A continued glut in the barge market and river navigation problems menaced the inland industry over the past year. But the bigger story has been the disappointing roll-out of the Trump administration’s $1.5 trillion infrastructure plan that would increase fees on barge operators, and a fiscal 2019 budget that jeopardizes funds for three priority lock and dam improvement projects.
For an industry that largely supported President Trump and was excited to see a president finally pay direct attention to the poor state of the inland river system, a triple whammy of vessel fees, lockage fees and budget cuts would, as one waterways advocacy group puts it, have “dire consequences” for river commerce.
Last July, the president held a press conference along the Ohio River, as an oversized American flag flew from an Ingram Barge Co. towboat behind him, and acknowledged the enormous needs of the waterways and promised to find a solution. “Together we will fix it,” he said. “We will create the first-class infrastructure our country and our people deserve.” Trump again mentioned the inland waterways in his State of the Union address in January. It was the first time in more than 30 years that a sitting president had given the rivers such high profile attention, and the barge industry was understandably pumped.
But the plan he launched on Feb. 12 was far from what river operators had expected. For decades, the cost of financing waterway infrastructure projects were split 50-50 between Uncle Sam and about 400 commercial operators who pay a 29-cent-per-gallon diesel fuel tax into the Inland Waterways Trust Fund (IWTF). The Trump plan would shift the traditional federal role to “third party service providers” who could impose and retain tolls or lockage fees on the lock and dam system. In return, however, there’s no solid promise that the infusion of funds would benefit waterways projects. Upending this partnership is in line with other proposals in Trump’s infrastructure plan that would shift funding burdens to shippers, states and local governments.
At the same time, the president’s fiscal 2019 budget proposal for the Army Corps of Engineers, which oversees waterways construction and maintenance, would cut civil works funding by 22%, and for the first time, 10% of the costs for the operation and maintenance of locks and dams would come out of the IWTF.
In addition, the budget would spend only $5.25 million of the $114 million collected in 2017 from the IWTF, with the Olmsted Locks and Dam construction project on the Illinois River the only one getting funded. Work at three other navigation projects under construction (Lower Monongahela River project in Pennsylvania, Kentucky Lock and Chickamauga Lock on the Tennessee River) would stop.
INCREASED COSTS
The industry sees a clear “disconnect” between the president’s words and his budget and infrastructure proposals.
Mike Toohey, president and CEO of the Waterways Council, an industry-supported advocacy group for waterways funding, argues that commercial operators and shippers would be the only ones expected to pay more for the nation’s river transportation system, while other beneficiaries — fishermen, boaters, hydroelectric plants and municipal water plants — would pay nothing. On top of that, he said, barge operators agreed two years ago to a 9-cent-per-gallon increase, to 29 cents a gallon, in the diesel fuel tax that pays for half the cost of improvements.
“We work hard in this industry, and shouldn’t shoulder the debt of the entire waterways system that benefits the nation,” said Michael Somales, president of Murray American Transportation, Monessen, Pa., which operates barges and towboats on the Monongahela and Ohio rivers.
If Congress accepts the plan as proposed, transportation costs would rise for shippers, Toohey said. This could increase the costs of barging on the rivers and drive commodities to other already clogged transportation modes like highways and railroads, or result in a shift of business to competitors in places like Argentina and Brazil that are modernizing their river systems.
So far, lawmakers contacted by the industry are receptive to changes in the president’s plan that the industry seeks, Toohey said. In particular, he said lawmakers liked the idea of transferring a portion of the roughly $1.5 billion in revenues from the sale of hydropower generated at government dams into the IWTF for waterways improvements. He said hydropower is a major user of the rivers.
At the Waterways Council’s January meetings in Washington the day after the infrastructure plan was released, Rep. Todd Rokita, R-Ind., said that there’s still a long way to go before the plan becomes law. “I look at this as a starting point in the negotiations,” he said. The final product “won’t look like what he’s requested.”
Rokita sits on the House Transportation and Infrastructure Committee, one of the 12 panels that will review the plan. As a committee member, he said he would oppose any lockage fees or new taxes that discourage waterways transportation.
Despite an improving national economy, the industry continues to face a volatile market hampered by an oversupply of barges. Progress has been made over the past year to find more of a supply-demand balance. Both the liquid and dry barge fleets have been trimmed through sales or retirements (helped along by high scrap prices), consolidations and a reduction in newbuilds. But the overall fleet is too young to justify large sell-offs of older equipment, so it’s likely that the oversupply will hang on for at least another three years, Ken Ericksen, senior vice president of Informa Economics, said at the Waterways Council’s Annual Waterways Symposium in Mobile, Ala., in November.
The glut is especially acute in the domestic coal market, which continues to be hurt by a reduction in coal demand and the closure of coal-fired power plants due to strict environmental regulations and price pressures from cheap natural gas.
“These past years have done irreparable harm to the (coal) industry and this is affecting the (barge) industry,” said Somales of Murray American. “There is more equipment than there is product when it comes to coal. The rates are low because of oversupply (of barges), and I don’t see it easing. I see it worsening. I think we’ll see more consolidations in the industry. Not everyone will survive.”
WEATHER WOES
Extreme weather also played havoc on the industry. In the fall, the problem was low water levels due to dry weather. That gave way to freezing temperatures in December and January, and flooding in February.
Ice accumulations affected parts of the inland waterways system that normally operate year round, including areas of the Illinois, Ohio and Mississippi rivers. Many barge companies temporarily suspended operations on portions of the Illinois and Ohio Rivers. There were reports of normal 15-barge tows being reduced to six-to-nine-barge flotillas. For the first two weeks of January, the U.S. Department of Agriculture reported that grain barge tonnages were 63% lower than the same period last year.
“We’ve had two months of some of the most difficult operation conditions that I can remember,” said Peter Stephaich, CEO of Campbell Transportation Co. Inc., Houston, Pa. “The problems have been weather-related, not the market like a few years ago. Now we have high demand, but are unable to move things efficiently. A lot of locks are shut for different reasons, loading and unloading facilities can’t operate, and boats can’t go under bridges due to high water. On the positive side, a lot of stockpiles are down and we have pent up demand” to deliver products that haven’t been able to move due to high water.
Weather aside, there are still too many barges chasing demand where Campbell operates on the upper Ohio River, but there will be opportunities for barges to haul construction components for new ethane plants coming on line in the region.
The company’s business was once dominated by coal hauling along the upper Ohio, but is now more diversified. Stephaich said Campbell’s plan to diversify its product movements away from coal is moving along steadily, and the movement of liquids for third parties continues to grow.
IMPROVEMENT?
Some companies are already seeing signs of a market turnaround, however, and are hoping that predictions for strong growth in 2018 will boost the barge business.
Houston-based Kirby Corp, the nation’s largest tank barge operator, reported stronger financial results at the end of 2017 than the previous year, buoyed by strong utilization and demand in its inland market. High utilization — in the low-to-mid-90% range during the fourth quarter compared to mid-80% a year ago — was due to improved demand from the petrochemical and crude sectors, and also from a significant reduction in Kirby’s tank barge fleet. At the end of 2017, it had 841 barges with 17.4 million bbls. of aggregate capacity, compared to 876 active barges of similar capacity a year earlier. More retirements are expected in 2018.
“While parts of the marine transportation segment remain challenged, the inland business should begin to improve in 2018 as the industry right sizes and consolidates,” Joe Pyne, Kirby’s chairman, said in a quarterly earnings call with analysts in January.
A big step toward consolidation in the liquid sector occurred in February when Kirby announced the $149 million acquisition of Higman Marine Inc., also of Houston, and its 159 inland tank barges and 75 towboats. Kirby said it will retire an additional 15 older tank barges from Higman’s fleet.
Improvements have also been seen in the dry cargo sector.
“Every piece of equipment we have that’s workable is working, and we’ve seen an increase in just about all commodities, especially in export coal,” said Mark Knoy, president and CEO of American Commercial Barge Line LLC (ACBL), Jeffersonville, Ind. “It feels so different than it did four months ago, in a good way.”
Among the factors are crop problems in Argentina that will mean strong markets for U.S. grain exports, a pickup in demand for U.S. export coal, supply constraints into Europe, and a boost in the steel and energy markets, especially with new ethane plants coming on line. River Transport News reports that imports of major dry commodities through New Orleans saw a modest increase during the fourth quarter of 2017, up 7.8% over the same period the previous year. Just about all this increase was due to bigger volumes of steel commodities.
“All of these things together drive more utilization of the barge fleet and create more equilibrium in supply and demand,” Knoy said. “We probably won’t be where we want to be, but we’ll be pointed in the right direction going into 2019.”
Another positive note, Knoy said, is that companies and their employees are benefiting from the recently passed tax reform package.
“Paying fewer taxes means companies have more to invest and that’s good for an industry like ours that is capital intensive,” Knoy said, adding that employees are seeing more money in their paychecks due to a smaller amount of federal withholding.
*Article by Pamela Glass, Washington Correspondent
*Article is part of Workboat Magazine’s April 2018 issue
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