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Monday, August 7, 2017

Globally Integrated Logistics Zone and FTZ

The Opportunity - Southwest and Asia Pacific Markets

Kingman offers a unique intersection of air, rail, and highway infrastructure. Proximity to major regional markets and international markets create unparalleled geographical advantages. The confluence of the CANAMEX Corridor through Mohave County alongside the Burlington Northern Santa Fe Railway (BNSF) creates a “made for business” logistics hub ready to meet the needs of increased traffic on the I-11 CANAMEX Corridor.

Low operating costs create a compelling business model and small to mid-sized companies with market presence in the Southwest and Asia-Pacific markets may capture proximity benefits for their supply chain.

Globally Integrated Logistics Zone // Port Regionalization

The emergence of intermediate hubs (offshore terminals) created a new hierarchy within the port system, acting as intermediate locations. Additionally, the efficiency and capacity of container cranes improved, enabling ports to handle larger ships and a higher containerized throughput, particularly in the context of efficient inland distribution.

The Port of Los Angeles and other large port gateways on the west coast must operate with a wide array of various issues that compress their ability to grow. Deep water requirements for Post Panamax ships combined with a wide variety of local and regional issues, have created reduced land availability in proximity to major gateways. Inland ports, such as Kingman, offer competitive advantages for Port operations that can be external to core gateway operations via port regionalization.

Kingman Advantages

  • Class 1 Rail Access
  • I-40 Corridor Access
  • CANAMEX Corridor Access
  • Reduced Operational Costs
  • Reduced Cost of Goods Sold (COGS)
  • >7 million market <200 miles (Maricopa Co. & Clark Co.)

Rail Segmentation

  • Aggregate
  • Bio-fuels
  • Chemicals
  • Cullet/glass
  • Machinery/equipment
  • LPG
  • Lumber
  • Metals
  • Plastic resin
  • Steel products
  • Petroleum products
* Load Types include Dry Bulk, Liquid Bulk, Dimensional, Pulp/ Paper, Food.

Foreign Trade Zone / FTZ

Inland ports typically designate an area for a Foreign-Trade Zones; secure areas under U.S. Customs and Border Protection supervision that are generally considered outside CBP territory upon activation. FTZ advantages accrue through;
  • Deferral of duty
  • Deferral of excise taxes
  • Tax free removal from the FTZ as per Tariff Act
  • Security Level for CBP specifications

Foreign-Trade Zones (FTZ) are secure areas under U.S. Customs and Border Protection (CBP) supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the United States' version of what are known internationally as free-trade zones.

Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u). The Foreign-Trade Zones Act is administered through two sets of regulations, the FTZ Regulations (15 CFR Part 400) and CBP Regulations (19 CFR Part 146).

Foreign and domestic merchandise may be moved into zones for operations, not otherwise prohibited by law, including storage, exhibition, assembly, manufacturing, and processing. All zone activity is subject to public interest review. Foreign-trade zone sites are subject to the laws and regulations of the United States as well as those of the states and communities in which they are located.

Under zone procedures, the usual formal CBP entry procedures and payments of duties are not required on the foreign merchandise unless and until it enters CBP territory for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product. Domestic goods moved into the zone for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback.

Qualified public or private corporations that may operate the facilities themselves or contract for the operation sponsors foreign-trade zones. The operations are conducted on a public utility basis, with published rates. A typical general-purpose zone provides leasable storage/distribution space to users in general warehouse-type buildings with access to various modes of transportation. Many zone projects include an industrial park site with lots on which zone users can construct their own facilities.

Subzones are normally private plant sites authorized by the Board and sponsored by a grantee for operations that usually cannot be accommodated within an existing general-purpose zone. (Department of Homeland Security, 2017)

 Advantages of an FTZ

  • CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption.
  • While in the zone, merchandise is not subject to U.S. duty or excise tax. Certain tangible personal property is generally exempt from state and local ad valorem taxes.
  • Goods may be exported from the zone free of duty and excise tax.
  • CBP security requirements provide protection against theft.
  • Merchandise may remain in a zone indefinitely, whether or not subject to duty.
  • The rate of duty and tax on the merchandise admitted to a zone may change as a result of operations conducted within the zone. Therefore, the zone user who plans to enter the merchandise for consumption to CBP territory may normally elect to pay either the duty rate applicable on the foreign material placed in the zone or the duty rate applicable on the finished article transferred from the zone whichever is to his advantage.
  • Merchandise imported under bond may be admitted to a FTZ for the purpose of satisfying a legal requirement of exporting the merchandise. For instance, merchandise may be admitted into a zone to satisfy any exportation requirement of the Tariff Act of 1930, or an exportation requirement of any other Federal law (and many state laws) insofar as the agency charged with its enforcement deems it so.

Considerations for establishing an FTZ in Mohave County

  • Discussions could be parsed into several logical parts
  • Geographic Benefits / Liabilities
  • Comparative Economic Benefits / Liabilities
  • Work Force Strengths, Weaknesses, Opportunities, Targets
Each area may draw conclusions which may or may not support the FTZ concept, but it will be beneficial to consider the first and most important goal of any FTZ is to establish a foothold of economic opportunity for Mohave County which can be a catalyst and act as a “launch pad” for the improvement of economic conditions for existing business. An FTZ should also be a major positive decision point in the recruitment of new and appropriate industry and business to Mohave County and to encourage discussion on the planned and systematic growth of the county.

Regional Positioning - California

California posted a 2.5 trillion GDP in 2015. If California were a nation state, it would rank behind the United States, China, Japan, Germany, and the United Kingdom. California ranks slightly ahead of France and Brazil (World Bank, 2017).

California Sectors

Three important sectors make up 29% California’s GDP, including transportation, trade, utilities, manufacturing, agriculture, and mining. Accordingly, the Mohave County region is proximal to approximately 725 billion GDP of highly targetable trade, and those three segments would still rank in the top 20 global economies, surpassing the entire GDP of Switzerland and Saudi Arabia.

 West Coast Ports

West coast ports transit large scale rail traffic to the KC Smartport from where 85% of the US domestic population may be reached in two days. Kingman is one day (16 hours or less) from the West Coast ports and offers access to Las Vegas, Phoenix, Albuquerque, El Paso, and Mexico City, the Port of Lazaro Cardenas, and Veracruz. Port traffic on the west coast is dominated by Los Angeles.

Port of Los Angeles and Long Beach

The Port of Los Angeles (POLA) is America’s largest, with the Port of Long Beach (POLB) in second place. Combined, they handle about 16 million twenty-foot equivalent units (TEU), almost three times the size of New York. This trade growth is fueled by China and Pan Asian trade routes.

CANAMEX Corridor

The compilation of evaluation data for designation of the CANAMEX corridor through the Maricopa region is the Arizona Department of Transportation (AZDOT) report that solidifies the route proposed and accepted by the Maricopa Association of Governments. The map, shown here, delineates the route of the CANAMEX corridor and ties through Highway 40 in Kingman. Investments made to accommodate growing truck traffic on the CANAMEX Corridor align with known truck traffic patterns and correlate with warehouse densities in metropolitan zones. 

Sun Corridor

Moving trade across the CANAMEX corridor is part of the equation. Undertaking an industry led stakeholder identification of key synergies to be captured by the greater Kingman Region will provide the basis for an analysis of job creation potential and weight that with labor rate potential in order to capture as many jobs as possible and amplify the wage base.

The State of Arizona recognizes the importance of inter-municipal and inter-organizational collaboration. It requires partnerships to move cargo from a point of entry on Arizona’s border, to or through the state. These partnerships range the various modes of transportation while the corridor reflects an opportunity to connect Mohave County to the emerging super-corridor, a.k.a. the Sun Corridor.

The Joint Planning Advisory Council has a shared vision to jointly coordinate planning efforts and carries the consent of the Maricopa Association of Governments, Pima Association of Governments, the Central Arizona Governments, and the Sun Corridor Metropolitan Planning Organization (Joint Planning Advisory Council, 2017).

Proximity to the Auto Industry in Mexico

Proximity to Mexico offers some prospect to capture part of an 17 billion plastic resin supply chain (Export.gov, 2017). Due to the considerable number of automobile manufacturers in Mexico, the market for specialized plastic feedstock is accelerating, this may be immensely impacted by the expansion of commercialized 3D printing, which requires a specialized feedstock. The market for 3D printing feedstock is expected to meet or surpass the amalgamated plastic resin export market within five years.

Market Risk

Kingman is on the BNSF Class 1 rail line moves domestic traffic to the KC Smart Port. Kingman offers midpoint value and regional highway access to domestic markets of Phoenix and Las Vegas, it also connects to El Paso, thus able to connect to Mexico’s automobile production corridor while boasting Atlantic and Pacific access through bidirectional connectivity to the ports of Veracruz and Lazaro Cardenas.

Assumption of political risk is assigned to the North American Free Trade Agreement (NAFTA) being renegotiated and/or terminated during the proximal three-year horizon is low as confirmed by the Executive Office of the President through the U.S. Trade Representative Office as a releast of NAFTA negotiating objectives (Executive Office of the President, 2017).

Strategic Planning - Overview

Given the strategic location of Kingman and the nexus of rail, air, and highway, it seems like it would be wise to examine certain industry sectors to determine if they are candidates for Kingman served markets. These industries compromise the initial research required to formulate a solid and credible economic development plan that leverages the Kingman advantages.

The Example of Plastic Resin and 3D Printing with Polyamide Feedstock

Of the current market segmentation, plastic resin was selected for a brief scan of data and market opportunity relative to the geophysical positioning of Kingman. This was done due to major export and import points relative to BNSF class 1 rail and intra-rail connectivity providing a supply chain corridor from Joffre and Los Angeles to Mexico City.

U.S. exportation of plastic resin to Mexico represents a 17-billion-dollar export market. Mexico is also the largest export destination for U.S. Plastic and Rubber Equipment, Tools, Dies, Jigs, and Industrial Molds. It is also the fifteenth largest destination for U.S. Additive Manufacturing equipment. More importantly, Mexico is expected to see 3D printing feedstock, polyamides, exceed all other forms of imported resin by the year 2020.

Industry segmentation for the consumption of resin recollects companies like GM, Ford, Chrysler, and Toyota, but it also features companies like Fuji Heavy Industries and some of the World’s largest consumers of tech equipment used for processing and bio-packaging products in the food and beverage sector. BNSF also switches in El Paso with Ferromex offering integrated service to Mexico City.

Integration of the FTZ

Storage sites confer supply chain proximity of plastic resins with short market lead times, making them ideal for established corridors such as Los Angeles/Mexico City through Kingman. Trans-shipment of plastic resin, in addition to regional consumption, provide a customer base that could leverage economic benefit through FTZ storage and re-exportation duty free and excise tax free. This could, as an example, apply to Sterlite Manufacturing using plastic resin originating in Canada for plastic products exported either within the NAFTA market or external to it, with one way or two-way taxation benefits being applicable.

Collateral Opportunity Points applicable to FTZ and international markets

Other opportunities include materials for construction, electrical, and agricultural product trans-shipment. Extending the supply chain includes not only the Pacific Rim countries, but also Canada as a large feedstock supplier of North American plastic resin feedstock from Southern Alberta’s Joffre Novachem facility. Trans-shipment through Kingman offers not only tax exempted status, it also offers currency arbitrage opportunity through contract forwarding of exchange rates the NAFTA partners.

Project Management

Economic development project management must be aligned with the realities on the ground in addition to the vision and direction of local and regional governments. These components plus stakeholder groups from operational segments of the logistics zone and imperative. The physical proximity of class one rail, air operations, and the CANAMEX Corridor trucking access creates a trifecta of advantage for Kingman. A seven-step data set for industry targeting consultations with stakeholders;

  • Assessment of Alignment for Economic Stakeholders
  • Existing Market Status Analysis & Data Management
  • Data Collection, Normalization, and Statistical Analysis for Rail Cargo
  • Data Collection, Normalization, and Statistical Analysis for Truck Cargo
  • Data Collection, Normalization, and Statistical Analysis for Air Cargo
  • Integrated Analysis of Road Rail and Air Data to define overlap opportunity
  • Identification of Key Industry Targets

Regionalization Knowledge Management

  • Inland Port
  • Port Regionalization
  • NAFTA Trucking w CANAMEX export/import
  • Asia Pacific Truck/Rail/Shipping
  • Other International Markets
  • Transshipment
  • Public Communications
  • Foreign Trade Zone (FTZ)
  • U.S. / Mex / Can (customs/douane)


Port governance is flexible and may span central government owned entities to fully privately owned and controlled ports. Typically, port governance in the United States is most often public in nature. The organizational design in areas with private control in place and a shifting business environment quite often benefit from a hybridized governance structure that reflects the need for a flexible governance structure. These could involve a combination of private industry leaders from stakeholder industries alongside public representatives appointed by regional government entities and/or public trust institutions.
Rail operators, class 1 and short line, plus logistics service providers and other private stakeholders would be likely candidates for inclusion. So long as there is widespread agreement on the best structure, it is possible to have great flexibility in the design of any governance changes and/or initiatives.


Department of Homeland Security. (2017, 07 26). About Foreign-Trade Zones and Contact Info. Retrieved from U.S. Customs and Border Protection: https://www.cbp.gov/border-security/ports-entry/cargo-security/cargo-control/foreign-trade-zones/about
Executive Office of the President. (2017, 07 27). USTR Releases NAFTA Negotiating Objectives. Retrieved from Office of the United States Trade Representative: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/july/ustr-releases-nafta-negotiating
Export.gov. (2017, 07 27). Mexico Country Commercial Guide. Retrieved from Mexico - Plastic Materials / Resins: https://www.export.gov/article?id=Mexico-Plastic-Materials-Resins
Joint Planning Advisory Council. (2017, 07 27). A Planning Partnership for the Arizona Sun Corridor. Retrieved from Joint Planning Advisory Council: http://www.jpacaz.org
Kimley-Horn and Associates, Inc. (2000, August). CANAMEX Corridor Study. Retrieved from Maricopa Association of Governments: https://www.azmag.gov/Documents/pdf/cms.resource/ADOT-MAG_CANAMEX_FinalReport95374.pdf
Kingman and Mohave Manufacturing Association. (2017). Conceptual Overlay. Kingman: Kingman and Mohave Manufacturing Association.
World Bank. (2017, 07 26). Gross Domestic Product 2016. Retrieved from Databank - The World Bank: http://databank.worldbank.org/data/download/GDP.pdf

Monday, July 4, 2016

Independence Day

Happy 4th of July Lake Havasu! We just got back from the 4th of July celebration at Cavalry Baptist's new Sweetwater Campus and it was great! It was our first time in the new facility and we were stunned. The place was packed, standing room only if you arrived within ten minutes of show time. Happily, we managed seats because we did get there a bit early.

Every branch of the armed services was represented along with our veteran's service organizations. The Marine Corps League presented colors and honors. The choir was absolutely fantastic and the solo performers delivered beautiful renditions of patriotic songs including one of the best renditions of the national anthem I've heard in a very long time. In addition, the displays of photographs of our many veterans who have served were on display along with the historic collection of uniforms. It was Americans coming together in unity and the message was one of loving thy neighbors; Dr. Garrison did not disappoint.

We came back home and I rigged up the rotisserie for the bird that has been marinating since yesterday in anticipation of an afternoon feast followed by fireworks over the lake. We're going to walk down the street just a tad and then watch them from a bird's eye view of the bay. We are going to bask in the warmth of liberty.

Remembering how we became a nation and why… that truly is important. For two hundred and forty years, we have managed to survive every ordeal and trial placed upon us as a nation. We've taken our punches, we've got our battle scars, but we remain the most powerful nation on Earth; our quality of life is excellent and our liberty is secure. Sure, we can do better with things like health care and education; we should hold ourselves to the highest of standards. But all in all, our lives are pretty good.

Nothing divides us that cannot be overcome by that which binds us together. Today is a glittering reminder of our common roots and purposes. Today we celebrate our freedom together as one nation.

Wednesday, March 11, 2015

ASU : The 2015 Budget Cutbacks

Arizona State University will have their work cut out if they are to emerge from Sun Devil country like a Phoenix rising from the ashes of a major budget cutback. At the “New American University” Dr. Crow has long cast the big goal of the University as “a force for dynamism” (Crow, 2002 B). Just as Matthew Kraatz and Edward J. Zajac (1996) assess Neoinstitutionalism through a comparison of adaptive theory, one applies the same theories to Arizona State University in addition to an examination of the historical perspective of ASU in order to create a broader perspective of the institution.

ASU President Michael Crow

historical perspective

Looking at ASU leadership and vision through the lens of the historical perspective and legacy of previous President Lattie Coor. He endeared himself to the state for many reasons, making many tremendous contributions during his successful stewardship of ASU. It may arguably be his greatest legacy that ASU has emerged as a highly competitive university when competing for large research grants from the federal government, especially in scientific and engineering fields where the largest predictable revenue stream expansion may be utilized for the benefit of the university.

Presumably, structural maintenance is served by continuing a policy of research expansion. This would clearly imply that Coor’s incumbent, Crow, was selected precisely because it was felt he would continue with the central vision that Coor championed, a vision that has lifted ASU to a new level of national prominence. In the case of ASU, certain high technology research, especially biotechnology, is perceived to be a highly attractive potential revenue stream due to an extrapolation of recent funding trends by major federal institutes. Naturally, the initiative is politically sanctified as a great economic engine for the expanding high technology economy in the state; thus, enhancing a widespread acceptance for the strategic initiatives which are increasingly driven by various mixtures of external private and public capital.

adaptive theory

The competitive marketplace, which supports adaptive theory, is a driving force behind the organizational change at Arizona State University – now the largest public university in the United States. Adaptive theory, as applied to ASU, frames the structural changes and practices of the higher education institution based on the influences of changing micro and macro environments, which are often technical by nature (Kraatz & Zajac, 1996). Not-for-profit liberal arts institutions are evolving in a heterogeneous manner as determined by the influence of macro and micro level technical environments. The macro level increases professional programs, while the characteristics of the additions are determined by the communities surrounding individual institutions – the micro level (Kraatz & Zajac, 1996)

During previous serious budget restraints, Crow recommended committing money into two areas, enrollment growth and research development (Crow, 2002A). As large state universities were forced to look for other sources funding, the technological environment could be ignored. Besides enrollment growth funds, a significant proposal for organizational change that Crow is made was the investment in biotechnology and biosciences. Crow viewed the expansion of biotechnology and the biosciences as the direction of technological research. Investing, it was thought, would give ASU a considerable return on its investment in the future. 

Keeping up with research and development is a mechanism for ASU to develop alternate sources of funding. Early in Crow's stewardship, it was necessary to become creative in order to respond to the financial crisis of ASU. Moving with the changing technical environment has been the preferred way for ASU to improve its financial future. Proposals of change made by Arizona State University President Crow support Kraatz and Zajac’s (1996) conclusion that colleges and universities do not operate within a large vacuum, but instead individual institutions change at least partially in response to the influences of external environments. 

To this date, Crow has been continuing and expanding the vision that Coor began in 1989, seeking to continue the expansion of the student base while managing an accelerated controlled growth strategy that embraces revenue generating research ventures. 

neo-institutional theory

The changes proposed by President Crow back then were seen to be driving against the core principles of Neo-institutionalism, which placed emphasis on institutional environments instead of external technical environments. Social rules, as we know, frame the conformity of the organization. Persistence, rather than change, becomes the priority. 

In neo-instutional Theory the homogeneity and stability of the organization is emphasized. Change related to technical forces is contradictory to the neo-institutional position outlined by Kraatz and Zajac (1996). Accordingly, ASU needs to search beyond organizational conformity to be able to survive decreases of state funding. Kraatz and Zajac’s description of the neo-institutional Theory discusses the persistence within institutions compared to the adaptive theory, which involves change based on the external technical environment (1996). 

In order to succeed in the future, ASU needs to promote change within the institution, and not rely on goal persistence. Kraatz and Zajac (1996) examine liberal arts colleges in the United States as a means of testing the concept of “new institutionalism” within the organizational structures that comprise the United States higher education system. The main components driving new institutionalism are: (1) organizations remain relatively constant over time due to shared values and norms, (2) structural maintenance prevails over systemic change, and (3) organizations making up the system are relatively homogeneous. The results of the study indicate that the aforementioned principles supporting the new institutional framework lack validity when applied to liberal arts campuses. 

A reasonable question, then, to ask is “do the conclusions made by Kraatz and Zajac apply exclusively to liberal arts colleges or are there also implications related to larger universities?” Crow's vision has always relied heavily upon enrollment growth as being essential to meeting the social and economic needs of an expanding state population. ASU increased enrollments and expanded campus facilities and they did so in order to meet the needs of the external community, not in a response to a systematic change across peer institutions or even those institutions ASU aspires to be like. Thus, the change is not mimetically, professionally, or coercively isomorphic as neo-institutionalists would predict. 

Another massive undertaking was the increase of research growth in the areas of biotechnology and bioscience, this too was inconsistent with the new institutional framework. Crow was very clear that by investing in biotechnology and the bio-sciences, which he refers to as the “major growth industry of the 21st century,” strong revenue streams would be created for ASU, as well as for the state of Arizona (Crow, 2002A). 

This entrepreneurial initiative at ASU represented the institution’s movement toward the behaviors of the private, corporate sector. The shift was in response to both a decrease in state-supported funding, as well as an increase in the market demand for high-tech innovations. Thus, ASU’s entrepreneurial reaction to the market’s technological demands was incongruent with new institutional supporters’ belief that colleges and universities are not influenced by external technological factors.


I support adaption theory over neo-institutionalism in the emergence of Arizona State University as a world-class research university. While continuity carries some value in any organization, external economic pressures tend to influence the way strategic goals are shaped in higher education; thus, I suggest Arizona State University will adapt its impending “Changing Direction” as a reaction to the needs of society (Crow, 2002B). University stakeholders need to be aware of impending and remote environments, and the power external environments have on influencing the mission the institution pursues. As ASU elaborates their plans to deal with budget cuts of 2015, it would be wise to take stock of the carrying costs associated with maintaining the largest public university in the United States. 

In stark contrast to growth for the sake of growth (and increased revenue and economy of scale), the rescission environment means serious difficulty when it comes time to make budget allocations which are likely to trigger cutbacks. Areas of academic and research duplication require a value based analysis to prioritize potential cutbacks in lieu of forcing students (and taxpayers) to absorb massive costs. The Arizona Board of Regents are obligated to observe the Arizona Constitution and shape their policy in accordance with the clear constitutional directive to provide as close to a free education as possible for the residents of Arizona. Ratcheting back budgets will require the sober conclusion that ASU, like NAU and the UofA, will have to deal with significant cutbacks. All three universities, ASU included, must do so under the auspices of heading 11 section 6 of the Arizona Constitution (AZLEG, 2015) which clearly states the following;

"The university and all other state educational institutions shall be open to students of both sexes, and the instruction furnished shall be as nearly free as possible." 


ASU News. (2002, October 4). University president draws board approval of investmentoriented budget request. Retrieved Oct. 5, 2002 from Arizona State University web site on the World Wide Web: http://www.asu.edu/asunews/university/budgetrequest_100402.htm.

Arizona Legislature (2015). Arizona Constitution, Retrieved March 10, 2015 from the Arizona Legislature web site on the World Wide Web: http://www.azleg.gov/FormatDocument.asp?inDoc=/const/11/6.htm

Crow, M. (2002A). Crow requests investment-orientated budget. E-mail to Arizona State University faculty, dated Sept 27, 2002.

Crow, M. (2002B). ASU’s goal: Becoming a force for dynamism. The Arizona Republic, published Oct. 13, 2002.

Crow, M. (2002C). Changing directions. E-mail to La Verne Abe Harris, dated Oct. 29, 2002.

Kraatz, M.S. and Zajac, E.J. (1996). Exploring the limits of new institutionalism: The causes and consequences of illegitimate organizational change. American Sociological Review, 61,5. 812-36. 

Tuesday, March 10, 2015

Leadership in 11 Bullet Points

Leadership in 11 Bullet Points
  • Know yourself and seek continuous self-improvement 
  • Be technically and tactically proficient 
  • Seek responsibility and take responsibility
  • Set the example
  • Know your people and look out for their welfare
  • Keep your people informed
  • Ensure the task is understood, supervised, and accomplished
  • Develop a sense of responsibility among your people
  • Train your people as a team
  • Make sound and timely decisions
  • Employ your work unit in accordance with its capabilities
It's not difficult...

Understand who you are, your values, priorities, strengths and weaknesses. Self-improvement is a process of sustaining strengths and overcoming weaknesses. Remember that before leaders can lead effectively, they must master the tasks required by the people they lead. Leaders do not avoid responsibility by placing the blame on someone else when things go wrong. Leaders realize that if they expect courage, responsibility, initiative, competence, commitment, and integrity from direct reports, they must demonstrate these characteristics. 

Telling your people you care about them has no meaning unless they see you demonstrating it. Your people must understand what you want done, to what standard and by when. Remember that over-supervision causes resentment while under-supervision causes frustration, so find your balance. Delegation indicates trust in people and encourages them to seek responsibility. Develop people by giving them challenges and opportunities. 

Train and cross train people until they are confident in the team’s abilities. Leaders must know the factors to consider when deciding how, when, and if to make decisions. Good decisions made at the right time are better than the best decisions made too late  Leaders must know their work unit’s capabilities and limitations. People gain satisfaction from performing tasks that are reasonable and challenging, but they are frustrated if tasks are too easy, unrealistic or unattainable.

Friday, March 6, 2015

Nobody Left To Blame

At 444.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. By mid-April, if the trend continues, the country could be in a state known as “tank tops” which means all available storage for crude inventories will be full. If there’s nowhere left to store the crude… you get the picture? Prices will fall further, some say to 20/bbl, and what would that do to the Alberta economy?

With U.S. oil inventories last week were reported at 444.4 million barrels and refinery inputs reported 85% of capacity, one can argue it is an indicator the oil glut continues to grow, which in turn, will place additional downward pressure on the commodity spot prices. 

In addition to political challenges for pipeline transportation, overcapacity clearly limits ROI projections for commodity suppliers while no Pacific tidewater outlet continues to vex Western Canadian oil and gas producers; it has been vexing Alberta producers for many years.

Approximately 97% of Canadian oil exports are sent to the United States while there is no functional Pacific tidewater outlet for Canadian oil. Meanwhile, over 1.3 million barrels of oil per day in unused capacity on Pacific tidewater goes unused on the Trans-Alaska Pipeline (TAPS), which has over 7 million barrels of storage capacity and a 24 hour turnaround for two VLCC (very large crude carrier (2 – 3.7 million barrels capacity). Even with general purpose and medium range tankers, all the oil in the pipeline can be sent to Asian markets to the tune of 80 million in taxable daily revenue or approximately 29 billion dollars of taxable sales per year… if one calculates based on an average blended price of 50 dollars per barrel. In 2012 when I met with First Nations, Alaska, Yukon, and NWT officials, everybody was willing to work to get a pipeline from Ft. McMurray to connect with TAPS… there was not one political entity in opposition. I repeat… not even one.

I estimate lost taxable revenue, assuming a one year ramp to construction on a bold initiative and another year to test and deploy, we can safely take a blended average price of 75 and point out the Government of Alberta’s failure to act has easily lost gross revenue available for taxation of over 50 billion, depending on prices, that amount will tick up between 30 and 50 billion per year. Assuming a two year decision to revenue ramp, the price of inaction has, as of today, cost over 1.3 trillion (yes… with a T) dollars of lost tax revenue opportunity. It’s important to point out the 1.3 trillion is not lost revenue to the government, it’s lost revenue opportunity (i.e. the amount taxable) and, of course, there has been no mention of the benefit derived from diversification of the economy, the ability to secure a right of way suitable for rail transportation within the same corridor as the pipeline, and the economic benefits of job growth.

Finally, and perhaps more important, the ability to leverage that investment to spur on LNG capacity in British Columbia is enhanced by this strategy because the first nations do not object to natural gas and LNG infrastructure because gas will dissipate to air in the event of a spill, it does not destroy ancient fisheries and sacred lands. The synergies of a growing Pacific tidewater oil port and LNG infrastructure growth in Western Canada is good for all Canadians including our Arctic residents. Once again, I am befuddled and I have to ask… why can’t our provincial governments take yes for an answer? What is so hard about accepting a logical decision everybody can agree with? Why do Canadians have to suffer for this crazy, negative, and counterproductive need to fight or be inactive?

My most fundamental question is… how stupid to you have to be to fail to capitalize on the ability to send approximately 1.6 million barrels of oil per day to Asian markets leveraging a fully developed infrastructure? I might point out… especially when one of your own citizens has handed you a blueprint for this combined with firsthand knowledge of the ability to secure agreements from all parties? Maybe stupid isn’t the work we’re looking for, maybe arrogant is a better word… maybe it’s more accurate.  

On the other hand, perhaps I am the arrogant one for thinking this should be obvious. Perhaps I am the fool for believing that a pre-existing joint economic feasibility plan produced by the Yukon Governmentand the State of Alaska showing a positive net public benefit on a railway... far more expensive than a pipeline. This should be enough to warrant serious discussions.

A new royalty structure complete with legislation that mandates a percentage of revenue to be placed into the Heritage Fund combined with legislation that effectively closes the door to raiding parties of the Heritage Fund. I am deeply offended that our government has repeatedly raided the Heritage Fund to pay for deficits. My message to the current PC’s is simple… look back to the early days. The PC party was right back then… Peter Lougheed did the right thing by setting up the Heritage Fund… be more like Peter.

Let the rocks rain down and let the chips fall where they may, it’s time for a deeper focus on the people’s interest and less focus on corporate interests. Like all of you, I have heard the people suggest that corporations will leave if we don’t give them the free ride they are accustomed to. Their billions were generated precisely because they are here, but if they want to set up shop somewhere else… say, perhaps Havana, Pyonyang, or maybe Riyad, then fine. Corporations that would leave are not the ones upon which a society builds a collaborative future anyway.

I expect more from my government than has been delivered in recent years. In Alberta, PC’s must accept responsibility for everything because after 43 years… there’s nobody left to blame. Perhaps it's time to move on, stop blaming and finger pointing, and get the business of moving energy product to global markets into gear. If you can't get it done... then call me up and I'll deliver your agreements with plenty of time left over to go fishing for halibut in Ninilchik.

Thursday, October 2, 2014

Prioritizing Canada's Energy Problem

Rising costs for labour and materials, market access issues, and limited pipeline access plague Alberta's oil sands projects. Norway's Statoil shelved the Corner project for three years. Statoil operates the 20,000 BBL/day Leismer project, but going forward with the Corner project, designed for 40,000 BBL/day is off the table for the next three years.

Statoil's Leismer Project - credit Helge Hansen - Statoil

In May, France's Total SA announced the Joslyn project would not go forward at this time. Partners Suncor, Occidental, and Japan's Inpex Corp. are also stepping back. Last year Total SA and Suncor stopped plans to build the 11.6 billion dollar Voyageur upgrader in hopes that it would be more profitable to ship bitumen.

Voyageur Upgrader - credit Ledcor

In the larger picture, estimates of 250,000 BBL/day annually by RBC Capital Markets place an estimated capital investment of 26 billion in 2014 and a peak of 33 billion in 2016, with deductions in place for projects that are getting shelved, those numbers shrink. Still, the number constitutes impressive growth, but it is far less than it could be with pipeline infrastructure to refineries and tidewater were in place.

The shelving of projects and retraction of investment in the oil sands mean other areas will receive the attention of those companies slowing or stopping their investment in Alberta's oil sands in order to invest in other areas where their return on investment will be higher. One of the potential areas is British Columbia's potential liquid natural gas industry. But once again, there are frayed nerves. Apache Corp. announced it is pulling out of the Kitimat liquefied natural gas project and is selling its 50 per cent interest while Malaysian energy giant Petronas is wavering on its LNG project in British Columbia because of the lack of fiscal clarity.

LNG Ships - Credit Qatar Gas
Encana has been into the United States for acquisitions in the Eagle Ford play from Freeport McMoRan and they've bought Texas-based Athlon Energy. Mexico's privatization means enormous amounts of shale drilling is going to take place in the Eagle Ford that stretches to the other side of the border. The CEO of Petronas has characterized Canada as being 40 years behind the rest of the world in terms of setting the stage for energy investment.

The issue of energy transportation, as the crux of the problem why companies are shelving projects, is an important reason why companies are concerned the economics are shifting away from Canada. I should not have to remind anyone that over half of our national foreign direct investment (54%) inflow comes into the energy and mining sectors, transportation (11%) is in second place. To combine energy mining and transportation issues, we see 65% of Canada's foreign direct investment inflow under pressure. With the price of oil dropping, more shale coming online, and the concerns of a global investment environment where Canadian product is being attacked across different forms of media, it seems to me a prudent government priority is to focus on solving product transportation bottlenecks quickly.

The government is responsible to be both offensive and defensive in their outlook. The offensive strategy is to quickly identify the pipelines that will not be viable and forget them. Move forward with the ones that will be viable in the short term. The defensive component is to consider what the strategy should be if oil sands projects continue to be placed on shelves. As of right now, it feels like we're going to need a good defense if we are to win the game.

Friday, February 14, 2014

Good Neighbours

We all know that rapid expansion of Alberta's economy has greatly accelerated the demand for skilled and highly qualified labour in numerous sectors. Our steel fabrication industry is particularly important for energy industry projects and is one such area where the labour shortage is pressing.

Port Alberta Director Don Oborowski, CEO of Waiward Steel, joined me on reciprocal trade mission to lay the foundations for a near-term deal between institutions of higher education in Idaho, Washington, and Alberta in order to develop a pipeline of qualified labour arriving with Alberta based curriculum and apprenticeship training. Preliminary discussions between American and Canadian institutions of advanced education have resulted in this exciting opportunity to put a real dent in a key labour shortage in our region. This opportunity is the result of a trade mission to encourage bilateral corporate investment between Alberta and neighbour states.

Between 2007 and 2011, Alberta's exports to Washington and Idaho were worth more than $10 billion. It's wise to have good relations with your biggest business partners. When Mexico voted to allow foreign direct investment into key elements of its energy industry, Alberta's intra-hemispheric trading relationships were set to expand faster than ever. NAFTA countries already account for approximately 25% of global GDP. Our intra-hemispheric economic growth, combined with abundant energy and stabilized hemispheric labour costs, will accelerate "nearshoring activity", meaning a mutually beneficial transfer of business to a neighbouring country.

These developments, combined with global economic recovery, will increase our hemispheric manufacturing capacity. Ameliorating labour shortages in our key industries will help our regional economy expand while enabling Albertans to export more products to neighbours and the rest of the world.