Barge Operators Struggle Along the Mississippi - USA Business News
Mississippi River barge operators and their customers had been hoping business would get back to normal this year after two years of extreme weather that wreaked havoc on the river’s bustling freight traffic.
But massive flooding in 2011 and last year’s drought have permanently altered some aspects of shipping on the Mississippi and its tributaries, the nation’s largest river system and one of its most important commercial waterways.
Even though water levels are more normal this year, businesses that depend on the river are writing protective measures into their shipping contracts, building more flood-resistant port facilities and trying to diversify their revenue streams to offset years of weather-related financial losses.
“Everybody is trying to limit their exposure,” says Martin Hettel, senior manager of bulk sales for AEP River Operations, a St. Louis-based barge company.
For the first time, privately held Canal Barge Co., which transports liquid cargoes like machine lubricants up the river from refineries in the South, has started to add “disruption clauses” to its contracts with shippers. The new clauses require customers to cover the cost of delays or other losses caused by high or low water, says Merritt Lane, president and chief executive.
“I’m certainly concerned about the increasingly unpredictable weather patterns,” says Mr. Lane. He says Canal Barge’s profits fell sharply last year because of the drought. The low water halted river traffic in some places, held up grain shipments and reduced the loads that barges could carry.
The wild weather “hasn’t killed the barge industry, but what you will see in the future is the overall shipping costs will go up because logistics managers are going to have to build redundancies into their systems,” says Jim Kruse, director of the Center for Ports & Waterways at the Texas A&M Transportation Institute in Houston.
Mr. Kruse says many shippers, especially those that need to transport crops, don’t want to be caught without a backup plan ever again, because “if you get stuck, there is no tomorrow.”
Some shippers may have given up on the river altogether—at least for now. John Johnson, a senior vice president at Heartland Barge Management LLC, estimates that as much as 40% of the barges now on the river system are idled because of lack of business. Mr. Johnson, whose Columbia, Ill., company operates several hundred barges, predicts it will take a couple of years of normal operations for companies to recover.
He and other barge operators believe that many of their longtime customers switched to other forms of transportation, such as rail. They say they don’t know how much traffic might return if the river stays calm and navigable.
Heartland has started writing more multiyear contracts with its customers, Mr. Johnson says. While such contracts typically offer smaller returns than the company could get on the spot market, where shippers book barges as they need them, the upside is greater certainty. The goal is “to live to fight another day,” he says.
A report released Tuesday by Informa Economics, an agricultural consulting firm, estimated that corn prices were depressed by about 45 cents a bushel when corn shipments had to be shifted from barges to rail during last year’s drought. The study was paid for by industry groups including the Iowa Corn Promotion Board and the Illinois Corn Marketing Board.
Mike Hennessy, vice president of sales and marketing at Brownsville Marine Products LLC, a Pittsburgh-area maker of river barges, says that after last year the market for new barges to handle dry goods, such as grain, soybeans and coal, dried up. “I call the phone the ‘no’ machine,” he says. Whenever he calls to ask whether a customer wants to order new barges, “I just hear ‘no, no, no,’ ” he adds.
He says Brownsville Marine built about 168 barges last year and will produce only slightly fewer this year. That’s because it managed to win a late order that will keep the company’s 325 workers busy through the rest of the year. “If we didn’t get that order, we had nothing to do after September,” he says. “It was getting kind of hairy.”
The Mississippi River system serves as a highway for barge operators who ferry U.S. exports, such as grain, to ports along the Gulf of Mexico, and carry coal, fertilizer and petroleum products, along with imports such as steel and rubber, to a variety of destinations in the interior.
In 2011, flooding shut down ports along the river. The fast-moving floodwaters also shifted channels and changed the river’s flow, making navigation dangerous. In 2012, low water levels closed ports and forced barges to carry lighter-than-normal loads to avoid running aground.
The Mississippi’s depth has fluctuated wildly in recent years. In May 2011 in Memphis, Tenn., the river reached 48 feet, or 14 feet above flood stage, the second-highest level on record. By September the following year, it had fallen to 9.86 feet, one of the lowest points ever.
During the drought, stretches of the river were closed several times, according to the U.S. Army Corps of Engineers, causing costly delays and boosting shipping costs overall. From mid-December 2012 through February, the Army Corps spent $ 10 million demolishing rocks on the river bottom near St. Louis so that commercial traffic could pass.
Freight traffic on the Mississippi has ebbed and flowed in recent years. It totaled 672.5 million tons in 2011, up from a recession-damped 622.1 tons in 2009, but down from 702.1 million tons in 2006. Last year’s figures aren’t yet available, but are expected to show declines because of the drought.
One shipper, Gerald Jenkins, general manager of Ursa Farmers Cooperative, which has about 2,500 members in Illinois and Missouri, says the co-op spent “millions of dollars” elevating its grain bins and expanding flood walls at port facilities to protect crops. Ursa also has added new spouts that can be raised up and down to fill barges, according to the water level.
“We have tried to make adjustments because it has seemed weather extremes have created volatility,” he says.
A version of this article appeared August 25, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Shippers Struggle Up and Down the Big Muddy.