In the middle of the 2011 harvest, a 220,000-lb. guard gate fell into Lock 19 at Keokuk, IA, which plugged commodity movement down the Mississippi to New Orleans for six days. While Lock 19 was closed, 35 tows were backed up – which idled 27.6 million bushels of corn-hauling capacity.
Corn and soybean growers have long feared a major blockage on the Mississippi, a fear heightened in 2005 when Hurricane Katrina closed the lower river and commodity prices plummeted. But the Mississippi locks aren’t the only pinch points that could restrict U.S. corn and soybean shipments. Even as Asian demand and the Panama Canal expansion remake the export scene, transportation experts warn that other infrastructure problems are making it harder to deliver the goods.
The first pinch point begins at the farm gate. The U.S. road system now ranks 20th in the world, behind countries like France and South Korea, according to the World Economic Forum’s Global Competitiveness Report. The report’s rankings are calculated from public data and the results of a comprehensive annual survey of research institutes and business organizations.
With increased yields and consolidation in the elevator industry, that means farmers truck more corn and soybeans over longer distances on aging rural roads and bridges. Federal Highway Administration bridge statistics reveal more than 30,000 structurally deficient or functionally obsolete bridges in rural Corn Belt counties.
Peter Friedmann, executive director of the Agriculture Transportation Coalition, points to truck weight limits and hours of service as additional limiting factors: “There’s a cap on what we can sell our agricultural products for, and that means there’s also a cap on what we can pay for transportation.”
More soybeans, in particular, are moving by container, he says, and the U.S. truck weight limit of 80,000 lbs. increases the number of trips and therefore transportation costs to get them to the rail heads, on their way to the ports. In contrast, Canada and the European Union allow 96,000-lb. truck weights, reducing the per-bushel cost of shipping.
New regulations that reduce the hours truckers can drive (from 11 to 10 hours) also makes U.S. products more expensive, Friedmann says.
Railroads, on the other hand, report progress both on anticipating future shipping volumes and on removing pinch points within the current rail system.
“We look at what the constraints are today, what we will need in the future, and will we have enough traffic to pay for it,” explains Tom Lange, director of corporate communications for Union Pacific (UP). “We are trying to increase both rail capacity and velocity.”
Currently UP has surge capacity in its system to meet unexpected demands, including 600 locomotives in storage, and the people and equipment to increase weekly carloads by 20,000, according to Lange.
The railroad is also spending an unprecedented $3.3 billion this year on capital improvements, including strategic projects like a shift from a single line of track to double tracking through Blair, NE – an improvement that will allow UP to run east-bound and west-bound trains simultaneously between the West Coast and Chicago.
Increasing capacity on a rail line does not necessarily require additional track, railroaders note. Other industry improvements include growing networks of grain shuttle facilities to feed cars into the rail system and the introduction of a new generation of 55-ft. hopper cars with the same carrying capacity as the old 61-ft. cars. As a result, trains can increase their tonnage by hauling 118-car trains without increasing overall train length.
Rail sources also note that some Midwest elevators are undertaking significant expansion projects in response to the expected growth in corn and soybean shipments from Pacific Northwest (PNW) ports to Asia.
“We have a strong relationship with the grain-export trade and have been forecasting this demand for quite some time,” says one industry representative. “This is not a surprise to the railroads.”
PNW port capacity is also expanded with this year’s completion of the first new export grain terminal built in the U.S. in more than 20 years. The joint venture by Bunge, Itochu and STX Pan Ocean can handle four 110-car trains at a time, drawing grains, oilseeds, and protein meals from the Pacific Northwest, the Midwest, and western Canada for shipment to Asia.
When fully operational, its capacity will top 8 million metric tons (MT) per year, according to Bunge officials.
Mississippi River system
The Mississippi system is a different story. While deteriorating locks on the Illinois and Upper Mississippi rivers present an ongoing restriction, the need for sustained dredging in the lower river is expected to become a limiting factor when the Panama Canal expansion opens in 2014.
Unlike the 50-ft. depths in some PNW ports, the Mississippi must by dredged to maintain a 46-ft. draft in its Southwest Pass.
Currently, Panamax ships transiting the Panama Canal are restricted to a 39.5-ft. draft, but in 2014 the expansion will allow for a 49.9-ft. draft. Even at the Mississippi’s current 46 ft., South Louisiana grain terminals will be unable to make full use of the canal improvements.
Meanwhile, the Army Corps of Engineers dredging funds aren’t adequate to maintain that 46-ft. depth, according to Paul Rohde, vice president of the Waterways Council. In fiscal 2010, for example, the Corps received $63 million to conduct $104 million worth of dredging south of Baton Rouge. This winter, just five dredges will work the lower river, compared to the nine normally needed for Southwest Pass alone.
“Without additional funding this year, we will see additional restrictions on draft. A 3-ft. draft loss means carrying 1,500-2,800 tons less cargo/foot,” says Sean Duffy, executive director of the Big River Coalition.
“This has real world implications, but reliability is an even bigger issue,” explains Rohde. If Japan and China want U.S. soybeans and we can’t get them out, or if our transport costs triple, that’s a real problem.”
A new Soy Transportation Coalition (STC) study suggests just how the pressures to move more commodities may grow with the Panama Canal expansion.
“The total volume of U.S. soybeans and grain moving through the canal to export markets could increase by 30%,” says Mike Steenhoek, STC executive director. “The average area that draws soy and grain to inland terminals for barge shipment down the Mississippi will expand from 70 miles to 152 miles.
“Each vessel will be able to accommodate 13,300 additional MT of cargo – about 490,000 bu. of soybeans, adding approximately $6 million to the cargo’s value and saving about 35¢/bu. in transportation costs for elevators within range of Gulf ports.”
But there’s a hitch, according to Steenhoek. U.S. growers and elevators will see those benefits only if port and channel depths are dredged to the federally mandated depth of 45 ft. – and if there’s no catastrophic breakdown in the lock system that feeds commodities down the river.