Economies of scale allow international deepwater shipments to compete with local trucking costs.
By Therese Dunphy, Editor-in-Chief
During its first 12 months of operation, British Columbia’s Polaris Minerals Corp. produced 2.4 million tons of high-grade sand and gravel suitable for use in ready-mix concrete. Its customers line Pacific coast markets, including northern California, Hawaii, and Vancouver.
The premise of the venture is that marine transport of aggregates can provide a cost-effective alternative to trucking. By leveraging the economies of scale, including use of Canadian Steamship Line (CSL) self-discharging vessels that transport 80,000 tons of aggregate and barges that can handle capacities up to 6,100 tons, the company has greatly expanded its potential market area and can provide aggregate along the California coast where local availability is spotty and new deposits are extremely difficult to permit.
Before the company broke ground at its Orca Quarry or its Richmond, Calif., distribution yard, the company first established strategic business partnerships that provide the long-term base it needed to justify the initial capital investment and ongoing transportation economics.
“In each of those market places, we secured a long-term contract with customers,” says David Singleton, president of Eagle Rock Aggregates Inc., the U.S. marketing subsidiary of Polaris Minerals Corp. For example, in the San Francisco market where Polaris provides the aggregate shipments, the company established 20-year supply agreements with its two customers and transports aggregate for them.
“The eminent shortages of local materials, as recognized by our customers in California, persuaded them that establishing long-term supply contracts was in their best interests,” he says. “Although this recession has delayed the rundown of local materials, it is inevitable that, at some point, the local materials won’t be able to meet the demand. It was for that reason that we were able to negotiate and secure these long-term contracts.”
Polaris Minerals’ customers in Hawaii and Vancouver have shorter supply agreements, but provide their own vessels for transportation. The company also established a 20-year agreement for the CSL vessels that includes a fixed price for shipping with small annual increases. The variable fuel pricing is passed along to the customer, so it doesn’t impact the overall economics for Polaris.
“We had secured those long-term supply contracts before we commenced operations at Orca and that was why we got off to a flying start,” Singleton says, noting that, although the economy made the company’s second year more challenging, it expects the long-term payoff to be worth the wait. “We feel that, from a standing start, we put together, through the customer relationships, the shipping contracts, and the excellence of the Orca material, a very sound business plan that is perhaps being delayed, but not certainly derailed by the current economic crisis.”
A key factor to making marine transportation viable is the ability to carry large quantities of material. “The approximate cost of carrying material from
Orca into San Francisco Bay is pretty much the same as carrying it 25 miles in a truck around congested roads in northern California,” Singleton says.
To get those economics to work, however, requires some fancy footwork at both the outgoing and incoming ports. At the Orca Quarry, a 1.5-mile high-speed conveyor transports materials out to the ship. The covered conveyor allows for full loading of the ship, without concerns about draft depths. When the ships arrive in San Francisco, one customer agreement provides that it brings its barges out to deep draft water where it unloads approximately 30,000 tons of material for its use.
“It enables the Panamax vessel to be lighter in the water and, therefore, reduce draft to enable it to get into the land-based terminal where the water is shallower,” he says. The partially emptied ships continue to either Eagle Rock Aggregates’ Richmond terminal, where they are completely unloaded into a covered facility for use at customers’ ready-mix concrete plants, or to a facility in Redwood City operated by its strategic alliance partner.
“By lightering off, we can get into both of those terminals, and it makes the economics of the marine transportation perfectly viable,” Singleton explains. “If we had to take, for example, only 50,000 tons down all the way from the Orca Quarry into the Bay, the costs would be significantly different.”
While Polaris has enjoyed success in the San Francisco market, it plans to expand its services along the West Coast into Southern California. “We’re now, in conjunction with our strategic alliance partner, Cemex, looking to establish terminals in the ports of Long Beach and San Diego,” Singleton says. “It’s an interesting fact that the larger this business gets, the easier will be the logistics of marine transportation. We’re aiming to send material to Long Beach in 2012 and San Diego around about 2014. In the meantime, we’re working hard to get those sites permitted and established.”
While any permit is difficult to obtain in California, Singleton says that getting one for a marine terminal is slightly less difficult than obtaining one for a greenfield operation. He points out that transportation is an inherent and expected part of any marine terminal, but transportation itself is one of the aspects of a new aggregate operation that raises neighbor objections.
“That doesn’t mean getting a permit for a terminal is easy,” he stresses. “It puts you half a step forward, perhaps. At Richmond, where we were successful in getting a permit, we raised the bar significantly by having all our stored materials under cover. There was no visual evidence of aggregates, there was no wind-blown dust to be concerned about, and the whole of the terminal could be fitted on about a 4-acre site. It’s a very efficient way of storing materials within a building and it meets many of the environmental requirements to avoid dust and noise.”
As it plans for the future, Polaris has acquired the rights to the Long Beach site, along with its existing permit. “We’ve got to hope that the state of California resolves its budgeting issues — like every other state — and resumes the growth that it so desperately needs to maintain the infrastructure for a growing population. We believe that will be the case. At that time, the shortage of materials in Southern California will actually become quite a significant problem. Marine aggregates won’t satisfy the shortfall that we envision, but it will satisfy part of that shortfall.” AM
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