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Vol. 19, No. 34 Week of August 24, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

AK-WA Connection 2014: Transportation sector keeps on rolling

Industry greets new DOT restrictions, a refinery closure, oil tax reform and other challenges it faces with cautious optimism

Rose Ragsdale

Alaska-Washington Connection

Transportation companies serving businesses in Alaska-Washington commerce faced numerous challenges during the past 18 months, everything from tightening regulatory limits to the ongoing effects of the closure of the Flint Hills refinery in North Pole, Alaska.

Yet this diverse group of businesses continues to look forward to the future, despite the host of concerns about Alaska’s economic outlook that looms over them, especially pertaining to the ongoing debate over oil tax reform.

“It’s been a good year and most of our members are busy and some are very busy,” said Aves Thompson, executive director of the Alaska Trucking Association.

Many of the Alaska trade association’s 200 members are based in Washington state or have parents and/or sister companies with headquarters or offices in the Puget Sound area, evidence of the enduring connection between the two states.

“We continue to value our Washington connections. Some are over the highway and some are ships, but Washington is an important business partner,” said Thompson from his base in Anchorage. “We value that connection, and we hope that they value us.”

Operators in Alaska’s transportation sector are almost as diverse as the modes of shipping that they use to meet the needs of their customers. From family-owned support companies like container specialist Pacific Northwest Equipment Inc., to multimodal shipping operations with international links such as Lynden Inc. and Saltchuk, the industry boasts unique service providers.

A wide spectrum of uncommon carriers serves Alaska’s needs, everything from the Alaska Railroad Corp. to Alaska Native-owned Bowhead Transportation Systems. In addition vendors like Kenworth Alaska and Seekins Ford and infrastructure support companies such as Pacific Pile & Marine LP serve the industry that serves the public.

Saltchuk purchases Carlile

Recent developments in the sector include major mergers of several transportation companies in a trend toward consolidation that participants say bodes well for the future.

Saltchuk Resources, a Seattle-based family of diversified transportation and petroleum distribution companies, purchased Carlile Transportation Systems in mid-2013 for an undisclosed sum in an amicable transaction.

One year later, company officials report that Carlile, one of the largest trucking and logistics companies in Alaska with about 700 employees, is operating as an integral part of Saltchuk’s TOTE Logistics group.

Harry McDonald, former CEO of Carlile, now serves as managing liaison between the company and other Saltchuk companies such as Totem Ocean Trailer Express Inc. and Northern Air Cargo.

Carlile, founded in 1980 by McDonald and his brother, John, had grown from two trucks to more than 350 tractors at the time of merger. Still operated as a standalone company with its headquarters in Anchorage, Carlile has significantly increased Saltchuk’s presence in cargo consolidation, warehousing, trucking and other logistics in North America with wholly owned terminals serving Alaska from Anchorage, Fairbanks, Kenai, Kodiak, Prudhoe Bay and Seward, as well as Seattle,

Houston, Texas; Blaine, Minn.; and Edmonton, Alberta.

Through its companies, Saltchuk has invested significantly in Alaska over the past 35 years. Other Saltchuk Alaska companies include Delta Western, Inlet Petroleum and Cook Inlet Tug & Barge.

Lynden completes acquisition

Lynden Inc. also completed its acquisition in November of Northland Services, a marine transportation company that provides shipping between Seattle, Alaska and Hawaii.

Since 1977, Northland has provided ocean freight transportation between Seattle, Alaska and Hawaii. The company’s fleet of tugs and barges serves more Western Alaska and Hawaiian ports than any other marine carrier.

“Northland is a dynamic company with talented people and a great reputation,” says Lynden President and CEO Jon Burdick. “Its barge capabilities to Hawaii and Western Alaska complement Lynden’s current service offerings and allow us to provide expanded services to our customers. We can now offer integrated service to more Alaska destinations, with more frequency and greater combined capabilities.”

Northland said it has built its reputation on dependable common carrier service and expertise transporting cargo to some of the most remote locations in the world. From Kaunakakai to Kotzebue, when people want to ship with confidence, people ship with Northland, the company says on its website.

Lynden said Northland’s barge service from the Pacific Northwest to Hawaii also enhances its ship and air services to the islands.

Further, the addition of Northland’s Western Alaska barge services enables Lynden to service ports throughout the state of Alaska. Both companies share a commitment to keep customers’ freight moving smoothly and efficiently through the transition process.

“Lynden provides an ideal situation to better serve our customers, our employees and the communities where we operate,” Northland President and CEO Larry Stauffer said in a statement announcing the merger.

“We have seen significant growth in our business over the past decade, and bringing two great companies and teams together will help improve and expand service in the communities we serve,” he added.

Alaska Marine Lines pushes efficiency

Alex McKallor, executive vice president of operations at Alaska Marine Lines, said the companies are excited about the new opportunities that will emerge from the combination of Lynden and Northland.

Alaska Marine Lines, meanwhile, continued it campaign for greater energy efficiency earlier this year by purchasing 200 new refrigerated units. The Star Cool “reefers” achieve the industry’s lowest energy consumption by matching the compressor speed to the required heat load of the container rather than running at a single constant speed. In addition, the box and refrigeration equipment are built as one unit with an insulation system designed to minimize energy loss.

“At Lynden, we foster a culture of customer service, innovation and efficiency with a focus on protecting the environments where we do business,” McKallor said. “We operate under a company-wide “Green Initiative” and adopt programs and practices that reduce our environmental impact. Investing in this new energy efficient equipment is part of that effort.”

Alaska Marine Lines already uses a time-share system on frozen loads, greatly reducing energy consumption, and the new Star Cool reefers will allow the same energy saving results for chill loads. The energy saved will make it possible to power more units during Alaska’s peak fish season to accommodate high volumes for customers without additional generators, energy use and fuel costs.

During the past two years, Alaska Marine Lines phased out its 220-volt reefers and transitioned to more energy efficient 440-volt units. The company has worked to reduce fuel use and conserve energy in other areas as well. Working with partner Western Towboat, fuel and route optimization has reduced fuel use without compromising service. At the Seattle terminal, lighting and heating upgrades have reduced electric and natural gas use, and new electric forklifts emit 50 percent fewer greenhouse gas emissions than the older propane units.

Alaska Marine Lines also works with local communities and other Lynden companies to support recycling efforts around Alaska. The company moves nearly 3,500 tons of recyclables each year from Anchorage to Seattle for Alaskans for Litter Prevention and Recycling, helping to make drop-off recycling free and convenient for residents. In Cordova, the company donates shipment of gill nets for the Copper River Watershed Project as well as aluminum cans and cardboard where proceeds from recycling go to the local high school.

Along with sister companies Lynden Transport and Alaska West Express, Alaska Marine Lines has earned Alaska’s Green Star Award, recognizing businesses that practice waste reduction, energy conservation, and pollution prevention.

The Lynden family of companies also includes Lynden Transport, LTI Inc., Milky Way, Alaska West Express, Lynden Air Cargo, Brown Line LLC, Lynden International and others with combined capabilities that span the full spectrum of commercial transportation services.

Coping with new federal rules

In the trucking sector, among the top current issues is added costs imposed on the industry by the U.S. Department of Transportation’s recent change in its hours of service rules for truck drivers.

DOT’s Federal Motor Carrier Safety Administration imposed the new regulations in July 2013 after several years of study and litigation. The changes are designed to improve safety for the motoring public by reducing truck driver fatigue.

Experts say working long daily and weekly hours on a continuing basis is associated with chronic fatigue, a high risk of crashes and a number of serious chronic health conditions in drivers. It is estimated that the new safety rules will save 19 lives and prevent roughly 1,400 crashes and 560 injuries each year.

Trucking companies were given 18 months to adopt the new rules for truck drivers. First announced in December 2011, the rules limit the average work week for truck drivers to 70 hours (down from 82 hours) and mandated a 30-minute break in the first eight hours of a shift to ensure that all truck operators have adequate rest.

DOT also required a 34-hour break between workweeks, stating that the hiatus must include two consecutive 1 a.m. to 5 a.m. periods.

Proponents said only the most extreme schedules were affected, and more than 85 percent of the truck driving work force saw no changes.

Industry representatives say it’s the latter rule that is causing the most problems. The many drivers who work Monday through Saturday can no longer begin their Monday shifts before 5 a.m. - a virtual necessity for early-morning deliveries, they say.

Thompson said the ATA planned to work with DOT to find ways to accommodate the needs of its members, while complying with the new rules.

Refinery closure brings changes

A significant change earlier this year in Alaska’s transportation sector resulted when the Flint Hills Refinery in North Pole shut down its petroleum refining operations. The longtime supplier of fuel to Interior customers ceased the production of gasoline in early May and soon after, halted refining jet and diesel fuel.

Flint Hills Resources Alaska, owned by Koch Industries, announced in February that it was permanently closing its 215,000 barrel-per-day-capacity refinery this spring because of economic factors, including the high price of Alaska North Slope crude oil and ongoing costs associated with the cleanup of sulfolane that began many years before it bought the property from the Williams Cos.

Spills of the solvent began in the 1980s when Williams owned the property. Flint Hills bought the refinery in mid-2004.

After Flint Hills’ announcement, the Greater Fairbanks Chamber of Commerce expressed deep concern about the impact of the refinery’s closure on the Interior Alaska community, Flint Hills’ employees and their families, and on the State of Alaska.

“The refinery adds value to one of Alaska’s greatest natural resources and is a major economic driver in the Interior,” the chamber said in a statement.

Flint Hills plans to continue to market fuels purchased from another source through its terminals in Anchorage and Fairbanks. Over the summer, the North Pole refinery was transitioned into a terminal for fuel transported to the Interior by tank cars on the Alaska Railroad. Known as the Flint Hills Alaska Terminal Group, the tank farm was expected to retain about 35 of the former refinery workers to run its operation, which can store 720,000 barrels of fuel. Most of Flint Hills’ remaining 91 employees in North Pole were expected to seek other jobs with the company in the Lower 48.

The refinery, meanwhile, is undergoing decommissioning in order to keep its complex piping systems in good condition. If a buyer for the refinery is found, the facility could go back into operation.

The end of the refining operations is expected to effectively eliminate the Alaska Railroad’s Fairbanks-to-Anchorage fuel-hauling business and deliver an annual $11 million blow to railroad revenue.

The railroad continues to run five trains a week to Anchorage for various customers.

Customers scrambling

Large commercial customers of the refinery scrambled this spring to find other sources of fuel.

“Some things are somewhat in flux,” said Harry McDonald, managing liaison between Carlile Transportation and its new parent company, Saltchuk.

But some of the impact of the refinery closure on the trucking industry might be positive.

“The refinery closing actually may help trucking because more trucks will be needed to haul fuel from Valdez and other places,” said Jim Scherieble, general manager of Kenworth Alaska.

“In fact, the industry could be facing a shortage of drivers, mechanics and labor,” he added.

The shutdown also eliminated a local supply of large quantities of asphalt in the Fairbanks area. This resulted in the need for “a lot more trucking” to supply Interior customers with asphalt in sufficient quantities, McDonald said.

Petro Star Inc. also stepped into the breach to relieve some pressure from the fuel supply shortfall. The company’s 22,000-barrel-per-day North Pole refinery, which had about one-tenth the capacity of the defunct Flint Hills facility, produces kerosene, diesel and jet fuels for residential, commercial, industrial and military customers.

Naphtha from Petro Star

In July Petro Star, which is owned by Arctic Slope Regional Corp., took over as the supplier of a naphtha blend used to fire three Golden Valley Electric Association generators in North Pole. The co-op uses the naphtha for its 60-megawatt North Pole Expansion plant, which burned about 23 million gallons of the fuel last year, at a cost of about $61 million, or roughly one third of GVEA’s annual fuel bill.

Petro Star also owns a 60,000-barrel-a-day refinery in Valdez, Alaska that produces ultra-low sulfur diesel, commercial jet fuel, military JP-8 and JP-5 jet fuel, marine diesel, home heating oil and turbine fuel. Most of this fuel is trucked to the Valdez Petroleum Terminal and loaded on barges for delivery to the Air Force, Coast Guard, Anchorage airport and various clients in Southwest Alaska. Other customers include Alyeska Pipeline Service Co. in Valdez and businesses throughout Interior Alaska and Canada.

Vendors like Kenworth and Seekins Ford of Fairbanks like to keep track of changes, both in-state and out-of-state, that could affect the Alaska economy.

Scherieble said sales at Kenworth have picked up since oil tax reform legislation took effect last year.

A plan under way to construct a liquefied natural gas project at Prudhoe Bay also has spurred truck sales.

“We had a good first quarter with triple the sales we had for the same period in 2013,” he said in May. “I just spent three days at Prudhoe Bay, and everybody I talked to was cautiously optimistic. There was lots of activity up there; they had several million yards of gravel to be moved.”

New financing for Knik Arm crossing

Alaska officials unveiled a new plan in March to pursue public financing for the proposed Knik Arm Bridge and Toll Authority.

The financing includes one-third from bonds, one-third from National Highway System funds and one-third from the federal TIFIA loan program.

“It simplifies the finances of this project to a much more traditional method,” said Knik Arm Bridge and Toll Authority Board Chairman Michael Foster.

ATA’s Thompson said the new “financing scheme makes sense” because it is contingent on the state obtaining a loan from the U.S. Department of Transportation.

One-third of the $894 million cost and contingency projected from the project will come from bonds, one-third from National Highway System funds and one-third from the federal TIFIA loan program.

National Highway System route

The Knik Arm Crossing Project is a NHS route and federal funds for these routes are available to the state through the Statewide Transportation Improvement Program. Because NHS is a separate funding category within the STIP, they do not compete with AMATS, FMATS and mandatory programs (such as Safe Routes to Schools, and Highway Safety Improvement Program). Federal Highway/STIP funds can be used on eligible transportation purposes, and cannot be used for other state government programs.

The new construction estimate is $782 million, or about $76 million above the last financial estimate developed in 2010.

Judy Dougherty, the project’s acting executive director, attributed the increase to inflation, the increased bridge length, additional mitigation work, and updated utility relocation costs.

The Office of Budget and Management, in cooperation with the bridge authority, the Alaska departments of Transportation and Revenue, developed an $894 million contingency budget for the financial plan, which includes the $782 million to construct the bridge.

The new construction cost and contingency estimates were developed after a comprehensive financial analysis by the authority, Alaska DOT&PF, Revenue and OMB.

Eye on the future

Ocean-going shipper Bowhead Transport Co. LLC, meanwhile, is working toward expanding it services when oil exploration in the Beaufort and Chukchi seas and other Arctic activities proliferate in the near future.

Exploration programs by companies such as Shell and ConocoPhillips in the Chukchi Sea along with major infrastructure projects on Alaska’s North Slope such as the new hospital in Barrow affect Bowhead’s operations both directly and indirectly.

Not only does the company transport goods to the Arctic from Puget Sound to support these projects, it also provides vital annual shipping services for the businesses and residents of nine communities on the North Slope.

Since Seattle-based Bowhead was formed in 1982 by Ukpeagvik Inupiat Corp., the Alaska Native village corporation for Barrow, Alaska, Bowhead hauls about 6,000 to 10,000 short tons of construction materials, heavy equipment and general cargo north every summer from Puget Sound during the short Arctic open-water season. The company also transports another 5,000 short tons in a yearly backhaul south to the Seattle area and beyond.

Bowhead also barges lateral freight between the villages and calls at other locations on the Arctic Coast in response to demand from government agencies, the military and scientific research organizations.

JV formed

In 2013, the barge company formed a joint venture, UIC Bowhead-Crowley LLC, to support the growing needs of Alaska’s oil and gas industry in the Arctic.

Jim Dwight, Bowhead’s general manager, said the JV’s operations are going well, and the company focused this year on completion of construction of a 150-foot-long by 50-foot-wide by 8-foot-tall triple-screw, shallow draft landing craft. Built by Nichols Brothers on Whidbey Island, Washington, the vessel has a berth and galley that can accommodate 16 people and was scheduled to be available for charter service Aug. 1.

“We’re hoping it will be appealing for bio observation, oil and gas support work and scientific research,” Dwight said.

He said Alaska Marine Lines and Bowhead have shared three similar vessels for charter work in past years.

An ongoing challenge for Bowhead in recent years is the impact of climate change in the Arctic. Changes include the whaling season starting two week earlier.

“With less of an icepack, conditions are not necessarily good for us,” Dwight said. “The water is rougher, the wind makes the water rougher and many of the beaches are eroding.”

Last summer, Bowhead personnel observed the erosion of about 100 feet of the beach within a mile of where they were working. “From the time we started until we finished, there were a lot of changes in the coastline,” Dwight said.

Another costly complication of climate change is the melting of permafrost-insulated ice pits that North Slope residents typically dig and maintain underneath their homes in which they store frozen food.

“Many of these traditional freezers are failing now because of warmer weather,” he observed.



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