Mississippi Mud -- The High Cost of Drought Cargo

January 2, 2013 09:10 AM

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Mississippi River levels continue to plague the shipping industry and now that the headwaters have begun to freeze, experts say water levels downstream will continue to fall at an accelerated pace. The Army Corps of Engineers have been dredging and blasting at the river's lowest points since late in the summer to aid already impaired barge traffic, but a full closure is expected in the next few days.

In response, more cargo will have to move northward from the Gulf of Mexico via truck and rail. Rail transport would be preferred to truck as rail costs one-tenth of the price of shipping by truck. But rail still costs about twice as much per pound over standard barge shipments and the extra transport fees will weigh on margins at supply points.

An average barge tow in a normal year includes flotillas of up to 15 barges, each barge with a cargo capacity around 1500 tons -- that's roughly 22,500 tons on a 15 barge flotilla at a shipping cost of about one-half cent per pound of cargo. It takes 15 rail cars to equal the cargo moved by one river barge. That means it would take 225 rail cars to move the same freight as a 15 barge flotilla -- at about a penny per pound. Truck transport would have to involve 58 fully loaded 26 ton trailers to equal a single barge at an estimated cost of 5-10 cents per pound of cargo. Multiply that by 15 to equal the carrying capacity of a single 15 barge flotilla and your calculator may begin to smoke -- and so will your accountant.

Good news comes in the long-view. U.S. nitrogen producers are already eyeing profits from domestic nitrogen demand -- which is a nearly-guaranteed 9 million tons per year -- especially as increased planted corn acres excite N demand in the spring of 2013. The U.S. has already caught the nitrogen bug, and we have reported on the growing number of greenfeild projects and expansions to nitrogen producing facilities. But these domestic supplies will not be available for another few years.

In the past few weeks, nutrient distributors have been waiting on a sign to resupply. Reports have come in that China has made a small, uninspiring K purchase and while the price is attractive, U.S. potash supplies are less tied to the river than is nitrogen. So rather than waiting on international demand to signal a buying opportunity, nitrogen suppliers may now hold off until closer to the spring application season -- hoping for a robust snowmelt and a deep muddy river to mitigate the extra costs of transport. But if river levels do not improve in the coming spring, the rising cost of transport could chap suppliers' bottom line.

Photo credit: Jim's outside photos / Foter / CC BY-NC-ND

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