Today, ethanol producers and marketers have three transportation options—train, truck and barge—to get renewable fuel from its point of origin to the market where it can be blended and consumed. Before ethanol’s most recent growth spurt, the renewable fuel was most commonly shipped by rail or truck from the Midwest, where much of the corn-based fuel additive is produced, to the East and West Coasts. Although these methods have worked in the past, as new markets open up in other areas of the country and overseas, another mode of transportation may be more heavily relied upon. In the United States, the rail and truck industries have had to grow in tandem with the ethanol industry and have shouldered the bulk of the supply and demand logistics. Ethanol proponents have speculated about whether the worldwide supply and demand cycle could lead to shortages of inland or ocean-going tanker vessels—similar to what has occurred with the U.S. rail industry during ethanol’s early years. “There are plenty of ships today to take ethanol,” says Michael Cooper, president of Biofuel Brokers LLC, a Michigan-based marketer of ethanol and biodiesel. “The chemical tanker market is tight, but it’s tight because you need to have the right ship at the right place,” he says adding that shippers should check on storage, loading and unloading, and the demurrage risk—the time a ship has to spend at a port—involved in transporting ethanol.
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Although ships are available, a tight market has pushed shipping prices higher. U.S. ethanol capacity was pegged at about 8 billion gallons last year, and was expected to settle at about 11 billion gallons by the end of 2007. As a result, the demand for barges to ship ethanol and corn has risen. “Ethanol has impacted the ability to obtain competitively priced barging, and some barges are being built as a result of this increased demand,” says Eric Koehne, director of business development for Network Chartering Americas Inc., a ship brokerage and marine logistics services company that specializes in bulk liquids and gases. “The rise in [shipping] rates has occurred because the demand has outstripped supply out of the global market base for all products. One could say biofuels has contributed to the shipping market’s success recently.”
To keep up with rising demand, ship orders are up. At the same time, however, most U.S. shipyards are faced with a backlog because it takes so long to order a ship. According to Cooper, it takes nearly a full decade for a shipping company to envisage that it needs a ship, let alone the time it takes to follow through with the process and pay for one that meets its full potential. “Ship orders are very healthy today,” Cooper says. “They’re mostly going to be on the larger size. The expectation is that over time the capital will have been spent and the tanks to load those tankers will be ready to go. This is a concert where everybody has to play the same tune—biofuels producers, feedstock suppliers, the marine transport sector, the port sector, the terminal and the labor to unload the commodity. All of that has to be playing together and we’re just getting there now.” The bigger ships are expected to be able to hold more cargo and cut down on long wait times, according to Brent Dibner, president of Dibner Maritime Associates, a Massachusetts-based management consulting firm specializing in the maritime industry. “What we’re seeing on the international side is a trend towards larger and larger petroleum products tankers,” Dibner says. “This is a trend I think, and we’re seeing a greater globalization of the petroleum products markets where shortages and needs are being more aggressively met by larger and larger products tankers.”
The move to larger ships has its drawbacks though as larger cargos can translate into increased demurrage risk in addition to restricted terminal capacity. “Those can offset all the scale-based savings that you thought you were achieving by using a very big ship,” Dibner adds. “That’s why in many aspects of marine mode cargos they tend to focus on a certain size because it just makes sense.”
Growth Potential
Though healthy and active, the marine transportation sector has yet to experience the degree of growth the U.S. rail and truck industries have in the past three to four years to keep up with ethanol production. Industry experts agree that it will take time for waterborne transportation to scale up and meet the distribution and transportation requirements to ship ethanol more efficiently, Cooper says. “The main blockage in the ramping up of marine transport is to understand that everyone’s profit margin is directly related to the cost of transportation,” he says. “The net value of that product would be much better serviced on inland and ocean-going vessels than truck or rail today. You have to be in a certain economy of scale to be able to make it worth your while though.”
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