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NORTH DAKOTA TRADE OFFICE

NORTH DAKOTA INTERMODAL INITIATIVE (NDII)

March 15, 2017

Gene Griffin

Global Innovative Solutions

701-793-1081

gene.griffin@live.com

2017 Progress Report & Related Information

Topics

1. Progress Report

2. Rationale for NDII

3. Primary Current Strategic Goals

a. Restore Intermodal Service – Minot

b. Improve Trucking Productivity

c. Transportation/Logistics Training Program

4. Future Activities/Challenges

a. Assessment of Potential Outbound

b. Assessment of Inbound

c. Developing and Attracting Inbound Industries

d. Education and Outreach

e. Create Transportation/Logistics Associate Degree

5. Ocean Liner Industry Trends

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Progress Report 1. Primary Current Strategic Goals

a. Restore Intermodal Service – Minot

i. Discussions with stakeholders continue to take place

ii. The demand for outbound service is quite evident

1. NDTO est.: Dry Peas, Lentils & Food Grade Soybeans – 40,000 TEU’s/yr.

2. BNSF concurs

3. Port of ND evaluation is similar if not greater

iii. Remaining issues

1. Ocean rates are low – counter intuitive

2. Inbound container traffic

3. Low commodity and oil prices

iv. BNSF has indicated that they want this to work

v. Possible development in the next 6 to 12 months

b. Improve Trucking Productivity

i. HB 1255 heavy truck network

1. Passed House 92 to 0, amended in Senate, passed 47 to 0

2. House concurred, signed into law April 10, 2017

ii. Working with Congressional delegation for Federal language on Interstate

1. Senator Hoeven very supportive

a. Introduce language in transportation appropriations

2. Senator Heitkamp is supportive

3. Congressman Cramer introduced a bill co-sponsored by Collin Peterson

iii. Looks very positive this session

c. Transportation/Logistics Training Program

i. Anecdotal evidence for strong support and need

ii. Needed by smaller ND companies of all types, especially agricultural and

manufacturing

iii. Initial meeting scheduled for March 22 with NDSU, Impact Dakota and NDTO

2. Future Activities/Challenges

a. Further Assessment of Potential Outbound

i. Dry bean and wheat

b. Assessment of Inbound

i. Manufacturing underway

ii. Oil – need to segregate different aspects of the production side

c. Developing and Attracting Inbound Industries

i. Collaboration with Dept of Commerce, agriculture and other industries

ii. Long term

d. Education and Outreach – Continual effort

e. Create Transportation/Logistics Associate Degree

i. Very needed based on anecdotal discussions; trucking, manufacturing, ag

processing, identity preserved marketing, and others

ii. Initial discussion with NDSCS

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Rationale for NDII

North Dakota cannot fully participate in the 21st Century

economy without competitive intermodal rates and service!

Purpose

✓ Promote and advocate for competitive intermodal service and rates in ND.

✓ Educate relevant organizations and individuals on importance to ND.

✓ Understand the implications for ND transportation infrastructure.

✓ Identify transportation policy that can affect the competitiveness of intermodal

freight.

Steering Committee

➢ Jay Schuler, ND Department of Commerce

➢ Eric Bartsch, United Pulse

➢ Kari Cutting, ND Petroleum Council

➢ Neal Fisher, ND Wheat Commission

➢ Dean Gorder, ND Trade Office

➢ Tom Sorel, ND Department of Transportation

➢ Robert Sinner, SB&B Foods

➢ Sherman Wehlander, Doosan Infracore International, Inc.

Initial activities – dynamic work plan

1. Work with ND rail carriers

2. Meet with ND stakeholders to explain the issues

3. Collaborate with the Port of North Dakota

4. Encourage location of a big box DC, or something similar that brings loaded

containers into ND

5. Evaluate specific problem areas; e.g., Frac sand coming into Seattle/Baltimore

6. Develop dialogue and work with ocean liners

7. Create shipper/receiver databases and estimate potential export traffic for select

sectors

8. Educate broader groups beyond stakeholders

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BASIC RATIONALE

Mobility’s Role in a Changing Economy

➢ Evolution in an Advancing and Changing Economy

o Subsistence/barter – trails, rivers, maritime

o Agricultural – beginning of transportation; carts, wagons, canals

o Commodity/natural resources – rudimentary highway/road system

o Heavy industrial – railroads, local road system/farm-to-market

o Durable goods – national highway system

o Consumer goods – interstate highway system

o Service economy – small package delivery

o Knowledge based/Information – logistics/supply chain mgt.

➢ Mobility becomes more vital as economy evolves

➢ Transportation system evolved with the changing economy and the changing demands for

place and time utility which transportation and logistics provides

Impact of Containerization on Trade and Transport Costs

Containerization

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DETAILED RATIONALE FOR NORTH DAKOTA INTERMODAL INITIATIVE

1. Historically, North Dakota’s economy has been commodity and natural resource based.

a. Results in wide swings in income, tax revenue, prosperity, quality of life, government

services, population shifts, etc.

b. Agricultural commodities and natural resources (crude oil and coal) are exported as raw

materials to be processed into some form of finished goods, products or energy out of

state.

c. The state’s populace is then dependent on other states to provide finished goods and

services that must be imported.

2. With access to competitive container freight rates and service North Dakota business interests

have an opportunity to change this economic environment through increased processing,

specialized marketing, identity preserved trade, sustainable agriculture, manufacturing, and play

a role in food safety.

3. This is a direct result of a transportation and logistics system that has evolved and become more

sophisticated as our current modern economy has developed over several centuries.

4. Intermodal freight container transportation has been the great facilitator for the late 20th

Century economy and will certainly be that in the 21st Century.

a. Created:

i. Loading and unloading efficiencies, ↓ time & cost

ii. Security and ↓ L & D

iii. Reduced inventory costs

iv. Scalability of ports & ships

1. First container ships carried 1,000 to 2,500 TEU’s

2. Latest mega container ships; 18,000 + TEU’s

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Figure 1. Growth in Global Trade Index; 2005=100

1966: International Adoption of Containers

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5. Recent studies show that containerization has contributed to advancing trade more than trade

agreements resulting in globalization of the world economy.

a. Containerization increased trade by 790% over 20 years

b. Bilateral trade agreements 45%

c. Membership in GATT: 285%

Figure 2. Port of Long Beach; CMA CGM to deploy six 18,000-TEU ships from Asia to West Coast; JOC, 3.7.16

Figure 3. Index of Global Trade and Container Throughput (1970=100); Sources World Bank, WTO, and Containerization Int'l.

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6. That is why The Port of North Dakota endeavor in Minot and the ND Intermodal Initiative that

supports its success is important.

a. ND will not fully participate in the 21st Century economy without competitive container

rates and service, and Minot is an operationally optimal location for BNSF.

7. Containerization led to the development of the U.S. Land Bridge and explosive growth in rail

container traffic from West Coast ports to interior gateways and then to Eastern states and the

East Coast in the 19080’s.

a. More efficient than going through Panama or Suez canals in terms of time and cost

8. Resulted in a doubling of the ton miles of rail traffic since 1980 when the Staggers Rail Act was

passed, much of it due to containers.

a. BNSF has been one of the beneficiaries of this development since it is one of only two

major railroads serving the West Coast.

b. BNSF’s position in this market is presently being challenged because of several factors.

i. Expansion of the Panama Canal allowing more efficient service to the East Coast

ii. Competition from West Coast ports in Canada and Mexico

Figure 4. North American Rail Container Freight Land Bridge

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iii. Shifts in manufacturing to SE Asia making the Suez Canal more competitive

iv. Labor issues at US West Coast ports

v. Re-shoring in Mexico

vi. Congestion on BNSF northern lines

vii. Competition from UP in the SEATAC port range

9. BNSF is attempting to improve its container unit train performance between Seattle and Tacoma

and Chicago to meet these competitive challenges.

a. ND Port Services at Minot can play an important role in that strategy because it is

midway between SEATAC/Chicago and serves as a point to refuel, conduct safety

inspections, and switch engines.

i. BNSF could utilize NDPS as a switching yard

b. However, that will not provide empty containers for ND products and commodities

destined for international destinations.

c. The container unit trains from SEATAC to Chicago are carrying goods and products to

serve the population centers of the eastern U.S.

10. That is part of North Dakota’s problem; most of the population of the country is east of the

Mississippi or lies along the west and gulf coastal areas.

a. Containers with consumer goods, manufactured items, semi-finished goods and parts

are destined for the Eastern US over the Land Bridge.

b. Furthermore, ocean liners may not reposition empty containers into ND.

c. Businesses wanting to export by container must dray empty containers from places like

Minneapolis or even Chicago and then return them adding significantly to the cost of

doing business.

Figure 5. Concentration of U.S. Population, 2010.

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11. One component to a solution is promoting inbound loaded containers for destination to the Port

of ND.

a. Ceramic proppants for fracking oil wells is a good example of potential inbound freight

in containers.

i. It is currently coming into SEATAC in containers and being transloaded into

boxcars and then shipped into the Bakken.

ii. It is estimated that there could be a demand for approximately 75,000

containers annually at current rate of well development and ceramic proppant

utilization.

iii. This has become problematic because of the drop in crude prices and domestic

competition in the proppant market

b. A big box distribution center located in ND could be another potential source of loaded

containers and should be evaluated for promotion, as well as drill pipe, Guar Gum, and

pump jacks.

c. Inbound parts for manufacturers such as Doosan Bobcat and Case New Holland are

other examples of potential inbound container freight.

12. This will require match back freight which in turn will require rates competitive with

Minneapolis and/or Chicago.

a. Port of ND estimates that there is a demand for 90,000 containers outbound annually.

b. This estimate has been validated by work at the North Dakota Trade Office.

c. However, without rates competitive with Minneapolis and/or Chicago much of the

container freight from the eastern part of the state will not move to Port of ND.

i. A $100/TEU container differential in favor of Minneapolis over Minot would

result in a cost differential of $200,000 for a business shipping 2,000 containers

annually.

13. The Port of ND estimates that once competitive rates are established there will be an influx of

10,000 containers per month into their facility.

a. This will roughly translate into an additional 20,000 truckload trips/month into and out

of the Minot Port of North Dakota at a minimum.

i. This assumes inbound containers must move out and empties must return.

ii. If the empties are moved to a new shipper for loading and returned loaded that

will add to the demand for infrastructure.

b. Infrastructure needs could be significant.

14. This is probably just the beginning of a potential significant increase in demand for container

transportation.

a. This can best be exemplified by the expected growth in the middle class.

b. This in turn will translate into a demand for protein and specialized commodities.

c. A lot of the demand will be supplied by bulk transportation, but there is little doubt that

some of it will require container transportation.

i. Food safety considerations

ii. Quality

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iii. Identity preservation, etc.

iv. Specialized marketing of commodities

v. Sustainable agriculture

Primary Current Strategic Goals

Goal 1: Intermodal Service in Minot

1. Develop a market based solution

a. All stakeholders must gain or at least remain unharmed

b. Negotiations with railroads, liners, and Port of ND

c. Led by shippers

d. Meetings and discussions currently taking place

2. A different strategy than in the past

a. Support from different sectors still important

Figure 6. Growth of the Middle Class

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Goal 2: Improve Trucking Productivity & Harmonization

Objective 1: Congressional Approval to Increase LCV Weights on North Dakota’s Interstate

System

1. Senator Hoeven will attempt to attach language to the 2018 Transportation Appropriations Bill

a. Other Senators will be asked to support; e.g.; Senators Thune and Testor

b. Senator Heitkamp is supportive

c. Example of legislative language

SEC. _____. Section 127 of title 23, United States Code, is amended by inserting at the end the following:

‘‘(u) VEHICLES I N NORTH DAKOTA. —A vehicle

limited or prohibited under this section from operating on a segment of the Interstate System in the State of North Dakota may operate on such a segment if such vehicle–

‘‘(1) h a s a g r o s s v e h i c l e w e i g h t o f 1 2 9 , 0 0 0 pounds or less;

‘‘(2) other than gross vehicle weight, complies with the single axle, tandem axle, and bridge formula limits set forth in subsection (a); and

‘‘(3) is authorized to operate on such segment under North Dakota State law.’’

2. Congressman Cramer is considering introducing separate legislation on the House side

3. There is opposition

a. Shortline railroads

b. Large truck lobby

Objective 2: Establish a 129,000 Lb. Network in North Dakota

1. HB 1255

2. Passed the House 92 to 0

3. Currently before the Senate

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Rationale/Talking Points

North Dakota’s road and highway system has continually evolved since Dakota Territory was first

settled. Initially the roads were the responsibility of counties and townships. The state legislature

created a State Highway Commission in 1913 with limited authority. In 1927 the Department of State

Highways was created which authorized it to create a “State Highway System”. An integrated part of

this system were designated Farm-to-Market county roads that served as conduits for farm production

to country elevators which were ubiquitously located throughout the state. Since then the highway

system has rapidly developed including the ND Highway Network, U.S. Highways and the Interstate

System that are the arteries for North Dakota Commerce, especially agriculture, in a changing

transportation environment and a globally competitive economy. The evolution of the highway and road

system must continue for North Dakota agriculture to participate in domestic and international markets

on a competitive basis.

1. Production agriculture continues to be a fundamental and primary sector of North Dakota’s

economy.

2. The volume of production has increased steadily increasing by 405% over the last 60 years – for

example, wheat production has increased 235% since the 1950’s to 379,023,000 bu in 2015;

corn production has increased from12,625,000 bu in 1955 to 327,300,000 in 2015, a 2,600%

increase; and soybean production has increased to185,900,000 bu in 2015 from 1,364,000 bu in

1955, a 14,360% increase.

3. All agricultural production must move by truck at some time, and usually more than once. Given

the large amount of farm storage available most grain is moved to farm storage before being

marketed.

4. Much of this production will move over the Interstate system at one time or another as it moves

from field to farm and market by truck.

5. The freeze on LCV weights on the Interstate system (imposed by Congress in 1991) severely

restricts improvements in truck productivity that is sorely needed in a competitive environment.

This is especially true in times of low commodity prices and aggressive competition at both the

domestic and international level.

6. The surrounding states of SD, MT, ID and the Prairie Provinces of Canada all have higher LCV

weight limits - thus restricting regional interstate commerce and putting North Dakota at a

competitive disadvantage.

7. North Dakota is a geographically large and sparsely populated state - resulting in unusually long

trips to move commodities compared to many other states across the country.

8. A changing marketing system utilizing shuttle trains requires grains to move much farther

distances to the origin market compared to 30 years ago, when smaller country elevators were

ubiquitously located throughout the state.

9. Development of IP, specialized marketing, and processing of agricultural commodities requires

improvements in trucking efficiency to reduce drayage costs.

10. An increase in Interstate LCV weights will enhance ND competitiveness in these new markets by

reducing bulk transport cost as well as a reduction in drayage of containers.

11. A lifting of weight restrictions for LCV’s on the Interstate system in North Dakota will allow

North Dakota to develop a network of roads and bridges suited for 129,000 lbs - making the

state more competitive in the agricultural and commodity sectors.

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Goal 3: Transportation/Logistics Training Program

1. Rationale for the program

a. Most of what North Dakota produces must exported out of the state or country

b. This requires expertise in transportation and logistics

c. There are many small companies, by national and international standards that cannot

afford to pay salaries and benefits for personnel with advanced degrees in this area of

expertise

2. Anecdotal evidence supports the need for a training program for North Dakota agricultural

processors, specialized marketing of agricultural commodities, firms that rely on identity

preservation as a marketing strategy, and manufacturers of all types.

3. The ND Trade Office is acting as a catalyst to address this need

a. Hosting a meeting of Impact Dakota, NDSU College of Business and the Trade Office to

explore the development of the program

b. Expected outcome is a collaborative effort of stakeholders

Future Activities/Challenges

1. Assessment of potential outbound – current estimates based on two surveys and industry

knowledge

a. Pulses – Peas and Lentils: 17,381 TEU’s/yr. at 20 MT/container

b. Food Grade Soybeans: 8,395 TEU’s/yr.

c. Commodity Grain & Soybeans, and DDGS: 51,120 TEU’s/yr.

i. Assumes liners and railroads will allow shipment out of Minot

d. Need to refine and expand assessment

i. Include Dry Beans and Flax

2. Assessment of inbound: In the planning stage

a. Manufacturing - Working with Impact Dakota

b. Oil Industry

i. Segregate various aspects of well development

1. Drilling

2. Fracking

3. Well development

c. Evaluate impact of better service and rates

3. Developing and attracting inbound industries to provide empties

a. Needs agricultural industry support

4. Continue to educate shippers, potential industry users and the public of the importance of

container transportation to North Dakota’s future

5. Development of transportation/logistics training program

a. Processors, specialized marketing firms, manufacturers

b. Initial collaborators include Impact Dakota, ND Trade Office and NDSU

6. Evaluate the need for and path for development of an associate degree in

transportation/logistics

a. Work with ND State School of Science

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Ocean Liner Industry Trends

Top waves hitting ocean shippers in 2017

JOC Staff | Jan 09, 2017 1:13PM EST

2016 was one of the wildest years in container shipping history. Within one year, the industry

witnessed the largest bankruptcy in liner history with Hanjin Shipping, historically low spot

rates, the narrowing of the Top 20 global container lines to 14, and the dramatic reorganization

of global shipping lines into new, larger vessel-sharing agreements. With the industry in such a

dynamic state, 2017 will likely hold its own surprises. Here are some key issues to watch.

Pricing gets shakier

One of the biggest questions of 2017 is: how will pricing and capacity develop? Since 2008, the

global container trade has slowed significantly, but growth of the global fleet did not slow in line

with that reduced demand. Global container ship capacity since 2008 has grown 8 percent on

average while traffic has increased 3 percent on average, according to IHS Markit data. This

created the enormous supply-demand imbalance that has stoked industry consolidation over the

last two years and forced Hanjin Shipping into bankruptcy. The global container ship fleet grew

1.1 percent in 2016, ship-owner association Bimco estimates, which would be the first time fleet

growth was lower than demand growth since 2010. If container lines are to bring rates to

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sustainable levels in the coming year, they will have to repeat that feat, but initial projections and

the aspirations of smaller liners suggest this may not happen.

Container lines are seeking higher rates in 2017.

As the industry consolidated, spot rates strengthened, but some doubt those signs of strength will

persist through 2017. The Asia-Europe spot rates ended 2016 at a high for the year, and the

trans-Pacific rate to the East Coast also reached a high, while that to the West Coast was the

second-highest of 2016.

Contract rates on both trades are also expected to be higher in 2017, although those increases

come from punishingly low levels. A majority of nearly 150 shippers surveyed by JOC.com in

December expect their trans-Pacific contract rates to increase this year, with most, 46 percent,

preparing for increases of 1 percent to 10 percent. More than 20 percent of respondents expect

rate increases of 10 percent to 20 percent.

On Asia-Europe, shippers have said they anticipate paying between 10 percent and 20 percent

more for their contracts this year. One shipper said the contract rates he had been offered were up

roughly $500 per 20-foot-equivalent unit compared with last year. After the brutally low trans-

Pacific contract rates of 2016, container lines are seeking eastbound rates of at least $1,500 per

40-foot-equivalent unit to the West Coast and $2,800 per forty-foot-equivalent unit to the East

Coast.

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More consolidation?

Container line losses for 2016 are estimated to range from $5 billion to $10 billion when the

year’s accounting is wrapped up. That means additional mergers, acquisitions, or bankruptcies

could lie ahead. In the JOC.com survey, 77 percent said they expect more consolidation. Just 14

global carriers will be operating by 2018, with the top seven lines controlling 65 percent of

global capacity, according to industry analyst Alphaliner. If even more consolidation occurs,

shippers can expect less competition and fewer service choices, and more pressure on ports as

larger ships concentrate more cargo at certain destinations.

Maersk Line's acquisition of Hamburg Sud closed out a year marked by high levels of

consolidation.

Container line losses for 2016 are estimated to range from $5 billion to $10 billion when the

year’s accounting is wrapped up. That means additional mergers, acquisitions, or bankruptcies

could lie ahead. In the JOC.com survey, 77 percent said they expect more consolidation. Just 14

global carriers will be operating by 2018, with the top seven lines controlling 65 percent of

global capacity, according to industry analyst Alphaliner. If even more consolidation occurs,

shippers can expect less competition and fewer service choices, and more pressure on ports as

larger ships concentrate more cargo at certain destinations.

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Alliance adjustments

This new year brings new vessel-sharing agreements into effect in April. Shippers are anxiously

awaiting word on port pairings and transit times of the Ocean Alliance, Transport High

Efficiency (THE) Alliance, and 2M Alliance + HMM. The revised alliances will produce

changes in vessel rotations and terminals served. Shippers worry that the adjustment could be

rough as new alliance partners learn to work together and sort out operational issues — for

example, how carriers that now use different terminals in a port handle chassis and drayage when

they share capacity on a single ship. The JOC.com survey found that 47 percent of shippers

expect service disruptions, while only 31 percent expect service will remain the same. Another

14 percent expect service levels to improve.

The new shipping alliances taking effect in 2017 are looming large in the minds of shippers.

Labor and employers squaring off

2017 will be a pivotal year for longshore labor relations in US ports. Negotiations are expected

to begin on new contracts for the International Longshore and Warehouse Union on the West

Coast and the International Longshoremen’s Association on the East and Gulf coasts. Shippers

have reason to be apprehensive after enduring months of slowdowns and gridlock at West Coast

ports before the current ILWU contract was approved in 2015. Shippers and other port users are

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concerned about the impact of labor disruptions on their supply chains. They have urged labor

and management to attempt to reach agreements on contract extensions.

After the West Coast dispute of 2014 and 2015, shippers are eagerly monitoring developments of

early contract talks between US dockworker unions and employers.

The ILWU and the Pacific Maritime Association say they plan to open negotiations on an

extension of their current contract that expires July 1, 2019 for a period of time yet to be

determined. Meanwhile, several issues, including healthcare and chassis maintenance and repair

jurisdiction could complicate negotiations between the ILA and United States Maritime Alliance

on a new agreement to replace the one that expires Sept. 30, 2018. ILA President Harold Daggett

expects automation to dominate the talks and has said the ILA opposes fully automated container

terminals. Adding to the uncertainty, the ILA came to the brink of a strike during its last contract

negotiations in 2012-13.

Big ships to test US ports

As the new alliances deploy larger ships, US ports must invest in infrastructure and take new

approaches to terminal operations so they can effectively handle the cargo surges that necessarily

result from the calling of ships with capacities of up to 20,000 TEUs. Ships of 10,000 TEUs are

common sights on the US West Coast, with 14,000-TEU vessels well on the way, and 10,000-

TEU ships will call regularly on the East Coast following the raising of the Bayonne Bridge,

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which will grant such ships access to all the terminals of the Port of New York and New Jersey.

In addition to raising cranes and adding rail capacity, ports on both US coasts are experimenting

with truck appointments to better regulate the flow of traffic through their terminal gates.

Extending gate hours past the traditional 5 p.m. close of business is another approach to

increasing productivity that is gaining traction.

The completion of a project to raise the Bayonne Bridge in 2017 will cause an upsizing in ships

calling US East Coast ports.

As the new alliances deploy larger ships, US ports must invest in infrastructure and take new

approaches to terminal operations so they can effectively handle the cargo surges that necessarily

result from the calling of ships with capacities of up to 20,000 TEUs. Ships of 10,000 TEUs are

common sights on the US West Coast, with 14,000-TEU vessels well on the way, and 10,000-

TEU ships will call regularly on the East Coast following the raising of the Bayonne Bridge,

which will grant such ships access to all the terminals of the Port of New York and New Jersey.

In addition to raising cranes and adding rail capacity, ports on both US coasts are experimenting

with truck appointments to better regulate the flow of traffic through their terminal gates.

Extending gate hours past the traditional 5 p.m. close of business is another approach to

increasing productivity that is gaining traction.

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Terminals and ports band together

Noting the operational and cost efficiencies container lines generated by teaming up with rivals,

ports and terminals around the world have started to do likewise. The ports of Seattle and

Tacoma joined forces in 2015 to improve productivity and eliminate excess capacity, and the end

of 2016 saw a flurry of activity among ports and container terminals seeking to form cooperation

agreements. The US Federal Maritime Commission in the last week of 2016 granted approval to

two container terminals in Miami to jointly negotiate, set, and approve terminal rates with

container lines. FMC Chairman Mario Cordero has said there will be more agreements like these

in the future, and the FMC is currently reviewing proposals for various levels of cooperation

between PSA International, Hutchison Port Holdings, APM Terminals, DP World, Shanghai

International Port Group, and the Port of Rotterdam, and the South Carolina Ports Authority and

an unknown port operator. On the other side of the globe, a number of terminals in Hong Kong

are uniting in a bid to stop the steady decline of transshipment volumes at the port.

Terminals at Port Miami closed the year with approval of a cooperation agreement from US

regulators.

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Appendix A