Wednesday, August 22, 2012
As Barges Sit Idle Along the Mississippi, the Economic Costs Grow
As the Midwest experiences its worst drought in 50 years, the Mississippi River is hitting water levels not seen since 1988, a year viewed by those in the industry as a benchmark of hard times. Back then, hundreds of barges sat idle near the same location that they’re sitting today: Greenville.
Until now, the U.S. Army Corps of Engineers had successfully kept river traffic moving by dredging the river, keeping it at a depth of at least nine feet along its 2,300-mile length all summer, only closing ports here and there temporarily.
But barges and towboats have now piled up near Greenville, forcing the Coast Guard to close an 11-mile stretch to shipping this week. That closure will really start to pinch shipping operators who use the country’s inland waterways to deliver a host of commodities, goods and products across the U.S.
It’s difficult to determine exactly how much is being lost due to stopped river traffic. For one, many of the companies along the river are not publicly traded and don’t release financial information.
“Everybody is making guesstimates,” says Dr. Donald Sweeney of the Center for Transportation Studies at the University of Missouri-St. Louis. “But it all depends on how long the drought lasts.”
The point of reference is often 1988 when the shipping industry lost an estimated $1 billion. Currently, 100 tows sitting idle at $10,000 a piece is costing operators $1 million daily. And that’s not factoring in the lighter loads that cargo companies have been forced to carry to stay afloat, as well as the smaller number of barges being towed because the river has become narrower. And while the Coast Guard has reported 97 tows backed up along the river, that number’s growing.
“More tows are joining the queue by the hour or have just decided to hold where they are now,” says Lynn Muench of the American Waterways Operators via e-mail Tuesday afternoon. “Most tows will wait further upstream or downstream for the sake of safety, so there are a lot more waiting that we are unable to count.”
Muench says the best-case scenario for opening up the 11-mile stretch for safe passage could take at least several more days as the U.S. Army Corps of Engineers continues dredging the area. Bloomberg News reported that the Coast Guard expected to open up northbound traffic Tuesday, but it will likely take days to get all of the stalled barges moving again.
CEO of the Port of New Orleans Gary LaGrange has estimated that closing the river to shipping altogether would cost the industry $300 million a day. Even with the low water levels, it doesn’t appear that the situation will get as bad as it did in 1988. But for the $180 billion industry, which transports 20% of the country’s coal and 60% of U.S. grain exports (much of it along the Mississippi), the costs are beginning to mount.
Fortunately, U.S. consumers aren’t likely to see much change in prices for farm products like corn, which is widely transported along the river. That’s because most crops shipped on the inland waterways are export-bound, says Sweeney. But shipping operators are initially going to be squeezed, and depending on what products they ship – which can be anything from petroleum to heating oil to chemicals – those costs could eventually be felt by consumers later in the year.
“There won’t be hardly any impact to U.S. consumers for products like corn or soybeans,” says Sweeney. “Who it’s really bad for right now are the barge companies. They are without a doubt incurring greater costs.” And those costs will get worse every day there’s a stoppage.
“The daily costs increase as more and more vessels are delayed and it takes longer and longer to ultimately return to normal operating conditions,” says Sweeney. We’re unlikely to know how much until the drought has ended and barge operators return to business as usual, which at this point doesn’t seem likely for months.