With transportation demand greater than the available supply, costs are rising and commodities such as grain and coal are backlogged on the Mississippi River and railroad lines.
Barge transport was seriously impacted earlier this year by high water in the spring and channel silting during the summer when water levels finally came down. While barge operators have worked to catch up, a backlog still exists. Meanwhile, the window to catch up on that shipping closes more with each passing day.
You would expect to see many more barges on the river given the shipping needs. Instead, it appears fairly quiet most days.
Multiple factors play into where the barge traffic is directed and what is being hauled up and down the river.
Backlog's impact
Troubles with railroad shipping backlogs are also affecting barge traffic, according to Rick Calhoun, President at Cargo Carriers, a subsidiary of Cargill Corporation.
“We are finding ourselves with a short-term shortage of barges in the area,” Calhoun explained. “That is not unusual this time of year, with the southern harvests more advanced. But, we are also seeing some of the largest rates (for shipping).”
With corn and soybean prices low due to a growing surplus in the market, producers aren’t opting to ship farm commodities. Shipping fees along the Mississippi River have doubled in the past year, but are predicted to decrease in time for spring shipments in 2015.
“Rates are double what they will be next March,” Calhoun predicted.
Competition raises costs
Rates are predicated upon traffic demand, Calhoun explained. And right now, grains are losing the competition for limited transportation space to oil, coal and chemicals.
Data from the U.S. Army Corp of Engineers Lock Performance System indicates less traffic than usual for the time of year along the northern reaches of the Mississippi River.
By October 20, 2013, Lock and Dam #8 at Genoa had logged 1,429,950 tons of traffic for the previous 30 days, with 795,050 tons northbound and 634,900 tons southbound. This year, the total is 929,300 tons with only 550,400 tons northbound and 378,900 tons southbound. That’s a 35-percent decline overall and a decline of 30.8-percent northbound and 40.4-percent southbound.
During the first week of October, the cost of shipping a ton of grain from Minneapolis to the Gulf fell from $54.66 to $49.02 from the previous week, according to the USDA. And while that is still a third higher than the four-week average of the past three years, it coincides with a slight increase in traffic further south on the river.
Barge rates could adjust to much more reasonable prices if farmers are able to hold off shipping, according to Glenn Hollander, a partner at Hollander & Feuerhaken, a Chicago shipping broker.
Since barge traffic on the upper Mississippi River is seasonal, the window of opportunity for bringing shipments in is dwindling.
“The St. Paul, Minn. rule of thumb (for barge traffic) is get it out of here by Thanksgiving Day,” said Calhoun.
The market gamble
So while farmers and commodity brokers may be choosing to hold onto their grain until transportation costs offer a chance of making a profit, issues with railroad availability and the fickle nature of weather still have plenty of play in the game.
A delay in the northern harvest may be improving corn and soybean prices slightly, but it is unclear if this will create a last minute push for barges. Rail costs, in the meantime, have spiked even higher than river traffic.
Rail rates have risen dramatically this year. Cars normally cost around $700 each, but in some areas have risen as high as $6,000 due to competitive bidding for shipping space.
This rate increase has created issues for some power plants who have struggled to stock coal for the coming winter.
“We have been working with Burlington Northern (BNSF) to get coal,” said Deb Mirasola, the communications and marketing manager at Dairyland Power. “We feel confident that we will head into the heating season well supplied.”
The agreement with BNSF averted an idling of the plant this winter. As late as early August, the company was predicting the possible closing of the plant in January due to insufficient coal stocks.
The railroad has increased deliveries of coal brought upriver by barge and stockpiled in Iowa. The plant is continuing to receive coal shipments at this time, Mirasol noted.
Power plants fighting for priority
That makes Dairyland lucky. Four plants have been mothballed temporarily in the Duluth area due to their inability to receive coal shipments.
“We’ve had to take the unprecedented step of shutting down four of our coal units to conserve coal for the winter months upcoming,” said Al Rudeck, Vice-President of Strategy and Planning at Minnesota Power.
Rail shipment rates are continuing to be pushed upward by both higher demand and slower speeds, compounding delays for U.S. grain handlers for the past year, according to Arthur Neal, a Deputy Administrator for Transportation and Marketing at the USDA. Neal testified on the impact of rail delays at a U.S. Senate committee hearing on Sept. 10.
Within a week of Neal’s testimony, Terry Whiteside of the Alliance for Rail Competition, told the U.S. Surface Transportation Board that farm commodity shipments had been overtaken by oil and sand shipments since late 2012 and that the situation was ongoing.
The U.S. Surface Transportation Board has ongoing hearings, which began last April attempting to address problems relating to rail delays. A field hearing was held on September 9 and the board and agency staff are studying testimony, according to Surface Transportation Board Media Officer Dennis Watson. In the meantime, the agency continues to track rail delays, while developing a regulatory response.
