logistics challenges and solutions oilfield minerals
TRANSCRIPT
Logistics Challenges and Solutions
Oilfield Minerals
Managing Channels and Costs
• Overview
• Rail
• Truck
• Barge
• Ports
• Import Bulk
• Ocean Containers
• Oilfield Mineral Logistics Overview
• USA Deregulation: no longer government-approved tariffs
• Barge -1976 (DOJ/ICC)
• Airlines - 1978 (ADA)
• Trucking - 1980 (MCA)
• Rail - 1980 (Staggers)
• Ocean - 1998 (OSRA)
• Today
• Global sourcing and multimodal options
• Strategic and Tactical Logistics Management
• Analyze, ask questions, think “outside the box”
• Develop landed cost / transit time matrices
• Lowest cost may not be shortest transit
• React / respond to negative variances
• Shipper with most cost-efficient logistics will survive
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
'81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Pipeline excludes natural gas. Source: Bureau of Transportation Statistics
Railroads Are the Leader in Freight Transportation
Railroads
Trucks
Water
Pipeline
(% of ton-miles)
ASSOCIATION OF AMERICAN RAILROADS SLIDE 3
ASSOCIATION OF AMERICAN
RAILROADS SLIDE 4
Characteristics of North America Freight Railroads
• Vast majority privately-owned
• Same company usually owns the track and operates
trains over it
• No automatic access to another’s tracks
• Little government funding
• Regulation (USA):
• Federal Railroad Administration (FRA) for safety
• Surface Transportation Board (STB) for rates, service
Source: American Association of Railroads
North American “Class I” Rail Roads
BNSFCNCPCSXFXEKCS/KCSMNSUPOther RRs
Source: AAR
From 56 railroads in 1975 to 8 Today
Short Line Rail Roads in the U.S.
Source: AAR
Canadian Railroads
Rail Road Freight Rates
• Common carrier providing service to the general public without discrimination for "public convenience and necessity“
• Specific contracts replaced by public tariffs
• Rail roads adopted “market pricing” in some situations
– Specific origin (area) to specific destination on same railroad
– Specific commodity (STCC)
– Specific rail car type (e.g., O-T, CVH, BOX, private, system)
– Base freight rate is same for all shippers
– Subject to annual rate review and adjustment
• Fuel Surcharge disappearing as annual rate adjustments are implemented
Rail Freight Rates
• Freight rate may be influenced
– Annual volume, detailed forecast
– “Unit” trains vs. “manifest” shipments
– Shipping in “blocks”
– New business to rail road
– Truck competition
– Rail competition
– Barge competition
• “Interline” base rate is result of negotiation between origin
rail road and destination rail road(s)
Rail Freight Rates Outlook
• 1980 – 2001 railroads aggressively cut prices on competing
business until covering less than 50% of fixed cost
• Railroads stopped competing: 2003 – 2015 average annual rate
increase 5.6%
• STB determines revenue adequacy and rate reasonableness
– Industry cost of capital compared to carrier’s ROI determines if
railroad “revenue adequate”
– STB tolerates a “reasonable” level above revenue-adequate
• Short-term expectations
– Railroads recovered from price-cutting era
– Expect 3-4% annual upward “adjustments”
– Railroads want to avoid STB intervention
Variable Rail Shipper Cost Components
• Base freight rate
• Private vs. rail road “system” rail cars
• Specific rail car weight limits
• Fuel surcharge
• Load design, dunnage, weight
• Service issues and delays
• Shipment tracking
• Delivery transload costs
• Demurrage
• Cargo damage
USA Rail Deregulation – Success for Shippers and Railroads
• HOS Rules having impact on productivity
• Resurgence of oversight and regulatory measures
• Driver shortage and rapid driver turnover
• Fragmented industry but showing signs of consolidation
Trucking Trends
• Oilfield trucking rates
depressed but slightly
higher than general trend
• Mileage vs. flat vs. hourly
vs. day rates
• Over 25% of shippers
have set their own FSC
index
Inland Waterway System - Barge
• From 31% share U.S. freight
movement 1980 to 16.5% 2001
• Railroads captured much volume
by aggressive rates
• One company as good as another
keeps rates low, barely above
marginal cost
• Limitations: north of St. Louis
(winter) and high / low water events
• Short term: spot rates maintain
depressed level from 2015
• Typical contracts 3 years with 2-4%
annual adjustment
Source: Union Pacific Railroad
U.S. Gulf, West Coast Ports for Bulk and Breakbulk
Import Mineral Ore FOB Loaded on Vessel
• Mineral / Vessel ~ 8 components
• Port of Entry Stevedoring / Port ~ 6 components
• Rail to Destination ~ 6 components
• Destination ~ 3 components
Dry Bulk West Coast Cost Components
Dry Bulk Mid River Discharge Cost Components
• Mineral
• Freight
• QC program
• Demurrage / FSC / Contingency
• Ocean Insurance
• Freight Broker Commission
• Draft Survey – Vessel
• Customs Duty
• Harbor Maintenance Fee
• Customs Broker Fee
• Quality Survey
• Miscellaneous Banking
• Vessel Offload & Handling
• Barge Draft Survey
• Barge transit
• Offload & Handling at Destination
SOLAS Container Weight Verification Requirement
• Effective July 1, 2016
• Container must be weighed before loading to ship
• Two permissible methods
• After packed
• Weigh cargo/contents and add tare weight
• Estimating not permitted, shipper has responsibility to weigh
• Weight verification must be signed by the shipper
• Lack of signed shipper weight verification can be weighed
by marine terminal at port
• When no shipper verification, terminal and carriers need to
agree on process at terminal for obtaining container weight
• Packed container weighed at load port, that weight to be
used for vessel stow planning
• Vessel stow plan to use verified weights for all containers
RDC Logistics
Richard Dodd, President
14080 Palm Drive, Suite D-135
Desert Hot Springs, CA 92240-6851
Tel: 760-309-2487
Cell / Mobile: 281-460-5077
Fax: 760-309-8591