Thesis 5-31-11

A Supply Chain Model
For Marinas and Short Seas Shipping
A Thesis Presented to
The Faculty of Global Business and Transportation
State University of New York
Maritime College
In Partial Fulfillment
of the Requirements for the Degree
Master of Science in International Transportation Management
By
John Beasley
© 2011

2
“Instead of giving attention to competitors or to demand,
our prices are based on an estimate of what the largest possible number
of people will want to pay, or can pay, for what we have to sell.”
Henry Ford1
1
Ford, Henry, Life and Work, Project Gutenberg ebook, 2005, p. 203

3
A Supply Chain Model For Marinas and Short-Sea Shipping
GBAT Department Chairman: Dr. Larry Howard
Thesis Adviser: Captain Stash Pelkowski, Esquire
Table of Contents 3
List of Abbreviations 5
List of Photographs 8
List of Spreadsheets and Financial Models 8
Executive Summary 9
Abstract
A.1 Define The Economy 10
A.2 Define Supply Chain Management 11
A.3 Define The New Market - Management And Creation As The Product 14
A.4 Define The Objectives Of Supply Chain Management 18
1: A Business Model for Marinas
1.1 Marina Project 18
1.2 Marina Services (SBU’s) 19
1.3 The Big Picture 20
1.4 Construction 21
1.5 Finance 21
1.6 Storage Garages, Lockers, Rack Storage 22
1.7 Ship Store 23
1.8 Marine Fuel 24
1.9 Amenities 24
1.10 Yacht Brokerage 25
1.11 Grocery Store 26
1.12 Restaurant 27
1.13 Package Liquor Store – Bars – Pubs 28
1.14 Dinner Ships, Party Ships, and Sightseeing Tours 28
1.15 Maritime School Classes 30
1.16 Rental Cottages, Hotels, RV Camping 30

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2: Developing Short-Sea Shipping
2.1 Impediments to Short-Sea Shipping 32
2.2 Shipping Expenses 33
2.3 Vessel Construction Costs 36
2.4 The Mission or Market Segment 43
2.5 Supply Chain Partners and Profit Centers 44
2.6 Upstream Supply Chains 44
2.7 Downstream Supply Chains 44
2.8 Steel Production 45
2.9 Ship Building 45
2.10 Modular Construction 45
2.11 Machinery, Safety, Systems Construction 46
2.12 Finance, Leasing, and Factoring 46
2.13 Trucking Firms 46
2.14 Critical Success Factors 46
Appendix: 48
Bibliography and Resources 67
Index 70
Key Words; supply chain, supply chain management, supply chain history, supply chain development,
supply chain methodology, logistics, short seas shipping, America’s Marine Highway Initiative, maritime
industry, trucking industry, ferry ships, Ro/Ro ships, small cruise ships, modular ship design, container
based modular homes, container based modular offices2
, container based modular factories3
2
http://a-place-to-stand.blogspot.com/2009/09/youll-need-to-sign-for-this-house-where.html
3
http://www.sankyofrontier.com/eng/modular/index.html

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List of Abbreviations
3C’s – Customer, Company (or Costs), Competition
3PL – Third Party Logistics Provider
4P’s – Product, Price, Place, Promotion
ABC – Activity Based Costing
AGV – Automatic Guided Vehicle
ANSI – American National Standards Institute
AP – Accounts Payable
APQC – American Productivity and Quality Center
AR – Accounts Receivable
ASN – Advance Shipping Notice
ASP – Application Service Provider
ATP – Available to Promise
AVL – Approved Vendor List
B2B – Business To Business Transactions
B2C – Business To Customer Transactions
BOL – Bill of Lading
BOM – Bill Of Materials
C2C – Cash to Cash Cycle Time
CDF – Cumulative Distribution Function
COD – Cash On Delivery
COFC – Container On Flat Car
COGS – Cost Of Goods Sold
CTP – Capable to Promise
CPG – Consumer Product Goods
CPI – Consumer Price Index
CPP – Cost Per Pallet
CPM – Critical Path Method
CPRF – Collaborative Planning, Replenishment and Forecasting
CRM – Customer Relationship Management
CRP – Conference Room Pilot
DSCA – Downside Supply Chain Adaptability
DC – Distribution Center
DFM – Design for Manufacturing
DFMC – Design For Mass Customization
DFR – Decreasing Failure Rate
DOT – Department Of Transportation
DRP – Distribution Requirements Planning
DSD – Direct Store Delivery
EAI – Enterprise Application Integration
EBIT – Earnings Before Interest and Taxes
EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization
EDI – Electronic Data Interchange
EDLP – Everyday Low Prices
EOQ – Economic Order Quantity
EPC – Electronic Product Code
ERP – Enterprise Resource Planning Software
FEU – Forty Foot Equivalent Unit
FIFO – First In First Out
FOB – Free On Board – Freight On Board
FTL – Full Truck Load
FTZ – Foreign Trade Zone or Free Trade Zone
GCD – Great Circle Distance
GL – General Ledger

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GPS – Global Positioning System
GSCF – Global Supply Chain Forum
HR – Human Resources
HUB – Central Shipping Facility
IATA – International Air Transport Association
ICC – Interstate Commerce Commission
IFR – Increasing Failure Rate
ISO – International Standards Organization
ISO 9000 – EU business process standards
JIT – Just In Time
JIT–II – Bose company adaptation of JIT
Kaizen – Japanese business practice
Kanban – Toyota’s JIT inventory control process
KPI – Key Performance Indicator
LASH – Lighter Aboard Ship
LOC – Letter Of Credit
LIFO – Last In First Out
LIFR – Line Item Fill Rate
LP – Linear Programming
LPN – License Plate Number
POF – Perfect Order fulfillment
LTL – Less than a Truck Load
MCM – Mass Customization Manufacturing
MES – Manufacturing Execution System
MRO – Maintenance, Repairs and Operations
MRP – Material Requirements Planning
MRP II 2nd Generation Material Requirement Planning
NAFTA – North American Free Trade Agreement
NHTSA – National Highway Traffic Safety Administration
NM – Nautical mile 6067 feet, 115% of a statute mile (5280) or 1852 meters
NVOCC – Non Vessel Owning Common Carrier
OEM – Original Equipment Manufacturer
OFCT – Order Fulfillment Cycle Time
OFR – Order Fill Rate
OLAP – On Line Analytical Processing
OLTP – On Line Transaction Processing
OSHA – Occupational Safety and Health Administration
OTI – Ocean Transportation Intermediary (broker)
PLM – Product Lifecycle Management
PM - Project Manager
PMP – Project Management Professional
PO – Purchase Order
POD – Proof of Delivery
POS – Point of Sale data
PPI – Producer Price Index
QA – Quality Assurance
QFD – Quality Function Deployment
RDC – Regional Distribution Center
RFID – Radio Frequency Identification
RFQ – Request For Quote
ROI – Return On Investment
ROP – Re-Order Point
Ro-Ro – Roll On Roll Off
ROWC – Return On Working Capital
S&OP – Sales and Operational Planning
SaaS – Software as a Service

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SCE – Supply Chain Execution
SC – Supply Chain
SCEM – Supply Chain Event Management
SCM – Supply Chain Management
SCMM – Supply Chain Management Model - GSCF
SCMC – Supply Chain Management Costs
SCOR – Supply Chain Operations Reference (model)
SCP – Supply Chain Planning
SEC – Securities and Exchange Commission
SKU – Stock Keeping Unit
SME – Subject Matter Expert
SNP - Supply Network Planning
SOA – Service Oriented Architect
SPC – Statistical Process Control
STB – Surface Transportation Board
SRM – Supply Relationship Management
TEU – Twenty Foot Equivalent Unit
TIGER – Topologically Integrated Geographic Encoding and Reference
TMS – Transportation Management System
TOC – Theory Of Constraints
TOFC – Trailer on Flatcar (piggy backing)
TQM – Total Quality Management
UCC – Uniform Commercial Code
ULD – Unit Load Device (air freight container)
UPC – Universal Product Code
USCA – Upside Supply Chain Adaptability
USCS – Upside Supply Chain Flexibility
VAN – Value Added Network
VAR – Value Added Reseller
VAT – Value Added Tax
VMI – Vendor Managed Inventory
VICS – Voluntary Industry Commerce Solutions
VMI – Vendor Managed Inventory
WBS – Work Breakdown Schedule
WIP – Work In Progress
WMS – Warehouse Management System
WTO – World Trade Organization
XML – Extensible Markup Language
ZS – Zone Shipping (intermodal carriers)

8
List of Photographs Page
Banana River Marina Project 19
Loggerhead Club & Marina 22
Loggerhead Club & Marina 23
West Marine Store 23
U-Fuel Above Ground Fuel Service 24
ALDI Grocery Store 26
IT – Electric Utility Delivery Truck 26
Reef Restaurant 27
Jungle Queen, Dinner Ship 29
Silver Beach Cottages 31
Fast-Ship Concept Design 32
P&O European Ferry 33
Ro/Ro Hydraulic Loading Ramps 34
Fast-Ship Med-Mooring 37
Rolls Royce Kamewa Water-Jets 38
European Coach Seating 39
European Ferry Pub 40
Fort Brag Container Building 41
Deployable Fuel and Water Tanks 42
Deployable Water Purification Systems 42
Deployable Caterpillar Gen-Set 43
Office Space from Containers 46
List of Spreadsheets and Financial Models Page
Sightseeing and Dinner Ship Supply Chain Model 17
Short-Sea Shipping Supply Chain Model 36
Flow Chart Marina 28
Flow Chart Short Sea Shipping 35

9
Purpose of the Master’s Thesis  
 
Hypothesis  
 
Supply  chain  management  (SCM)  evolved  in  the  1980’s  and  is  a  relatively  well 
understood  means  for  designing  business  production  and  marketing  strategies. 
Supply chains realize some of the advantages of vertical integration by partnering 
with upstream and downstream businesses in a related production or distribution 
process. The hypothesis is that these, well established, business techniques can be 
successfully  applied  to  marina  operations  and  the  development  of  short‐sea 
shipping. 
 
This thesis examines two types of maritime venture: A marina development and a 
short‐seas  shipping  project.  Primary  consideration  will  be  given  to  a  start  up 
business for short‐sea shipping based on an enclosed European style ferry coupled 
with the DOT proposal for an East Coast Maritime Highway Initiative.  
Executive Summary  
The hypothesis is that supply chain management (SCM) business techniques can be
successfully applied to marina operations and to the development of short-sea shipping.
Supply chain management brings together individual businesses to build a team. Working
as a team these businesses can generate more profit by spurring-on demand. An overview
of supply chain management is provided in the appendix starting on page 55.4
Marinas
Many marinas do not develop their businesses beyond the basic boat storage and boat
repair facility. The marinas that venture beyond the core business model typically do not
do so systematically so as to build in layers of profit. A business plan based on supply
chain management (SCM) aims at providing more products and services to customers to
give them more reasons for spending time and money at the marina. The businesses
located at the marina not only compliment each other, they also buy products from each
other turning consumption into profit. The objective is to make a profit, two or three
times, on each transaction. The solution for marinas is to individually design and build
business models that bring more people to the marina and to make more profit on each
sale at the marina. A very good opportunity exits to expand a marina operation in this
down market. Costs like labor, materials, and interest rates are the lowest they are likely
to be for the next decade or more.
4
Four Corridor Case Studies of Short-Sea Shipping Services, 8/15/2006, Ref# DTOS59-04-Q-00069
“The U.S. economy has shifted away from heavy manufacturing toward services with an increased reliance
on international trade, particularly imports. Businesses throughout the nation have responded to the
pressure of global competition by developing increasingly sophisticated supply chain management
processes in order to drive down costs and get products to market faster.” p. 1

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Short-Sea Shipping
Economies of scale favor short-sea shipping. It actually costs less to move cargo by ship
than by truck or rail. Modern ship design has addressed the problems of speed and
scheduled arrivals. If shipping operations are handled like the European ferries, using
drive on/ drive off Ro/Ro ships, then a shipping line can be built that offers semi-tractor
trailer shipping and passenger travel. A Ro/Ro operation lowers the cost of shipping
because container transfer costs are eliminated. The addition of passenger service also
adds additional profit centers for the business. Short-sea shipping has yet to address
stevedore labor relations, port fees and modular ship construction issues. These issues
have to be resolved to insure short-sea shipping is successful in the United States.5
Short-
sea shipping represents a waiting opportunity for the manufacturing and transportation
industries, and for the United States economy.
 
Abstract – Situation Analysis  
 
The abstract serves as an overview or situation analysis. Extended discussions on supply
chain design and supply chain history can be found in the appendix.
 
A.1 Define the Economy  
 
The United States is in a very interesting economic situation. The domestic
manufacturing sector in the United States is in decline.6
This is largely due to unfavorable
cost structures including, state and federal taxes levied on business income, the higher
cost of capital on Wall Street, the cost of labor and the methods used for funding social
programs, such as health care, unemployment, and pensions. As well the economy must
support a large government bureaucracy.
Wall Street investors require a minimum 10% Return on Investment (ROI) yield.
European and Asian capital markets operate on a 2% to 5% Return on Investment (ROI)
yield for low risk business investments.7
This means that companies financed with
5
Four Corridor Case Studies of Short-Sea Shipping Services, 8/15/2006, Ref# DTOS59-04-Q-00069, p.1
“This traffic primarily migrated to truck transport as a consequence of the comparatively slow transit times
for water freight, the additional cost of marine terminal handling and inland drays, and the cost of U.S.
citizen crews and American-built vessels as required under U.S. law for domestic shipping operations.
Coastwise water transportation for non-bulk freight had to compete with the relatively fast point to point
transit times offered by truck and intermodal rail service.”
6
Thompson, Loran, Armed Forces Journal, March, 2009
http://www.armedforcesjournal.com/2009/03/3922551
or
Haque, Umair, Obama’s Budget Freeze and America’s Economic Decline, Harvard Business Review,
January, 27, 2010, p. 1
blogs.hbr.org/haque/2010/.../dear_president_obama_i_just.html
7
Kalra, Sanjay, Deeper Markets, Cheaper Capital, International Monetary Fund (IMF), Finance &
Development, June 2010, Volume 47, Number 2, p 1
or
Chen, Kevin, Disclosure, Corporate Governance, and the Cost of Equity Capital, White Paper
www.riskcenter.com.tr/kredirisk/kredifiles/YM/corporate_governance.pdf

11
European or Asian capital have an advantage. Federal income tax on regular income is
currently 35%. 8
If one imports products into the U.S. market value added, then the
offshore manufacturer and importer does not pay 35% income tax, resulting in a savings
or increased yield of about 3.5%.9
Similarly, capital gains tax is not payable on stock
equity positions held outside of the U.S. market, therefore foreign investment enjoys a
minimum 2% advantage as well as the ability to trade stocks as often as possible without
paying ordinary income tax or capital gains tax on profits. Management in the United
States typically costs 3% to 5% of gross revenues, labor with benefits costs about 10% of
gross revenues. Across the board labor costs are relative to the local standard of living.
Cost of living differentials can be as high as 1:20 against the U.S. when compared to
Central American or Eastern European labor, and 1:200 against the U.S. when compared
to Chinese labor costs in comparable industries. These cost differences apply to every
sector in the economy; therefore, the effect is to deflate the entire production cycle costs.
Overall production costs in China are about 33% of U.S. companies production costs,
while Eastern Europe and Central America have about 66% of the production costs of
U.S. companies.10
 
A.2 Define Supply Chain Management  
 
In the 1980’s it became apparent that the U.S. economic system could not compete in the
international market. This was due to the above economic conditions as well as the oil
embargo against the United States, which drove up production and transportation costs
or
Stern, Joel M., and Chew, Donald H., The Revolution in Corporate Finance, Wiley-Blackwell; 4 edition
(June 9, 2003) p. 432
Counterpoint to the lower cost of capital argument:
Weldeau, Jorgenson, and Landau, Ralph, Tax Reform and the Cost of Capital: An International
Comparison, Brookings Institution Press, Washington, D.C., (October 1993) p. 252. The author makes the
point that if one deducts inflation, then the true cost of capital is relatively even. This point of view
introduces a number of questions: So how does one understand borrowing internationally at the lower
interest rate? Secondly, does this mean that the ability of a nation’s businesses to compete in the
international market is to some degree a monetary issue?
8
Dubay, Curtis, High Corporate Income Tax Rate Driving Jobs Overseas, The Foundry, The Heritage
Foundation, May 5, 2010, http://blog.heritage.org/2010/05/05/high-corporate-income-tax-rate-driving-jobs-
overseas/
9
On average large stocks pay a return of about 10%, so with a tax rate of 35%, the opportunity cost of
making a profit in the U.S. is on average 3.5%. If a company ‘value adds’ outside of the U.S. economy that
income stream would be worth 3.5% more than if taken inside the U.S.
Average annual rates of return: 1925-2004
Small Stocks 12.7%; Large Stocks 10.4%; Bonds 5.4%; T-Bills 3.7%; Inflation 3.0%
http://www.investorhome.com/history.htm
10
Comparative ship repair and building costs as percentages: USA 170/180%
Singapore 100% S. Korea 105/110% China 50/65%
Indonesia 60/75% Japan 250% Middle East 100/105%
S. Africa 110/115% Mediterranean 125/130% Balkans/Turkey 110/115%
N. Europe 140/150% Scandinavia 150/160% Baltic/Russia 110/115%
International Ship Repair, Finding the Bargains Without Deviating, by Alan Thorpe
www.marinelog.com/DOCS/PRINT/aat1.html

12
300%.11
The response was to develop a new business model. The new business model,
called supply chain management, was principally borrowed from Japanese companies
such as Toyota. The system was based on the Japanese Keiretsu manufacturing
philosophy.
Supply chain management can be thought of in a number of ways. The most common
methods are production or logistics based supply chains and marketing or consumer
based supply chains. A logistics based orientation focuses upon movement of
components through a production process. In this narrow sense, all the materials and
subassemblies that feed a production assembly line constitutes a supply chain. Henry
Ford provides the logic for establishing a supply chain12
in his autobiography, Life and
Work, and in his second book, Today and Tomorrow.
A more contemporary description of a supply chain design is “an integrated process
wherein a number of various business entities (i.e., suppliers, manufacturers, distributors,
and retailers) work together in an effort to: (1) acquire raw materials, (2) convert these
raw materials into specified final products, and (3) deliver these final products to
retailers.” “This chain is traditionally characterized by a forward flow of materials and a
backward flow of information.”13
Christopher defines a supply chain as “a network of
connected and interdependent organizations mutually and co-operatively working
together to control, manage, and improve the flow of materials and information from
suppliers to end users.”14
The Global Supply Chain Forum (GSCF) defines SCM as “ the
integration of key business processes from end user through original suppliers that
provides products, services, and information that add value for customers and other
stakeholders.”15
The Council of Supply Chain Management Professionals' (CSCMP)
defines SCM as, “Supply chain management encompasses the planning and management
of all activities involved in sourcing and procurement, conversion, and all logistics
management activities. Importantly, it also includes coordination and collaboration with
channel partners, which can be suppliers, intermediaries, third party service providers,
and customers. In essence, supply chain management integrates supply and demand
management within and across companies.”16
Supply Chain Management is defined by
Mentzer “as the systematic, strategic coordination of the traditional business functions
and the tactics across these functions, within a particular company and across businesses
11
Oil: http://www.oildepletion.org/roger/Key_topics/Economic_aspects/economic_aspects.htm
or WTRG Economics: http://www.wtrg.com/prices.htm
12
Ford, Henry, Life and Work, ebook, 2005, pp. 73 – 74. This is one of the most important books.
13
Beamon, Benita, white paper: p. 2
14
Christopher, Martin, Logistics and Supply Chain Management, Prentice Hall, Harlow, England, 2005.
p. 6
15
Douglas M. Lambert, Editor, Supply Chain Management Institute, The Hartley Press, Inc., Jacksonville,
Florida, 2004 p. 2
www.scm-institute.org
or The Global Supply Chain Forum, Fisher College of Business, The Ohio State University.
www.fisher.osu.edu/scm
Fisher also offers a downloadable copy of the modeling language IFPS ( Interactive Financial Planning
Systems). Planners Lab is now a downloadable alternative to IFPS.
16
http://knol.google.com/k/narayana-rao-k-v-s-s/supply-chain-management/2utb2lsm2k7a/526 #Definition
SCM: or http://cscmp.org/aboutcscmp/definitions.asp

13
within the supply chain, for the purpose of improving the long term performance of the
individual companies in the supply chain and the supply chain members collectively.” 17
“Supply chain management is the management of all internal and external processes or
functions to satisfy a customer’s order (from raw materials through conversion and
manufacture through shipment).”18
Metz provides the following definition of supply
chain management; “SCM is a process-oriented approach to managing product,
information and funds flow across the overall supply network, from the initial suppliers
to the final-end consumers.”19
 
A.3 Define the Objectives of Supply Chain Management 
 
Supply chain management redefined the classic Taylor/Ford model of scientific
manufacturing.20
The Taylor/Ford model has been absorbed as the baseline for
manufacturing. The Japanese Production Model,21
Lean,22
Just In Time,23
Total Quality
17
Mentzer, John, Supply Chain Management, Sage Publishing, Thousand Oaks, Ca. 2001, p.2
or Mentzer, J., DeWitt, W., Keebler, J., Min, S., Nix, N., Smith, C., Zacharia, Z., 2001, “Defining Supply
Chain Management” Journal of Business Logistics, Vol. 22, No 2, pp. 1-25. (referenced by many sources)
e.g.
Carreño, José, Şeyda, Ramos Asan, Serdar, Majetic, Jasmin, Benefits of Applying Quality Management
Techniques To Support Supply Chain Management, International Logistics and Supply Chain Congress’
November 8-9, 2007 Istanbul, Turkey.
18
http://www.scribd.com/doc/27953914/supply-chain-management-ppt
19
Bart De Turck, 1st Furniture Industry in Restructuring, Systems & Tools: Guidelines For Supply Chain
Management: European Furniture Manufacturers Federation and European Union Social Fund, Brussels,
white paper, (good analysis of supply chain management)
20
http://www.scribd.com/doc/6146550/Henry-Ford-Frederick-W-Taylor-A-Comparison-of-Methods-and-
Principles. This is a good quick overview of these two systems that have melded.
21
Osono, Emi, Shimizu, Norkhiki, Taketuchi, Hirotaka, Extreme Toyota: Radical Contradictions that
Drive Success at the World’s Best Manufacturer, Record Books, 2008
or http://en.wikipedia.org/wiki/just-in-time_(business); as quoted from: Shingo, Shingo, A Study of the
Toyota Production System, Productivity Press, 1989, Ch. 8, pp 141-165
22
Hindle, Tim, Guide to Management Ideas and Gurus, The Economist, London, England, 2008, p. 117.
Definition: Lean production: “aim is to combine the flexibility and quality of craftsmanship with the low
cost of mass production.” (They are combining the best features of shop capitalism with the economies of
scale of corporate capitalism to produce better products for less money.)
23
Henry Ford, My Life and Work, 1926, e-books 2005, p. 204 “If transportation were perfect and an even
flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads
of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway
cars into production. That would save a great deal of money, for it would give a very rapid turnover and
thus decrease the amount of money tied up in materials. Taichi Ohno said he/(Toyota) developed JIT by
reading Henry Fords books.
Definition: APICS Dictionary, p. 47: “planned elimination of waste,” all stages of production, with zero
defects, to minimize inventory in all phases of production, with the intention to minimize costs and
maximize quality.”
Hindle, Tim, Guide to Management Ideas and Gurus, The Economist, London, England, 2008, p. 107,
Definition: “If you produce only what you need when you need it, then there is no room for error. For JIT
to work, many fundamental elements must be in place – steady production, flexible resources, extremely
high quality, no machine breakdowns, reliable suppliers, quick machine setups, and lots of discipline to
maintain the other elements.”
Waste [is] any activity that does not add value to the final product.
http://en.wikipedia.org/wiki/Just-in-time_(business)

14
Management,24
Kaizen,25
Kanban,26
that evolved in the 1950’s and 1960’s was
reconfigured by American companies into supply chain management (SCM)27
in the
1980’s.
The considerations of supply chain management are typically cost driven. Due to
CAD/CAM and mechanization most products have become generic commodities, which
allows business to shop manufacturing markets. Sources of capital largely became
generic commodities as the U.S. dollar became a standard of exchange. This freed
business to shop capital markets as well as production markets. Opportunities for value
adding, or profit taking are considered in relation to import – export taxes and income
taxes as a means to maximize ROI.
Supply chain management treats independent companies as partners in the production,
distribution, and sales process. This strategy yields many of the benefits of vertical
integration, with less exposure to underperforming assets during market downturns. A
supply chain is created by teaming up with businesses upstream and downstream in the
24
Toyota’s 10 Points for Effective Management (Resembling Edward Deming’s 14 Points)
1: Always keep the final target in mind.
2: Clearly assign tasks to yourself and others.
3: Think and speak on verified, proven information and data.
4: Take full advantage of the wisdom and experiences of others to send, gather or discuss information.
5: Share information with others in a timely fashion.
6: Always report, inform and consult in a timely manner.
7: Analyze and understand shortcomings in your capabilities in a measurable way.
8: Relentlessly strive to conduct Kaizen activities.
9: Think "outside the box", or beyond common sense and standard rules.
10: “Always be mindful of protecting your safety and health.”
http://www.1000ventures.com/business_guide/mgmt_kaizen_main.html
Vadim Kotelnikov, Ten3 Business E-coach
Definition: APICS Dictionary, p. 97, “Total Quality Management (TQM) is a management approach to
long-term success through customer satisfaction.” TQM repackaged as Six Sigma
25 38
http://www.1000ventures.com/business_guide/mgmt_kaizen_main.html
Definition: APICS Dictionary, p. 47, Kaizen: Japanese term for continual improvement, elimination of
waste.
Ibid. Hindle, p. 109, Kaizen: 1: “That human resources are a companies most important asset.” 2: “That
processes must evolve by gradual improvement rather than by radical change.” 3: “That improvement must
be based on a quantitative evaluation of the performance of different processes. TQM is a system designed
for implementing Kaizen.”
26
Definition: APICS Dictionary, p. 47, Kanban: “Just-In-Time order system, using cards for a standard
order size.”
27
SCM “was a term invented by Keith Oliver, a consultant belonging to the firm Booz Allen Hamilton, in
the year 1982, to describe the overall process of planning, implementing, and controlling what goes on at
the supply chain in order to satisfy customers’ needs in a quick, efficient manner.”
http://www.exforsys.com/tutorials/supply-chain.html
or Douglas Lambert, editor, Supply Chain Management, Process, Partnerships, Performance; The Supply
Chain Management Institute, Sarasota, Florida, 2004, p.2

15
production and delivery of products as a means to increase efficiency and synergy in
delivering those products to the marketplace.28
Top management identifies a source of demand, a market niche,29
and then builds a
business solution to satisfy that demand. Various production and delivery models are
designed using optimization models until one or more profitable solutions are identified
that have a minimum 9:1 probability of success. Capital for production can be shopped
and can often be obtained from investors who are currently invested upstream or
downstream in the supply chain.
Investor’s are motivated to invest in the supply chain as a means to strengthen their
portfolio by moving more of their products into the market.30
This is rather logical if one
recalls that 90% of the investment capital is owned by 5% of the investors. The odds of
arranging overlapping financial interests are rather good. When capital is supplied by
upstream investors then the objective of the business can be redefined: The objective is to
maximize profit to the supply chain investors. The downstream marketing channels
selling the demand items are serving the upstream investors, rather than trying to
maximize profit on the demand item. The objective is maximum profit to the entire
supply chain.31
Typically, the traditional supply chain moves products into the market to make a profit on
consumer demand, called the supply chain driver. When upstream suppliers are invested
in the supply chain, the profit equation can be reversed. Rather than trying to maximize
profit on the demand item at the point of sale, the supply chain maximizes profit on the
production sequence by adjusting the price of the demand item to maximize production.
Demand items are sold at a price that produces the greatest profit to the upstream
partners.32
The interesting logic is that consumption is production for upstream operations, therefore
the more products that can be pulled through the supply chain, the more profit that can be
made for the entire supply chain. The more products that are purchased from the supply
chain partners, the more profit the supply chain investors realize. The higher the
consumption rate, the more profit the supply chain partners realize. Like the Japanese
Zaibatsu33
the investors may also serve as financial factors.
28
Ibid. Christopher, p. 5
29
Ibid. Hilde, p. 135, Definition: “Niche Market is a small group of customers who share a characteristic
that makes them receptive to a particular product or service.”
30
Ibid. Hindle, p. 111, Example: Richard Branson, Virgin Group.
31
USCCG (Consulting Group), Supply Chain and Technology in the Poultry Industry: Maximize Profit
Through Optimizing the Supply Chain. 2005, www.usccg.com (good white paper on SCM)
32
ibid. Ford, “The cutting edge of merchandising is the point where the product touches the customer.” p.
29. Also, for contemporary supply chain managers an important consideration in designing LP and NLP
optimization models is to change the maximization objective to include the entire supply chain, not the
demand item. Resources in a traditional LP model become profit centers in a SC model.
33
Definition: Zaibatsu “is a financial clique that refers to industrial and financial business conglomerates
prior to World War II.” (http://en.wikipedia.org/wiki/Zaibatsu)

16
Just as Henry Ford suggested, the price of a product should be set to allow the greatest
number of people to purchase that product, so as to pull the maximum number of
products into the market. Examples of this strategy are Walmart, Dell, and Amazon.
Typically, the objective in selling a demand item, a supply chain driver, is to obtain
whatever the market will bear to maximize profits at the retail level. In a supply chain
pipeline, the end product, the supply chain driver typically sold to the end user, need not
be exceptionally profitable. The objective of the supply chain pipeline is designed
backward starting with the customer and with consumer demand,34
and the supply chain
is designed to meet that demand: Profits are realized by the supply chain suppliers on
their component parts provided to create that demand item, which is driving the supply
chain. Since profits are taken throughout the supply chain, by the supply chain partners,
profits realized on the demand items that feed the supply chain, can be adjusted to
maximize consumption through strategies such as “every day low prices,” and by
accepting a lower return on investment (ROI)35
on demand items.  It  is  based  on  the 
Japanese Keiretsu36 model that significantly redefined the Taylor/Ford production 
model. 
 
 
 
 
 
 
 
 
 
34
This can be called redefining the supply chain, or as it is often called by Dr. Howard, cutting out the
middleman. The supply chain is designed to meet that available demand.
35
Companies importing products into the U.S. have a great deal of flexibility where they take a profit in
their business process. This is one of the advantages provided by a supply chain. Companies can take a
profit at the wholesale level and sell the products value added to their American subsidiaries. American
manufacturing companies, for their part can copy this offshore tactic by building assemblies offshore in
Canada, Mexico or Asia and value adding to those assemblies prior to importing them into the United
States. This has the potential of saving the company 3.5% over recognizing that profit at the point of sale in
the United States. 3.5% represents about 33% of the average hurtle rate for publically traded stocks.
36
Definition: Keiretsu: A Japanese term describing a loose conglomeration of firms sharing one or more
common denominators. The companies don't necessarily need to own equity in each other.
http://www.investopedia.com/terms/k/keiretsu.asp
Sources of capital: http://www.keiretsuforum.com/frontend/ManageChapterSection.aspx?
Page=Welcome&ChapterId=18
Counterpoint:
Hindle, Tim, Guide to Management Ideas and Gurus, The Economist, London, England, 2008 p. 111,
Keiretsu: “a form of corporate structure in which a number of organizations link together, usually by taking
small stakes in each other and usually as a result of having a close business relationship, often as suppliers
of each other.” (this sounds like the better definition to me)

17
 
 
The above supply chain model37
shows how many more products can be pulled into the
market by using the supply chain driver, a ship ride, as a draw to sell other services.
When the objective is to maximize profit on ship rides, the supply chain driver, the total
revenue is $2,727. When the objective is to maximize profit on the supply chain, the total
revenue is $4,886 to the supply chain partners. That represents a 56% increase in
revenues.
The supply chain driver, the ship, can be financed by upstream investors or the marina
can forgo some profit on the ships as a means to make a larger profit on food drinks and
apparel. As well, if the marina is invested at the wholesale level, the grocery store is
making an 18% to 28% profit on food supply, the restaurant is making a 10% profit on
catering, the package liquor store is making a 25% profit at the wholesale level, and the
ship is making a profit, 10% on retailing food and about 40% on liquor.
In the current economy, business management models are a critical success factor and
perhaps this explains the success of the MBA38
degree. To a greater and greater extent
products are becoming interchangeable commodities due to CAD, CAM and computer
operated tooling. Excess industrial capacity exists worldwide and has eroded traditional
branding strategies in established markets. Production capacity itself is a commodity, not
unlike capital and labor, which can both be shopped. As demand arises the objective of
business management is to accurately identify that demand and to build efficient business
models to satisfy that demand.
 
37
Model prep for APIC’s CSCP exam provided by Eric, www.realworldsupplychain.com
38
Definition: MBA; A graduate business degree that provides an introduction to finance, accounting,
marketing, and management: It is a degree that allows one to direct or critique a business system. It is
valuable for developing supply chain models.

18
A.4 Propose a Supply Chain Model Built Around ShortSea Shipping    
 
Despite government incentives to develop short-sea shipping, it has not worked in the
United States. Short-sea shipping has not been able to design a business response that
compares favorably with railroads and trucking. The objective of this paper is to identify
the detriments to short-sea shipping and to develop a feasible business response.
Marina management serves as a microcosm for short-sea shipping. A similar arrangement
of products and services are brought together with the intention of building a supply
chain that sustains the entire business organization. The same logic that works for a
marina may work for short-sea shipping.
 
1.1 A Marina Project  
 
A marina presents a straightforward supply chain model to introduce the hypothesis that
supply chains provide economic advantages over traditional business models.
A marina could be purchased, or a consulting firm can be established that specializes in
designing supply chains for marinas. The consulting firm would design business models
tailored to specific marinas as well as establish partnerships between those marinas and
upstream product providers in the supply chain. 39
Investment partners and investment capital should be sought from groups invested in the
products and services upstream of the marina. The objective of marina management is to
increase sales volume for the many business ventures located at the marina and to those
providing products and services to the marina.
Marina management provides cost effective business locations that focus on moving
products into the market with the intention of providing profitability to upstream
suppliers invested in the business.
 
39
http://www.supplychainequity.com/contact.shtml, Supply Chain Equity Partners, This site provides an
excellent example of this approach to funding supply chains.

19
 
 
Example: 14Acre Banana River Marina, Merritt Island, Florida 
 
A marina such as Banana River Marina serves as a good example of a marina that has the
potential to benefit from a supply chain development strategy. This marina has the
population density in the local community, as well as the acreage to develop a thriving
marina mall.
 
1.2: Marina Services (SBU’s) 
 
A marina has core competences.40
The business builds out from these core profit centers.
Management builds on the current customer base by increasing wallet share41
from
existing customers. Products and services are added to increase the customer base. The
product mix that a marina can sustain has to be tailored to each marina location.
Traditional marina operations have many established profit centers,42
• Dry storage
• Laundry
• Lift services
• Marine fuel
• Showers
• Ship repair services
• Ship store
40
Ibid. Hindle, p. 41, Definition: “Core competences are the collective learning in an organization,
especially how to co-ordinate diverse production skills and integrate multiple streams of tehnologies…”
41
Definition: “Share of Wallet (SOW), A marketing term referring to the amount of the customer's total
spending that a business captures in the products and services that it offers. Increasing the share of a
customer's wallet a company receives is often a cheaper way of boosting revenue than increasing market
share.” http://www.investopedia.com/terms/s/share-of-wallet.asp
42
http://www.marina-manual.com/ The Marina Manual provides a good overview of industry and
management techniques.

20
• Wet slips
Some marinas have expanded beyond the basic services by adding;
• Boat insurance agency
• Boat rentals
• Canvas shops
• Car Rentals
• Clothing stores
• Coffee shop Internet café
• Construction Company
• Factional boat sales
• Gas station for vehicles
• Gift shops
• Grocery store Hotels, Cottages or RV parking
• Maritime school classes deck and engineering
• Mortgage service
• Nature and sightseeing tours, dinner, and party ships
• New boat sales
• Non-Profit charities 501 3C
• Outboard motors
• Pubs and lounges
• Real Estate agency
• Restaurants
• Sail shops
• Sea chef school classes
• Strip plaza rental storefronts
• Yacht brokerages
 
1.3 The Big Picture  
 
Some of the services would be provided by the marina, while partners should provide
other services. The partnerships allow the marina to be run like a shopping mall. There
are a number of products and services offered at each marina location and the marina
receives a percentage or rental income on the storefronts. 43
The average revenue for
partnering with a storefront is 15% of gross revenues as a combination opportunity cost
and rental cost.
The objective of marina management changes from being primarily a product provider to
a marketing company whose primary objective is generating customer traffic into the
43
Partnerships carry liabilities, but they typically provide a higher return than a lease. Leases serve as
current and long term notes receivable and can be listed on the balance sheet to reflect the ability of the
lessor to cover current and long-term obligations. Very often leases are structured to benefit from both of
these objectives. Working on a percentage basis is important to keep the marina management company
focused on sustaining their tenants/partners cash flow. The marina management company needs to have
mechanisms in place to stimulate business.

21
marina. From this vantage point we can use the logic of supply chain management to
build the marina business.
 
1.4 Construction  
 
To begin with, the projects at the marina will have to be built out. The marina needs to
have an in-house construction company to make a profit on the construction. A
construction company44
typically makes 25% to 36% profit on construction projects.
Building below market appraisal value results in instant equity build-up. A construction
project can be used to offset short term operating losses. Another factor that favors
having an in-house construction company is that the marina can either make a greater
profit on rentals or rent their buildings below market and still realize industry average
ROI. Flat rate rental agreements do not account for market fluctuations, which can result
in a loss of revenues during market booms, and higher vacancy rates in the downturns. As
mentioned, some combination of a below market flat rental rate combined with a
percentage of gross revenue clause, serves to balance the interests of the tenant’s business
with the marina’s need for access to capital. 45
A flexible rental scheme ties the interests of the tenant to the interests of the landlord in a
partnership. It is a good strategy to help retain tenants during economic downturns.
Access to a tenant’s monthly cash flow figures provides visibility within the supply chain
so that marina management can better understand and forecast business activities. This
keeps management focused on the current market situation and the effectiveness of
management’s efforts to build business at the marina.
 
1.5 Finance 
 
                    
 
 
As with a construction firm, having an in-house mortgage brokerage or mortgage
banker46
is a prudent business move. The loan package provided by the mortgage broker
is tailored to meet the loan specifications of each institution. Lending institutions readily
provide detailed loan parameters to mortgage brokers through NAMB47
and FAMB
publications. Occasionally, a company can negotiate a 1% discount on a loan. More
44
SIC 1540 D&B or Standard and Poor’s Financial industry abstracts and reports.
45
Long Term Notes Receivable are important in obtaining mortgage loans.
46
Definition: “A Mortgage bank specializes in originating and/or servicing mortgage loans. A mortgage
bank is a state-licensed banking entity that makes mortgage loans.” A mortgage banker typically has a
minimum level of capitalization, such as $500,000 dollars.
Ahttp://search.creativecommons.org/?q=definition+mortgage+banker&sourceid
47
National Association of Mortgage Brokers and Bankers, http://www.namb.org/namb/Default.asp
Florida Association of Mortgage Brokers, http://www.mamb.org

22
importantly, having an in-house mortgage brokerage firm allows the marina to shop
loans. As a mortgage broker or banker marina management obtains access to secondary
capital markets. The dynamics of the loan process changes, as the borrower has more
options in negotiations and more identifiable sources.
The marina may or may not choose to offer mortgage brokerage services to marina
customers or club members. The reasons to add the mortgage brokerage service is to
provide value added services to yacht owners that would make their slip rent or club
dues48
a rather inconsequential expense. The major service the mortgage broker offers is
to help the customer shop their loan in a professional manner.
 
1.6 Storage Garages, Lockers, Rack Storage  
 
 
 
Example: Loggerhead Club & Marina, Tampa, Florida  
 
Building costs, exclusive of land costs, on metal storage buildings and boat storage racks
run less than half the cost of concrete block construction. The building pictured above is
an outstanding example of what can be accomplished with metal buildings. The trim
work on the storage facility would increase building costs.
The opportunity exists to purchase metal building kits out of China49
or Korea, delivered
to a U.S. port for about 1/3 the U.S. steel building purchase price. These storage garages50
can be combined and used for store fronts for the trades, such as a canvas shop, sail loft,
outboard motor sales and repair, shaft and propeller straightening, dive operations,
bottom cleaning, and carpentry services. Steel buildings can also be designed as strip
plaza’s to maximize street exposure. Any new structures that can be built out of metal
frame buildings will maximize ROI. For curb appeal the buildings can be covered with
stucco, plastic siding, or Hardy-board.
 
48
If the marina is a yacht club and charges dues rather than slip rent, the dues may in some circumstances
be tax deductable if business is transacted at the marina and yacht club. Refer to: Paragraph 18(1)(l) (also
subsection 13(7) of the Income Tax Act and subsection 1102(17) and paragraph 1102(1)(f) of the
Income Tax Regulations).
49
Example: http://www.tradeshow.made-in-china.com/tradeshow.do?xcase=booking &checkShowId=
QKmxumfyoJIL Consolidated Group. Have plans engineered in USA.
50
Example: Sunward http://tradeshow.made-in- m44hcorp@telus.net, Wedgcor Steel Buildings,

23
 
 
Example: Loggerhead Club & Marina Tampa 
 
 
 
1.7 Ship Store 
 
A brand name ship store, such as West Marine Express could help attract business to the
marina as well as provide West Marine with direct access to a dedicated market. The
store could be any number of chains, with West Marine51
being the best-known example.
Again the objective is to work with a large established company to benefit from
economies of scale through volume purchasing, while providing an additional outlet for
the company’s existing product lines. The ship store would benefit from the boats in the
slips, the boats being hauled out for service, repair parts for the dinner ships. The marina
might rent a location to the ship store or purchase a franchise.
 
 
 
 
 
 
 
51
Example: www.westmarine.com; or www.defender.com, or www.basspro.com

24
1.8 Marine Fuel 
 
 
 
Example: Above Ground Tanks 
 
Marine fueling stations are not as common as they once were. Pollution at older locations
and the sell of many marinas to condo development projects have diminished the number
of marine fueling stations. The new fiberglass tanks seem to be less prone to
deterioration, while above ground applications are also a cost effective alternative. The
entire production costs can be $250,000 for the tanks and pumps. There are a number of
companies that sell marine fuelling stations U-Fuel, 52
Murphy, Coastal, Marathon, and
many smaller local companies will build-out the fueling station and pay the marina owner
a flat rate commission per gallon of gas or diesel sold. The commission is in the
neighborhood of 2 cents to 5 cents per gallon. If the land is available, the partnership
option provides an additional revenue center with little capital outlay to the marina
owner.
 
1.9 Amenities    
 
High quality amenities are an important element in slip rentals. Avoiding competing on
price is important. For a 100 slip marina each 1% decrease in rent is worth $3,000 to
$5,000 per month. In the long run, it is more profitable to compete on amenities rather
than competing on price as much as possible. An in-house construction company makes
this option more likely due to lower construction costs.
Amenities might include:
• Showers and spacious restrooms
• TV lounges
• Free coffee and hot tea
• Free continental breakfast on weekends
• Game rooms, concession machines
• Internet café
52
Example: http://www.ufuel.com/sitemap.phtml

25
• Wi-Fi
• Meeting rooms and conference rooms
• Friday night Bar-B-Q’s
• Weekend big screen movies projected outdoors
• Yoga type classes
• Bicycles for transits and courtesy cars
• Boating classes, Power Squadron, USCG Auxiliary
• Maritime school classes
The cost of most of these items is a onetime expense, as reoccurring expenses should be
avoided when possible. Boaters and club members usually supply free labor for most
social functions. The instructors for yoga and exercise classes will often trade free
meeting room rent in exchange for allowing marina patrons to attend their yoga and
fitness classes for free.
If the laundry and related businesses were in a building facing a roadway, it might be
opened up to a wider public that lives in the area. This could provide about $50,000 per
year revenue, in cash. If possible, the laundry should use well water, as the combined city
water/sewer costs would limit profitability.
 
1.10 Yacht Brokerage 
 
Having a recognized yacht brokerage office in the marina makes sense. Some yacht
brokerages are operated as 501 3c non-profit operations. Yacht brokerages usually
operate as independent contractors and are paid in sales commissions. A non-profit yacht
brokerage typically offers a combination of cash plus tax credit for the purchase of used
boats. A non-profit yacht brokerage is a good way to help a customer move out of an
unwanted boat and into a new boat. The boats can be wholesaled to dealers or resold. The
profit is donated to charity, such as Sea Scouts, or a scholarship fund to attend a maritime
school. The yacht broker usually rents slip spaces for their inventory, as well as uses the
working yard for repairs to their boats in inventory. The yacht broker could also offer
fractional boat ownership, leasing and rentals. As well any boats abandoned at the marina
can be donated to the non-profit. The non-profit would give the marina a tax credit for
these boats.53
 
 
 
 
 
 
 
 
 
53
The following non-profit yacht brokerage, The Marine Institute, Pompano Beach, Florida provides a
good example of this type business: http://www.marineinstitute.org

26
 
1.11 Grocery Store 
 
 
 
A grocery store can be established to sell to boaters, the general public and to provide a
wholesale supplier for the restaurants, pubs, and dinner ships. These businesses would
pull inventory through the grocery store and insure a turnover of inventory. Ideal would
be a grocery store modeled on Aldi supermarkets.54
Aldi has built small 4,000 square foot
grocery stores by selling private label products and thus limiting shelf space. They have
also combined the warehouse with the display area. All the products are sold right out of
the shipping boxes. This minimizes handling costs on the products, and cuts labor costs.
Most importantly the smaller store size combined with lower construction costs, and
lower labor costs allows stores to be built in areas with lower customer counts. This small
full service grocery store has the overhead of a convenience store with the revenue
potential of a grocery store. Grocery stores operate on a profit margin between 15% and
22%.
 
55 
 
Example: Electric Marina Delivery Vehicles 
 
54
en.wikipedia.org/wiki/Aldi
55
http://www.itiselectric.com/utility_electric_car.htm

27
 
The grocery store can make a profit by wholesaling products to the other businesses
operating out of the marina. This in turn will allow the grocery store to obtain volume
discounts, and insure inventory turnover. There will be a savings in shipping costs for the
restaurants, bars and ships, as an electric golf-cart based pickup truck can be used to
make deliveries around the marina. Using the grocery store as a common pantry can
minimize inventory control and inventory holding costs. This will also help the related
businesses minimize operating expenses.
It would be prudent to develop the grocery store in partnership with an existing grocery
chain that is looking to develop new markets. Ideally these small grocery stores would
serve as alternative distribution channels. The company could try out marketing
techniques independently of its primary operation. It would be ideal to buy the product
line from an established grocery chain, such as Publix, SAM’S Club, Aldi, BJ’s, or
Costco.
 
1.12 Restaurant 
 
Theme restaurants such as a seafood restaurant like the Reef Restaurant56
on City Island
in New York. The Reef restaurant has rustic picnic table dining, order at the counter like
a fast food restaurant, with 8 to 10 separate restaurant menus from which to choose.
 
 
 
 
Example: Reef Restaurant, City Island, New York City 
 
56
http://www.bridgeandtunnelclub.com/bigmap/bronx/cityisland/johnnys/index.htm

28
The appeal of the Reef Restaurant format is lower labor costs, a variety of menus to
choose from, volume sales, and low maintenance costs. Restaurants typically generate a
large cash flow, with 30, 60, 90 day same as cash payables. A restaurant is a means to
pump cash flow and short-term liquidity into a marina, which increases cash on hand,
current asset ratios, and quick ratios, while generating a 10% net income stream. Such a
restaurant would work well in pulling large volumes of food and liquor into the market,
as well as generating cash flow. All food would be purchased through the marina grocery
store. All beer, wine and liquor would be purchased through the marina liquor store. This
feeding of a supply chain would increase the volume of products sold by the grocery
store and package store and generate an additional 15% to 22% profit at the wholesale
level for a combined profit of 25% to 32%.
 
1.13 Package Liquor Stores – Bars – Pubs  
 
The liquor store would need to be licensed to sell package liquor both wholesale and
retail so that it could serve as a supplier to the restaurants and pubs at the marina, as well
as sell directly to the public. In Florida the stores may have to be separated. The intention
is volume sales. Retail liquor stores operate on a profit margin of about 25%. Bars57
have
a liquor cost of about 18% to 25% and operate on a profit margin of about 50%.
 
 
 
 
 
 
 
Food: 10% + 10% + 22% = 42%
Liquor: 25% + 25% = 50%
Liquor: + 25% + 25% = 50%
The restaurants and bars and party boats are used to pull products through the wholesale
channel, (the grocery store and package store), thus resulting in a combined
wholesale/retail profit on liquor of about 50%, and a combined return on food of 38% to
42%.
 
1.14 Dinner Ships, Party Ships and Sightseeing Tours  
 
These ships would be in excess of 100 ton. With a minimum of 100 ton, this would allow
the persons working on the ships to earn sea-time toward an AB license, 200/500 ton
Captain/Mate and small diesel engineers license. As well chefs from the maritime
Ships Grocery
Store
Restaurant
Pubs

29
culinary school could earn sea-time. These ships provide a hawse-pipe opportunity to
break into the maritime industry.
The ships should be new construction. Even though these ships are relatively large for
sightseeing tours, a combination of electric motors combined with diesel generators
would cut their fuel costs by 30% and repair costs by 20% according to Caterpillar
brochures. These sightseeing ships represent a means to pull customers into the marina
complex to help sustain the other businesses at the marina. The ships take people out for
extended tours, parties, etc and offer a selection of items for sale on the ships as well as
food and drinks.
The ships buy food, spirits, and fuel from the marina. Ideally the ships would be designed
as open Ro/Ro ferry boats to qualify for federal MARAD Title XI58
funding programs.
The deck plans would then be modifiable as needed. The marina could partner with
Mears, Travelynx, and a number of bus touring companies to provide passengers for the
sightseeing ships, party ships, and dinner ships. The bus lines appear to have the ability to
attract customers if they can find activities for these customers. The ships, catering and
banquet facilities, restaurants and pubs would be used as a means to attract groups of
people to the marina. The marina will partner with bus lines to provide customers. The
ship rides would be sold at a price that fills up the ships with the intention being to draw
customers to the marina, waterfront mall, or shopping village. Once on the ship, a wide
variety of products would be available for sale.
 
 
Example: Jungle Queen, Fort Lauderdale, Florida since 1951 
58
“The Federal Ship Financing Program provides for a full faith and credit guarantee by the United States
Government to promote the growth and modernization of the U.S. merchant marine and U.S. shipyards.
The program, established pursuant to 46 USC Chapter 537, provides for a full faith and credit guarantee by
the U.S. Government of debt obligations issued by (1) U.S. or foreign ship owners for the purpose of
financing or refinancing either U.S. flag vessels or eligible export vessels constructed, reconstructed or
reconditioned in U.S. shipyards and (2) U.S. shipyards for the purpose of financing advanced shipbuilding
technology and modern shipbuilding technology of a privately owned general shipyard facility located in
the U.S. The Program is administered by the Secretary of Transportation acting by and through the
Maritime Administrator. Under the Federal Credit Reform Act of 1990, appropriations to cover the
estimated costs of a project must be obtained prior to the issuance of any approvals for Title XI financing.”
http://www.marad.dot.gov/ships_shipping_landing_page/title_xi_home/title_xi_home.htm

30
 
 
1.15 Maritime School Facility 
 
The marina can partner with a U.S.C.G. licensed commercial maritime school and a
maritime chef school to provide classes at the marina. These schools when combined
with a marina help to build marina trade. These classes can be offered independently
through a commercial maritime school, and in conjunction with a local community
college so that students can cover the cost of the classes under a student loan or grant
program. The graduates of the maritime schools have an opportunity to gain sea-time
working on tour boats, sightseeing boats, party ships, and dinner ships that operate out of
the marina.
 
1.16 Rental Cottages, Hotels, RV’s Camping 
 
If a marina has the acreage it can offer prefabricated rental cottages. If the cottages are
prefabricated modular units then the federal government regulates the construction, not
the local building department. The buildable lot size is usually smaller and the property
tax is generally lower. A wonderful little vacation community can be built along the lines
of Silver Beach in Throggs Neck. Again, these cottages would provide an additional
customer base for the other businesses at the marina. The same would apply for RV
camping, if the land is available. This would be an excellent revenue center that would
contribute to the customer count. If the location could accommodate a hotel, this is a
good source of revenue and additional customers for the marina.59
The land and even the
hotel60
building might be owned by a non-profit 501 3C, setup as a charitable trust,
thereby saving about $50,000 to $100,000 annually in property taxes.
59
Example: Ron Jon’s Cape Caribe Resort, Port Canaveral www.ronjonresort.com note the port does not
pay property tax, which provides an advantage over competing hotels.
60
Example of tax exempt hotels, cited examples are city owned, hotels leased to chains, Bahia Mar, Fort
Lauderdale, is a city project http://www.bahiamarhotel.com/ Example, Dallas Hilton,
http://cityhallblog.dallasnews.com/archives/2009/04/citizens-against-the-taxpayer--1.html
http://www.hotel-online.com/News/PR2009_2nd/Apr09_DallasHotelPoints.html
Also see hotels in Baltimore. It makes perfect sense the city doesn’t pay property tax. The same could hold
true for a non-profit, such as a school owning the property having a management contract with Hilton or a
major chain to operate it. It could be structured with a buy out clause.

31
 
Example: Cottages in Silver Beach, New York City

32
Fast-Ships
Eastern Seaboard Short-Seas Shipping
2: Developing Short-Sea Shipping, America’s Marine Highway61
2.1 Impediments to Short-Sea Shipping
Short-sea shipping has a delivery cost advantage due to economies of scale.62
So
the ability of the ships to deliver products at a reasonable price is not a primary
issue. Ships that fall within the parameters of the Merchant Marine Act of 1920
called the Jones Act,63
have a difficult time competing with U.S. trucking and U.S.
railroads due to construction costs and operating costs. Under the Jones Act, ships
in the coastal trade are required to be built in the U.S., flagged in the U.S., owned
by U.S. citizens, and staffed by U.S. crews. U.S. Ship production costs are about
33% higher than European costs and 66% higher than Asian ship building costs.
To make ship building work in the United States will require thinking outside of
the box.
The top issues that serve as obstacles to short-sea shipping are;
• Vessel Construction Costs
• Transit Times, Weather Delays, Schedule Reliability
• Port Labor – Stevedoring Costs
• Manning Costs, Staffing Requirements for Self-Propelled Vessels
• Infrastructure Costs
• Harbor Maintenance Tax (HMT)
• Container Transfer Delays (Reliability)
61
Dr. Hoffman in an email to cadets made a good point that the experiences of Seatrain need to be weighed
in to a discussion on Short-Sea Shipping. Counterpoint: Sea-Land operation operated by Crowley (CAT).
62
Short-Sea Shipping Business Case Analysis, P. 5
63
Definition: “Jones Act, deals with coastal shipping and requires that all goods transported by water
between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens,
and crewed by U.S. citizens and U.S. permanent residents. The purpose of the law is to support the U.S.
Maritime industry.” http://en.wikipedia.org/wiki/Merchant_Marine_Act_of_1920

33
2.2 Shipping Expenses   
The average cost to drive from Florida to New Bedford for a semi tractor-trailer is
$1,881 as of 2006. According to the same government study, the average cost for the
Ro/Ro ship to deliver each semi tractor-trailer is $1,045 dollars. This cost is determined
as follow;
• Drayage onto Ship
• Marine Terminal
• Ship Move – actual 1008 mile trip on the ship
• Marine Terminal - unload off Ro/Ro ship
• Drayage off Ship
• Equipment charges to move trailers or containers
The estimated cost of $1,045 includes a “best in class” movement of containers on and
off the ships with self-propelled automatic guided vehicles (AGV). This cost structure
applies to containers or trailers. It does not include port fees, such as Harbor Maintenance
Tax (HMT).64
The cost of $1,045 includes $422 for drayage that is the short distance
repositioning, loading/unloading, and storage of trailers or containers accounts for 40%
of the total shipping expense for short-sea shipping.
64
Four Corridor Case Studies of Short-Sea Shipping Services, 8/15/2006, Ref# DTOS59-04-Q-00069 has
recommended that U.S. Ports not charge Harbor Maintenance Tax (HMT) on domestic freight. “The port
operators interviewed were unanimous in their belief that the charging of Harbor Maintenance Tax (HMT)
on domestic shipments would be a serious economic disincentive for shippers to shift from ground
transportation to a short-sea shipping service.” p. 29.
Definition: “The Harbor Maintenance Tax (HMT) is a federal tax imposed on shippers based on the value
of the goods being shipped through ports. The tax is placed in a trust fund to be used for maintenance
dredging of federal navigational channels.” AAPA: http://www.aapa-ports.org/Issues /
USGovRelDetail.cfm?itemnumber=891

34
If short-sea shipping were patterned after a European ferry, an enclosed ship with drive
on dive off capabilities, that $422 (40%) drayage expense could be deferred or
reallocated. Having the truck driver load the entire semi tractor-trailer rig would lower
drayage costs and repositioning time. This step could eliminate a number of issues
confronting short-sea shipping. The increase in shipping weight would be offset by
increased efficiencies. Shipping the entire truck rig and driver will actually be less
expensive and take less time than loading and unloading containers or truck trailers. The
ships crew and truck drivers will be able to drive the trucks into the ferry ship and strap
them in place, thereby lowering port labor – stevedoring costs. As well the ports will not
need to be fitted with additional overhead gantry cranes65
for loading containers or self-
propelled automatic guided vehicle (AGV)66
grids, or large asphalted container storage
facilities. The primary expense will be hydraulic loading ramps such as the ones pictured
below. This should help minimize some of the pilferage crimes associated with ports.
Adopting a business model based on drive on drive off with the truckers staying with
their rigs,67
as is done in Europe, opens avenues of opportunity for developing related
profit centers and supply chains. U.S. ships could offer a number of services modeled on
the products and services provided by European short-sea ships. In the early period the
services might be similar to those offered at truck stops or larger train stations such as
Penn Station or Grand Central Station. The ships could also offer coach seating and
cabins between Florida, Baltimore and New Bedford for persons who preferred not to fly.
This is a perfect passenger route as it has a terminus 45 miles from Disney World in
Florida on one end, Baltimore, 39 miles from Washington D.C. is in the middle, and at
the other terminus New Bedford 38 miles from Boston. It may be that short-sea shipping
65
Definition: Gantry Crane, used for stacking intermodal containers within the stacking areas of a container
terminal. RTGs are used at container terminals and container storage yards to straddling multiple lanes of
rail/road and container storage, or when maximum storage density in the container stack is desired.
http://dictionary.sensagent.com/rubber+tyred+gantry+crane/en-en/
66
Definition: An automated guided vehicle or automatic guided vehicle (AGV) is a mobile robot or vehicle
that follows markers or wires in the floor, or uses vision or lasers. www.answers.com/topic/automated-
guided-vehicle
67
Example: http://www.ferrysavers.co.uk/poferries.htm Or at least one driver from each company would be
on board and responsible for driving all that company’s trucks off the ship.

35
of semi tractor-trailers will serve as a means to develop an equally lucrative passenger
travel business. Some of the ships might even support a number of restaurants, lounges,
casinos and spas. The potential for profit is in attracting customers onto the ships, and in
keeping them satisfied for three days by selling them as many products and services as
possible. Profit to the supply chain is realized by maximizing sales through the supply
chain. A supply chain of investors and business partners will be established so that
consumption is production and profit for upstream supply chain partners. Products can be
sold due to passenger travel, passenger travel can be profitable due to short-sea shipping,
and ship-building can be developed on the success of all these businesses further down
the supply chain.
 
 
 
 
 
Toll Road News estimates that each day 10,000 semi tractor-trailers make this trip up or
down the Eastern Seaboard between Florida and the New York area.68
In ten years that
number is expected to be 20,000 trucks per day. A Fast-ship will only be able to haul 400
semi tractor-trailer rigs per roundtrip, for two ships that is 41,600 rigs per year, which is
less than 1% of the current available market. If we use Monte Carlo risk analysis to
define a cumulative probability distribution for this market, all things being equal,69
there
is a 95% chance that the ships will be able to attract 496 semi-tractor trailer’s per day,
and a 90% chance that the ships will be able to attract 997 semi-tractor trailers per day.
Based on the available traffic, the odds of short-sea shipping attracting the necessary
volume are 9:1 in favor.
Working with the trucking industry to lower shipping costs by shipping the entire rig,
should lower trucking concerns about short-sea shipping being yet another attempt to
capture market-share away from the trucking industry.70
Based on the current statistics, if
the 3 hurdles blocking short-sea shipping can be removed, the odds of obtaining the
required 41,600 rigs per year are favorable.71
68
Ibid. Toll Road News, pp. 7-8, estimated that 6 million containers a year are shipped from the Florida
area to the North East annually. The Gulf Coast ships about 10 million a year. The shipping north to south
is about 50% of the south to north shipping volume.
69
All things being equal; assumes acceptable pricing, acceptable service, and solid management
70
Currently the biggest threat to U.S. trucking are the proposed ports on the Pacific side of Mexico, which
would allow Mexican trucks to move products into the United States. http://www.wnd.com/?pageId=38177
or http://www.colonetrealestate.com/puntacolonet.php
Counterpoint to the concern of Mexican super-ports:
http://www.nctimes.com/news/opinion/columnists/elias/article_9175e264-05fa-561a-9456-
b42f2db46eb3.html
71
http://blog.fleetowner.com/trucks_at_work/2010/07/13/expanding-capacity-and-paying-for-it/
http://www.ops.fhwa.dot.gov/freight/freight_analysis/faf/index.htm
Ship
Building
Passenger
Service
Short-Sea
Shipping

36
The following supply chain model represents potential cash flows from a Ro/Ro – Ferry
shipping operation. The Ro/Ro operation generates $249,400 ($1,247 x 200)72
in
revenues per trip by using the figures provided by the Short-Sea Shipping Case Analysis
Report. Passenger revenues are based on rail and air ticket pricing. The average meal
costs were tabulated from analysis of train travel, and the cabin rent was set low at $50
dollars to increase demand. To put “low” into perspective, a sleeping accommodation on
Amtrak between Florida and New York sells for between $100 and $350 per night,
average $210. Passengers can ride coach and not rent a room.
Example: Cash Flow Model for Supply Chain
2.3 Vessel Construction Costs
 
As noted in the DOT Short-Sea Shipping Business Case Analysis Report, new U.S.
ships need to have a modular design,73
need to be able to perform at speeds that
will allow them to consistently deliver a 60-hour or better trip schedule on the
Atlantic Corridor, and need to be manufactured economically.
The platform I chose to use as a prototype is the TG-770 Fast-Ship. It provides an
excellent platform for reestablishing a merchant marine fleet in the United States.
72
$1,247 represents the cost of shipping $1,045 plus a profit. The price of fuel is variable for all means of
transportation. Increased fuel prices would help build a stronger case for short-sea shipping.
73
ibid. p. 9

37
The ship has two model designs, one 440 feet in length and the primary design that
is 860 feet in length: The Fast-Ship was designed by architect David L. Giles. A
number of versions of the ships’ design have been explored for various missions.
The smaller 440 foot ship should have the capacity to load 200 semi tractor-trailer
rigs. The larger ship could be expected to do more than triple that capacity,
depending upon the number and height of the decks. The ships load and unload
from a drop down cargo door in the rear of the ship that doubles as a ramp.
The TG 770 is a high-speed Ro/Ro ship that provides enclosed shipping cargo
space. The hull has a design speed of 43 to 45 knots, depending upon weight.
Currently the acceptable hull speed is 25 to 27 knots, however every decade the
average cruising speed increases by 5 knots. Having a design cruising speed of 45
knots will allow the TG-770 to remain competitive potentially for the next 4
decades. The primary mission of the TG-770 Fast-Ship, as envisioned by its
designer, is to support U.S. commerce. The mission will be accomplished by
providing logistical support for commercial, military and humanitarian endeavors.
The TG-770 Fast-Ships will ply the coastal trades between Cape Canaveral
Florida, Baltimore Maryland, and New Bedford, Massachusetts74
providing near
coastal shipping for semi tractor-trailer rigs and their drivers, as well as RV’s and
cars. Secondary available markets will include passenger service, heavy lift
transport, and containers on trailers.
74
Some early reports identified New Haven, Connecticut as the northern terminus.

38
Quoting from the Fast-ship brochure;
“the advanced, patented semi-planning hull …will enable Fast-Ships to maintain
high speeds even under adverse weather conditions. This is the key to our being
able to offer time-definite delivery. Other ships need to reduce speed in rough
weather, making them inherently less reliable. Our Fast-Ships can remain at speed
even up to significant wave heights of 7.5 meters (conditions exceeded only 3% of
the time on our North Atlantic route), allowing us to guarantee on-time arrival of
the ships.”75
“As a result, we can synchronize terminal and inland connections around ship
arrivals, enabling a continuous flow end-to-end and seamless on-time delivery for
our customers.”76
“Another advantage of our hull design is the inherent stability we achieve with our
wide beam, which permits stowage optimized for inland logistics requirements
rather than to meet vessel stability requirements at sea.”77
David Giles original
design relied upon turbines coupled to water-jet propulsion. Current trend in the
shipbuilding industry is to combine diesel generators to electric motors that drive
the water-jet propulsion units. The Holland America Line ordered a combination
diesel-electric using a bank of four such diesel-electric combinations on its 86,000
GT ship the New Amsterdam. Caterpillar has had a great deal of success
combining diesel generators to electric direct drive motors. These “hybrid power
train, the D7E makes far less noise, uses less fuel, and has a 50% longer life span
due to lower wear-and-tear on the engine. All of this means 10-30% less fuel
consumed while delivering more horsepower on the job.”
Example: Rolls Royce Kamewa waterjet propulsion 
75
www.fasterfreightcleanerair.com 
www.fastshipatlantic.com/management.html 
www.patentstorm.us/patents/7581508/claims.html, www.freepatentsonline.com/5832856.html
76
77

39
The Kamewa website describes their product line “Our range is the broadest in the
business. Manufactured in aluminum and stainless steel, power requirements from
100kW to over 40MW can be met to suit virtually any application. Water-jets78
are in
a class of their own because of their versatile operating characteristics, which permit
easy and accurate control of the craft at all speeds and in waters too shallow for
vessels with conventional propulsion systems. At high speeds, the unrivalled
efficiency of water-jet propulsion offers either a greater top speed or better fuel
economy. No reversing gearbox is required, stopping distances are short and craft can
turn on the spot or even maneuver sideways. Rolls-Royce pioneered the application of
water-jets in naval vessels and ongoing research and development with the US Navy
has resulted in the AWJ-21, an underwater discharge water-jet design with remarkable
stealth characteristics.” 79
According to the Short-Sea Shipping Case Analysis Report, the short-sea ships’
construction will cost $50 million dollars. There are a number of ways to make these
ships more affordable. Design higher durability into the ships so that they will have a
longer useful life, either 40 or 50 years. 40 years provides a 37% increase in utility
over the average ship service life of 25 years. This will allow the ships to generate
more revenue and the cost of the ships can be recovered over a longer period time. For
a number of reasons, all the systems on the ships should be modular. The fuel tanks,
water tanks, gray water recovery systems, could be based on containerized tanks. This
would allow the tanks to be removed for servicing or replacement, rather than being
repaired on the ship, lowering maintenance costs. The generators that run the electric
motors should be unitized so that the majority of the maintenance will be done at
factories and not onboard ships. The proposed Fast-Ship will have a larger
superstructure than the one pictured to accommodate 300 or more passengers, and a
combination of restaurants, lounges, and perhaps a movie theatre, spa, and duty free
shopping. All of these modular systems can be leased to the ship companies rather
than being sold to them.
By leasing the modular components the shipping company will not have to show a
78
ITTC, The Specialist Committee on Validation of Water-Jet Test Procedures, 23rd International
Towing Tank Proceedings of the 23rd ITTC – Volume II Conference, 2002 - excellent review of water jets
http://ittc.sname.org/proc23/Water-Jet.pdf
79
“The Kamewa water-jets are still traded by Rolls-Royce under that name and are offered in four
versions. See: Kamewa APS”  http://en.wikipedia.org/wiki/Kamewa_Water-Jets

40
return on non-revenue generating assets, as well there will not be any equity build-
up in these non-revenue generating assets. This will aid in providing a better rate
of return on assets (ROA)80
. . The ship owners could lower the purchase price by
as much as $20 million dollars by leasing components.
Example: Interior Space European Ferry
Most importantly by manufacturers leasing components to the ship-owners, this creates a
revenue stream back to the manufacturers for the life of the ships. This is an important
element in creating profitability for the ship building companies and is a means to keep
these U.S. produced ships competitive throughout their extended service life.
When one thinks of modular construction in hotel rooms, office space, housing, or
classrooms one usually thinks in terms of fabricating these items in a factory based on an
I-beam trailer chassis. The abundance, low cost, and strong construction of shipping
containers makes them an excellent candidate for factory built modular construction
projects. A used container can be purchased for about $1,100 dollars. A 9.5’ x 40’ = 380’
container81
has a $2.89 cent per square foot cost. If the interior units on the ships were
modular and leased, the parts used in constructing them might not have to come from the
U.S. market. It is possible that these container based modular units could be built-out
using imported parts assembled in the Free Trade Zones. This would address a number of
opportunities, the availability of low cost containers, availability of free trade zones,
import of inexpensive components to keep production costs in line, and the opportunity to
either use these modular structures in the U.S. or export them to other markets.82
80
Definition: Return On Assets (ROA) on Investopedia – “An indicator of how profitable a company is
relative to its total assets.” www.investopedia.com
81
http://www.iport.com/ prices range from $1,100 to $2,500 for a 40-foot high top container.
82
These self-contained modular factories could be setup anywhere in the world and when the project is
complete, the factory can be disassembled and redeployed.

41
Example: Fort Brag Container Building 
As well as using these modular units to build-out the interiors of ships, they might also be
exported for a number of other applications. A manufacturing opportunity may exist for
building out fast food restaurants, housing resembling modular double-wide trailers,
factories, assembly plants, retirement communities, apartments, motels, medical facilities,
classrooms, barracks, or self sustaining factories in emerging markets.
Modular manufacturing for fast food restaurants are currently advertised on a website for
American Modular Technologies out of Orlando Florida.83
One great feature of modular
design is that they are considered temporary structures, and therefore are treated
separately from permanent structures under most building codes such as the International
Building Code (IBC).84
They are typically not included as part of a property tax
assessment. Steel buildings can hold up to 50,000 pounds of weight, and according to the
Fort Brag website have a “sturdy steel frame, superior resistance to damage by wind, fire,
mold, and moisture and have a 50-year structural life-cycle.”85
By having the interiors of
the ships modular and leased, the new-build construction costs might be lowered by 25%
to 40% depending upon the number of manufacturers who are willing to participate in the
leasing program.
Another excellent feature of the Fast-Ship that makes it an excellent choice is that the
hull design is an enclosed Ro/Ro space. The interior Ro/Ro space is a re-definable space.
Since all the interior space can be configured for Ro/Ro, container, or modified for
passenger accommodations, the ships interior configuration can be tailored to the
opportunities available on each route and each mission, during each decade of operation.
With modular construction based interiors, the ships remain primarily re-definable for the
entire useful life of the vessel. This characteristic of a Ro/Ro ship when combined with
modular interior components lends itself to developing a fleet of ships that operates in
diverse markets with maximum efficiency.
The wide hull design provides the ship with a great deal of stability, interior space,
potential for speed, fuel efficiency when equipped with electric diesel powered water-
83
Americanmodulartechonologies.com, Example: www.checkers.com
84
Definition: “The International Building Code (IBC) is a model building code developed by the
International Code Council (ICC). The code is conscriptive not descriptive, meaning it describes what must
be accomplished, not how to accomplish it. It has been adopted throughout most of the United States.”
http://en.wikipedia.org/wiki/International_Building_Code
85
Example: Fort Brag, http://aec.army.mil/usaec/sustainability/containers00.html

42
jets, shallow draft,and it is self loading and unloading as the back of the ship makes into
a ramp.
These ships will likely be financed by Title XI financing and made part of the MARAD
reserve fleet. The redefinable nature of the ship makes them more adaptable for business,
military and humanitarian applications. All the modular components used in the ships, the
diesel generators, water purification units, sewage treatment plants, water supply tanks,
and fuel tanks can be deployed from the ships and used for any number of shore-side
operations. Using containerized fuel cells may eliminate the need to construct
cofferdams. A major consideration is the reduction in maintenance and operating costs
over the life of the vessel.
Example: Deployable Fuel or Water Storage Tanks
Example: Deployable Modular Water Purification System

43
Example: Deployable Modular Diesel Generators 
The plan is to build a ship that has exceptionally low operating and maintenance costs
and is designed for a service life of 4 to 5 decades. The intent is to use the
Scandinavian and German business practice of engineering higher quality, longer
lasting products as a means to offset their higher production costs. The goal is to
create a product that has the same or lower overall cost of ownership as lower quality
built products over an extended period of operation. Economic parity with less
expensive production costs in Asia can be accomplished through;
• Longer service life
• Lower operating costs
• Lower maintenance expenses
• Higher levels of service
• Expanded mission or utility
This strategy, if it can find financial support, will allow more expensive U.S. built ships
to compete in the U.S. and perhaps in world markets.86
Modular systems will require a
smaller reserve of spare parts inventory for the entire fleet of ships, therefore lowering
overhead for every ship, while providing higher profitability to the manufacturer.
Modular systems will cost less to manufacture, cost less to service, cost less to maintain,
and cost less to update and remodel.
2.4 The Mission or Market Segment  
The Fast-Ship is a fully enclosed container and Ro/Ro vessel. Interior spaces can be
redefined to match the available trade on any given route. Shoal draft allows the ships to
dock at many small ports and structural piers extending out into the ocean to allow the
loading and unloading of almost any type cargo, including modular building structures
and supporting water purification systems, generators, water storage containers, supplies
and fuel.
86
This may well be an excellent marketing approach for products protected by the Jones Act.

44
2.5 Supply Chain Partners and Profit Centers  
As pointed out to make short-sea shipping work will probably require the development of
a supply chain models that allows investors to make a profit throughout that supply chain
to minimize risk and maximize return. Building a supply chain supported by U.S.
manufacturing companies is probably the best way to justify short-sea shipping. This will
also minimize the financial risks present in the enterprise.
The supply chain ideally will stretch from scrap steel plants, steel mills, shipyards,
materials suppliers, to ship owners, trucking companies, port operations and government
assistance programs. To make short-sea shipping work, the development and production
process needs to be transparent. Every party involved has to be on the same team,
working to assure the success of the end product, the supply chain driver, that pulls all the
other products and services into the market. In this case the supply chain driver is
primarily coastal short-sea shipping of semi tractor-trailers. The supply chain partners
need to remain involved in the venture for the service life of these ships, which is
anticipated to be 4 to 5 decades.
2.6 Upstream Supply Chain
The upstream supply chain designs and builds the ships. This market has a good deal of
vertical integration and benefits from economies of scale.
Steel Production
• Ship Design
• Ship-Building
• Modular Construction
• Machinery, Safety, and Systems Construction
• Finance and Leasing
• Ramp Construction
• Trucking Firms
• Container Companies
2.7 Downstream Supply Chain
To a large degree the shipboard operations rely upon supply chain partnerships that
mirror the supply chains used at marinas and on cruise ships. Combined marina operation
and short-sea shipping operations serve as a basis for developing many of the projects
found at most U.S. ports. The supply chain model developed for marinas and short-sea
shipping could be used to help grow a ports economic agenda. A short-sea shipping
agenda that includes passenger travel would pull a number of products into the market
that might include;
• Wholesale Food Services / groceries
• Restaurants
• Pubs and Lounges
• Package Liquor Stores
• Gift Shops and Jewelry Stores
• Coffee Shops and Internet Café
• Car Rentals
• Clothing Stores

45
• Manufacturing in the Free Trade Zone
• Modular Construction and Manufacturing
• Catalog Shopping (tax free, Like Jet Blue offers)
• Duty Free Shops Selling Liquor, Cigarettes, Imports, Watches
• Imported Vitamin, Health and Beauty Products Shop
• Art Galleries
• Casino
2.8 Steel Production 
The quality of steel used in these ships is an important consideration, as the hulls need to
last for 4 or 5 decades with minimum maintenance.
2.9 ShipBuilding   
Ship-building would logically be done in relation with one of the existing shipyards in the
United States to obtain Title XI financing. One typically thinks of Northrop Grumman,
National Steel and Shipbuilding, Halter Marine, United States Marine Inc., and the well
known advocate for short-sea shipping Santa Maria.
2.10 Modular Construction 
It is important to partner with a modular builder to explore the possibility of building out
the passenger areas on the ships using shipping containers as framing. Modular design
would probably save 50% on construction costs, and between 25% and 50% on
remodeling and maintenance costs.
A major consideration of this proposed project is creating feasible shore-side facilities,
like modular homes, factories, communities, workforce housing, hospitals and military
facilities based on the same containerized construction systems used on the ships. If this
is feasible, then many of the components and systems used to build out the ships could be
transferred to the shore side facilities. Many items could be deployed from the ships for
use in emerging economies and in emergencies like Hurricane Katrina. The Caterpillar
diesel generators, the water purification systems, waste water treatment plants, the fuel
storage tanks, water storage tanks, even entire kitchens and fast food restaurants could be
designed for the coastal ships and used in other settings. The importance of this design
for the ship owners is that they would get paid to make deliveries and deploy the modular
facilities. This aspect of building a supply chain around the component systems used on
the ships makes the ships more useful to the private sector and the government.

46
Example: Containers Remodeled for Office Space 
2.11 Machinery, Safety, and Systems Construction
These systems should be leased so as to minimize the purchase price of the ships, which
increases return on assets. The objective is to lower total capital expenditures per ship,
while creating a supply chain that continually feeds the manufacturers of the systems.
This will allow the manufacturer the cash flow to continually improve their products.
Equally important is that all the modular systems on the ships need to be part of a
Japanese style kaizen or continual improvement project so that these ships and their
components remain competitive. This process is intended to drive quality.
2.12 Finance, Leasing and Factoring
Certainly Title XI financial guarantees are extremely important in obtaining financing at
affordable rates. Leasing the component systems on the ships may be a means to lower
financial exposure and improve some financial ratios, such as return on assets.
2.13 Trucking Firms
Trucking firms are central to the success of short-sea shipping. It remains to be seen if the
primary target should be independent truckers or working with a few large trucking firms
or 3PL companies. A limited enterprise with two Ro-Ro ships only has to attract 1% of
the available trucking long haul market. A good deal of survey work needs to be done to
determine which segment of the trucking industry to target. The intent is to allow
trucking companies to obtain their own cargo loads and set their own prices for hauling.87
The ships would then contract to transport the trucks. As mentioned this could lower
their overland insurance rates, state highway tax rates, tolls, rig maintenance and tire
replacement schedules.
2.14 Critical Success Factors 
• Access to capital is a primary consideration for the success of this enterprise. It
87
Four Corridor Case Studies of Short-Sea Shipping Services, 8/15/2006, Ref# DTOS59-04-Q-00069 has
recommended this approach to building the market. Document available at: U Mass. Dartmouth,
www.umassd.edu/sustainability/shortsea.cfm -

47
might be advantageous to establish an equity fund or work with an equity fund to
provide capital to perform the role of a Zaibatsu, or banking house. Government
financing programs when combined across the industry might provide that
function.
• Obtaining the proper ship design that is significantly modifiable to meet the
demands of individual markets as well as the changing markets over the extended
lifecycle of the ship.
• The ability to keep the ships equal to market speed expectations over the life of
the ship is an important consideration. Average vessel speed tends to increase by
5 knots per decade. Therefore, over 4 decades the short-sea ships will need to go
from the current average speed of 25 knots up to 45 or perhaps 50 knots.
• The need to keep the ships current with industry standards is one reason it is
important for the ship owners to remain in partnership with the manufacturing
sector. Keeping U.S. flagged ships profitable is going to be an ongoing
incremental challenge.
• Obtaining concessions from ports and government agencies to provide long-term
tax incentives for investment in ships, comparable to KG Houses in Germany,88
favorable financing, and the elimination of port charges and fees on domestic
freight are necessary. 89
88
KG-Investors: “The KG-Investors subscribe funds shares trough a trust company or by themselves.
They are the ultimate beneficial owner of the KG-fund.”
KG-House: “The KG-House is the fund’s issuing house. Its business includes fund’s conception,
projection, marketing and road-show activities. The KG-House is also responsible for the acquisition of
funds equity shares.” German Ocean Invest Fund
http://www.german-ocean-invest.com/showpage.php?page =14e&PHPSESSID
=tlfa0riukj7fvtpsf3rr6tbvm2
89
As well, the Experiences of A&P Grocery and Seatrain Lines beg the question, does the federal
government have the resolve to protect business from organized acts of sabotage and piracy?

48
Appendix
A: Over View of Supply Chain Management
A.1 Defining the Need for New Business Models
America can’t compete, due to higher costs structures, and misaligned cost structures.
The problem is an entire list of expenses including income tax rates that are currently
35%, and 20% on long term capital gains. The cost of capital tends to be higher in the
United States. Equity and debt capital cost in the area of 10% with a preference for
higher rates of return. According to articles published by the International Monetary Fund
(IMF), the United States is unique in the way they collect social costs, such as medial,
retirement and unemployment benefits. All of these factors combine to drive up the cost
of goods sold (COGS) in the United States. These many factors, including higher salaries
for unskilled and semiskilled workers and poorly engineered products combine to make
American products uncompetitive in world markets.
America has never competed on quality, as have the Germans and Scandinavians, but
rather American companies tend to provide good value, comparable to an English
marketing strategy. American companies provide a simply good product at a good price.
American companies found that by the 1980’s they could not deliver good value for the
money. Japanese companies were beating them on price and quality. The Japanese were
providing German and Scandinavian quality at below American prices. Restored
industrial capacity worldwide, combined with a number of American miscalculations and
excesses made new American business models imperative.
A.2 New Business Models Emerged
American companies scrambled to define new business models that would allow U.S.
companies to maintain market share. What emerged was the idea of having products
manufactured in countries with lower production costs. Between the 1850’s and 1900 the
Germans found themselves in a similar position with French and English products. The
German response was to improve the quality of their products to far exceed the quality of
the French and English products.
The Americans would incorporate some of the lessons learned from Japanese quality
control (SPC) into offshore production, but to a greater extent lower prices, value, would
be used to capture market share away from superior quality Japanese, German and
Scandinavian products. The use of Asian production required U.S. companies to refine
their production processes and to develop a new set of tools to help them control and
regulate the orderly supply of sub-assemblies, parts and finished products from the
manufacturer to the consumer markets.
The management skills necessary to control an offshore or global manufacturing
production and distribution process was called supply chain management (SCM). By the
late 1980’s and 1990’s supply chain management techniques were becoming

Thesis 5-31-11

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