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January 2003

The shipping news & forecast

District ports face many competitive challenges, but whether they sink or swim over the long term will likely depend on infrastructure improvements

Marcia Jedd
Contributing Writer

It's not often that the shipping industry grabs headlines. Ships are things that glide peacefully in the water—a picture of serenity amid the hectic hubbub around them.

Tankers glide out of the port of Duluth-Superior with a few telltale horn blasts before being swallowed by Lake Superior. In the Twin Cities, while commerce speeds along freeways in countless semitrailers, barges move quietly into and out of ports in St. Paul and Minneapolis, much of their cargo ending up on those very same semitrailers. To many, district ports along the Great Lakes and Mississippi River are often out of sight, out of mind.

The dockworkers' strike on the West Coast changed that, at least temporarily, and heightened the nation's understanding of the role that shipping plays in the nation's economy. Moving into the Christmas season (when this article went to press), volatile contract negotiations for 10,000 longshoremen in 29 West Coast ports had kept many billions of dollars in imports and exports either floating offshore or sitting in railcars and trucks.

Half a country away, shipping ports in the Midwest are an important part of the regional economy. “In many communities, water transport is quite significant to move raw materials. It doesn't get attention, but it's an important transportation mode that can complete other modes as well as compete with them,” said Ellen Fisher, chief of harbors and waterways for the Wisconsin Department of Transportation.

The district has about a dozen commercial ports located mostly on the Mississippi River and Lake Superior. Today, these ports face challenges—though different and more subtle than their West Coast peers—that will affect the long-term competitiveness of some exporting industries in the district and the economic well-being of their host cities.

Shipping remains a highly efficient means of transporting bulk cargo, but growth over the last decade or so has been slow and even stagnant in some cases, thanks to the turns of national and global trade, shifts in specific cargoes and commodities, and even the weather. Longer term, the viability of Mississippi River and Great Lakes shipping might depend more on infrastructure improvements that promise to make the waterways more efficient for the shipping industry. But such improvements are years, if not decades, away.

Importing local benefits

Cities fortunate enough to be sited on a major river or Great Lake often reap welcome commerce benefits. The port of La Crosse, Wis., employs nearly 90 with an annual payroll of better than $3 million and contributes about a half-million dollars in local taxes as $150 million in freight chugs through the port. Minnesota's inland water transportation industry—mainly five ports on the Minnesota and Mississippi rivers—employs about 500.

River ports in the district are particularly vital to agricultural trade. “Without river shipping, for [the] agricultural community in South Dakota, a bit in North Dakota and for Wisconsin, the closest ports are the Pacific or Atlantic. [The Mississippi River] is the closest avenue we have for global markets,” said Steve Hardie, vice president of riverfront development for the St. Paul Port Authority. Minnesota farmers send 60 percent of all agricultural exports down the Mississippi, according to the state Department of Transportation.

The “Ole Miss” has district ports in Minneapolis, St. Paul, Winona, Red Wing (all in Minnesota), and La Crosse. (Within the district, the Missouri River is also used for freight transport through the Dakotas, but cargoes are comparatively much smaller.) Among these river ports, St. Paul was the tonnage leader with more than 5 million tons handled (outbound and inbound) in 2001. Combined, the ports of St. Paul, Winona and Savage (the lone port on the Minnesota River) handle the majority of the district's river trade at more than 11 million tons.

But the heavyweight of district ports is Duluth-Superior. Better than 1,200 were employed this year to move some $2 billion in cargo—mostly coal, taconite and grain. Handling some 40 million tons of freight (mostly outbound), Duluth-Superior is among the nation's top 20 in tonnage and the leader in grain volumes among the 150 ports that make up the massive Great Lakes/St. Lawrence Seaway system.

“The port is the conduit for direct overseas business, especially for grain and ag exports, and importers of certain types of cargo. In recent years, imported wood is coming in from Germany,” said Davis Helberg, executive director of the Duluth Seaway Port Authority. Duluth's leading imports are limestone, cement, road salt and aggregate stone.

There are a few basic differences between river and Great Lakes ports in the district: Cumulatively, about one-third of river tonnages are for incoming cargo, compared with only about 10 percent or less for Duluth and other district ports on the Great Lakes. Also, a greater portion of river cargo is in higher-value commodities. For example, soybean and corn exports from Mississippi ports have considerably greater value by weight than taconite and coal exports from Duluth-Superior.

Rolling (cheaply) down the river

While floating lumber, coal or corn down the river might seem a bit Twain-ian in the day of overnight delivery and just-in-time inventory management, waterborne transport remains a very competitive mode compared with intermodal highway and rail.

In fact, it is the most efficient way to move dry or liquid commodities like grain and petroleum or general cargo such as fertilizer or coal that isn't time sensitive or of extremely high value. According to a 2000 state report, in Minnesota 21 percent of all freight tonnage, but only 3 percent of the freight value, went by water—indicative of the commodity freight handled in ports.

Nonetheless, water transport via inland ports is estimated to be at least five times more efficient than rail and trucks at delivering similar cargo on a fuel cost-per-gallon basis. U.S. inland waterways move about 15 percent of interstate commerce for bulk commodities at only 2 percent of the cost, according to Dick Lambert, director of ports and waterways for the Minnesota DOT.

One might think that ports compete for cargo with other ports, as well as with other modes of transport. But in reality, the type and amount of freight handled by a port is in large part a function of its geographic proximity to producers and traders, and its integration with other transportation modes. “[Minnesota's] access to waterways, truck and rail freight gives us an advantage over states that don't have all three modes,” said Lambert.

“It becomes a logistical war [of] who can get ... closest to their customer” by water, said Ken Anderson, sales manager at River Services Inc., the contractor that runs the Minneapolis port for the Minneapolis Community Development Agency (MCDA). Even a few extra miles by water can make a small difference. For example, a company taking road salt to a Minneapolis suburb benefits by moving loads by barge to Minneapolis, and then to the suburb by truck, as opposed to offloading at the St. Paul port for truck transfer across the metro. There is minimal extra cost for the additional shipping, and trucks encounter less congestion to the final destination.

Slow sinking feeling

But despite some inherent cost advantages, freight tonnages have been up and down over the last decade. River tonnage in Minnesota grew from 1994 to 1999 but was still below peak levels reached in 1992, and then declined two consecutive years.

Trends in the port of Duluth depend on whether you believe the ship is half full or half empty. The floor fell out of Duluth shipping exports when the steel and taconite industry struck its proverbial iceberg in the 1970s and 1980s. Tonnage dropped from 70 million tons in 1953—the heyday of taconite exports for humming steel factories located along the Great Lakes—to 25 million tons in 1985. After that the industry—and the port—found calmer waters and things started rebounding. Thanks also to increased coal shipments, the port saw generally growing tonnage through 1995, when it hit 40 million tons. But tonnage levels slipped, and while Duluth looks like it will post a net gain for 2002, it is likely to be a couple of million tons short of 1995 levels.

While the health of the industries that produce water-borne cargo—agriculture, steel, coal—are responsible for much of the tonnage fluctuations, other factors also come into play. For example, low water levels in the Great Lakes for the past two or three years have meant ships leave dock without a full load, which cuts into the cost efficiency of carrying bulk cargo by water. Erratic water levels on rivers can hinder activity or completely halt it for weeks at a time. Flooding forced intermittent shutdowns of at least one-half of the Upper Mississippi early in the 2001 season—one reason why overall tonnage declined in 2001, compared with the robust volumes of the two previous years.

Shifts in delivery systems have also taken their toll. Lambert from the Minnesota DOT noted that petroleum imports via waterways have decreased over the last 20 years, sparked by new point-to-point pipelines and stringent penalties for accidents imposed by the Oil Pollution Act of 1990.

Shifts in products can have a big impact on cargo flows. Lambert said that Minnesota “used to receive 3 to 4 million tons of high-sulfur coal from Illinois, Kentucky and West Virginia via the river,” but now receives only about 10 percent of that volume. Instead, most coal comes from Wyoming and Montana, delivered directly to power plants by 100-car trains. But the geographic shift in coal production has benefited Duluth, with coal shipments there hitting 15 million tons, an all-time high, according to data from the local port authority.

Political actions—like tariffs recently imposed on steel imports—also influence tonnage flows. A couple of Lake Superior ports were established solely for the purpose of exporting taconite. In the face of a weak domestic steel market, one such port—the aptly named Taconite Harbor in Minnesota—was shut down after steel giant LTV went bankrupt last year and closed a taconite mine.

Thanks to the tariffs, higher-priced imported steel means domestic steel is more competitive again, which ultimately boosts taconite production, almost all of which runs through Lake Superior ports. Mike Valentine, executive director of the Two Harbors (Minn.) Development Commission, said he's noticed a rebound in the taconite market. That's good news, given that taconite is the sole export out of the Two Harbors port.

But the tariffs have also cut into some backhaul capacity. “With steel [imports] dramatically down in the Great Lakes because of the tariffs, fewer ships are coming into the Duluth port. Because steel is down, it's more difficult to get grain shipments outbound,” said Helberg of the Duluth Seaway Port Authority.

Ports also have to anticipate changes to commodity demand, which can often be subtle. The freight mix changes as new markets develop, said Jim Forsythe, project manager with the MCDA. The Upper Midwest is demanding more sand, gravel and other aggregates as construction increases, as well as fertilizer for crops. “Fifteen years ago, we saw a need for fertilizer storage [at the Minneapolis port] and built facilities for that. It's still thriving,” Forsythe said.

Locked system

Short-term cargo fluctuations aside, one of the biggest obstacles to the future growth of ports is the existing lock and dam infrastructure, most of which is 50 to 75 years old and in need of modernization. This means that shipping on the Great Lakes, for example, has not been able to adapt to the ocean-faring vessels because the locks and dams cannot accommodate these city-size ships.

Some locks on the Mississippi River can fit only several barges at a time, while efficiencies dictate that barges transit in groups of 12 to 15, running some 1,200 feet in length. Large hauls can go only as far north as St. Paul before having to be “fleeted” or broken down to transit on to Minneapolis or Savage. Fees and extra time are involved.
As a result, the port of St. Paul is akin to a hub airport, where barges must stop. This means considerable freight terminates at the port, which is served by Burlington Northern, Canadian Pacific and Union Pacific. “Many commodities come in by barge, are offloaded by rail and then delivered. Most of the grain comes in from growing areas by truck,” according to Hardie of the St. Paul Port Authority.

That might be good for the St. Paul port but not for the shipping industry in general. Cenex Harvest States (CHS) Cooperatives is a major grain shipper at Duluth-Superior as well as the river ports. “We have a severe concern that when market opportunities present themselves, we won't be able to execute them to the levels necessary for the producers that own us, the farmers,” said Al Anderson, vice president of government and public affairs for CHS.

Anderson said improvements will result in more efficient transport so the cooperative can react quickly to world markets. Case in point: Corn sells for about $2.50 per bushel currently vs. $1.50 per bushel 18 months ago. “If we access the market more readily and increase volumes for short periods of time, it benefits the producer,” Anderson said.

Some improvements are already being made. All eight Great Lakes states and the federal government have aligned to build a second lock at the Soo Locks in Sault Ste. Marie, Mich., as a backup to its only long lock. The lock will replace two smaller ones, with construction likely beginning next year on the five-year project, according to Steve Thorp, program manager at the Great Lakes Commission.

But that's just one lock in the water bucket. Wholesale revamping of the lock-and-dam systems on both the Mississippi River and the Great Lakes/St. Lawrence Seaway are currently being studied by the U.S. Army Corps of Engineers, which owns and operates all locks and dams on the Mississippi and those that lie in U.S. territory of the Great Lakes system.

Improvements will likely be seen first along the Upper Mississippi from St. Paul south to St. Louis, where all 29 locks and dams on the river are located. (There is no commercial navigation above St. Paul; below St. Louis, the Mississippi is naturally deep enough so that locks and dams are unnecessary, and in any case the deep silt of the lower river would make navigation very difficult.)

Following several years of delay, results of a comprehensive Upper Mississippi River Navigational Study are expected to by published by the Corps next year. Then Congress will debate an improvement plan. Insiders suggest it may be several years before renovation and construction of new locks are seen.

The price tag for improvements is expected to be about $1.5 billion. Shippers and port authorities in the region fully support the study, and they point out that improvements would last 50 to 100 years, and fuel taxes for commercial waterway carriers (in place since 1980) would pay for 40 percent or more of the costs.

In the Great Lakes/St. Lawrence Seaway system, enhancements to current locks and new, larger locks would accommodate larger vessels. Earlier this year, the Corps completed a two-year reconnaissance study of the system. The Corps has since received approval for a five-year, $20 million feasibility study to examine deeper channels, upgrading and building new locks and dams, and related environmental issues, according to Thorp.

“They'll recommend replacing locks, if not modifying (them), for wider and longer boats,” Thorp said. Some have suggested that some day containerized freight might gain appeal for transit on the Great Lakes.
Should these massive infrastructure projects go forward, local and state governments will likely also need to find ways to make additional improvements to port facilities and intermodal (railroad, highway) access. But private entities will also be involved in streamlining access to some rail lines, terminals, grain elevators and warehouses. For example, the Duluth-Superior port is working with Burlington Northern, Cargill and Peavey/ConAgra to ensure shuttle train service gets modernized.

The Canadian government and its Minister of Transport are weighing Canada's role in any wholesale infrastructure upgrade in the Great Lakes/St. Lawrence Seaway, as it owns 13 of the 15 locks within the St. Lawrence Seaway.

They'll have time to think about it, given that results of the Corps study won't be completed until around 2007, which means actual improvements for the shipping industry are even farther out.

Editor Ron Wirtz contributed to this article.

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