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Mississippi and the Struggling River Barge Industry

The great drought of 2012 was the worst disaster to hit the Mississippi River in 50 years. Will it turn into an even bigger mess for taxpayers?

Published: Apr 24, 2013 06:58:48 AM IST
Updated: Apr 17, 2013 02:09:58 PM IST
Mississippi and the Struggling River Barge Industry
Image: Craig Mulcahy for Forbes
The 150-mile stretch of the Mississippi river from the Gulf of Mexico up to Baton Rouge is the busiest port in the Western Hemisphere

On a brilliant March day aboard the towboat John R Ingram, Rick Calhoun, head of Cargill’s American barge business, was avidly pointing out the sights as we eased down the Mississippi River toward New Orleans at 11mph. There was a lot to see. As a bald eagle floated overhead, the crane operator of a giant Mumbai-bound ship gobbled coal from a Cargill barge. In front of our boat was a vast array of barges, a row of five lashed together with another five, then another five—25 in all, stretching out 1,000 feet, filled with 45,000 tonnes of coal and grain.

Industry surrounds us. Dow Chemical, Nucor Steel, Exxon Mobil, Archer Daniels Midland, Bunge and many more industrial giants operate massive complexes on the Mississippi. Taken together, the 150-mile stretch of the river from the Gulf of Mexico up to Baton Rouge is the busiest port in the Western Hemisphere, moving some 400 million tonnes of cargo a year. Cargill alone moves more than 90 commodities on the river and operates 1,300 barges. Ingram Barge Co, which owns the towboat I rode, has roughly quadruple that number. In all, 16 percent of America’s coal, 20 percent of petroleum products and nearly all the fertiliser consumed here are shipped on the Mississippi. The action here is so thick that the crew of the Ingram calls this “suicide alley”.

There’s actually a better name for it: Corporate welfare. Once the thriving centrepiece of 19th- and early-20th-century logistics, and despite the massive profits rung up by companies like Cargill and Ingram, the river barge business has become a ward of government largesse. Washington picks up more of the cost of riverborne shipping than any other type of logistics enterprise in the US except, perhaps, resupplying  the International  Space Station. And yet, despite the efforts of both the Bush and Obama administrations and the growing brawl over shrinking federal dollars, the Mississippi’s river of subsidies stands little chance of shrinking.

In fact, those who profit from this subsidy are working mightily to increase it, using the oldest maxim in government intrusion: Never let a crisis go to waste. The crisis, in this instance, is the historic drought conditions in the Midwest that have squeezed water levels on the Mississippi. With navigation theoretically threatened, the river barge industry is now clamouring for billions of additional dollars for new reconstruction projects with the backing of some powerful heartland politicians. Their threat: Inaction will lead to strangulation of America’s great water highway, with dire economic consequences. “There’s no contingency plan for the river shutting down,” says Calhoun. “We don’t just have railcars and trucks sitting around.”

That may or may not be true. But one thing is certain: Trains and trucks largely pay their own way. Barges don’t. The US Army Corps of Engineers spends roughly $800 million a year building, operating and maintaining locks, dams and channels on the river system. Of this, the barge operators pay a minuscule share, a diesel tax of 20 cents per gallon that goes into something called the Inland Waterways Trust Fund. Last year, the shippers’ part amounted to just $80 million, barely 10 percent of the annual spend on construction and maintenance. The barge operators don’t pay any kind of toll or fee to move their cargos through the 200-plus locks on the river system. The trust fund is nearly broke.

Compare that with railroads, which got a lot of land gifts a century ago but now cover all the costs of construction and maintenance along their rights of way—amounting to $20 billion in 2011. Federal highway outlays were $40 billion last year, though $30 billion of that came from fuel taxes and other fees. Both rail and road move far more cargo than rivers do.

Still, in recent months, Calhoun and his colleagues have bellied up to the federal trough, taking advantage of the 2012 drought, to bend politicians’ ears and press their case for even bigger handouts. “Cargill is agnostic about transportation,” Calhoun says of his employer. “We use rail, and we load thousands of trucks a day, but the waterways are extremely important to our customers. Farmers need the waterways to get their product to customers.”


Mississippi and the Struggling River Barge Industry
Sources: US Dept of Transportation (freight map); US Dept of Energy (tonnage); National Academy of Sciences (subsidies)

It’s an argument that plays emotionally to a country with literary roots from the Hudson River’s Washington Irving to the Mississippi’s Mark Twain. But economically, “if railroads can afford to maintain their networks”, says Robert Criss, a professor at Washington University in St Louis who has studied the river for decades, “barge operators should, too”.

While Washington’s management of the Mississippi dates back to the 1820s, subsidisation of the river barge business really began in the 1940s. That’s when the federal government, swept up in the construction frenzy of WWII, dumped more than $50 billion (in today’s dollars) to make the Missouri River navigable by deepening it from Sioux City, Iowa, to St Louis. It seemed like the classic government infrastructure project that would quickly pay for itself, as the shipping and agriculture lobbies estimated the resulting annual river traffic would total 12 million tonnes a year.

With the rise of the Interstate Highway System, the opposite happened. By the late 1980s, the Missouri floated just 2 million tonnes annually. In the 2000s, that number had fallen to just 200,000 tonnes. Still, by 1985, they were able to convince Washington to spend another $1.8 billion to dig a related 234-mile ditch connecting the Tombigbee and Tennessee rivers in Mississippi and Alabama. Similarly, cargo traffic on the new canal turned out to be only a fraction of what had been forecast to justify the outlay.

Meanwhile, costs go up. The biggest current cash drain on the river system is the Ohio River’s Olmsted Locks & Dam project. It was authorised by Congress in 1988 at an estimated cost of $775 million to replace old locks built in the 1920s. A quarter of a century later, it’s still not done—and costs have ballooned to $3 billion.

Looking to stop the haemorrhaging of taxpayer dollars into the rivers, the Bush administration proposed that companies pay fees of roughly $50 per barge, per trip to use locks. The push went nowhere. Then, in 2009, the Obama administration proposed creating enough new annual fees for shippers operating on the rivers to raise $900 million between 2014 and 2021—not enough to cover the actual costs of maintaining the river but more than the pittance shippers pay today.

Nature intervened in the fight. In late 2012, drought wrung water levels on the Mississippi River to their lowest point in decades—about 9 feet around St Louis. To squeeze through a narrow channel there without scraping bottom, operators could load their barges only halfway. A jam of headlines screamed of a possible river closing and irreparable damage to the US economy.

Executives from the likes of Cargill, Ingram, oil-shipper Kirby Corp and the rest of the navigation industry pounced. They were “running around with their hair on fire”, says one person close to the scene.

They rallied governors, Senators, Congressmen. Their industry groups, like the American Waterways Opera- tors, put out a report warning that a shutdown of the river in December and January would strand more than $7 billion worth of cargo and ‘impact’ 20,000 jobs and $130 million in wages. There was talk about a repeat of the summer of 1988 when river levels got so low that hundreds of barges got stuck.

With water levels looking dire, Calhoun took advantage of the emergency to conflate short-term concerns with long-term desires. In testimony to a Senate committee last September, he insisted that America’s ageing system of seaports and water-ways were in desperate need of $30 billion in investment by 2020 in order to maintain navigation and that it was up to the federal government to foot the bill. “It’s critical that we continue to invest,” says Calhoun, pointing out that more than half the locks on the river are more than 50 years old.

Dozens of Senators, Congressmen and state governors urged the Obama administration to declare an emergency on the Mississippi and overrule the US Army Corps of Engineers, which had rejected requests to release enough water from behind dams on the Missouri River to raise the Mississippi.

Mississippi and the Struggling River Barge Industry
Image: Craig Mulcahy for Forbes
At a Cargill grain elevator on the river, 66,000 tonnes of wheat for Egypt heads into a hold

But somewhat surprisingly, given that Obama’s home state of Illinois is tied inextricably to the river, no such declaration was made nor did the Missouri water come. Traffic was slowed and operators were forced to push ‘tows’ of just 15 barges instead of 25 or 40. And although the Corps of Engineers agrees that the drought was as bad or worse than any in 50 years, they made sure that even around St Louis they maintained a navigation channel at least 9 feet deep and 300 feet wide, and spent $10 million (all taxpayer dollars) blasting a series of rock pinnacles around Thebes, Illinois that had been a longtime source of navigation headaches.

A spokeswoman for the Corps says they never doubted their ability to fulfil their mission of keeping the river navigable.

Facts, of course, matter little in the midst of a cash-fuelled hysteria. The drought threat has reenergised efforts to grab billions in new funding for Mississippi infrastructure. In recent weeks, a group of Senators has introduced the RIVER Act (Reinvesting In Vital Economic Rivers). And a bunch of Congressmen, led by Kentucky Republican Ed Whitfield, has introduced another acronym-happy bill known as the Waterways are Vital for the Economy, Energy, Efficiency & Environment Act (WAVE4). Both bills would appropriate some $8 billion for new river infrastructure and increase federal payments into the waterways trust fund. “The real reason to do this bill,” says Whitfield, “is because the Inland Waterways Trust Fund, like nearly every other federal trust fund, is broke”. In return for these billions, the barge industry has agreed to pay as much as an extra 9 cents a gallon tax on their diesel—amounting to a piddling $40 million a year.

Why can’t industry pick up more of the tab? Craig Philip, the CEO of Ingram, says that would be unfair. “Consider all the other beneficiaries of the river,” he urges me. “People use it for drinking water, hydropower, flood control, wildlife conservation, recreation and irrigation. And yet, none of these other beneficiaries pays anything. To add insult to injury, last December, the Corps declared that there was enough water on the Missouri River to permit oil and gas drilling to extract it for ‘fracking’. ” Which sounds well and good, except that spending billions on barge lanes does nothing to help fisheries (they’re often ruined by it) or flooding (there are more floods than ever) or, especially, recreation. “A sailboat doesn’t need a 9-foot channel,” says Criss. “And besides, how fun is it to sail a boat while having a big barge come crashing by?”

In terms of barge lanes as a national interest, times have changed. Rivers remain important for moving cargo, but the nation could now get by without them. According to the US Department of Energy, America’s waterways are used for shipping some 160 billion tonne-miles per year (1 tonne-mile is the movement of 1 tonne of cargo over a distance of 1 mile), most of that on the Mississippi system. Compare that with railroads, which do 1.3 trillion tonne-miles, and trucks, also at 1.3 trillion tonne-miles—all at very little cost to taxpayers. Splitting all that water-borne cargo between them would require roughly 10 percent more trains and trucks. It could be done, and arguably should be, in a post-sequestration era.

But don’t expect that to happen anytime soon. “We love it out here,” Josh Tingle, one of the crewmen on the Ingram boat told me as we stood amid the coal barges on the front of the tow. “Once you wear out your first pair of boots, you’re done—the water gets in your blood. As long as god’s willing, I’ll be out here.” And so, it seems, will taxpayers.

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(This story appears in the 03 May, 2013 issue of Forbes India. To visit our Archives, click here.)

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