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Troubled Waters

December 13, 2008
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 
The transportation bill for barge operators on the Illinois, Mississippi and Ohio rivers skyrocketed this fall, reaching marks not seen since 1990. Many factors, such as a late harvest, damaged grain, a dated infrastructure and shrinking barge numbers, are to blame.

At one point this fall, the barge rates between the Cairo, Ill., and Memphis, Tenn., locations were 139% higher than 2007, says Mike Steenhoek, executive director of the Soy Transportation Coalition. St. Louis also saw dramatically higher barge rates—68% higher than last year.
A number of factors packed a big punch on barge rates during harvest, as transportation costs on the Midwest's rivers soared to new heights.


As harvest drew to a close and more barges were emptied, Steenhoek says the rates did relax—and they should continue to decline but not to a level as low as in recent years.
The rate increases, he says, are having a ripple effect throughout the industry. "In the end, it's going to be reflected in the prices farmers receive. Transportation is a preeminent factor in basis discrepancy.” So, why the higher barge rates?

Late harvest: A seasonal pattern for barge rates exists, according to Ken Eriksen, senior vice president of transportation and logistics services with Informa Economics. He says that during the fall, barge rates typically peak.

But this year, the peak occurred later, since harvest was delayed several weeks in many parts of the Midwest. "The problem is there are only so many barges, which kicks in the free market,” says Larry Daily, president of Alter Barge. "When you have a lot of pressure on barges and a limited supply, the price goes up.”

Daily says this year's larger-than-expected crop yields increased the need for barges. But, he says, this increased pressure only influenced a small percentage of barges. Most businesses that use barge transportation had their barges booked early in the fall, when rates were lower.

Barge Rates (as of Nov. 20, 2008)
Location         Percent Change from 2007      Rate Per Ton
Illinois River                     +18%                                $22.23
St. Louis                            +14%                               $14.72
Cairo-Memphis                +13%                               $10.52
Mid-Mississippi                  +2%                               $22.34
Cincinnati                             –1%                               $17.12
Twin Cities                         –10%                               $25.60
Hurricane aftermath: Steenhoek says Hurricanes Gustav and Ike also impacted rates, as the storms resulted in large amounts of damaged grain. Nearly 40% of Louisiana's soybean crop was hurricane-damaged, he says.

As harvest continued, the damaged grain just sat on nearly 350 of the country's 10,000 covered-hopper barges. Steenhoek says damaged grain that does not meet export requirements is left without a destination.

The low-quality grain remains idle until higher-quality grain reaches the Gulf to be blended with the damaged commodities, Eriksen says. Then, the grain should qualify for export.
Dwindling barge fleet: An outdated infrastructure is also contributing to higher rates. Eriksen says about one-third of operating U.S. barges are 25 years or older. When these barges need to be retired, they are not replaced on a one-for-one basis, he says. 

"We have a period of strong demand and a falling fleet,” Eriksen says. "The industry is not replacing the fleet fast enough.” He says it costs around $750,000 to build a new covered barge. Even with this high price tag, Eriksen says, if the river economy sees a turnaround, more will need to be built.

You can e-mail Sara Muri at
smuri@farmjournal.com.

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FEATURED IN: Farm Journal - December 2008

 
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