THE ECONOMIC HEALTH OF THE JONES ACT FLEET:
(Prior Reports March 9, 2012 and May 4, 2012, these are retained in our NEWS SECTION)
The Towboat and Barge Industry: This Winter Looks Nothing Like our Spring Prediction Due to Drought Imposed Low Water Conditions. This Winter this Industry Segment Warrants a Separate Report.
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U.S.Army Corps of Engineers Photo of Barge Fleet on The Mississippi River near New Orleans,
Note the seagoing ships passing. This is the region where America's mid continent export products are transferred from river barges to ship for export. Rail and truck transport to tide water is much more expensive and negatively impacts competitive pricing. Moreover , there aren't enough rail cars, and trucks to carry it all.
Last May we predicted a banner year for the towboat and barge industry. That prediction was based on a presumption of reasonably normal navigation conditions, a balance between barge supply and demand , agricultural predictions of a bumper crop of grain, coupled with a 25% decrease in export market competition due to drought conditions in other grain producing areas of the world. There was also something very new in the available cargo mix, something that our own Namazu wrote about in his feature article "NAMAZU FULLY LOADED THE FUTURE OF AMERICA", south bound crude oil. Midwest tight sands production last spring was allowing for south bound crude oil to be shipped by tank barge to Gulf Coast refineries. For decades tank barge traffic on the Mississippi had been one way, north bound heating oil, gasoline and aviation fuels and south bound empties. Half the trip was "deadhead" yet tank barge transport was still more cost effective than the alternatives. Now, with south bound crude oil available the reduction in deadhead return movements was predictive of an eventual reduction in ton mile rates indicating even greater efficiency for tank barge transport on the river system. The year of 2012 was looking bright for the barge industry.
Then came the drought, and low water, with reductions in barge draft and tow size. The industry has been unable so far to get all of the cargo to market and things are not improving. We started with a nice balance between barge inventory and available cargo a recipe for a profitable industry and now find we still have an abundance of cargo but much of the barge fleet is idled due to low water navigational restrictions. Mother Nature didn't cooperate and now $7 billion worth of corn ,grain, coal, petroleum and refined chemicals is at risk.There is a new battle shaping up over the Missouri River Management Plan which no longer allows release of pooled Missouri River water in support of Mississippi River navigation. This winter we are going to refrain from making any projections and instead try to describe the problems facing the industry which at this point could be cured by a sudden weather change featuring a lot of rain. But even if that happens the Murphy's law aspect of this season of disappointment must be addressed. What happened this season can and will happen again, what should the industry and /or government do about it?
The government, meaning the Federal Government simply is incompetent to do much about it due to both the general incompetence of the Congress and Administration, their concentration on budget matters in an atmosphere of total non cooperation and compromise, and the fact that they have broken the nation's finances. The most we might be able to hope for out of the Congress might be the the elimination of a few laws that may be in the way of the industry fixing this problem. For the industry to fix the problem they are going to have to reach across the normal lines of competition and act in concert to protect their common navigational right of way. There in is the only role that Congress may be able to play. The necessary cooperation needed to save and preserve the industry and its service to America's commerce and defense may run afoul of certain anti trust laws designed to protect economic competition. Certain portions of these laws may have to be modified to allow cooperation to preserve certain elements like transport right of ways held in common. To understand our our proposals for avoiding future river condition transport disasters we first have to explain a little history.
When the river steamers of the 19th century were in their hey day the river did not have the civil engineering features like dredged channels, locks and dams, levees and revetments that it has now. The old river steamers were designed for the waterway as it was,and not the waterway for the boats. The steamers were very shallow draft some of the biggest river steamers had superstructures towering five deck levels above the hull, yet had drafts of barely 5 feet. One of the predictions for today's river is that continued drought may take the available navigation channel down to seven feet from its usual, depending on location, navigable depths of 12 to 9 feet.
We have built an industry around "project depths" the unavailability of which would have hardly been a concern to the largest river steamers of yesteryear. The old steamers, built for the river that was, featured not only exceptional shallow draft but also utilized paddle wheel propulsion which kept the propulsion system above the bottom of the hull, a critical element in the event of an unintended grounding.
However once the rail lines reached enough of America the river steamers began to die out, they simply were not competitive per ton mile with the rail lines, a single hull moving much slower than rail was not economically efficient at hauling an ever growing amount of bulk commodities pouring out of the Midwest. As farming and settlement increased in the Mississippi and Ohio Valleys there came a demand for flood control and the U.S. Army Corps of Engineers began a century long campaign to keep the rivers in their bounds. One by product of the effort was an improvement in the reliability of navigable channels but river transport technology had to change to become competitive with the rail lines. Some surviving steamboat lines found that they could offer competitive rates for bulk commodities despite their slower speed than rail by attaching barges to the side and front of their steamboats effectively increasing their cargo capacity by three times that of their available deck space or more. This practice plus the conversion of some old packet boats into passenger excursion boats is what kept navigation alive on the Mississippi for many years in the early part of the 20th century. Despite the river transport industry survivors the rails ruled the day. It wasn't long before the president and owners of rail lines were thought of as "Robber Barons" as freight rates climbed with no competition and private right of ways handed out at government expense. Clearly the government had to act to restore reasonableness to bulk commodity transportation rates.
The government decided not to take back its largess to the robber barons and nationalize the rails. Instead it created the FEDERAL BARGE LINE. The Federal Barge Line. experimented with push tow technology and perfected the system that is in use today which emulates many of the efficiencies of rail transport adapted to the river, which is a common highway open to competition. The system was a success and the Federal Barge Line was sold to private interests. Since the rivers are a "common Highway" soon other private interests began to invest in the technology and other barge lines formed. The river transport industry not only competed with the rails for bulk commodity transport but between companies within the river transport industry. Freight rates for bulk commodities dropped. But there was one technological weakness in the system. The entire mechanical design of the system is dependent on the ability to maintain minimum project depths by use of the government's massive multi use civil engineering projects on the river system. But that system is not perfect and weather runs in cycles still not fully understood. This year, once again, this is not the first time this has happened; near record drought conditions have reduced the river's available navigable channel below project depths and thus below the operating requirements of the very standard equipment that has evolved in the era of relatively stable channel depths.
Link to University of Missouri , St. Louis Mercantile Library for more information of the Federal Barge Line, image from the St. Louis Mercantile web site.
This has happened in an era where all of the meteorological data indicates that we have been in an unusual weather cycle if not longer term "climate change" and that we should anticipate no quick return to conditions in the long term that for decades were considered "normal". We can not look to a broke and incompetent government for help with the problem through another round of massive hydrodynamic civil engineering projects. The navigation industry itself must see to the viability of the transport service so dependent on its common right of way. In terms of the common highway that is the river transportation industry the words of our own slightly comic analyst Namazu are certainly applicable. "learn to manage the commons or die".
Since massive civil engineering fixes to the physical river are not possible we must turn to naval architecture and new industrial organization for a fix. We need a reserve of vessels both tow boats and barges that are designed for the river in the extremes of its condition when either high water or low over whelms the civil engineering project design. Fall is the season of the year when severe changes to river hydrology conditions often happen and shipping is most critical as export grain must get to tidewater and winter petroleum supplies must reach Midwest markets. The river navigation conditions are almost never optimal when the demand for shipping services is greatest, as anyone who is familiar with Murphy's law would predict. But it has been the norm for decades that the less than optimum conditions have still been within the design parameters of the system. This is not the case more recently as weather patterns seem to have changed. Such low water measures as reducing tow size and barge draft can and do help but have proven insufficient.
The industry needs a reserve of differently designed boats and barges that can function at water levels far below the present project depths of 9 to 12 feet, the dreaded but anticipated 7 foot low water mark possibly approaching would have been no problem to the old steamboats. A 5 foot channel depth should be no problem for these new designs. Unfortunately no single barge line could afford to design and maintain such a reserve. It has to be an industry wide endeavor based on solid research that follows the modern management principle of "just in time delivery", in "just right quantity". High water calls for more horsepower and smaller tows, again that can often be managed within the present inventory of equipment, but on occasion a simple increase in available tow boats of higher horse power is needed to keep the same number of barges on track for on time delivery . We don't need research to build powerful towboats. We need an organization where the costs of this insurance against right of way failure are equitably divided into manageable proportions. In our past, and around the world we can find vessel and barge designs that work on much shallower waters than our present project depths but again some R&D money needs to be expended and a cost sharing program for a reserve of these vessels must be developed.
Two things stand in the way of such a "cure" for the present and future weather induced ills. Anti -trust laws make cooperation between individual competitors in any industry suspect and often difficult. But until a dialogue is started between industry participants and government nothing can happen. Discussions that are focused on mutual efforts for the betterment of an industry (and services to the public) must have the government in the discussion from the start to allay suspicion in an era of government approaches to business that range from outright hostile to completely inept. If the government is not there from the very start there is danger of inept and damaging government action based on the anti trust laws and government obsession with "transparency" in every one's business. There is however a maritime model for industry wide cooperation in a vessel reserve.
If we look to the approach of the offshore oil industry to heightened government imposed response demands to oil spills in the wake of the OPA 90 legislation we find a cooperative manned reserve of pollution response vessels existing as an independent corporation capitalized by the many individual corporations that were affected by OPA -90 and deriving revenues from membership dues and actual response fees charged to corporate "responsible parties" as determined under OPA-90. So it is legally possible for normally competitive companies engaged in maritime activities to communally own a reserve fleet of vessels. In today's environment this is the only solution beyond simply taking your lumps and waiting on rains that may be a long time coming, or in the case of high water emergency conditions may be a long time stopping. So the condition of the inland towing industry despite our earlier rosy predictions, and near optimum economic factors for continued growth is actually too difficult to make a prediction. We are simply waiting on rain.....and common sense long term planning. As usual Namazu was right:
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