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Water carriers ride the waves of global events.

Water Carriers Ride The Waves of Global Events

Saddam Hussein and events on the other side of the globe helped throw Alaska shipping into a post-recession frenzy during the past year. Oil prices took a roller-coaster ride after Saddam's Aug. 2 invasion of Kuwait, resulting in both positive and negative impacts on water carriers serving Alaska.

High oil prices boosted oil-field activity, the general economy and demand for products shipped by marine transportation firms. But the Gulf crisis and other events hiked prices for the bunker and diesel fuel that make up much of the companies' operating costs.

Meanwhile, the Alaska general economy's resurrection from the depths of the late-1980s recession continued. Major projects planned long before Saddam's incursion into Kuwait - North Slope oil producers' gas-handling expansions and Alyeska Pipeline Service Co.'s continued five-year corrosion repair project - stimulated growth that, in turn, increased demand for carriers' services. Managers of marine transportation firms say they were surprised by the continued growth, which they had expected to taper off after one summer of intense work to clean up the Exxon Valdez oil spill.

Instead, Sea-Land Service Inc., which serves the Railbelt, Kodiak and Dutch Harbor, carried almost 6 percent more freight in 1990 than in 1989. "That was really unexpected, because 1989 was kind of a bubble year," says Charlie Grant, Anchorage-based general manager for Sea-Land Service Inc. Early in 1990 the carrier's management had expected cargo traffic to pale in comparison to 1989's spill cleanup-primed growth of 10 percent.

The big projects contributed directly to some carriers' tonnage. For example, Totem Ocean Trailer Express (TOTE) shipped the supplies needed for the Federal Express Anchorage expansions in 1989 and 1990, reports Everett Trout, the company's vice president for sales and operations. But he notes that TOTE's business benefited more from the indirect effects of the big projects - the demands of a growing population with more disposable income. "Where we really had the increase was in grocery and department store items and automobiles and those things," Trout says.

Although TOTE saw 1990 volume grow by 6 percent, business was interrupted by an accident that knocked one of its vessels out of service for 12 weeks during the peak of the summer shipping season. TOTE's Great Land, a 791-foot vessel that travels the Tacoma-to-Anchorage route, had its engine room flooded on July 6 during routine maintenance work in Tacoma. The ship, which was being stocked with truck trailers and other vehicles at the time, was about three-quarters full with cargo, all of which had to be taken off the ship and sent to Anchorage with other carriers.

"It happened at the worst possible time, because that's the peak period," says Sea-Land's Grant, whose company was one of the TOTE competitors picking up the cargo. The accident boosted Sea-Land's business by about 20 percent during that summertime period, he notes.

Trout declines to specify the losses sustained by TOTE, which had its repair bill and its lost-business estimate covered by insurance. But he admits the accident forced TOTE to play catch-up for much of the year. Thankfully, the Alaska economy was stronger than shippers had expected, he adds.

But petroleum-product price swings created havoc for the carriers, for which fuel is the top or No. 2 operating cost. TOTE saw Puget Sound market prices for bunker fuel, its energy source, triple between Aug. 2 and December. Part of the price hike resulted from temporary closures at two major Puget Sound-area refineries, which underwent repairs, Trout explains. He expects market pressures to eventually push the area's bunker fuel prices down to national levels.

Sea-Land and Crowley Maritime, which use diesel fuel, saw Puget Sound-area prices jump from $66 to $190 a metric ton following the eruption of the Persian Gulf crisis. Those companies were among the carriers that instituted fuel surcharges, then adjusted them several times between rates of about 3 percent and about 12 percent, as diesel prices were bounced around by the whims of the commodities markets.

Business in Western Alaska, primed by the continuing bottomfish boom centered in Dutch Harbor, was good during the past year, water carriers say. Growth in that area exceeded that of the Railbelt.

Sea-Land, which runs twice-weekly service between Anchorage and Tacoma, obviously has big plans for the booming fish center on the Aleutian chain. The company in October began shipping directly from Dutch Harbor to Tacoma. That allows processors to ship fish to Puget Sound in four days, cutting six days from the usual route through Kodiak, Grant says.

Along with the city of Unalaska and Petro Marine Services, Sea-Land plans to expand the 420-foot city dock by 730 feet. The project will cost $16 million to $18 million, of which about $6 million will be Sea-Land's contribution, according to Grant.

The plan doesn't sit too well with Crowley, however. The transportation firm, which invested in its own Dutch Harbor dock, soon will be competing with a quasi-public Sea-Land dock, explains Tom Martin, vice president of the company's Alaska services. "Those were real dollars that we spent to provide that facility," he says.

Crowley, which serves communities such as Naknek, Dillingham, Bethel and Nome, would like to see some harbor upgrades in those small western ports, Martin adds. He describes the facilities as "relatively adequate" and says that the small ports' needs are often overshadowed by commercial centers such as Anchorage and major Southeast ports.

The Crowley manager also feels that the company's opportunities for handling freight have been limited by problems at the Whittier port, where Crowley's Alaska Hydro-Train barges dock. One of the port's two ramps is down, leaving Hydro-Train with adequate operations for service now, but little flexibility in the event of more growth, Martin says.

In Southeast Alaska, where shippers reported growth at a more modest rate than in the Railbelt, the economy is healthy. Mining activity, led by operations at the new Greens Creek Mine, the nation's top silver producer, is rising, and the fishing and tourism industries are healthy, state officials report.

Carrier managers express mixed views on the impacts of oil market swings on Panhandle business prospects. Some expect high oil prices to stimulate growth and market demand in government-based Juneau, thereby offsetting any operating cost increase. Others say high oil prices likely would bring only pain to the Southeast water transportation business.

Carriers also disagree about forecasts for statewide activity in the year to come. Regardless of the boosts provided by either the Exxon Valdez spill cleanup or the gulf war, the Alaska economy has been on its way out of the recession trough for at least the past year. TOTE's Trout says the push for more domestic oil supplies and the renewed possibility that Congress will open the Arctic National Wildlife Refuge to oil exploration will further stimulate the economy - and TOTE's business.

"We're optimistic that '91 will be a good year. We expect that there will be growth," he says. Trout explains that the resolution of Middle East problems, particularly those related to oil production capacities, will play a critical role in shaping demand for water transportation. If post-war Kuwait and Iraq begin to pump out larger oil supplies to rebuild their economies, that would depress oil prices and could hurt Alaska's economy, he notes.

Crowley's Martin takes a different view. He points out that the commencement of major projects, for which shippers have brought supplies necessary for startup, might bring a near-term lull to business. For example, now that all supplies have been brought up for the first phase of the gas-handling expansion, there is no North Slope sealift planned for 1991, Martin notes. But the next phase of the expansion, the $1.3 billion GHX-2 project announced last fall, will require sealifts in future years.

Cominco Alaska Inc.'s Red Dog Mine, expected soon to become the world's biggest zinc producer, stimulated demand for Crowley's services during the construction phase. In 1988 and 1989, Cominco shipped 8 to 10 bargeloads of supplies annually to the mine port near Kotzebue, Martin says. In 1990, after mine operations began, Crowley sent three barges to supply Cominco. Now that production is in full swing, the work of suppliers like Crowley is completed, Martin says, and demand for their barge services to the mine port will drop.

Two companies contracted to serve the mine during operations face a different scenario, however. Foss Maritime, which refurbished two 286-foot barges specifically for the project, has a 20-year contract to transport ore concentrate from the mine port to ships anchoring offshore. Fednav Ltd. of Montreal has a long-term contact with Cominco to ship the concentrate to smelters.

Crowley's Martin notes that another cloud looms over water carriers' horizon. Ironically, similar to the Persian Gulf crisis that spurred oil price hikes and that may spark the opening of the Arctic National Wildlife Refuge to oil exploration, Martin's cloud was precipitated by military plans. The U.S. Defense Department has announced a freeze on construction projects nationwide.

Just what effect that will have on sites from the Railbelt to Shemya, and the demand for cargo services, is yet unknown, Martin notes. "I am unable to look out and say what's going to happen as a result of that," he says. "I think the jury's still out."
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Title Annotation:Marine transportation review and outlook for Alaska
Author:Rosen, Yereth
Publication:Alaska Business Monthly
Date:Apr 1, 1991
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