Seven barges rest against the Marseilles, Ill., Dam after breaking free from a tow due to high water on the Illinois River, April 18, 2013. U.S. Coast Guard Photo
By Michael Hirtzer and Karl Plume
CHICAGO, Sept 25 (Reuters) – With a record U.S. harvest just coming in, the river transportation system that is at the heart of the nation’s farm economy is overstrained by rising demand for shipping capacity, a low barge inventory, and a dilapidated lock system.
The pressure is building on an inland waterways network that is just one flood, drought or mechanical breakdown from calamity after decades of neglect, industry sources say.
Looming bumper corn and soybean crops are bringing to light issues that have built for years and which have been exacerbated by new entrants to the marketplace for river logistics, such as producers of crude oil from the nation’s shale boom.
Rail congestion and truck shortages are shifting more cargo to the creaking infrastructure for floating heartland goods to market.
As a result, the U.S. Agriculture Department expects the cost to move grains from the Midwestern crop belt to export facilities along the Gulf Coast to reach a six-year high during October, the busiest harvest month of the year.
Concerns about transportation bottlenecks have eroded prices that farmers receive for their grain, reduced the competitiveness of U.S. supplies in the global marketplace and elevated expenses for food and energy producers who could ultimately pass the higher prices on to consumers.
Lower-cost grain suppliers in South America and eastern Europe are undercutting U.S. prices. South Korea and Taiwan, two top buyers of U.S. corn, recently purchased corn from exporters in Brazil. Shipments of corn out of Ukraine are the cheapest in the world, $8 per tonne less than U.S. grain.
COMPETING FOR BARGES
The fleet of barges available to move grain has shrunk to around 10,500, from a peak of around 12,700 in the mid-1990s, said Ken Eriksen, senior vice president for transportation at Informa Economics.
Demand is acute for covered barges that are used by grain shippers and shale oil producers who haul sand needed for hydraulic fracturing.
It is magnified by spillover from a congested train system, where capacity in some regions is largely booked by demand for oil-by-rail. So, traffic on North American tracks is moving 8 percent slower than last year. Delays are expected to persist through the winter.
The result: Grain shipments so far this year on rivers in the Midwestern crop belt were nearly double a year ago, USDA said.
The benchmark Mississippi River price at St. Louis climbed for barges loaded this week to around $40 per ton from about $23 last year, which equates to a jump of 48 cents per bushel, according to Reuters calculations based on figures from industry sources. A bushel of corn trades for about $3.26. Soybeans fetch about $9.23 per bushel. These are cheapest prices in four years.
“It will be a very busy fall. I don’t think we’ve seen the highs in this (freight) market,” said Rick Calhoun, the head of Cargill Inc’s barge shipping business, Cargo Carriers.
The number of emergency lock closures jumped 543 percent from 1992 to 2008. A backlog of authorized projects awaiting funding has grown for 15 years and stands at more than $8 billion, according to U.S. Army Corps of Engineers data.
The Corps has stopped detailing needs at specific locks, citing national security risks.
“Even some of our infrastructure that works, and works very well, doesn’t have the adequate amount of maintenance that’s required to ensure reliability,” said Mike Cox, chief of the operations division for the Corps’ Rock Island District, which oversees all locks on the Illinois Waterway and a dozen on the Mississippi River. “Regular operations and maintenance dollars are a half to a third of what we need.”
The stair-step system of river locks and dams, concentrated on northern stretches of the inland waterways, helps to maintain navigable river depths to connect Midwest farms and Rust Belt factories with export facilities along the Gulf Coast. Fertilizer, road salt, coal and other products dominate upriver shipments vital to more than a third of U.S. states.
Most Midwest locks were constructed in the 1930s with a 50-year lifespan. The Corps has refurbished much of the equipment to extend their life another 25 years, but budget constraints have forced engineers to employ a fix-as-they-fail strategy.
Shipping industry group the Waterways Council estimates that every dollar invested in inland waterways generates $10 in benefit for the nation. Maintaining a 9-foot-deep shipping channel, with an annual dredging price tag of just over $100 million, yields an estimated $1 billion in transportation cost savings, according to the Army Corps.
The $12 billion Water Resources Reform and Development Act, signed by President Obama in June, freed up about $105 million to chip away at the long list of projects.
Left out of the law was on an industry-supported proposal to increase the waterways user fee from 20 cents per gallon of fuel used to 26 to 29 cents, which would have generated $80 million annually.
“We will be trying to attach a garden hose to a fire hydrant,” Mike Steenhoek, executive director of the Soy Transportation Coalition, said of the difficulty of sending a huge harvest down a constricted waterway.
RELIABILITY A CONCERN
In April 2013, during historic flooding, a barge accident at Marseilles Lock and Dam on the Illinois River in central Illinois shuttered the lock for a month. Complete restoration of the facility, which passes nearly 2 million tons of cargo a month, will take up to three years.
The drought of 2012 nearly closed the Mississippi River to shipping traffic. A two-month shutdown would have halted $7 billion in cargo, impacted 20,000 jobs and cost more than $130 million in lost wages, according to a shipping industry assessment.
The Army Corps doubled their dredging operations this summer to remove sediment. But shippers will remain on edge this autumn relying on the long-neglected network.
“We’ve had a lot of successes and there is a periodic influx of funds, but it’s only a good start,” said Army Corps’ Cox. (Editing by Alden Bentley)
© 2014 Thomson Reuters. All rights reserved
Sign up for our newsletter