After almost a year into the most devastating pandemic in modern times, the internet is swarming with memes about the year 2020 and how bad it’s been. As this issue goes to press, infection rates are peaking once again in many states and in other parts of the world. Even as the first two vaccines are being distributed, it is clear that months, at least, remain for some restrictions.
Yet despite the coronavirus pandemic and its various economic disruptions, despite a year of noise and alarms on social media and in the political world, the waterways industry faces 2021 with more reasons for optimism than it has for many years. Markets are ready for a rebound, and many have already begun to do so. Industries are poised to meet renewed demand. A new administration is facing pressure to show results on infrastructure after years of studies, promises and inaction.
More importantly, a series of major waterways funding bills have already provided secure, efficient funding for years of progress, and more could be forthcoming, thanks to much behind-the-scenes work by waterways advocates.
Lockdowns and restrictions meant that in 2020, we drove less, ate out less, conserved our savings as some of us lost jobs and consumed less of some things (but more of others). Severe bottlenecks, due both to viral outbreaks at some packing plants and to demand shifts, plagued the meatpacking and dairy industries in the spring before they were resolved. While meat prices are now back to pre-COVID levels, ethanol plants and refineries remain swamped by the drop in demand for ethanol-blended gasoline.
There’s no doubt that the barge industry has experienced its share of effects not only from the virus directly, but from the demand drops for various commodities. But as Jennifer Carpenter, CEO of The American Waterways Operators, told The Waterways Journal, “We largely stayed on track despite COVID.” Large, multi-vessel barge companies are complying with Subchapter M certification deadlines despite difficulties; some smaller, single-vessel companies are a bit behind. “Subchapter M continues to be an important focus of our industry. We are working hard to make sure that all vessels are certificated,” she said.
On mariner credentialing, which has been made slower and more difficult by COVID-19, “The Coast Guard has been very proactive,” Carpenter said, in working with mariners and extending deadlines to ensure that mariners are not penalized or forced to quit working because of COVID-related delays at processing centers.
One of the legacies from the 2019 floods is extreme silting in our major rivers, especially the Missouri and Arkansas rivers. While the Corps of Engineers and its contractors have been making tremendous progress in their efforts to repair levees and clear silted patches, there are many months of work remaining.
On the Missouri River, especially, river training structures designed to scour the river and remove part of the necessity for dredging have been damaged or washed away. As this issue goes to press, the port of St. Joseph, Mo., is reporting that nearby Missouri River levels are as low as three feet. St. Joseph has been revived as a river port in recent years, and a farm-owned cooperative recently opened a grain port at Blencoe, Iowa, returning barging to the upper reaches of the river. But the port of Blencoe had to cease operations early this year due to low water and silting issues.
Fortunately, recent actions by Congress have not only provided much-needed funding for the Corps but strengthened the dredging industry as well. “The outlook for the dredging industry is very positive; our industry is making historic levels of investments in capacity with over $2 billion invested in recent and ongoing projects,” according to Richard Balzano, CEO of the Dredging Contractors of America.
“The Congress has made historic modifications to the Harbor Maintenance Tax Fund, which will provide significantly higher funding levels for dredging and on a more consistent basis,” he said. “This will allow the U.S. Army Corps of Engineers, partnering with the private dredging industrial base, to take on more projects, help our ports and waterways operate more efficiently, expand as needed and increase opportunities for beneficial use of dredged material for future national infrastructure development. This commitment to use the Harbor Maintenance Tax Fund for its intended purpose is a significant investment in our critical maritime and national infrastructure.”
The recently passed Water Resources Development Act (WRDA) is critical for dredging, said Balzano, since “[t]his funds the Corps of Engineers, which in turn funds 95 percent of dredging projects in the U.S., keeping our waterways open and operating. Additionally, the National Defense Authorization Act, which recently was made into law, had significant Jones Act-strengthening language to help stabilize our maritime industry.”
Combined with recently funded major projects like the deepening of the Lower Mississippi River and Corpus Christi Ship Channel, the amount of funded work has provided a more secure climate for dredging investments.
“Since 2018, the U.S. maritime dredging industry has brought on line two new hopper dredgers, which represent a 35 percent growth in volume dredging capacity, and as of today there are at least three more hopper dredges under construction,” he said.
And these new dredges are more efficient and greener than ever. “Our newer systems that are coming online now and in the future are far more advanced than in the past, with better surveying techniques and equipment, with better, more accurate remote sensing capability, more advanced pumping systems and capabilities, and significantly more automation to help the systems run more efficiently and effectively.”
“Our challenge as an industry will be to meet those needs, which we are well positioned to do with our recent and ongoing investment in future capacity and our partnered approach with the U.S. Army Corps of Engineers,” Balzano said.
“Having an organic, U.S.-owned, U.S.-operated dredging industry is part of the critical maritime infrastructure system,” he said, “and maintaining a healthy organic dredging industrial base is a critical element to the whole maritime infrastructure system.”
Steel was another area heavily affected by demand drop. According to Leon Topalian, president and CEO of Nucor Corporation, speaking as part of a January 12 webinar hosted by the American Society of Civil Engineers, about 20 million tons worth of integrated steel capacity came offline during the COVID-19 pandemic, and only about 10 million tons of that has returned.
That capacity loss has resulted in a spot-market price squeeze as activity has picked up, and steel prices are now at their highest in 12 years. Topalian believes that the American steel industry is ready to expand again as needed.
But he noted about 20 percent of the American market is served by foreign specialty steel products that enter the U.S. legally, without being unduly subsidized by foreign steel interests. Topalian suggested that it might be time to re-examine the broad steel tariffs put in place by the Trump administration and target them more precisely toward demonstrated bad actors.
Barge Movements And Grain Exports
According to Ken Eriksen, senior vice president and head of client advisory and development-energy and transportation policy at IHS Markit, barge movements by commodity for January through November 2020 (compared to the same period in the previous year) were as follows: coal movements down by 8 percent; petroleum down by 28 percent; chemicals down by 1 percent; “other” cargoes down by 6 percent; and total movements down 13 percent. Although fertilizer movement were a mixed picture, they reflected an upsurge due to improved farmer incomes and in-home gardening during the COVID lockdowns.
The one bright spot in the past year was grain barge movements. They were up by 13 percent due to a strong harvest of both corn and soybeans and a late surge of grain export activity, mostly to China, said Eriksen. Those exports could be attributed to China’s rebuilding of its swine herd, which is proceeding rapidly. The herds are being rebuilt on more modern lines, with modern facilities using grain feeds replacing smaller backyard operations that used swill feeds. China may also be replacing reserve stocks of corn and soybeans that were drawn down during the African swine fever crisis.Another contributor to grain exports may be the Chinese regime’s desire to send a positive signal to the incoming Biden administration by showing that it is sticking to its ag import commitments made under the Phase I trade deal it negotiated with President Donald Trump. Those movements could continue as China watches the effects of a drought on Brazilian soybean supplies and waits for Brazil’s harvest season to begin in March.
Farm income, too, was actually slightly up for the year compared to the previous year, the USDA reported recently, albeit mostly due to government payments supporting farmers. As both corn and soybean prices are heading upward, it’s not clear how much more government help farmers will need in the coming year. Some ag analysts have suggested that some corn and soybean growers are doing well enough to purchase new equipment during the coming year, which would help drive further economic recovery if those predictions prove true.
Besides grain, said Eriksen, barge shipments of cement also did better than might have been expected, reflecting consistent activity in both commercial and residential construction. The lumber market has been relatively strong as well, he said.
However, supply chokepoints related to COVID-19 have also affected the construction market. Reduced energy activity has reduced demand for gypsum, which is used in stack scrubbers of coal-burning energy plants as well as in drywall used in housing and other construction. Some construction processes are taking longer, said Eriksen, due to such supply issues.
According to Betsy Monseu, CEO of the American Coal Council, the outlook for U.S. thermal coal in the power sector depends on the speed and shape of the economic recovery from the pandemic. Yet the pandemic’s effects on the 2021 outlook for coal have not all been negative.
Monseu said that the decline in natural gas output has set the stage for power plants to switch from burning natural gas to burning coal. Winter is not over, and as she points out, “Ours is a weather-dependent industry.” If severe winter weather results in electricity demand spikes, the winter switch to coal could be accelerated.
Monseu points out that low interest rates have led to some increases in housing demand, including for residential construction, and may push demand for new vehicles up for 2021, all of which may have positive implications for domestic demand for steel and therefore for metallurgical coal.
The outlook for export met coal, a relatively bright spot for coal before the pandemic hit, will depend on the pace of world economic recovery, said Monseu. The Energy Information Administration is not forecasting a significant uptick in coal exports, but it’s impossible to predict what will happen. If steel demand ticks up in any part of the world, the demand for high-quality American met coal could result in more barge trips with export met coal.
Will the incoming Biden administration make any hostile moves toward coal? Monseu is cautious. She referred to electricity shortages in California, a state that has moved away from reliable 24/7 generation sources to heavy reliance in intermittent renewable resources, as a cautionary tale.
“We will continue to advocate for importance of coal generation to the resiliency and reliability of the grid,” she said. “I think both thermal and met [coal] will see some improvement over 2020, but the extent will depend on how quickly and how much global and U.S. economies recover this year,” she said.
Monseu emphasized the need for a reasonable regulatory environment. She hopes that the administration will allow businesses to recover from the pandemic without imposing any measures that would increase costs for consumers.
Infrastructure Bill Questions
One of the big questions in the upcoming year is whether or not Congress will pass a comprehensive infrastructure bill. It’s something that has been talked about for years, and that has supporters among both parties.
The question is how to pay for it. During the past year, Congress has passed several multi-trillion-dollar bills that include COVID relief, the most recent being the one that included WRDA.
Observers differ on the prospects for infrastructure action. “I’m not holding my breath for an infrastructure bill this year,” said Eriksen. Now that the Democrats won the Georgia Senate runoff elections, giving them control of the Senate as well as the House and presidency, a lot depends on who is picked to lead key committees in both houses. Biden and the Democrats in Congress are under pressure to swiftly enact a series of climate measures, and an infrastructure bill may be a good place to include them.
At a January 12 webinar sponsored by the American Society of Civil Engineers, Rep. Earl Blumenauer, a veteran congressman from Oregon who spent 10 years on the influential House Transportation and Infrastructure Committee, was upbeat about prospects for a big infrastructure bill. He argues that it would be a way for incoming administration to put people back to work and to address climate issues that Biden’s supporters care about, while showing bipartisanship. In July, Biden proposed a $2 trillion infrastructure plan, part of his agenda to bring the U.S. to net-zero carbon emissions by 2050.
From Means To Execution
The WRDA includes a ground-breaking measure for the waterways industry: a change in the cost-share formula for waterways infrastructure projects to 65 percent federal.
Tracy Zea, president and CEO of Waterways Council Inc., said, “2020 ended up being a good year for waterways legislation.” While he is bullish on WRDA and other measures that support waterways infrastructure, he points out that, as always, authorization and appropriations are different things.
“Olmsted and Lower Mon are now funded to completion. Chickamauga could be funded to completion this year; there’s about $200 million worth of work remaining. We hope to get at least one new [lock and dam] project start this year. We have a true opportunity to advance now; the majority of the 15 projects have already been authorized and studied.”
WCI’s top four priorities from among the 15 projects in the Corps of Engineers’ Capital Investment Strategy are Upper Mississippi River Lock and Dam 25, the Three Rivers project, Montgomery Lock and Dam, and the LaGrange Lock and Dam rehab, he said.
Waiting On Committee Chairs
Zea, too, is waiting to see who gets appointed to key committee positions in Congress. “We have some old friends and consistent champions [of waterways infrastructure] in Congress now. And we look forward to educating the newcomers about waterways infrastructure issues. Now that we’ve achieved the 65/35 cost share, and WRDA has provided the mechanism, it’s our job to focus on appropriations and make sure the execution happens.” He thinks there is a “good chance” that ports and waterways can benefit from grants from the Transportation Department as it broadens its vision of multimodal projects.
Carpenter said she is looking forward to working with incoming Secretary of Transportation Pete Buttigieg and other officials. Among the AWO’s top issues: ensuring that momentum continues for the Coast Guard to recapitalize its inland fleet. “For one thing,” she pointed out,” some of those old buoy-tenders lack facilities for mixed-gender crews. How much attention does that get in Congress? We need to tell that story!”
U.S. Jones Act vessels, both inland and offshore, have always been vital in energy supplies. They are key in transporting coal and oil. Inland barges have also transported hundreds of wind turbine components and blades safely and with less disruption than overland modes.
Offshore wind farms in the U.S. are in early days. One of the earliest, the Block Island installation off the coast of Rhode Island with five wind turbines, opened in 2016. Vineyard Wind, a large wind installation proposed off Martha’s Vineyard, is expected to serve as an example for other offshore wind projects. It has met with various regulatory delays and controversies and is not now expected to begin generating power until 2022.
U.S. maritime interests paid close attention to the National Defense Authorization Act, which was enacted January 1 over President Trump’s veto, handing him the first veto override of this presidency. Section 9503 of the NDAA, also known as the William M. (Mac) Thornberry National Defense Authorization Act for 2021, affirms that the Outer Continental Shelf Lands Act (OCSLA), which dates to 1953, applies to offshore wind and other renewable energy projects constructed on the U.S. Outer Continental Shelf (OCS).
That means that vessels that service these platforms and installations from the U.S. must conform to the Jones Act, which specifies that only U.S.-built, -owned and -crewed vessels can serve commercial routes between any two points in the United States. “The legislation … paves the way for significant new investment in American vessels, and jobs for American mariners, to serve the burgeoning offshore renewable energy market,” AWO said in a recent newsletter.
A December report on the issue by the Government Accountability Office (GAO), an office of the legislative branch that monitors federal spending, noted, “Project developers and vessel operators we interviewed generally told us that they are confident that they will be able to find [Jones Act] vessels to fill these roles, and that in some cases it is likely that new Jones Act-compliant vessels will be built to support the [offshore wind] industry.”
Oil And Gas Uncertainty
At the beginning of 2020 U.S. oil production had reached about13 million barrels per day, according to the U.S. Energy Information Administration. Saudi Arabia and Russia joined to open their oil spigots in early 2020 to combat increasing U.S. supply due to fracking. Then COVID-19 hit, resulting in a huge glut, plunging prices and backlogged refineries.
The largely debt-fueled fracking sector saw a wave of bankruptcies and consolidations after oil prices collapsed, resulting in the closing of hundreds of wells—wells that produced natural gas as well as oil. That affected dozens of downstream industries that use natural gas as a feedstock, from petrochemicals to plastics.
At the end of the January 5 OPEC meeting, Saudi Arabia announced that it would voluntarily cut its February and March crude production by 1 million barrels per day. The cuts will more than offset quota increases granted by OPEC to Russia and Kazakhstan and “sets the stage for a tighter crude supply picture in the first quarter,” EIA said. That could nudge oil prices upward.
It’s more difficult than usual for oil and gas analysts to make any forecasts about the coming year. Major oil and gas companies now openly speak of a coming energy “transition” and reposition themselves as providers of energy rather than extractors of any one type of energy. BP and Shell both recently cut their dividends and announced major new investments in renewables.
Much will depend on policy. Will the Biden administration enforce a national lockdown while vaccines roll out? What will European countries do? Besides COVID measures, the other major source of uncertainty is the Biden administration’s climate and energy agenda. Biden’s energy plan would commit the U.S. to achieving a “carbon-free power sector” by 2035. He has promised to get legislation passed in his first year to “puts us on an irreversible path to achieve economy-wide net-zero emissions no later than 2050.”
Oil analyst Robert Rapier agrees that banning fracking (which it is not clear that the U.S. president has the authority to do) is not a realistic option. He wrote in Forbes, “Biden’s impact on the overall oil industry is going to pale in comparison to the impact of the ongoing Covid-19 pandemic on the industry. The biggest impact Joe Biden could make on the oil industry would be to get the pandemic under control as quickly as possible, which would allow demand for oil to rebound somewhat. No other policy he may pass will have a greater effect.”
That’s something we all want, sooner rather than later.