Cross Currents

March 9, 2012 09:15 PM

Upper Mississippi’s lock-and-dam decision dilemma

The splash must have been terrific at the Markland locks and dam site on the Ohio River near Warsaw, Ky. On Sept. 27, 2009, a multi-ton iron gate leaf on a main chamber lock collapsed into tfield to port logohe river due to a faulty solenoid. You might say it fell off its hinges. The chamber on the 1,200'-long lock had to be closed until February 2010. For grain merchants further up the Ohio, the 14-hour barge delays couldn’t help but negatively affect the basis.

With construction completed in 1959, the Markland locks are representative of many on the Upper Mississippi River and its tributaries. With a life expectancy of 50 years, 50% of the 191
commercially active locks in the U.S. are operating on borrowed time without regularly scheduled maintenance.

The aging river infrastructure and an expected increase in barge river traffic from future grain exports has some commodity and river industry groups pushing for $2.2 billion in funding for immediate construction of new lock and dam projects. Not everyone thinks this is the solution for efficient river traffic or a wise use of taxpayer money. And can farmers really expect a tsunami of future grain exports that will drive the need for more efficiency on the inland waterways?

Worth the cost. As the steward of our inland waterways, the Army Corps of Engineers proposed in 2004 to address safety, navigation and costly inefficiencies in the barge river traffic system. The proposal, the Navigation and Ecosystem Sustainability Program (NESP), promotes the expansion of seven key locks and dams—five on the Upper Mississippi and two on the Illinois River. The taxpayer’s $2.2 billion payout for this project doesn’t include monies for future maintenance on the new construction.

Currently, any 600' lock channel forces a 15-barge tow that is 1,200' long to be decoupled so that the lock can take half of the barge tow down to the river level below the dam. The decoupling, lock draining, refilling, recoupling to the remaining barge tow, draining and final recoupling of the two barge tows takes more than twice as long as it would to get through a 1,200' lock. This costs farmers and grain shippers money, particularly if the river traffic is busy.

p28 Cross Currents   chart

What does it cost to operate a barge on the Mississippi? "Barge costs are now about $400 per day and towboat costs are upward of $6,000 per day and rising," says Larry Daily, president of Alter
Logistics in Bettendorf, Iowa. "Higher fuel costs are also a big impact."

A congressional research report has found that delays are greatest at the 600' locks Nos. 20 through 25, just north of St. Louis. During a 10-year period, delays averaged 3.4 hours per tow. "A 10% increase in delay at any given lock was estimated to increase barge rates by 0.16% to 0.59%," the report said.

What does this mean to farmers? "Barge rates account for 10% to 12% of changes in farm and export prices for corn and about 4% of changes in soybean prices," the report found.

Since 2000, lock and dam delays are becoming more common. David Grier, navigation program manager for the Corps, sees two trends emerging. In a report that addresses the declining
reliability of the locks, he says, "Scheduled maintenance and repairs are occurring more often, at more locations and are taking longer to complete; and unscheduled closures due to failure of a lock component, or some other incident, are occurring more often, at more locations, and are likewise taking longer to fix."

p32 Cross Currents   chart 2

Not only are shippers questioning future reliability, "our [current funding] system doesn’t inspire a lot of confidence for major expenditures [for new large construction projects]," adds Mike Steenhoek, executive director of the Soy Transportation Coalition.

Plenty of cost to go around. Delays cut into the overall volume shipped, which directly cuts into potential profit. Throw floods and low water levels into the mix, further affecting the volume shipped, and it is no surprise that river navigation companies want to spend money on controllable efficiency factors such as lock extensions on the busiest areas on the Upper Mississippi.

"Waterway users tell us reliability—the delivery of product on schedule—is critical in the decision of transportation method," says Jim Walker, chief of the navigation branch for the Corps.

"Next is resiliency, where aging infrastructure, like farm equipment, is subject to increased downtime for repairs. We want to be prepared, for example with spare parts, to return the lock to service as quickly as possible. These efforts are largely through our operations and maintenance account. The proposed $2.2 billion NESP is through our capital investments [construction] account, " Walker explains.

"We see this [$2.2 billion NESP proposal] as an inefficient and unnecessary use of tax money that could be used on a whole host of other things to benefit agriculture," says Julia Olmstead, a
senior associate with the Institute for Agriculture and Trade Policy (IATP). IATP supports groups such as the Nicollet Island Coalition, the Sierra Club, the National Wildlife Federation and Taxpayers for Common Sense.

The Coalition is opposed to NESP because, its members say, it has too many fundamental problems: how projects are funded, how projects are prioritized, resistance to adopting less costly measures to curb lock delays, ignoring negative project evaluations that create faulty research outcomes, and not addressing severe maintenance backlogs.

Out of frustration that the Corps plan has had trouble getting funded, the Inland Waterways Users Board was established to make recommendations to Congress and the Secretary of the Army on project priorities and spending. The Board’s plan, the Inland Waterways Capital Development
Plan, addresses project priorities and changes how projects are subsidized within a waterways trust fund, leading groups such as the Nicollet Island Coalition to cry foul.

The navigation industry pays a 20¢ per gallon fuel tax into the Inland Waterways Trust Fund, which was created in 1978 to fund new construction and renovation and generates about $100 million per year. The industry is willingly proposing a 6¢ to 9¢ increase in the fuel tax, but critics charge that this doesn’t even cover the amount of inflation dollars since the 1970s.

Dan Mecklenborg, senior vice president of privately held Ingram Barge Company, points out a clear business reality: Any increase of taxes results in some sort of adjustment that is a cost passed on to the customer. The inland waterways companies are faced with making a profit with additional taxes and yet must find the price point to be competitive against the rail and trucking industries.

"If barge companies can’t be competitive without massive taxpayer handouts, that’s a major market signal," says Josh Sewell, a policy analyst with Taxpayers for Common Sense. He says that ultimately, someone has to pay, and his organization thinks that responsibility lies with the companies that depend on this system, not federal taxpayers.

"We have a $15 trillion deficit, and yet we have an industry saying, ‘We want a higher subsidy for our industry.’ We don’t think that’s an appropriate response in these fiscal times," Sewell says, noting that the inland waterways system is currently subsidized close to 85%.

As for funding the expansion of seven locks and dams, "currently, the operation and maintenance is 100% paid for by the taxpayers. Taxpayers spend over $600 million a year for the system, so that’s a very large subsidy. We need to figure out how to finance what we have now, before we start financing new construction," he adds.

Perhaps the most eye-opening clause for Sewell is that the current 50/50 cost-share for cost overruns is to be borne 100% by the taxpayer.

"The cost overruns are a major red flag for us because they are preventable," he says.

Congress does need to do a better job of appropriating funds for prioritized projects that the Corps implements, Steenhoek agrees. "The current system guarantees cost overruns."

Future grain shipments.
What about an increase in future grain exports that will drive increased barge traffic in the future? With this in mind, the National Corn Growers Association (NCGA) backs expansion of the locks on the Upper Mississippi and Illinois Rivers. Citing outdated design inefficiencies and a need for maintenance, "we have been emphasizing overall efficiencies, not just lock size," says Bob Bowman, NCGA board member and grain farmer from DeWitt, Iowa. "Traffic on the river is demand-driven and we need to be able to handle those intense periods, otherwise we are not competitive on the world scene."

The problem is that heavy river traffic might not materialize, which might negate some of the argument for lock expansion. For the past 20 years, barge traffic has been flat to decreasing. Transportation studies show this to be the result of a "siphoning off" of strong domestic demand from the ethanol industry in the Corn Belt and the advent of new and improved train shuttle service to the Pacific Northwest ports. According to USDA, grain exports have fallen for the past five years and developing countries in South America and the Black Sea region, as well as China, are progressing with domestic grain production to the point where exports of grain surplus will be more competitive with the U.S. market.

"We know with certainty that the past [export] projections were wrong—from the early 1980s and the mid-1990s," explains Iowa State University transportation researcher C. Phillip Baumel. "This suggests that there’s a high degree of error associ-ated with any of these long-term export projections."

Referring to the NESP proposal, Baumel says the real question is "Are there other ways to save ½¢ per bushel than spending $2.2 billion to extend the locks? How much did we save by putting two 1,200' locks on the Ohio River?

"There will not be enough tax dollars in future years for everything that everybody would like to do on the inland waterway system unless agriculture is willing to pay higher user taxes," he adds.
It’s a bleak picture that Ingram Barge’s Mecklenborg paints if the funding for basic barge maintenance is not forthcoming. "We will see critical problems developing over time that would interrupt the agricultural [business] flow." As though to drive the point home, he says there is no alternative to needed infrastructure spending that will restore the business engine of operations already in place that drive this economy.

That’s the bitter wake-up pill everyone will have to swallow very soon.

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