Federal mandates call for the United States to use nine billion gallons of renewable fuels in 2008. The mandated volume climbs to 36 billion gallons by 2022.

That's a lot of ethanol and biodiesel, and it offers prime transportation and distribution opportunities. Virtually all biofuels must be moved by truck and rail at this time, which means new business for many of the companies involved with these transport modes.

Kenan Advantage Group Inc (KAG) of Canton, Ohio, is one tank fleet operator working to build a leading role in the transportation and distribution of these biofuels. As part its strategy, the company launched its ambitious KAG Ethanol Logistics operation under the KAG Logistics Group umbrella in 2006.

“This is an exciting time for us, because we are really on the cutting edge with this,” says Dennis Nash, KAG president and chief executive officer. “We believe we've hit a grand slam with the ethanol logistics and Manly Terminal operations. Two years from now, this will be a significant piece of the KAG enterprise. This is an investment in American farmers and in the heartland of our own country. It's the new oil patch.

“We believe the renewable fuels market will move well beyond the 36 billion gallons mark set for 2022. Ethanol use is still in its infancy, and the feedstocks are bound to change and expand. I think we'll see crops that are grown just for production of renewable fuels. We are convinced that this will be a big industry.”

Critical player

KAG managers make it clear that they believe their company has the size and depth needed to play a critical role in serving the renewable fuels industry as it expands across the United States. It is an increasingly diverse liquid bulk transport provider.

KAG itself is the largest fuel hauler in the United States with a fleet of more than 3100 power units and 4100 trailers dispersed among KAG subsidiary carriers including Advantage Tank Lines, KAG West, Bulk Express Inc, Kenan Transport, Klemm Tank Lines, North Canton Transfer, and Petro-Chemical Transport. Vehicles are based in 35 states.

Diversification took a big step forward in February with KAG's acquisition of Transport Service Company, a $130-million-plus chemical and foodgrade hauler. KAG plans to consolidate all of its chemical hauling activities with Transport Service, which will continue to operate under its own name.

“We now have three distinct platforms that will drive future growth for this company,” Nash says. “These platforms include our core business of distributing bulk petroleum and renewable fuels, specialty products such as chemical and foodgrade cargoes, and the KAG Logistics Group with its ethanol logistics operation. Even the specialty products group will play a role in serving the renewable fuels sector.”

Most of the renewable fuels activity will be coordinated by the KAG Logistics Group, but that is not its sole objective. Bruce Blaise, KAG vice-president of sales and marketing, makes it clear that the KAG Logistics Group will coordinate a broad spectrum of bulk liquid shipments.

“We want to provide the best supply-chain solution, and we want to help customers unbundle transportation from their overall distribution cost,” Blaise says. “Fuel was our initial focus for the logistics operation, but we'll include chemicals and foodgrade products in the future.

“Our logistics group is involved in most of the markets across the United States. However, the East and Southeast are the biggest target areas for our ethanol distribution services at this time. We see plenty of growth potential, and we will continue to add new services and expand into new areas in the coming years.”

Renewable fuels almost certainly will be a part of that expansion. When KAG management began developing the logistics group, they saw very quickly that ethanol, in particular, offered a great opportunity.

“We realized there would be a huge logistics logjam for ethanol,” Nash says. “Production was growing in the Midwest farm region, but the producers lacked a strategy for moving the ethanol to market in other parts of the country. They needed somebody to drive out excess distribution costs and eliminate inefficiencies.

“We were more than willing to take on that challenge as the overall coordinator of the process. We developed a three-phase program for the rollout of the ethanol logistics services. In Phase I, we provided an expanded trucking network. Phase II included establishing relationships with railroads and the development of a major ethanol consolidating facility. Phase III begins the process of providing total supply chain solutions from point of production to point of consumption.”

Fleet partners

KAG petroleum transports will play a big role in the trucking side of the logistics operation, but other fleets also will be used. KAG Logistics Group currently works with about 250 petroleum haulers nationwide.

“We're in good shape on the trucking side to handle ethanol distribution,” Nash says. “We've assembled a solid core group of tank truck carriers. This gives us the ability to provide our customers with the best trucking options to meet their needs.

“The trucking infrastructure we have assembled gives us the ability to provide a broad array of service to the entire renewable fuels sector. In addition to ethanol, we handle biodiesel shipments. The Transport Service acquisition increases our ability to handle inbound shipments of feedstocks and chemicals used in the production of biofuels.”

Phase II ranks as one of the biggest successes for the ethanol logistics program, but Nash gives much of the credit to KAG's partners in that part of the operation. KAG had begun building its rail and terminal contacts when Nash had a fortuitous meeting with Lee Kiewiet, an owner of the Minn Iowa Group, a renewable fuels trading and transport company.

“I met Lee while playing golf,” Nash says. “He told me about a project his company was developing with the Iowa Northern Railway. Their plan was to build a large ethanol consolidation terminal near Manly in north central Iowa. We were offered the opportunity to partner in the project as a financial sponsor and distribution specialist, and we jumped at the chance. It was clear this was a perfect fit for KAG and its ethanol logistics operation.”

Manly Terminal

The partners broke ground on what is now Manly Terminal LLC in October 2006, and the 100-acre facility opened for limited operations in September 2007. The location could not be better for a storage and transloading operation designed to serve as a consolidation point for unit train shipments of ethanol.

“Today, there are about 53 plants within a 200-mile radius of Manly producing about 2.4 billion gallons of ethanol, or about a third of the total US production capacity,” says Kiewiet, who serves as president of Manly Terminal LLC. “It is estimated that more than half of all US ethanol production will be within 300 miles of the Manly terminal by the end of 2009, making this location the common origin point for the country's ethanol marketing and distribution.

“This terminal will be a great benefit to a large number of those plants that lack rail access or are served by just a single rail carrier. Our relationship with Iowa Northern Railway gives us access to virtually all of the Class I railroads, and we are able to develop very competitive pricing. We can make sure that our ethanol customers are getting the lowest possible rate to the best possible markets.

“We're also working with the Chicago Board of Trade to classify Manly as a delivery point for ethanol. That way traders can clear contracts through Manly rather than Argo, Illinois, which would let them save on freight costs.”

The terminal will handle inbound as well as outbound rail shipments. While ethanol will be the primary outbound cargo, inbound shipments will include methanol, denaturant, caustic soda, and sulfuric acid.

“Inbound shipments will include chemicals used in ethanol and biodiesel production,” says Brad Sabin, Manly Terminal project manager. “We're also talking with potential customers about various ag products, such as herbicides. We may also handle some diesel shipments during the spring and fall.”

Manly was once a large railroad town on the Rock Island line. Still in place are 12 sections of track dating back to the Rock Island days, and that rail infrastructure added to the attractiveness of the location.

The Manly Terminal site on the north side of the town lies next to the main line used by the Iowa Northern Railway. About four miles of track is in place, and all of it is 115-lb-capacity continuous rail on steel ties for long life and low maintenance.

Railcar rack

Current rail infrastructure includes a covered loading rack with room for 14 rail tankcars. The top-load rack was outfitted with galvanized steel work platform with aluminum drop-down safety cages from Safe Harbor Access Systems, OPW loading arms, Toptech Systems MultiLoad controllers, and Civacon's grounding system. Spill containment is provided by galvanized spill pans under the railcars.

Ultimately, the terminal will have enough trackage for about 1200 railcars, according to Sabin. Approximately 50 carspots will be available for transloading. Portable spill pans from Safe Rack will be used in the transloading area.

The facility opened with a single three-million-gallon ethanol storage tank and two one-million-gallon denaturant storage tanks. Work began in March on two five-million-gallon ethanol storage tanks.

That's just the beginning. “We plan to have at least four storage tanks (totaling 18 million gallons) for co-mingled ethanol shipments, but we are more than willing to add dedicated customer tanks,” Sabin says. “We also plan to add tankage for other products starting later this year. This site can accommodate approximately 70 million gallons of storage.”

Manly Terminal selected A&B Welding to erect the storage tanks, and the work was done according to the American Petroleum Institute's 650 standard. The walls of the internal-floating-roof tanks are half-inch carbon steel plate. Each tank sits on a six-foot-thick rock base topped with a layer of sand.

Truck rack

Product for the ethanol storage tank arrives by tank trailer and is offloaded at a four-bay truck rack that was designed for expansion to eight bays. Blackmer pumps rated at 500 gallons per minute speed the ethanol transfer process. Other rack hardware includes Toptech Systems Multiload controllers that track customer inventory, Smith Meter metering, and OPW unloading couplers.

A Toledo-Mueller digital scale interfaces with the Toptech rack system and provides a certified weight ticket. Other terminal services include a fully outfitted laboratory for collecting and analyzing the products handled at the terminal. A boiler supplies plenty of steam for heating cargoes, such as caustic soda that is used in ethanol production.

LB Transport LLC, which is owned by the Kiewiet family, hauls a majority of inbound ethanol loads. KAG Logistics Group will arrange transport for loads not handled by LB Transport, according to Woodie McDuffie, KAG Ethanol Logistics vice-president.

Outbound shipments of ethanol are all by unit trains consisting of 75 to 100 tankcars. “By the end of this year, we'll be dispatching a unit train every other day,” McDuffie says. “The frequency will continue to increase in 2009 and beyond.”

Most of those trains will be headed eastward toward Chicago, Illinois, and points beyond. Initial ethanol shipments were to Albany, New York, and some ethanol unit trains have been sent to Texas. KAG Ethanol Logistics will begin serving points in Georgia, Florida, South Carolina, Mississippi, Alabama, and Tennessee.

“We're ramping up as quickly as we can to meet the growing demand for ethanol,” McDuffie says. “One of the biggest problems we face is a lack of adequate delivery infrastructure. We don't have enough transloading capacity — especially in the northeast — that can handle ethanol. Many petroleum terminals still lack ethanol injection equipment.”

However, McDuffie stresses that KAG Ethanol Logistics is working hard to address the issues, and the operation is progressing steadily. McDuffie makes it clear that the destination issues will be resolved.

Once the ethanol shipments arrive at a transloading site, KAG Ethanol Logistics coordinates deliveries to petroleum terminals and other end users. The fleets under contract to KAG Ethanol Logistics are getting busier by the day.

Nash says: “This is just the beginning of a massive increase in renewable fuels, and we want KAG and its partners to be a big part of it.”