2024

2025

LOW HIGH

1 Assumes no capacity limitations at the existing terminals


3.1.9 Steam Coal Supply for Imports

There are numerous countries now exporting large quantities of steam coal and capable of expanding to meet the expected needs of world coal trade. The largest of these are Australia, Indonesia, South Africa, Colombia, China, Russia, Poland, and Venezuela. For most power plants, the Colombian and Venezuelan coals offer the best combination of cost and quality.

3.1.10 Prospects for Coal Exports through Mobile

Although Mobile has exported small amounts of steam coal in the past, the primary products exported have been the coking coals produced in Alabama. This pattern is expected to continue in the future.

As noted earlier, the steel industry is the primary market for coking coal worldwide. By far the most important suppliers of the world’s seaborne coking coal markets are Australia, Canada, and the United States. Within the US only Central Appalachia and Alabama ship any significant amount of tonnage into the export market. Because of region’s high costs, quality issues and declining reserves, Central Appalachia is not likely to displace Alabama in the market.

The Alabama producers have competed successfully with Australia for many years and are an accepted part of many coal blends in Europe and in Brazil. It is likely that these producers, at least the Jim Walter mines, will continue to be able to compete in those two countries. However, if new mines have to be developed, local production and exports go to zero in 2017 when the existing reserves are depleted.

3.1.11 Overall Outlook for Mobile

High and low ranges are summarized in Figure 3-11 and Figure 3-12 for projected exports and imports through Mobile.


Figure 3-11: Low Range Coal Market Expectations for Mobile to 2025 (million ST)

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10.00

15.00

20.00

25.00

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Figure 3-12: High Range Coal Market Expectations for Mobile to 2025 (million ST)

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3.2 Containers

3.2.1 Introduction

The container forecasts presented in this section are an update to the projections developed in 2002 as part of the Choctaw Point Container Terminal Master Plan. For the previous study and also for this update, the basic approach of this analysis was to identify an inland market area that could be reasonably served by the Port of Mobile. This involved the identification of international trade routes for which the Port of Mobile provides a logical and competitive alternative and the geographic areas where the Port of Mobile offers a lower cost alternative, as compared to other ports. Having identified the geographic areas where Mobile offers a cost advantage, the volume of trade in those areas is estimated using a database of US international containerized trade developed from the PIERS data provided by the Journal of Commerce. These volume estimates then form the basis of developing longer-term forecasts, building on growth rates for the various trade routes using a GDP based regression model.

3.2.2 Existing Situation

As can be seen in Figure 3-13, container movements through the Port have grown dramatically in the past 5 years, and reached 68,800 TEUs in FY2006. The downturn in 2005 was the result of the loss of the gantry crane at Pier 2, which was severely damaged in a vessel accident.

Figure 3-13: Container Movements through Mobile - 2000 to 2006 (TEUs)

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Note: Pier 2 Container crane out of service in 2005


According to earlier assessments, the capacity ceiling for the existing container yard is on the order of 75,000 TEUs per year, indicating that the terminal will be unable to accommodate the projected demand for 2007.

3.2.3 Potential Market Area

International Market Regions

International market regions that can be realistically served by Mobile are identified as indicated in Figure 3-14, below:

Figure 3-14: International Regions for Container Traffic through Mobile

Europe

MediterraneanNorth Asia

South AsiaSouth East Asia

East Coast South America

Caribbean

Competing US Ports

The resulting list of competitor ports and their recent container volume growth rates is displayed in

Table 3-1.


Table 3-4: Competitive US Ports for Mobile Container Market Area

Loaded TEU’S by Port Port 2000 (TEU) 2005 (TEU) CAGR LA/LB 6,977,738 9,620,030 6.6% NY/NJ 2,241,103 3,594,779 9.9% Seattle/Tacoma 2,152,000 2,442,558 2.6% Hampton Roads 1,172,958 1,641,719 7.0% Charleston 1,310,643 1,578,271 3.8% Savannah 760,669 1,514,813 14.8% Miami/PE 1,335,142 1,626,763 4.0% Houston 854,256 1,292,935 8.6% NOLA/Lake Charles* 284,332 206,297 -1.7% Gulfport 121,408 155,412 5.1% Mobile 14,652 25,563 11.8% Tampa 6,306 14,602 18.3%

*CAGR for NOLA/Lake Charles taken from 2000 to 2004 Sources AAPA 2005

3.2.4 Least Cost Market Area

With the parameters of the potential Mobile market 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. The methodology consists of the derivation of total transportation costs for both truck and inter-modal rail between each port and zip code centers derived from the PIERS data. Detailed explanation of the basis for the computations and transportation cost estimates can be found in Appendix B to this report.

For each zip code, the least cost port routing is determined for each inland mode. 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 10 presents the market areas for each port, by mode, for the East Coast South America (ECSA) trade route. Least cost market area maps were also created assuming Port of Mobile costs to be $30 per container higher than estimated for the base case as displayed in Figure 11.


Figure 3-15: ECSA Region Least Cost Market Area - Imports

The growth of these baseline estimates for each trade lane was then projected for the planning horizon using growth rate forecasts specific to each trade lane. Combined with an estimate of empty containers handled at the port, the result is a comprehensive forecast of containerized volume at the Port of Mobile through 2025.


Figure 3-16: ECSA Region Least Cost Market Area - $30 Cost Advantage

3.2.5 Forecast Methodology

A forecast of container growth over the next 20 years has been developed based on US and global economic trends and anticipated events. The greater part of this growth is expected to take place over the next ten years, with slower, more economic cycle-driven growth projected for the following 10 years.

As seen in Figure 3-17, TEU and GDP growth rates are closely related, although TEU growth has consistently exceeded GDP growth over the last 25 years because of various events that changed structure in the global economy.


Figure 3-17: Relationship between TEU and GDP Historical Growth (1981 to 2005)

Over the Last 25 Years Total TEU Shipments Have Grown Faster Than GDP

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3.2.6 Port of Mobile Container Demand Forecast

Table 3-5, below summarizes the results of the integration of the analyses, displaying the total trade estimated in Mobile’s LCMA for each trade route in the base year of 2005 and using the forecast growth rates to project the total trade to 2025. The totals shown in this table represent the potential loaded container volume that might be captured by the Port of Mobile because of its competitive advantage. The total market potential is estimated at almost 400,000 TEU’s in 2008, the scheduled opening year of Choctaw Point, growing to slightly more than one million TEU’s by 2025.


Table 3-5: Total Volume – Port of Mobile Least Cost Market Area

Region 2005

Market Size

% Market Growth to 2015

2008 Market

Size

2013 Market

Size

2015 Market

Size

% Market Growth to 2025

2025 Market

Size Europe 23,994 4.1% 27,039 33,036 35,805 3.6% 49,429Mediterranean 16,284 4.0% 18,329 22,338 24,183 3.5% 34,397North Asia 78,194 7.7% 96,396 139,764 163,456 7.2% 318,951South Asia 3,193 11.2% 4,395 7,484 9,262 8.5% 20,283South East Asia 13,490 6.0% 16,002 21,393 24,076 6.4% 39,951South America EC 120,953 6.4% 145,330 197,979 224,273 5.7% 394,990Caribbean 46,062 2.1% 48,999 54,401 56,759 2.4% 67,784Other 34,377 4.5% 39,096 48,732 53,329 4.5% 82,719Total 336,547 5.8% 395,586 525,127 591,143 5.5% 1,008,504

While the totals displayed in the table represent the potential trade that could be captured in the Mobile LCMA, Mobile will not capture all of the trade, despite the estimated cost advantage hence high, low, and mid-range rates of capture were estimated, reflecting consideration of the analysis and market judgments. Finally, an estimate of 25% empty volume was added to arrive at total container volumes.

3.2.7 Summary of Results

The mid-range estimate of market capture shown in Figure 3-18, results in a total volume for the Port of Mobile in 2008, the opening year of Choctaw Point, of 148,000 TEUs, growing to a total of 382,000 TEUs by 2025. The largest foreign trade region contributor to the total is East Coast South America with 44,000 TEUs in 2008, followed by North Asia with 29,000. Those two regions grow to 117,000 and 97,000, respectively, by 2025.


Figure 3-18: Total Projected Container Market for Mobile to 2025 (TEUs)

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Comparison with earlier Forecasts

The forecasts prepared for the Choctaw Point Master Plan in 2001 were compared to the updated market numbers and the most recent figures were also discussed with the proposed operator of the new Container Terminal. The comparison indicates a more conservative outlook than the original expectations of 2001, but is closely in line with the Business Plan prepared by the CMA-CGM-APM group for the Choctaw Point Terminal. The primary difference in the forecasts presented in Figure 3-19 is in the estimate of capture from inland distribution centers linked to west coast entry ports, which have gained a stronger foothold into the logistics chains over the past 5 to 6 years.


Figure 3-19: Comparison of Container Forecasts with Earlier Study Efforts

Mobile Container Forecast

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3.3 Forest Products

3.3.1 Introduction

Over the past 10 years, Mobile has become one of the major forest product import centers for the US. The recent construction boom and extensive reconstruction efforts following hurricane devastation in the Gulf and Florida have also generated a significant demand for lumber and other construction materials.

However, the industry is undergoing important changes in the international trade and cargo handling methods that are critical to the assessment of future needs and market potential for the Port. These trends are examined in the following section, together with an assessment of emerging market areas that may be of interest to ASPA.

The following analysis examines the market prospects for the following products:

• Paper o Imports of newsprint, copy paper, tissue and printing and packaging

paper from Europe, Indonesia, and South America.


o Exports of kraft linerboard, newsprint, printing paper and other papers from Texas, Louisiana, Alabama, Arkansas, Mississippi, Florida, and Georgia

• Lumber - Imports of lumber, plywood, fencing, and OSB from Eastern and Western Europe and South America.

• Woodpulp – Imports from South America and Europe. • Exports of rolled and baled southern pine softwood and hardwood woodpulp. • Woodchips – Imports from Central and South America for pulp and paper

manufacturing in the US Gulf. • Wood Pellets – Exports from the Southeastern United States to Northern Europe

and the Mediterranean countries for consumption in major power plants as an alternative to fossil fuels.

3.3.2 The Global Market Perspective

North America is still a dominant market for forest products specifically wood, fiber and paper-related products. In the past, a majority of the raw materials and finished products were sourced and produced domestically but major changes have occurred in both of these key areas.

At the same time, expanding production of high quality and price competitive products in Brazil, Chile, New Zealand, South Africa, and Indonesia is quickly being absorbed in Asia, Europe, and North America. This ability to grow and produce more effectively and efficiently in these areas is leading to the market growth of woodpulp and woodchip imports into the United States, specifically via US Gulf Ports.

3.3.3 Cargo Handling Trends

The range of forest products handled as traditional breakbulk is reducing as the container has become a viable option for products such as high grade or finished lumber. This trend has given shippers a wider and more economical range of service and shipping options both at either end of the supply chain and reduced the need for covered storage and unitized handling equipment at the import locations.

The number of ocean carriers who are proficient and specialize in handling breakbulk cargoes and the number of ports, terminal operators, and stevedores who have expertise in handling products and providing a competitive, quality-driven breakbulk operation is also dwindling. However, there is still a strong demand by shippers for breakbulk handling, due to customer or market demands, the volume of cargo, supply chain costs, and service offerings.


As for container cargoes, there is increased emphasis being put on the total supply chain (TSC) for forest products.

3.3.4 Product Assessments

Wood Pulp

Current Situation

According to ASPA cargo records, total wood pulp movements through the Port in FY2006 were 1.23 million tons, down from the recent peak of 1.42 million tons in 2003. Perhaps more important, and as seen in Figure 3-20, exports have dropped from 1.06 million tons in FY2001 to 507,700 tons in FY2006, while imports increased from 192,000 tons in 2001 to 723,00 tons in FY2006. Overall, total movements in 2006 were very close to the tonnage handled in 2001.

Figure 3-20: Wood Pulp Movements through Mobile - 2001 to 2006 (tons)

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Imported or domestically produced wood pulp is produced in sheets which are banded into units of eight bales for handling, stowage, and transport. It is also produced in rolls that are wrapped with kraft paper. Both handling modes require that the wood pulp be kept in covered storage.

Imported woodpulp is currently being shipped to mills in Oklahoma, Missouri, Alabama, Texas, California, Idaho, Wisconsin, and Mexico from Brazil and Chile and Indonesia in open–hatch, breakbulk vessels. Imports are moving through Mobile, Port Arthur, Houston, and Beaumont.

The current customer base for this wood pulp is large consumer paper goods companies such as Proctor and Gamble, Kimberly Clark and Georgia Pacific-Koch for use primarily in the tissue and toweling product area.

Nine printing and paper production mills are considered to be within the coverage area of the Port of Mobile, with a total woodpulp consumption of approximately 4.35 million tons.

With pressure on domestic sources and increasing domestic costs, as indicated in Table 3-6, more woodpulp is being imported into the US especially from South America. New niche markets are also developing in specialty and printing papers and the foreign woodpulp producers see their product being integrated into these grades. This growth in demand for imported product is also reflected in the declining exports through mobile, as consumer nations such as Mexico turn to other sources for their raw materials.

Table 3-6: Current Prices for Bleached Hardwood Kraft Pulp – 2007

Source Cost (US$/MT) Brazil $270

US- South $400 Eastern Canada $450

Indonesia $250

In the US woodpulp and paper producers are facing an additional issue of a need to replace or upgrade the aging pulp mill recovery boilers that are prevalent throughout the industry. These recovery boilers are used in the pulp making process to recover heat and chemicals from residual black liquor.

In North America it is estimated that there are a total of 251 operating recovery boilers. Of these 251 recovery boilers, 30% are over 35 years old and 4% are over 40 years old


compared to a typical lifespan of 35 to 40 years. The estimate in the US is that between 50 and 60 of these recovery boilers are ready to be retired, each at a cost between $60 and $100 million.

Additionally, energy costs and insurance premiums for these recovery boilers are also increasing and there is a need to develop more efficient higher technology boilers, regardless of age. This has caused the pulp and paper industry to seriously evaluate the advantages of replacement of these boilers compared to the replacement of the fiber source with imported woodpulp from South America or Southeast Asia.

Demand Base

It is fairly clear from Table 3-6 that the trend in the US will be the purchase of pulp from overseas, with the US paper producers possibly taking ownership or partnerships with the offshore producers. In the longer term, final paper production may also move offshore to lower cost locations close to the raw resource, but this is not expected to happen in the near or mid term future.

Market Expectations

As a result of increasing demand and declining US domestic production capacity, producers in South America and Indonesia are looking to expand their market by moving beyond the traditional tissue and toweling market and entering the printing and writing end use market. At this time, the wood pulp market is very strong with high demand and high and attractive market prices. In particular, the foreign producers are targeting the printing and writing paper industries as a new market in the United States, based on the success in supplying eucalyptus woodpulp to the European markets.

Many of the foreign producers are in either expansion mode or planning to increase capacity to meet expected US demand for imported wood pulp and future overall paper growth expected to average some 3% per year.

Specific South American facility increases already announced or under construction are indicated in Table 3-7, below, while Table 3-8 shows longer term plans for increased production.

Table 3-7: Planned Near Term Production Increases – S. American Suppliers (tons)


Company Country Product Capacity Date BEK 425,000 3Q/06

Arauco Chile BSK 425,000 3Q/06

CMPC Chile BEK 780,000 4Q/06 Aracruz Brazil BEK 200,000 2007 Cenibra Brazil BEK 200,000 2007 Suzano Brazil BEK 1,000,000 2007 Botnia Uruguay BEK 1,000,000 2007 VCP Brazil BEK 1,100,000 1Q/09 Ence Uruguay BEK 1,000,000 2010

Aracruz Brazil BEK 1,300,000 2010/13 Note: BEK – Bleached Eucalyptus Kraft

BSK – Bleached Softwood Kraft

Source: Celtic Logistics Inc.

Table 3-8: Potential Mid Term Production Increases – S. American Suppliers (tons)

Company Country Product Capacity Date Veracel Brazil BEK 1,000,000 2011

VCP Brazil BEK 1,000,000 2011 Suzano Brazil BEK Na 2011

Stora Enso Brazil BEK 1,000,000 2012/13 Cenibra Brazil BEK 1,000,000 2013

Source: Celtic Logistics Inc.

Mobile is the preferred point of entry for this eucalyptus woodpulp due to the availability of covered storage, efficient port operations, and the inland distribution network. In addition to the rail infrastructure, several producers are planning to utilize the link from Mobile and the CG Railway – Mexico Interline Rail-Ferry Service to service customers in Mexico.

However, increased production capacity does not necessarily convert to demand, since producers may be competing for the same market. Another indication of potential


demand is to assess the overall demand for wood pulp for the US mills, and to adjust for anticipated reductions in domestic processing capacity over time.

As for containers, it would also be unrealistic to expect that Mobile will capture all of the potential market growth, but it does have significant advantages in certain market areas. It is also reasonable to assume that the nine paper mills within the southern region will be the prime destinations for imported wood pulp, with a total consumption expectation of some 4.37 million tons per year.

Based on the very broad market expectations and considerations and also assuming a growth in demand for the finished product of 3% per year, the high end of potential demand for import wood pulp activity that might be moved via the port of Mobile are summarized in Table 3-9 below. Delays in the closedown of US boilers or softer market factors would reduce these expectations to some 600,000 tons per year.

Table 3-9: Potential Near Term Increases in Demand for Wood Pulp Imports through Mobile (tons)

Source Potential New Demand (MT) Aracruz 350,000 Cenibra 40,000 Suzano 150,000 CMPC 50,000 Indonesia 325,000 Other Global 320,000 Total (MT) 1,235,000

As seen in Table 3-10, exports will continue to decline as the foreign imported material replaces the US production in the south. Based on the current trend, exports may be negligible within two to three years, indicating a high scenario of 1.31 million tons in 2008, increasing to 2.45 million tons by 2015. Under the low scenario, market demand for imports will not grow as quickly and exports will not decrease as fast as expected, indicating a potential low case of some 1.28 million tons total throughput by 2008, increasing to 1.675 million tons by 2015.

Table 3-10: Wood Pulp Market Potential to 2025 - Imports (Optimistic Case) (tons)


Fiscal Year

2007 2008 2009 2010 2011 2012 2013 2014 2015

Imports 825,000 1,250,000 1,675,000 2,060,000 2,135,000 2,210,000 2,290,000 2,370,150 2,450,000Exports 285,000 64,000 0 0 0 0 0 0 0Total 1,110,000 1,314,000 1,675,000 2,060,000 2,135,000 2,210,000 2,290,000 2,370,150 2,450,000

Table 3-11: Wood Pulp Market Potential to 2025 - Imports (Pessimistic Case) (tons)

Fiscal Year

2007 2008 2009 2010 2011 2012 2013 2014 2015

Imports 825,000 1,025,000 1,225,000 1,425,000 1,474,875 1,500,000 1,552,500 1,600,000 1,675,000Exports 350,000 262,500 131,250 35,000 0 0 0 0 0Total 1,175,000 1287,500 1,356,250 1,460,000 1,474,875 1,500,000 1,552,500 1,600,000 1,675,000

Woodchips

Demand Base

Woodchips are being imported into the US from Brazil and Uruguay and countries in Central America. The chips are normally transported in specialized vessels equipped with gear and handling equipment that facilitate efficient loading and unloading operations. After a peak of 1.04 million tons through the private facility in Mobile in 2004, total tonnage declined to 752,000 tons in FY2006.

Eucalyptus woodchips are being used in pulp and papermaking processes for major producers such as International Paper in Alabama and Florida and Georgia Pacific in Louisiana. International Paper has entered into a long term agreement with NYK/Saga to transport up to 1,000,000 tons of woodchips annually into the US for the next 10 years. They are currently using a private terminal in the Port of Mobile for these imports.

Market Expectations

Although the market for imported wood chips is likely to remain strong, and no special handling installations are required beyond mobile conveyor systems, the existing private terminal is well equipped to accommodate the projected demand and this is not considered to be a prime market opportunity for ASPA at this time.


Wood Pellets

This by-product of saw mill operations is processed into pellets and marketed to power companies in Europe as a substitute for fossil fuels such as coal. The European Union gives Green Energy credits to these power companies in many countries. The pellets are also being marketed to individual consumers as a fuel alternative for providing heating to homes.

The Southeastern part of the United States is rich in the raw materials required to produce wood pellets and several large production facilities have been announced in Florida, Georgia, Alabama and Mississippi, including:

• CKS Energy, Mississippi – 50,000 tons • Green Circle Energy, Florida – 400,000 tons • Fulghum Fibres, Mississippi – 25,000 tons • New Gas Concepts, Alabama – 200,000 tons

Market Expectations

This is a new and exciting market for the U.S. The availability of raw materials and the commitment of potential producers and their proximity to the port of Mobile provide an excellent opportunity for the port to develop a strong position as the port of export for this business.

It is unrealistic to present any market expectations at this time, since the production capability has not been fully established. However, it would appear that there could be a potential for the export of some 200,000 to 300,000 tons of product per year through Mobile if this market develops as expected.

Paper

Current Situation

Newsprint is being imported from Europe, Indonesia, and South America and is being distributed via Gulf ports to newspapers in the United States primarily in breakbulk, Lo/Lo or Ro/Ro vessels. Containers are also used, generally for certain higher value printing papers from Europe. Kraft linerboard, newsprint and printing papers are also being exported using both breakbulk and container vessel as modes of transport.

Copy paper is imported packaged in boxes from Indonesia in significant volumes into the US Market in containers and as breakbulk. The customer base is typically the large


office supply chains or US producers who market this under house brand names. Coated board is produced in rolls and is transported via both container and breakbulk and typically used for packaging in the beverage and other businesses. Export markets for coated board include Europe, South America, and Asia.

As can be seen in Figure 3-21, tonnages though the Port have declined significantly in the past five years, with the decrease being almost entirely attributable to reduced exports of kraft liner board, which declined from 193,000 tons in 2001 to no movement in FY2006.

Figure 3-21: Paper & Paper Products through Port of Mobile FY2001-2006 (tons)

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The range of paper products moving in breakbulk and container vessels offers an opportunity for Mobile through its expanded container terminal and the existing terminals and storage sheds. Copy paper shipments from Indonesia also move in containers and additional paper imports from China and Korea are on the horizon


The development of this paper market will be very dependent on the carriers and the export market areas they will serve. The paper markets in the Caribbean basin and North Coast of South America along with Central America are growing and would be a natural fit for container services from Mobile.

Table 3-12 gives an indication of the potential market expectations for Mobile, based on the current development program for the Choctaw Point terminal, the availability of warehouse storage for the products carried in break-bulk vessels and local container freight stations to handle paper to and from containers.

Table 3-12: Market Expectations for Mobile - Paper (tons)

Year 2006 2010 2015 2020 2025 High Forecast 52,000 85,000 100,000 110,000 125,000 Low Forecast 52,000 75,000 88,000 100,000 100,000

Lumber

Current Situation

The lumber import market from Europe and South America has grown very dramatically in the last few years. The term lumber includes dimensional lumber, kiln dried lumber, fencing, rough lumber and pallet stock.

Producers in Germany, Austria, Scandinavia, Eastern Europe, Brazil, Argentina, and Chile have made a concerted effort to enter this market. Today they are shipping lumber to markets all over the US including the West Coast from Europe and South America. Their success they have experienced has been due in a major part to the quality of the product they produce. The ongoing softwood lumber trade dispute between the US and Canada has also helped this market. The exchange rate between the Euro and the US Dollar, which originally had been another plus for the export this lumber to the US, has changed dramatically in favor of the Euro. This has had a major impact on the volumes moved from Northern Europe. Since the first quarter of 2006, the volumes have been steadily decreasing as can be seen in Figure 3-22, below.

Figure 3-22: Lumber & Wood through the Port of Mobile - FY2001-2006 (tons)


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The market is going through a rationalization today with projections for import volumes of finished lumber being adjusted downward following the recent boom years. European exporters will continue to supply US companies such as Home Depot and Lowe’s, but are expected to minimize their position with regional builders. The near term forecast for import shipments is therefore expected to be in the range of 10 to 20 % of the 2006 volumes and increase by some 2 to 4 % from 2010 to 2025 as the market conditions stabilize.

Forecasts or wood product shipments from Indonesia and China indicate they will continue at 2006 levels, while exports from South America, Brazil and Argentina declined in the 4th quarter of 2006. Indications are that this trend will continue through 2007 and beyond, with similar growth as the European exports as the market reaches equilibrium after 2010.


Clearly there is a high level of uncertainty in any forecast for lumber products which can increase dramatically following natural disasters or changes in economic conditions that directly impact the construction industry. The market projections presented in Table 3-13 can therefore be taken as an indication of potential throughput and should be re-evaluated at regular intervals to take short term market fluctuations into account.

Table 3-13: Market Expectations for Mobile - Lumber (tons)

Year FY2006 FY2010 FY2015 FY2020 FY2025 High Forecast 501,768 625,000 650,000 750,000 800,000 Low Forecast 501,768 550,000 575,000 590,000 602,000

Note: Category includes logs, cross ties, fiberboard, plywood, and lumber

3.4 Ro/Ro Cargoes and Automobiles

The Ro/Ro and automobile ocean carriage industry has changed dramatically over the last 20 years. Specialized vessels have been engineered and built to transport a mix of vehicles and high/heavy cargoes – i.e. construction equipment, agricultural machinery, project cargoes, boats and all typed of used vehicles.

The design of the vessels changed from Pure Car Carriers (PCC) to Pure Car and Truck Carriers (PCTC). The dynamic involved was the ability to “hoist” decks via a system of internal hydraulic lifts. This allowed the carriers to now handle trucks, construction equipment, and other over-dimensional cargoes as backhaul cargoes or via combined service routings.

Examples of North American ports that have created this multi-modal Ro/Ro culture are Baltimore, MD; Wilmington, DE; Brunswick, GA; Jacksonville, FL; Port Hueneme, CA; Portland, OR; and Tacoma, WA.

3.4.1 Global Automotive Trade Overview

The production and marketing sector of automotive industry is a global activity, but very regionalized when it comes to distribution and logistics. Over 80% of the world car production is now accounted for by six major groups, which in turn are dominated by Japan and the USA. As can be seen in Table 3-14, 64.3 million, or 88% of the global vehicle production occurs in North America, the EU, Japan, and Korea.

Table 3-14: Projected Global Automobile Production by Region (2005 to 2013)


Year Region

2005 2006 2007 2008 2009 2010 2011 2012 2013 Asia-Pacific

22,507,637 24,057,488 25,209,840 26,100,663 26,380,815 26,649,965 27,177,796 27,537,996 27,696,880

East Europe

2,561,816 2,758,816 2,835,492 2,979,573 3,287,772 3,404,729 3,562,525 3,641,977 3,727,452

European Union

17,586,465 17,558,011 17,984,619 18,663,685 19,456,767 19,533,955 19,495,092 19,565,612 19,664,409

Middle East & Africa

1,454,390 1,537,747 1,830,646 1,974,855 2,003,625 2,034,741 1,976,837 1,983,502 2,037,796

North America

15,773,815 15,732,884 15,889,285 16,207,558 16,721,863 17,095,621 16,989,651 16,986,934 16,972,535

South America

2,788,284 2,860,319 2,853,593 2,947,247 3,010,392 3,108,310 3,202,909 3,188,451 3,209,749

Total 62,672,407 64,505,265 66,603,475 68,873,581 70,861,234 71,827,321 72,404,810 72,904,472 73,308,821

As can be seen from the foregoing table, significant gains in production are expected in China, India, and Eastern Europe over the next few years. Most of this production will be for their own consumption, but a limited export volume could be used to enter markets in North America and the EU.

In regards to North America, the USA automakers are looking south to Mexico to free themselves of restrictive labor practices and aging plants. On the other hand, the Japanese and Koreans are continuing to expand in the USA as they “build for the market.” They have taken advantage of lucrative tax breaks and non-union labor to build new plants in the Southeast and Alabama has become a major focus of this business pattern over the recent past, with MBUSA and Hyundai/Kia being the prime examples.

However, in spite of the success of the Alabama in attracting major automobile manufacturing and assembly plants to the State, few if any of the export vehicles or import components currently move through ASPA facilities. Mercedes vehicles for European markets move through Brunswick in Georgia and most other output is for US internal markets.

3.4.2 Vehicle Trade Lanes

The six major car carriers of the world operate in similar trade lanes that follow an east – west round the world rotation. Origin is either in Asia or the EU, with North America as the destination.

More recently, several regional trade routes have been established to serve markets such as Mexico and South America in a closed loop.


3.4.3 Emerging Production Markets

Asia

As the economies of developing nations improve, demand for new vehicles is increasingly met by the domestic establishment automobile production, followed later by increased exports to the traditional consumer markets. China, Korea, Brazil, Malaysia, Mexico, and India represent a significant low cost production capability and are all expected to export vehicles to the USA at some time in the near future.

Mexico

Nearly 1.1 million vehicles or 58% of all of Mexico’s production was imported to the USA in CY 2005. Consequently, Mexico is playing an increasingly important role as a supplier to the US markets and production is expected to increase by 330% over the next seven years. This is primarily due to the closing of several key truck and car plants in the USA and Canada and the expansion of existing Mexican plants for these same automakers. Notably, GM and Daimler Chrysler (DCX) have large productions of their trucks and SUV’s now built in Mexico.

Automakers plan to invest US $3.1 billion in Mexico this year leading to the creation of nearly 30,000 jobs, according to Mexico's Economy Secretariat. Most manufacturers use the railways, or truck services, to export vehicles to the US and Canada markets. GM and Ford only use rail transport for exports to the US, and their two new plants, will be served by rail. Veracruz is the main automobile export and import port, and this has been a growing business for the port, as shown in Figure 3-23 below, representing some 68% of the local vehicle production.

Figure 3-23: Automobile Imports & Exports through Veracruz, Mexico 1995-2005


-

50,000

100,000

150,000

200,000

250,000

300,000

No.

of U

nits

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Imported Units Exported Units

(Source: Autoridad Portuaria Intgegral de Veracruz)

Based on the market projections and the announced plans by the local manufacturers, the potential export volumes through the Port are expected to increase to some 495,000 units by 2010, as shown in Table 3-15.

Table 3-15: Projected Automobile Exports from Veracruz to 2010

Year 2007 2008 2009 2010 Daimler/Chrysler 137,381 188,600 284,600 275,981 Volkswagen 279,468 238,493 238,186 218,962 Total 416,849 427,093 522,786 494,943

Source: Global Insight Automotive Group

Clearly the export potential from Mexico and the establishment of schedules service between Veracruz and the Port, represents a significant opportunity for the Port of Mobile, given its access to five Class I railroads and proximity to substantial demand areas.

3.4.4 Competitive Port Analysis – Southeast and Gulf

For imported vehicles, the location of the port of entry is primarily controlled by the demand radius of regional demand that can be served by highway or rail delivery.


Traditionally, the limiting radius for truck delivery was on the order of 250 miles, which permitted a car carrier to make one round trip in a 24 hour period. Economic rail haul distances are more a factor of overlapping markets, and door to door transport cost metrics, with locations such as Baltimore and Mobile competing for mid west markets.

The US east coast ports down to Jacksonville are on well established service routes for European imports and unlikely to be displaced by competition within the Gulf. Those facilities with the greatest impact on the market potential for Mobile are Brunswick and Jacksonville, although the Port of Baltimore also has a significant share of the mid west market area.

However, as future capacity increases to permit more transits of the Panama Canal come on line in 2015. The potential for the import of Asian production, plus the emergence of the Mexican plants favor the establishment of new entry points in the Gulf area, particularly those with efficient rail access to inland consumption centers.

At this time, there are two major and three minor ports that import vehicles in the USA Southeast and Gulf. Port of Lake Charles and the Port of Pensacola in the Gulf have the potential sites to build a vehicle processing facility.

These ports are:

• Brunswick, Georgia • Jacksonville, Florida • Tampa • Galveston • Houston

Brunswick, Georgia

Facilities

The Port of Brunswick has been handling vehicles and Ro/Ro equipment at its Colonel’s Island facility since 1986. The terminal consists of almost 400 acres of paved storage, and three processing facilities. There are an additional 50 acres of undeveloped property on the north side of Highway 17 and 500 available acres on the north side of Highway 17, approximately 1.2 miles from the berths.

The facility is served by the Norfolk Southern and CSX railroads via a connecting short line, the Golden Isles Terminal Railroad, which services and switches all the rail


equipment on Colonel’s Island. The facility is 2.5 miles from Interstate 95 and is secured by the Georgia Ports Authority Police. Access is available through one gate. The draft alongside is 30 to 36 ft. MLW, which is consistent with the channel depth of 30 ft. MLW.

According to published data, the Brunswick facilities handled over 268,000 vehicles in 2006, with some 67% being imports.

Vehicle Processors

AMPORTS is a wholly owned North American subsidiary of Associated British Ports and also operates car processing facilities in Baltimore, MD; Jacksonville, FL; and Benicia, CA. AMPORTS leases an area of 50 acres and 90,000 square feet of processing building space. Major clients are: Volkswagen and Mitsubishi.

Atlantic Vehicle Processors (AVP) established a 50-acre processing center and 43,000 square foot building 10 years ago to complement its facility on the west coast and a planned facility in Baltimore. They also have an option on an additional 40 acres of contiguous property for future expansion. Primary clients are: Ford, Land Rover, Jaguar, Volvo and Porsche and the company also handles Personal owned vehicles (POV’s) for the military and some project or special cargoes.

International Auto Processing (IAP) is a division of Panda Motors of Korea and operates on a 120 acre of property which includes a fully automated multi-vehicle car wash and accessory/PDI space. IAP also owns 39 acres of property on the south side of Highway 17 for future expansion. Main clients are: Hyundai, KIA, Saab, and Mercedes-Benz (export).

Jacksonville, Florida

Facilities

The Port of Jacksonville encompasses facilities Blount Island and Talleyrand. MBUSA has an off terminal vehicle processing center south of the port. The port has been the primary southeast import location for all Japanese imports for over 30 years and is also the major export port for vehicles to Puerto Rico and the Middle East. It handled some 544,000 vehicles in 2006, ranking in the top three automobile handling ports in the US.

Vehicle Processors

AMPORTS operates on 141 acres of property at Blount Island and has three vehicle processing centers. Primary customers are GM; DCX; Ford; Isuzu; and Suzuki. WWL -


VSA operates on approximately 95 acres and has a new processing center. Its only customer is Nissan, which also includes the Infiniti brand. SET has a 50 acre facility at Talleyrand and just opened an off dock facility at Westlake, Florida, which mixes domestic vehicles from the Georgetown, Kentucky plants and imports vehicles.

Port of Tampa

The Port of Tampa has been receiving between 6,000 and 12,000 vehicles per year from It also exports damaged and used vehicles for Central America, loading onto the same vessels used for import traffic.

Port of Houston

Houston is the dominant Ro/Ro port in the Gulf. This is in large part due to the Volkswagen vehicle processing facility which imports over 80,000 vehicles a year from Germany, Brazil, and Mexico.

Houston also has significant project cargo business to the Middle East, Africa, and South America. These lines operate a variety of vessels capable of carrying Ro/Ro; break-bulk, container and heavy lift cargoes.

Port of Galveston

Both K-Line and Wallenius Wilhelmsen (WWL) use Galveston as their US Gulf hub port for services to South America, Mexico and Europe.

3.4.5 Marketing Opportunities

Movements of autos and Ro/Ro traffic through the Port of Mobile have been insignificant in the past, but ASPA now has an opportunity to use its strategic location in the Gulf of Mexico and available infrastructure and properties to capitalize on the growing demand for import vehicles and Ro/Ro equipment from Mexico, South America, and Europe. Mobile can supply a significant portion of the Southeast by haulaway carriers and the Midwest by rail.

Rail improvements between Mexico and the US are a threat to the establishment of regular service between the production centers and the Gulf ports, but are still in the distant future, which supplies an opportunity for more short sea shipping between the main vehicle ports of Veracruz and Altamira for the US Gulf.


If the projected exports from Veracruz are realized, as indicated in Table 3-15, there could be a market opportunity of some 200,000 units per year through Mobile, increasing significantly in the future if the plants close to the export locations continue to rely on the water-rail route to reach their US markets. At this time, there is no area within the existing port complex with the facilities to handle automobiles at a dedicated terminal, and this class of service will be required in order to capture this market.

3.5 General Non-Containerized cargoes

3.5.1 Iron & Steel products

As seen in Figure 3-24, Iron and steel movements through the Port have increased steadily from 372,000 tons in FY2001 to 523,000 tons in FY2006. Much of this growth has been in the import of steel coils for the auto industry in Alabama.

Figure 3-24: Steel Products through the Port of Mobile FY2001-2006 (tons)

0

100,000

200,000

300,000

400,000

500,000

600,000

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006

tons

Imports Exports


Global Perspective

Domestic Producers report production and shipments were down 12 to 15% in the third quarter of 2006. At the same time, inventories are rising and prices have fallen with companies such as Arcelor Mittal and US Steel reducing output to attempt to boost prices.

Steel Imports increased by 45% in the first nine months of 2006. Recycled scrap prices are higher offering very little advantage over conventional steel production using scrap, iron ore, and coking coal.

Major global steel producers are involved in takeovers that will reduce the number of players in the market.

Markets

Houston and New Orleans are the major port choices for importers of steel into the US Gulf. These ports have a significant amount of local and regional end-users of steel products as well as terminal and distribution facilities for the collection and delivery of steel. The major end-users of the import steel for New Orleans and Houston are the chemical and oil industry along with steel fabricators.

Market Expectations for Mobile

The major clearly defined market opportunity for Mobile is the import of steel coils for the Hyundai and Daimler Chrysler automobile plants in Alabama and possibly for the new Kia plant in La Grange, GA. However, the percentage of imported steel that can be used in the manufacturing of the cars produced at US plants is dictated by the US Trade Commission.

At this time, the Hyundai plant in Montgomery uses up to 140,000 tons per year with expected increases to 300,000 tons per year. Mercedes uses about 150,000 tons per year.

The proposed new Kia facility in West Point, Georgia will be operating by 2009 and will initially require 150,000 tons of steel coils for its vehicle assembly operations. The projected steel coil needs for this plant are expected to grow to 300,000 tons by 2010 or 2011.

Thyssen Krupp has announced its plan to build a steel plant in Alabama to be completed by 2010. The plant will import steel slabs from Brazil and for processing into high-grade


flat carbon steel and stainless steel for both the domestic market and export market. It is understood that up to 3.5 million tons of steel slabs could be imported annually for this plant once it is fully functional. The facility will also export up to 800,000 tons of steel coils, primarily to Mexico for automobile fabrication.

Finally, the Isuzu company has announced hat they will build a facility to assemble commercial trucks in the Birmingham area by 2010. Initial indications are that the production capacity will be in the 5,000 units per year range and each unit will have a requirement for at least 4 tons of steel.

Based on the existing limits on imports and assuming partial capture of the market for the Kia plant in Georgia, projected volumes for steel coils and steel slabs through Mobile are as shown in Table 3-16 and Table 3-17: Potential Exports of Steel Coils from TK plant through Mobile (tons)

Year 2006 2010 2015 2020 2025 Exports 0 400,000 800,000 800,000 800,000

Table 3-18.

Table 3-16: Potential Market for Steel Coils through Mobile 2010 - 2025 (tons)

Year 2006 2010 2015 2020 2025 High Forecast 468,182 970,000 1,270,000 1,340,000 1,390,000Low Forecast 468,182 770,000 875,000 900,000 950,000

Table 3-17: Potential Exports of Steel Coils from TK plant through Mobile (tons)

Year 2006 2010 2015 2020 2025 Exports 0 400,000 800,000 800,000 800,000

Table 3-18: Potential Market for Steel Slabs (imports) through Mobile 2010-2025 (tons)

Year 2006 2010 2015 2020 2025


High Forecast 54,000 1,060,000 2,500,000 3,500,000 5,000,000Low Forecast 54,000 62,000 75,300 92,000 110,000

3.5.2 Aluminum

The Port has handled the import of aluminum ingots and castings for many years, with imports remaining steady at some 150,000 to 224,000 tons per year since 2001.

Global Perspective

The transportation manufacturing industries (aircraft, spacecraft, auto, and truck) account for 37% of US aluminum use, as indicated in Table 3-19.


Table 3-19: US Consumption of Aluminum, by Industry (2006)

Industry (Thousand MT) Transportation 3,940 Containers and packaging 2,320 Building and construction 1,680 Machinery and equipment 755 Electrical 752 Consumer durables 708 Other 424 Total 10,579

Source: US Geological Survey

Aluminum production is now shifting away from the US as energy costs continue to increase and cheap hydroelectric power is no longer available in the Pacific North West. As shown in Table 3-20, US production of aluminum declined by over 300,000 MT from 2003 to 2005 due to rising electricity prices.

Table 3-20: World Aluminum Production (MTx1,000)

2001 2002 2003 2004 2005 China 3,250 4,300 5,450 6,670 7,800 Russia 3,300 3,347 3,478 3,592 3,647 Canada 2,583 2,709 2,792 2,592 2,894 United States 2,637 2,707 2,703 2,516 2,481 Australia 1,797 1,836 1,857 1,894 1,903 Brazil 1,140 1,318 1,381 1,457 1,499 Norway 1,068 1,096 1,192 1,322 1,372 India 624 671 799 862 898 South Africa 662 707 738 863 851 Others 7,227 7,394 7,588 8,119 8,522 Total 24,288 26,085 27,978 29,887 31,867




Mobile handled 158,000 tons of aluminum in FY2006, down from 2005 but consistent with throughput over the past 5 years. With a single operator, future market expectations are not expected to change significantly, unless demand justifies the presence of a second importer into the area to support added demand within the automobile industry.

For the purposes of this study, it is therefore assumed that annual throughput will not exceed 200,000 tons per year, and will likely fluctuate between 150,000 and 180,000 tons.

3.5.3 Other Dry Bulks

Pig Iron & Scrap Metal

As seen in Figure 3-25, pig iron and scrap metal imports through the main docks have been sporadic over the past five years, with just 3,100 tons moving in FY2005 after virtually no movements since 2001. Pig iron imports increased to 36,000 tons in FY2006 with scrap metal imports at 13,000 tons for the same period.

Figure 3-25: Pig Iron and Scrap Metals through Mobile FY2001-2006 (tons)


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006Fiscal Year

Tons

Pig Iron Scrap Iron & Steel

The two major methods of producing steel are integrated production and mini-milling. Integrated steel production begins with refining iron ore and metallurgical coke into pig iron in a blast furnace. In a second step, the pig iron is finished into steel with the addition of more coke in a Basic Oxygen Furnace process.

Mini-mills can support the addition of a much higher percentage of recycled steel and are playing an increasing role in steel production. In order to dilute impurities introduced from the scrap metal and raise the quality of steel output, Direct Reduced Iron (DRI) can be added.

As Table 3-21 shows, Basic Oxygen Furnaces account for most of the US consumption of pig iron, but consume relatively small amounts of scrap steel. Meanwhile, Electric Arc Furnaces account for most of the US consumption of scrap steel, but consume limited amounts of pig iron and DRI.

Table 3-21: US Industrial Consumption in 2005 by Type of Furnace (Thousand MT)

Scrap Pig Iron DRI


Steel Blast Furnace 1,390 0 445 Basic Oxygen Furnace 11,400 34,400 341 Electric Arc Furnace 46,600 3,040 962 Other 6,010 560 3 Total 65,400 38,000 1,751


Table 3-22 lists the major countries exporting pig iron and DRI to the US. Although the US imports less than 16% of its pig iron consumption, the rising price of scrap is driving the substitution of pig iron for scrap. Much of this pig iron is now being imported, especially from Brazil, because new blast furnaces to produce pig iron are not being built in the US.

Table 3-22: US Imports of Iron in 2005 by Country of Origin (MT)

Country Pig Iron Direct

Reduced Iron Brazil 4,460,000 238,000 Canada 105,000 532,000 China 57,200 0 Russia 918,000 0 South Africa 141,000 0 Trinidad & Tobago 26,200 92,100 Ukraine 274,000 0 Venezuela 22,400 1,310,000 Other 27,200 0 Total 6,031,000 2,172,100

Source: US Geological Survey and the US Census Bureau

DRI is not generally produced domestically due to the high cost of natural gas. Venezuela and Canada are the main sources, supplemented by some production in Brazil and Trinidad.



According to the US Census, The Port of Mobile is one of only four US deepwater ports that handle significant quantities of iron and steel scrap for the US steel industry. Aside from Mobile, the major points of entry are Charleston, Seattle, and New Orleans. Table 3-23 lists the development of this trade from 2001 to 2005.

Table 3-23: US Maritime Imports of Iron & Steel Scrap (MTx1,000)

Customs District 2001 2002 2003 2004 2005 Charleston, SC 628 1,030 1,030 1,110 869Seattle, WA 304 346 401 514 618New Orleans, LA 214 237 111 741 95Mobile, AL 2 45 47 195 56Other 119 170 149 136 83Total 1,267 1,828 1,738 2,696 1,721

Source: US Geological Survey and US Census Bureau

Despite the fact that Mobile did not import pig iron between 2002 and 2004, imports reached almost 36,000 tons in FY2006. This recent activity is in part due to the high price of scrap.

The five steel mills listed in Table 3-24 as being within 300 miles of the Port of Mobile are capable of producing approximately 6.3 million tons of steel per year. A major contributor to this capacity is Fairfield Works, located in Birmingham, AL and owned by US Steel. Although Fairfield Works consumes pig iron in its basic oxygen furnaces, it can produce pig iron in a blast furnace with iron ore mined in Minnesota by US Steel. Nevertheless, if the import price of pig iron drops below the cost of producing it domestically, the US Steel plant could become an importer of pig iron.


Table 3-24: Steel Mills within 300 Miles of Mobile

Owner Location Process Product Capacity

(MT) US Steel Birmingham, AL Basic Oxygen Various 2,150,000Nucor Birmingham, AL Electric Arc Rebar 500,000Nucor Jackson, MS Electric Arc Rebar 450,000Nucor Tuscaloosa, AL Electric Arc Plate 1,000,000Nucor Decatur, AL Electric Arc Sheet 2,200,000

Source: Moffatt & Nichol

There are also four mini-mills in the Mobile area, all owned by Nucor. These mills were built to reprocess domestic scrap steel with the addition of small amounts of iron, but may compensate for the shortage of recycled material by importing iron and coke.

In the short term, it is expected that scrap prices will continue to increase as more mini-mills are built and compete for the same supply of scrap. In the longer term, assuming that world steel production continues to rise, mini-mills would continue to compete for scrap, sustaining elevated prices. The high price of steel scrap is likely to support ongoing demand for pig iron and DRI as substitutes for domestic scrap at US steel mills. Because pig iron and DRI are predominantly imported to the US from Latin America, and there are many steel mills near Mobile, the Port of Mobile is geographically situated to become a gateway for these commodities.

Based on these assumptions, projected high and low scenario market ranges for scrap, pig iron and DRI through Mobile are presented in Table 3-25.

Table 3-25: Projected Markets for Scrap, Pig Iron & DRI for Mobile 2010-2025 (tons)

Year FY2006 FY2010 FY2015 FY2020 FY2025 High Forecast 48,000 48,000 48,000 48,000 48,000 Low Forecast 48,000 36,000 27,000 20,250 15,188

3.5.4 Grain

The Grain elevator at Mobile is currently leased to a private operator with recorded movements of 1.23 million tons in FY2006. As seen in Figure 3-26, annual volumes


have fluctuated from 1.94 million tons in FY2002 to a low of 744,000 tons in FY2005. The chart also illustrates the major swings from exports to imports over the same period.

Figure 3-26: Grains through Port of Mobile FY2001-2006 (tons)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006

Tons

Imports Exports

Market Expectations

According to the US Dept of Agriculture, domestic demand for imported wheat and grains should remain steady for the near future, as consumption increases are offset by lower projected feed and residual use and higher product stocks. It is therefore expected that future movements through the leased terminal will fluctuate around 1 million TONS per year.

3.5.5 Cement/Clinkers

Cement is imported through the main complex at the LaFarge leased terminal. Imports have varied from 362,000 tons in 2001 to 390,000 tons in 2006. As for all construction


materials, the downturn in the housing markets is depressing demand, although expected to recover in 2008 or 2009. South east demand also fluctuates in response to needs for reconstruction following hurricane or other events.

Consequently, the terminal operator does not expect any long term major surges or decreases in import volumes, although any projection beyond 2 to 3 years is likely to be very subjective.

44 SSUUMMMMAARRYY OOFF CCAARRGGOO EEXXPPEECCTTAATTIIOONNSS TTOO 22002255 4.1 Overview

While Mobile has moved away from being primarily a coal and ore port, the resurgence of the coal trade over the past ten years places this one commodity as the main line of business for the foreseeable future.

With expected overall tonnages of imports and exports of 32 million tons per year by 2025 under the high scenarios, coal volumes will continue to be the largest single commodity handled by ASPA for the foreseeable future.

As can be seen from the forecasts, market expectations are strong for growth in a number of key areas of the Port businesses, including:

• Coal • Containers • Forest Products (wood pulp imports) • Steel imports for the Alabama and Georgia based auto industry • Exports of steel coils for the Mexican auto plants

At the same time, other lines of business, such as wood pulp exports and lumber imports are in decline, partially offsetting the potential increases indicated above.

There is also potential for the capture of auto import business from Mexico and grain shipments through the leased Grain Elevator continue to be strong, although with wide fluctuations from year to year.

The reader is reminded that the figures presented in the following summary indicate unconstrained demand and do not take into account the existing capacity of the port of the existence of facilities to accommodate the potential new lines of business. The specific requirements for each of the major market areas are addressed in the facility


requirements report with a comparison of the economic benefits of these activities then further discussed in the Benefits analysis report.

4.1.1 Coal

It appears that the import market for coal through Mobile should remain strong at about 15 million tons per year for the foreseeable future. Exports will also remain steady at 2.5 to 3 million tons until approximately 2017 when the Jim Walter mines may be depleted. Under the high scenario, total movements of import and export coal could reach 32 million tons per year by 2010 and remain relatively steady thereafter.

4.1.2 Containers

While demand is extremely robust, container projections for this study are more conservative than the earlier forecasts due to the increased movements of west coast containers through inland consolidation centers. However, the market analysis forecasts 200,000 TEUs of demand by 2010, increasing to some 500,000 TEUs by 2025.

4.1.3 Forest Products

Wood Pulp

The main area of potential increased demand in the forest products business is the potential for additional wood pulp imports as domestic supply is replaced by lower cost South American and Asian supplies. According to declared plans by the Brazilian and other South American producers, output may increase by some 4.0 million tons in the next 3 to 4 years and some 30% of that new business could move through Mobile.

However, exports are in rapidly decline and could virtually disappear within two to three years, offsetting some 50% of the increased import demand. It is therefore concluded that total movements of wood pulp may decline or stay flat for the next two to three years, followed by a potential maximum demand of some 1.50 to 2.00 million tons after 2010, compared to the recorded volume of 1.23 million tons in FY2006.

Paper

Asian copy paper imports are increasing, but are more likely to be moved in containers in the future. Caribbean and regional markets for US paper and kraft liner board are still efficiently serviced by break bulk vessels and expected to remain at some 80,000 to 100,000 tons over the forecast horizon to 2015.


Lumber

The downturn in the housing market has reduced demand for imported lumber, added to the fact that increasing use is being made of containers for finished milled products. Expectations for Mobile are relatively flat at 550,000 tons in 2010 to some 700,000 tonsT by 2025, although predictions of demand are extremely sensitive to hurricane reconstruction needs and shifts in economic conditions. However, any major surge in import demand for finished wood products is likely to further the move to containers and away from the traditional break bulk modes.

4.1.4 Ro/Ro Cargoes and Automobiles

Few if any of the automobiles produced in Alabama move through in-state port facilities, with the Port of Brunswick being the most cost effective link to the main car carrier services. However, the development of new plant capacity at Veracruz offers an opportunity to move some 500,000 vehicles per year, with a high percentage destined for US markets. This indicates a potential market opportunity for Mobile to handle up to 200,000 vehicles per year for regional and mid west consumers, if adequate and cost effective facilities can be provided.

4.1.5 Steel

The recent decision to locate the ThyssenKrup steel mill in Alabama will generate the movement of up to 5.00 million tons of steel slabs, coils, and stainless steel through the Port, with slab imports moving primarily through a dedicated terminal to be constructed on Pinto Island.

Demand for import of steel coils through the existing port terminals is also expected to show growth, servicing the Alabama based car manufacturers and reaching into plants in Georgia. Expectations are that the current level of imports of 220,000 tons per year could grow to some 850,000 tons per year by 2015.

In the event that the ThyssenKrup plant is able to penetrate the import market for steel coils to the Mexican auto plants, an additional 800,000 tons of exports are expected to move through the main docks complex.

4.1.6 Other Cargoes

The remaining lines of business for the port and its leased terminals are expected to remain steady for the foreseeable future. These include:


• Aluminum Imports .............................150,000 to 180,000 tons/year • Pig Iron/Scrap Metal..........................40,000 tons/year declining to 30,000 tons • Grain..................................................Fluctuating around 1.00 million tons/year • Cement..............................................300,000 to 400,000 tons/year

Final Market Assessment629 - Alabama State Port AuthorityFinal Market Analysis & Forecasts December...

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