Delaware River Main Channel Deepening Project

Setting the Record Straight:
Myths vs. Facts

1. GAO Reviews & Corps Responses

Myth: "But a GAO investigation showed this project would return only 50 cents on the dollar... Three times the Government Accountability Office has questioned and/or challenged the claims of economic benefit made by the Army Corps of Engineers for its proposed Delaware River Deepening Project... "

FACT: This project represents a positive investment, not 50 cents on the dollar -- a figure the GAO never cited anyway.

• The Government Accountability Office has conducted two investigations at the request of Congress, not three.
• The first GAO review (completed 2002), was an audit of the Corps' 1997 economic analysis, not a full reanalysis. They did not recalculate the benefit-cost ratio to be 0.50, and they did not produce the last word on the project's benefits.
• They did, however, state that they could verify only a portion of the benefits because of uncertainties in the Corps' analysis.
• They concluded their review by asking the Corps to do a comprehensive economic reanalysis using independent consultants.
• The Corps completed that reanalysis as requested in 2004, concluding that the project was still justified.
• The second GAO review (completed 2010) concluded that the Corps had done what the GAO asked in its first review, but that the Corps should also provide a new assessment of relevant market and industry changes and their impact on project benefits.
• The Corps completed that assessment in 2011 in the form of a report entitled "Updated Economic Assessment of Relevant Market and Industry Trends," which also concluded that the project was still justified.
  
  

2. The Corps' 2011 Economic Assessment Report

Myth: "... In May 2011 the Army Corps, without any public awareness or announcement, completed its 8th economic review of the project in which it concluded the project was cost beneficial..."
FACT: The Corps' May 2011 report was not approved for release until October 2011, at which point it was posted to the web, where it remains for all to see.

• "Updated Economic Assessment of Relevant Market and Industry Trends," an economic assessment of the Delaware River Main Channel Deepening project completed by the Corps' Philadelphia District in response to a request by the GAO, was completed in May 2011 but had to then undergo higher-headquarters review and approval.
• As soon as the report was approved for release, in October 2011, it was immediately posted to the Philadelphia District's website, where it has been available for public viewing ever since.
  

3. Project Benefits: Container Shipping

Myth: "… the [Corps'] newly discovered benefits are based on highly unlikely economic assumptions… in the absence of a deepened Delaware channel the least cost option that will be pursued, and therefore is the comparative option that should be used in the cost benefit calculation of the project, is the approach that relies upon smaller ships to transport goods to Philadelphia as opposed to trucks."
FACT: Given the opportunity to pursue this option, container shippers have already done the exact opposite and show all indications of continuing with the trend toward larger ships serving multiple ports.

• By way of background, the Corps' May 2011 "Updated Economic Assessment of Relevant Market and Industry Trends" report identified the following commodities that would benefit from a deeper shipping channel: containers, dry bulk (including slag and steel), and liquid bulk (crude oil). One reason for this breakdown is that each of these commodities is transported differently and must therefore be evaluated as such. Relevant to the container vessel category, the Philadelphia port region is an established, major food product import and distribution center, which includes a significant infrastructure of warehouses and processing centers.
• However, critics of the Corps' assessment claim that in the future, container shippers will reduce vessel size solely to serve a shallow Delaware River—based on an economic assumption that a point-to-point delivery system (as used for bulk cargo) sized for existing Delaware River channel restrictions is economically rational for the container shipping industry.
• That assumption is flawed—failing to recognize the difference between bulk and container vessel operations and how carriers determine vessel sizes for a service route—and ignoring the simple fact that no such delivery system currently exists or is being considered.
• For bulk vessels, the size of the vessel is largely determined by the dimensions of the channel available at the commodity's two ports on the trade route, because bulk cargo vessels typically have a single origin and a single destination.
• Conversely, containerships stop at multiple ports, loading and offloading cargo at each port on a circuitous voyage with numerous origins and destinations on a single ocean voyage. Thus, the optimal sizes of containerships on a service route are determined by shipping lines based largely on the projected volume of cargo and the constraints at all of the ports on the trade route.
• Larger containerships are far more efficient than smaller, feeder-type containerships, and the recent and projected future trend in the shipping industry is for containerships to continue to increase in size, particularly in light of factors such as the soon-to-be-completed (2014) Panama Canal Expansion project. Vessel selection decisions, as well as the decisions about which ports are used, are based on what is the most economical solution for delivering cargo to customers on the service.
• As to allegations of "false" or "newly discovered" benefits, the Corps analysis incorporates actual, existing and observable containership operations, which confirm that carriers do not base vessel sizes solely upon the channel constraints at any one port.
• For example, in 2004 one carrier (Mercosur) switched its first port of call from Philadelphia to the Port of New York/New Jersey (PONYNJ) for northbound container shipments originating in South America, despite Philadelphia being closer to the major refrigerated warehouse complexes that are the intermediate destinations for produce and other time-sensitive cargo.
• The reason the carrier gave for making the switch was that they were going to larger vessels on this route that, when fully loaded, required a channel deeper than 40 feet.
• So instead of running smaller vessels directly into the port of Philadelphia, Mercosur currently offloads time-sensitive container cargo at PONYNJ and delivers them to Philadelphia by truck—because, even though trucking tends to cost more than shipping on a one-to-one basis, in this case those additional costs are more than outweighed by the savings from using a larger class of container ships for the main journey between South and North America.
• However, those trucking costs could be eliminated with a deeper Delaware River channel, since those same containerships (and the next larger class of vessels that this and other carriers plan to use upon completion of the Panama Canal Expansion in 1914) will able to come directly to Philadelphia, offload all the cargo that is destined for Philadelphia anyway, and then continue to PONYNJ and the other ports on that route.

 

4. Project Benefits: Beneficial Use of Dredged Material

Myth: "The Corps continues to claim benefits from Broadkill Beach that are challenged by
the State... the Broadkill Beach and Kelly Island spoil disposal projects will significantly harm horseshoe crabs..."
FACT:

• The Broadkill Beach project is a separate, congressionally authorized coastal storm risk reduction project that is economically justified on its own merits. The project includes constructing a beachfill-and-dune system over a total project length of approximately 14,600 feet. Instead of sand obtained from another offshore borrow area, sand dredged from the Delaware River Main Channel will be used for initial beach nourishment.
• This represents a substantial "two-for-one" cost savings, and benefits claimed for the Delaware River Main Channel Deepening project are precisely equal to the amount of that savings. (Also, note that these savings are not also claimed for the Broadkill Beach project, so there is no "double-dipping.")
• Regarding Kelly Island, the Corps and the State of Delaware are currently discussing this component of the project. But unlike at Broadkill Beach, the beneficial use for this site is environmental in nature, not economic—and accordingly, the Corps did not claim any benefits from the restoration of Kelly Island in its economic analysis.

 

5. Project Benefits: Crude Oil

Myth: "... assumptions regarding the oil industry continue to be out of date and inaccurate… While the Army Corps finally acknowledges in its May 2011 analysis the closing of the Eagle Point Refinery, it fails to consider the closing of other refineries..."
FACT: The pending sale of closure of other refineries were not announced until this report was complete, but even in the worst-case scenario the project would remain justified.

• Aside from the previous shuttering of the Eagle Point refinery, the possible closures of the other refineries were not included in the Corps' economic assessment because the announcement of those closures did not occur until December 2011, well after the Corps' economic assessment was not only completed but published and released.
• Moreover, history indicates a reasonable probability that the three refineries could ultimately be acquired and operated by other energy interests. The most recent example for this potential outcome is the recent purchase and subsequent resumption of operations by PBF Energy Partners for the Paulsboro, N.J. and Delaware City, Del. refineries. (Note that no project benefits currently or in the future are claimed for the PBF refining facility in Delaware City).
• In addition, refineries have changed ownerships and have been shut down for periods of time (e.g. Mobil became BP, which was bought by TOSCO, and then became Conoco Phillips) between the 1980s and 2000.
• That said, however—even if all crude oil benefits are removed from the economic calculation, ignoring that whole category of benefits completely—the federal interest in the project would still be supported by a benefit-cost ratio of 1.32.

 

6. Project Costs: Economic Assumptions

Myth: "... the Corps has failed to display the BCR with the 7 percent discount rate... By using an ever changing discount rate, with 4.125% being that used in the May 2011 Assessment as compared with the 5.625% used in the 2004 economic reanalysis, the Army Corps is comparing apples to oranges... "
FACT:  Estimates of both costs and benefits used the FY 2011 federal discount rate of 4.125%--as dictated to all the federal water resources agencies by the Office of Management and Budget and the Department of the Treasury.

 

7. Project Costs: Dredged Material Quantities

Myth: "The Army Corps... fails to include the known increase-by perhaps as much as 38%-of spoils that will have to be disposed of from deepening, thereby skewing the costs side of the equation and environmental impacts."
FACT: Dredged material volumes often fluctuate both up and down from estimates, and in fact were lower in the second deepening contract after being higher in the first.

• While it is true that the actual quantity of dredged material for the Reach C contract was approximately 37% above the estimated contract quantity, the actual quantity of dredged material for the recently completed lower Reach B contract was approximately 28% below the estimated contract quantity.
• The Delaware River is a dynamic environment and it is neither unusual nor unexpected for the actual quantity of dredged material to fluctuate from the contract estimates. The magnitude of the fluctuations is dependent on many factors, to include shoaling rates in each particular reach of the river; time of year the dredging is conducted; precipitation amounts in the watershed; impact of large storm events; and other natural phenomena.

 

8. Project Purpose and Scope

Myth: "The Corps has ignored significant changes to the project since the Final Supplemental Environmental Impact Statement was completed in 1997."
FACT: The project itself has not changed at all in mission or scope. What has changed is that half of much dredging is now needed to build it, which means actually less environmental impact than before.

• The Corps still plans to deepen the current 102-mile, 400-to-1000-foot-wide Delaware River shipping channel from Philadelphia through the Delaware Bay from 40 to 45 feet.
• The scope also still includes deepening the Marcus Hook Anchorage to 45 feet and widening 12 channel bends to improve navigational safety.
• However, the total estimated dredging volume for the project has actually been cut in half -- dropping from about 33 million to 16 million cubic yards -- since the Corps completed the first design and cost calculations in 1997. Thanks mostly to advances in underwater survey (sonar) technology that provide a far more comprehensive picture of the channel bottom, as well as a combination of natural forces, there is now much less deepening involved in getting to 45 feet.
• Less material to be dredged from the channel also means less material to place nearby. Whereas the 1997 plan identified the need for up to four additional disposal sites, the Corps now has all the capacity needed in the same existing federally owned sites that have been in use since World War II.
• Also, the number of Delaware Bay sites identified for wetland restoration has dropped from two to one, also because less material will be available.
• So in terms of impact, the only change is that there will be less.
  
  

9. Content and Quality of Dredged Material

Myth: "Muck...Sludge...Toxins..."
FACT: Varying combinations of silt, clay, sand and gravel -- that's what is in the channel and that's what the Corps has been and will be dredging.

• The Corps is dredging only in the federal navigation channel, which in area covers about two percent of the entire Delaware River and Bay below Philadelphia .
• Even within the channel, less than half that area is already below 45 feet and requires no dredging at all, and much of the remainder requires less than 5 feet of dredging.
• Where dredging is required, it is taking place within a channel that has been continuously maintained at its current depth -- skimming debris and contaminants from the bottom and keeping the channel clean -- for almost 70 years.
• By way of technical evidence, since 1992 the Corps has invested more than $8 million in biological and chemical tests conducted by independently certified labs -- assessing impacts related to salinity, groundwater, contaminant levels, and shellfish and endangered species populations -- with findings endorsed by the EPA, U.S. Fish & Wildlife Service and other agencies, all pointing to the conclusion that this project will not harm the environment.
• By way of physical evidence, a visitor to any of the Corps' disposal sites in New Jersey or Delaware will find not a foul-smelling "dump" or "landfill," but a large earthen area covered mostly with naturally growing vegetation (as you can see by clicking on the composite thumbnail image at right). The Corps also monitors these sites for groundwater contamination and has detected none to date. And the material to be added to these sites during channel deepening is fundamentally the same as what has been placed there during decades of channel maintenance.
• Most important, monitoring results from the first deepening contract (Reach C, 2010) found no evidence of environmental harm, confirming what previous samplings and studies had predicted.
  
  

10. Location of Dredged Material Placement Sites

Myth: "The Corps is failing to account for the enormous additional cost of moving all the dredged material up to abandoned mines in northeast Pennsylvania ."
FACT: This project is and always has been confined to dredging the channel and placing the dredged material in close proximity. Any second transfer of material would be paid for and carried out by others.

• All dredged material from the river will go directly to a total of seven existing federally owned sites in New Jersey and Delaware, sites already in use for routine channel maintenance since World War II. Sand dredged from the Delaware Bay will be used for wetland restoration and beach nourishment on the Delaware side.
• Neither this nor any other Corps project includes plans to move any of this dredged material a second time, whether for abandoned mines or building or highway construction. That would be not only cost-prohibitive but unnecessary, since the Corps has adequate capacity in its existing federal sites.
• On the other hand, dredged material from Corps sites has long been available to both public- and private-sector customers for beneficial reuse. The most common application has been earthfill for building and road construction, but reclamation of abandoned mines is also gaining increased interest.
• So the Corps welcomes the Commonwealth of Pennsylvania or any other parties wanting to make use of this material for other purposes at other locations. But any such activities are completely independent from the Delaware River Deepening project.