By Jim Ruen
Progressive Farmer Contributor
The Upper Mississippi River/Illinois Waterway Navigation System was a marvel when it was constructed, mostly in the 1930s and 1940s. Today, the 37 locks on the 1,200-mile system of inland rivers are a mess.
"Catastrophic failure is not a matter of if, but when," warns Mike Steenhoek, executive director of the Soy Transportation Coalition (STC), based in Ankeny, Iowa. "We are getting closer and closer to such a failure, and if it happens at harvest, it will definitely have an effect on farmer profitability."
Cries that the Mississippi River system is crumbling have been flowing up and down the river for years. Everyone -- even those who move grain by truck and rail -- agree that maintaining a system that carries 60% of all grain exports to the Gulf of Mexico is critical.
"As an industry, agriculture is already having difficulty shipping cargo by rail," notes John Engelen, vice president of government affairs for CHS and a board member of the Waterways Council, Inc., an industrywide advocacy group. "Think of the pressure it would add to the railroads if a lock failed," he said.
Garry Niemeyer has no problem imagining the impact on his Auburn, Ill., farming operation. Today, he can ship his corn and beans directly to an elevator on the Illinois River or to elevators on rail lines. He counts himself lucky with a 30- to 40-cent negative basis compared to his farming counterparts in North Dakota. Producers in western North Dakota saw a negative $1.50 basis on a $3.23 futures price this past September due, in part, to a bumper crop and farmers' lack of access to rail cars.
Grain-market demand was not met by unit trains, many of which carried fracking sand and oil instead of grain. That put more pressure on grain-transport alternatives, including barges on the Mississippi River and its tributaries.
"The locks are held together by baling wire and duct tape, and the people running the system do a fantastic job with what they have," Niemeyer said. Problems often cited include leaking gates on the locks, deteriorating concrete falling in the river and problems with high water. "They were built to last 50 years, and some are now 80 years old," he adds. "How effective would I be farming with 1930s technology? It is no way to run a business."
The question, one Niemeyer is trying to answer, is how to pay for improvements the river system needs. As past-president of the National Corn Growers Association (NCGA) and a board member of the Waterways Council, Niemeyer helped lobby for The Water Resources Reform and Development Act (WRRDA). Enacted in 2014, he sees it as a limited success. It frees up $105 million per year in Inland Waterways Trust Funds (IWTF). The IWTF is financed with a 20-cent-per-gallon tax (set to increase to 29 cents per gallon on April 1) on diesel fuel used by the barge industry and is dedicated to major rehabilitation and construction projects costing at least $20 million.
However, to be spent, IWTF funds have to be matched by the government, and current funding is a drop in the bucket for what is needed. For example, a 2008 study estimated the cost to build new 1,200-foot locks at lock-and-dam locations No. 20 through No. 25 at $2.09 billion. The barge industry, shippers and farm groups want to increase the fuel tax as much as 45% to generate up to $112 million in additional IWTF funds each year. However, Congress did not include the increase in the 2014 WRRDA.
"Working with Congress has given me gray hairs," said Niemeyer, who has worked on lock and dam issues since joining the Illinois Corn Growers Association in 1996. "We hope to get the increase attached to a revenue bill or perhaps a tax reform bill. If we get it, we will start working on the first seven locks in 2018. If we don't get it, it will be at least 2030 before any work is done."
In December, Congress approved and President Barack Obama signed into law a tax extenders package that raises the diesel fuel tax for barge operators from 20 cents to 29 cents per gallon starting April 1. The provision is projected to increase revenue for the Inland Waterways Trust Fund by $260 million over 10 years.
In comments he made prior to Congress approving the fuel tax increase, Steenhoek said that even if the increase was approved, there would not be enough money to do the job. A 2014 study by the U.S. Army Corps of Engineers (USACE), Rock Island district, with responsibilities for 12 locks on the Mississippi and eight on the Illinois, notes that operation and maintenance funding has fallen from $241 million to just more than $141 million since fiscal year 2008. Systemwide, funding has remained flat in constant dollars for 20 years. Meanwhile, costs and deferred maintenance continue to rise.
Maintenance can only be deferred so long and then it becomes a necessity -- a $4 million "emergency" repair, such as took place this past year at the Melvin Price Locks and Dam, south of Alton, Ill., in the St. Louis district. When the last of three custom-built steel cables on a 1,200-foot lock failed over a four-month period, it shut the big lock down from December into August. Luckily, Melvin Price is one of two dams on the Upper Mississippi with a 600-foot auxiliary lock. Without the additional lock, river traffic would have stopped dead.
Gary Meden, deputy commander of programs and project management, Rock Island district, is one of many keeping the lock and dam structures operating. His district currently gets only a third of the financial resources needed for maintenance.
"At the rate we are going, we can probably keep the system open for the next five to seven years, but then, too many things are likely to start going wrong," Meden said. "Even some small bumps in funding would let us buy some extra gates and bulkheads [not to mention cables] for standby."
While the total river traffic has fallen in recent years, the pending opening of the new Panama Canal is expected to change that. Barge movements of soybean exports alone are projected to increase by more than 50%. River traffic could slow to a crawl as tows back up at every lock.
LET'S GET REAL
As a former aide to Sen. Chuck Grassley (R-Iowa), Steenhoek is all too aware of the unwillingness of Washington to invest in infrastructure. "If we pin our hopes on the federal government writing a bigger check, we are going to be very disappointed," he said. "We need to do what we can to make available dollars stretch farther."
One aspect of that effort is attempting to shift the focus to simply maintaining existing locks. Steenhoek said nine major rehabilitations, at a cost of $40.7 million each, can be done for the cost of one $376.8 million lock construction project.
The question that remains is where to get the money. A 2013 proposal financed by the U.S. Soybean Export Council suggested using a Public-Private Partnership (P3). These partnerships leverage limited private investment with taxpayer-backed loans and guaranteed bonds to finance major projects like highways and bridges. The idea is that the private investor then pays back the loans and pays off the bonds with tolls or other sources of revenue collected once the project is complete. It is estimated that two-thirds of new transportation construction is now being done through P3s.
Unfortunately, P3s often do not work as intended. In a 2014 analysis of P3s and highway projects, Randy Salzman, associate editor of Thinking Highways, a transportation publication, couldn't find a single P3 where the American toll-collecting firm had not gone bankrupt or walked away within the first 15 years. After firms took construction profits, accelerated depreciation tax credits and enough revenue to cover their investment, taxpayers were left with the bill for unpaid loans and private bonds.
Nonetheless, the latest WRRDA required the Corps to develop a series of P3 pilots. Meden said a draft proposal is expected in early 2015. One possibility is a private entity would manage operation and maintenance, leaving major rehab costs to the public sector.
Steenhoek said there are other efforts to improve efficiency and administration of the waterways, including freeing up trust-fund dollars to be used without matching dollars. However, changes require Congressional action, and that's a slow process. He notes WRRDA was the first waterway bill passed since 2007, and members of Congress had to be educated on why one was needed. Their lack of knowledge about waterway issues makes Steenhoek wince when he considers that Panama will soon have a new, larger version of their 100-year-old canal.
"The country that built the Panama Canal has a lot to learn from the country that owns it," he said. "They have done an excellent job maintaining it, better than we do our locks and dams. The people of Panama understand that transportation is important to their country, and they take care of it."
The U.S. has been blessed with a river system connecting 33 of the lower 48 states. "Other countries may boast of large rivers, but nothing matches the U.S. river system complex," said Thomas Russell, The Russell Marine Group, a New Orleans-based freight logistics company. "Coupled with the natural river system are man-made networks of railways and highways crisscrossing the nation. All three systems complement the other and provide logistics capabilities that are the envy of the world."
Still, this national treasure showed how vulnerable it is during the 2014 harvest season in ways that went beyond the need for upgrades and repairs.
"The system is also rather delicate," Russell notes. "It is set up for just-in-time deliveries and movements. There is no excess equipment capacity operating in the system. To keep moving forward, everything needs to be balanced in order to function in a smooth, effective manner. Even small glitches can easily be magnified and result in costly delays or worse-case total stoppages for periods of time."
Grain logistics are wrapped in dozens of variables. Some of those variables can be foreseen, while others are dependent on weather. In addition, some move in accordance with market conditions and demands.
This past year was an example of market demands stressing the system and creating imbalance. Railcars, used often during harvest to assist with moving grain, particularly to the Pacific Northwest, were often unavailable.
"The expansion of fracking in the U.S. oil market has created a shortage of equipment," Russell said. "Hopper railcars are employed, transporting fracking sand and products to shale drilling areas instead of grain."
At the same time, falling U.S. grain prices and ocean vessel freight rates at 30-year lows will likely favor a huge export market. "The vast majority of exported grain moves via barge from the Midwest to New Orleans to be loaded onto ocean vessels," Russell said. "This year, that number should be higher due to increased tonnage moving by barge."
Because of supply and demand dynamics, he said the price for equipment use has also gone up. "In 2013, the price for barge freight from St. Louis to New Orleans averaged $23 per ton during the harvest season. In 2014, the price nearly doubled to $42 per ton," Russell notes.
More demand on an already stressed and deteriorating system is a worry. Expectations are for a record-breaking grain export year.
"River logistics will be operating at 100% capacity through March and maybe beyond," Russell predicts. "We all have to keep our fingers crossed that when those inevitable glitches occur, they will only be minor."
--Mary Kennedy, Contributor
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