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Shipping Out, Part 8: Panama Canal Expansion makes Upper Mississippi River Updates Even More Critical
It's hard to believe how much grain needs to be shipped down the Mississippi River to keep the massive elevators in new Orleans working at full capacity. If we're going to double yields over the next few decades, we've also got to invest in new facilities to get these valuable grains to market around the world.
By Frank Lessiter, Editorial Director
A few hours after heading to bed at midnight on the boat, I hear what sounds like unusual engine noises coming through the walls of the sleeping quarters. It sounds to me like the boat is constantly moving forward, then suddenly moving backward and then repeating the same process over and over.
So I get up, get dressed and head up to the wheelhouse to see what’s happening. As it turns out, it’s 2:30 a.m. and we’re adding three more barges to the tow in LaCrosse, Wis. But it’s not as easy as just chaining these three additional barges onto the front of the tow.
Because the out-front barges need to be the proper combination of squares and rakes (different front designs), the tow has to be split apart and the three new barges each filled with over 53,000 bushels of corn are placed in the middle of the tow. This complicated maneuver project ends up taking 3 hours of time from both our tow crew and a local crew that uses a tug boat to bring out the three barges.
Over early morning coffee and breakfast at 5 a.m., we talk with the crew about the critical need for upgrading the Upper Mississippi River locks, dams and channels. If we’re going to continue to be strong in export markets and add value to Midwestern produced grains, we’re going to have to make huge investments. And do it quickly.
It’s hard to believe how much grain needs to be shipped down the Mississippi River to keep the massive elevators in New Orleans working at full capacity. For example, one of the major grain handlers operates three exports elevators in the New Orleans area. They load 700 to 750 ocean-going ships per year with as much as 1 billion bushels of grain. Compared to rail or truck transportation, shippers save $600 million per year by barging grain to New Orleans for export.
The ocean-growing ships leaving New Orleans carry up to 55,000 metric tons of grain, or 2,167,000 bushels of corn. It normally takes 3 days to load these bigger vessels with grain at the New Orleans elevators.
A trip from New Orleans to Rotterdam typically takes 15 days. Or a trip from New Orleans through the Panama Canal to Japan usually takes 32 days, compared to 15 days to the Orient from Portland or Vancouver.
After a 15-day trip from Minneapolis to New Orleans, an ocean-going boat would loaded with over 2 million bushels of corn for a trip through the Panama Canal to Chiba, Japan. With the ship moving at 12 knots per hour, this 9,134 mile trip will and take 32 days. So the difference in sailing time is 17 fewer days for corn that is shipped to Japan from Portland, Ore.
With a much larger Panamax-sized vessel, the cost to go through the Panama Canal would be $200,750 for this shipment of corn. This works out to a charge of 9.3 cents per bushel.
From New Orleans, the average transportation rate for this Japan-bound ship would be $52,200 per day while the cost from Portland to Japan is $28,500 per day. This is a cost spread of $23,000 per day in favor of Portland shipments or a difference of 25 cents per bushel, although this does not consider the added cost of shipping corn via rail from Minnesota to Portland. Still another determining factor is making backhaul loads from Asia to Portland in these ships that can handle dry bulk goods.
Figuring in all of the costs, the charge to a food processer located in Tokyo works out to a difference of 2 cents per bushel in favor of shipments through Portland rather than New Orleans.
But the whole export issue is about to change with new developments in ocean transportation that center around what’s occurring with the Panama Canal. When a new Panama Canal channel and locks are finished in 2014, American will have the capacity to export considerably more grain to Asia. The Panama Canal Authority is spending $5.25 billion on this construction project.
The deeper, wider passages and additional traffic lane will let the canal compete with deep-water ports on the West Coast for both exports and imports. Much bigger ocean-going ships will carry twice the tonnage of grain and other cargo through the man-made waterway.
While 25% of current U.S. grain exports flow through the Panama Canal, this will increase dramatically. Even though shippers will have to pay much higher canal fees, they’ll get faster service and fully loaded ships will greatly improve transport efficiency.
Yet a major concern is that the channel depths in many U.S. ports are not deep enough to handle the new Panamax-sized vessels that are considerably larger than the ships that currently navigate the Panama Canal). Current vessels require a 48-foot depth channel, while these larger vessels will need 53 feet of depth.
The good news is that numerous Gulf of Mexico and East Coast ports plan to dig deeper channels to handle the bigger ocean-going ships. But with the majority of Upper Mississippi River locks being only 600 feet long and limited capacity to handle more shipments, this makes me wonder how beneficial the new Panama Canal will be for U.S. grain exports.
Other ocean ports may soon become major players in the grain and oilseed export market. As an example, nearly 16 million containers are moved in both directions each year through the California ports of Los Angeles and Long Beach. Many of these empty containers could be used to ship specialty grains overseas.
In fact, more export customers are showing interest in receiving grains in containers rather than as bulk shipments. This export option would offer customers more confidence in U.S ag products that are shipped in sealed containers. But a drawback to this option is the fact that the average price of moving a 40-foot container of grain from the east coast to Europe recently jumped from $1,071 to $2,716.
In 7 of the past 8 years, the world has consumed more grain than it produced. Experts are predicting the planet’s farmers will need to double ag output by 2050 to feed the world’s growing population.
To get this job done, much larger amounts of grain must be transported down the Mississippi and other rivers for loading onto bigger ocean-going ships. This means billions of federal government dollars will have to be spent on the more than two-dozen locks and dams located between St. Paul and St. Louis.
An example of what lock closures can mean to grain growers is taking place in the Pacific Northwest. Eight locks located on the Columbia and Snake River system in Washington, Idaho and Oregon will be totally closed for up to 14 weeks in late 2010 and early 2011 for maintenance and repairs. Some 16 billion tons of grain valued at more than $17 billion move through these locks in a year’s time. It is certain that the closures of these eight locks will have a serious impact on the area’s wheat and barley growers as their crops make their way to three Pacific Coast elevators and then on to millions of overseas customers.
While the logical choice would be to move grain prior to the lock closures, a lack of downriver grain storage is a major concern, and will require that alternative transportation options will need to be used. Just one four-barge tow that carries 14,000 tons of grain is equal to moving this amount of grain with either 140 rail cars or 538 large semi-trucks.
In addition, the barge companies will have to make a number of personnel layoffs, which will increase unemployment. And one barge company has already raised its grain transportation rates by 7.5% to offset the financial hit they expect to take due to the lock closures.
Back in the Midwest, the National Corn Growers Association estimates a failed lock on the Mississippi River could slash corn prices by as much as 50 cents per bushel.
In recent months, the Inland Waterways User Board has called on Congress to adopt a 6- to 9-cent increase in the current barge fuel tax of 20 cents per gallon. The group estimates $110 million would be raised each year with this higher tax that could be matched by federal tax dollars to rebuild the Mississippi River’s lock system. And while this increase will ultimately be passed on to the farmer, many ag groups view this as a critical long-term investment in the future of river transportation.
The waterway user group’s goal is to have the U.S. Corps of Engineers use these funds to begin construction on lock 25 near Winfield, Mo., in 2011. A new lock near the crumbling Illinois River lock at LaGrange, Ill, would be built starting in 2017 with completion by 2024.
After spending 3 days with a tow boat crew on the river from St. Paul, Minn., to Genoa, Wis., I’ve got a much better appreciation of how Midwestern-grown grain moves to markets around the world. But I’m also convinced that we need to pressure the federal government into doing something in the next few years about the aging lock situation or we’re going to find ourselves on the outside looking in when it comes to expanding U.S. grain exports.
If we’re going to double yields over the next few decades, we’ve also got to invest in new facilities to get these valuable grains to market around the world. And we’ve got to quickly come up with a plan to make this happen before it is too late.
How Corn Exports Grow In Value
Corn produced on a Minnesota farm and exported to Chiba, Japan
|Grain Movement||Additional Charge
(Cents Per Bushel)
|Value Per Bushel|
|Barge freight, Minneapolis to New Orleans||$0.60||$4.30|
|New Orleans elevator||$0.05||$4.35|
|Ocean freight, New Orleans
|to Chiba, Japan||$0.88||$5.23|
|Panama Canal charges||$0.09||$5.32|
|Trucking cost from Chiba to food processor in Tokyo