State Of The Waterways Industry 2022
Challenges Of Growth And Progress On The Waterways
In looking ahead to the coming year, waterways industry leaders and experts generally find that, apart from the continuing COVID-19 pandemic and some lingering effects of Hurricane Ida, all the coming challenges of ports and waterways are challenges of growth and opportunity.
As the pandemic enters its third year, a new variant, omicron, is more virulent than ever, if milder than previous variants. Public health agencies around the world are divided in their responses. Hospitalization rates are beginning to drop in many areas. Some countries and localities contemplate renewing lockdowns, including China, where many of the world’s current logistics snarls originate. Populations everywhere show signs of increasing weariness with restrictions. In this country, the Supreme Court recently nullified the administration’s vaccine mandate for employers of 100 or more people through the Occupational Safety and Health Administration, ruling that Congress never gave the agency sweeping powers to regulate public health matters.
Inland companies will continue to observe the measures they have put in place since the pandemic’s beginnings to keep crews and customers safe, said Jennifer Carpenter, president and CEO of the American Waterways Operators, the voice of the nation’s tugboat, towboat and barge operators. “Our companies have done a great job, but there’s still a lot of COVID out there! Props to our members for keeping mariners safe on the job,” Carpenter said. “Those of us who are getting it are getting it off the vessel, mostly.”
AWO itself will continue to be flexible and adapt, Carpenter said. It’s planning an in-person regional meeting in Nashville February 24. From early on in the pandemic, barge workers were recognized as essential workers. Carpenter said that contribution is still being recognized. She points to several recent positive pieces on the industry on NBC News, the Los Angeles Times, and in the Chicago Tribune, the last of which featured current AWO chairman Del Wilkins. “Last year, the people of our industry were pandemic heroes,” Carpenter said. “This year, they are supply chain heroes.”
Infrastructure Laying Groundwork
On January 19, the Corps of Engineers announced its work plan to distribute and invest the $2.5 billion it was given in the recently passed bipartisan infrastructure bill, the Infrastructure Investment and Jobs Act, along with other funding streams benefitting ports and waterways infrastructure.
Tracy Zea, president and CEO of Waterways Council Inc., said, “Today’s release of inland waterways infrastructure funds will not only advance the inland waterways construction portfolio, but also create thousands of skilled jobs for America’s building trades, make American farmers more competitive and promote energy security.”
According to Carpenter, the act was the single most significant development of 2021 for industry, “a generational opportunity” and the greatest single investment in our waterway system since the New Deal.
In any non-pandemic year, the waterways portion of the bill alone would have been a major story. The good news for ports and waterways includes four Capital Investment Strategy priority projects funded to completion: Kentucky Lock, with funding of $465.5 million; Lock 25, with funding of $732 million; Montgomery Lock, with funding of $857.7 million; and the Three Rivers Project/MKARNS, with funding of $109.1 million. Major rehabilitation of the T.J. O’Brien lock was also funded, to the tune of $52.5 million. Of the total waterways funding of $2.24 billion, the Corps held back $275. 9 million for additional unexpected expenses on funded projects. “With the $2.5 billion plus annual appropriations, we could see the completion of two-thirds of outstanding authorized waterways infrastructure projects within the next five years,” Carpenter said. (More detailed analysis of work plan announcement.)
Julie Ufner, CEO and president of the National Waterways Conference, said, “The nationwide allocation of funds across all business lines [in the work plan]—navigation, flood control, water supply, hydropower and recreation to name a few—will lead to greatly improved and robust infrastructure in the U.S., ensuring a win-win for both our non-federal sponsors and the communities they serve.”
Aimee Andres, executive director of Inland Rivers, Ports & Terminals, drew attention to yet another funding stream: the recently announced first tranche of $241 million in Port Development Infrastructure Program grants awarded by the Maritime Administration. The PDIP grants were part of the National Defense Authorization Act, and IRPT was closely involved with its development, according to Andres. She added, “The PDIP grants are usually geared to coastal ports, but this year we saw many of them go to inland ports.”
Speaking of this bill along with other recent bills, Andres said, “This is more growth than we have ever seen in infrastructure investment.”
Another significant achievement for Jones Act advocates was getting current laws clarified to ensure that the law applies to offshore wind projects, Carpenter said. That clarifying language came in the National Defense Authorization Act.
“The statutes were previously ambiguous since they were originally written with oil and gas drilling project in mind,” she said. “This clarification will enable domestic vessel owners, mariners and shipbuilders to take full advantage of the huge emerging opportunities in the offshore wind market.”
Supply Chain Challenges
Unprecedented supply chain issues, many due to COVID-19 and its effects, are continuing to affect the whole world. Late last year, the House of Representatives passed the Ocean Shipping Reform Act of 2021, described as the most significant change to U.S. shipping laws in 30 years. It still has to go to the Senate, but it passed the House by the impressive margin of 346-60. The bill, passed after an extensive investigation into shipping practices by the Federal Maritime Commission, includes the following provisions:
• It requires ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry;
• It requires ocean carriers or marine terminal operators to certify that any late fees—known as “detention and demurrage” charges—comply with federal regulations or face penalties;
• It shifts the burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier;
• It prohibits ocean carriers from declining opportunities for U.S. exports unreasonably, as determined by the FMC in new required federal rulemaking; and
• It requires ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and twenty-foot equivalent units (loaded/empty) per vessel that make port in the United States.
Ufner believes the supply chain remains the most important story in the coming year. “The ongoing supply chain issues will continue to drive debate and conversations nationwide. The optics are simple—bare grocery store shelves, vehicle lots empty, out-of-stock products—due to continuous supply chain challenges nationally and internationally. … Various industries from ports to farmers to manufacturing plants to trucking have reported that their work force has shrunk due to COVID-related absences. Transportation costs to move goods to and from markets have increased significantly. Untangling this will take time, potentially into the summer months of 2022, if not longer, because there is no easy one-size-fits-all solution.”
Decarbonizing Supply Chains
Untangling snarls is not the only challenge facing supply chains. Carpenter said society seems to have reached a tipping point on decarbonization, which is now being driven more by private and market initiatives than by government regulations. In the shipping industry, the lead is being taken by shipping giants like Maersk and their customers, who are insisting that their entire supply chains reduce their carbon footprint.
Already the greenest form of transportation, the inland industry is exploring ways to decarbonize further, creating a future where its place is more secure and relevant than ever before. “In the near future, shippers will have to disclose information on the carbon emissions in their supply chain,” Carpenter said. “Switching to barging is the low-hanging fruit for shippers seeking to reduce their carbon footprint.”
Jones Walker maritime attorney Marc Hebert agrees: “[T]he ripple effect of decarbonization has reached the inland marine industry. At some point in the future perhaps it will be regulated through another subchapter within Title 46, resulting in inspection and audits related to carbon footprints for vessel operators and fleets that is ultimately tied into a global carbon trading network.
“We have seen over the years the transformation of supply chain management across the globe through technological innovation,” Hebert said. “The pandemic has accelerated this process, and decarbonization has taken a lead role in shaping that transformation. … In the U.S., there are efforts underway by key senators and committees to pursue a Customs Modernization Act, bringing the Bureau of Customs and the trade, and thus the global trading scheme, into the 21st century to ‘match up’ with e-commerce and address money laundering, cyber security, trade facilitation and IPR enforcement, among other issues.
“The U.S. Coast Guard has even requested, by way of publication in the Federal Register, public comment on the Coast Guard’s role in climate change, which we expect will tie in with the IMO and the EU carbon trading model utilized by ocean freight carriers (liquid or bulk) to meet global and other decarbonization commitments.”
Looking ahead, Hebert sees a brave new world of blockchain platforms for transparent reporting of supply chains on carbon footprints. “We may see this starting with the fuels market and moving into other commodities in the supply chain. One way in which this will be accomplished is through the use of blockchain technologies based on cryptocurrency platforms formatted for compliance with U.S. and other countries financial services regulatory systems. This will create for the operator and the authorities a transparent, auditable, regulated and open trading system for carbon credits. These new programs will reshape the landscape for vessel operations, fuels providers, commodities trading and supply chain management.”
Labor Issues Ongoing
The most serious effects of the COVID pandemic on the inland industry, Carpenter said, has been on labor. Labor shortages were already a concern before the pandemic, as an older generation retires amid the workplace restrictions and slowdowns due to COVID-19. “Demand is back,” she said. “That’s great, but some of our members have actually had to turn down work because they didn’t have the manpower—even with the ending of special unemployment benefits nine months ago.”
Mike Steenhoek, executive director of the Soy Transportation Coalition, said labor issues have affected all transportation modes—and they are becoming more acute. “You hear about labor issues at every level of grain handling,” he said.
Ida Impacts Lingering
One story that will continue to play out in 2022 is the lingering impact of Hurricane Ida on our waterways. The immediate effects of Ida were extended by long power outages that affected many industries. Unlike Hurricane Katrina, Ida didn’t devastate a big city—New Orleans was well protected by the $14.5 billion ring of levees built since Katrina—but its multiple impacts along the river and on terminals were arguably more severe than Katrina’s.
According to Nicholas Buchanan, client services manager at Royal Trade Solutions, “The biggest lingering impact from Ida has been the availability of workforce, which was already tightened in nearly all industries due to the ongoing pandemic. There was significant property damage as a result of Ida, and that seems to have exacerbated that [labor] issue in the Gulf, specifically as workers were incentivized to join construction crews and help rebuild by performing general construction in affected areas.”
According to Buchanan, soybeans were the commodity most affected by Ida, which came in early September, near the beginning of harvest season. Barge imbalances are still being worked out in the system, he said. “The bean market remains in a strong inverse as the U.S. works to finalize the bean export program. There was a two- to three-week window where the U.S. didn’t unload any barges or load any vessels following Ida. That ultimately created a significant gap in the empty supply of barges to the market. We have yet to recover from this, even as we see increased unloads out of the center Gulf.”
Buchanan expects that situation to change soon. “Export inspections indicate that we are ramping up the corn export program, so corn will swap places with beans as most affected as we work to get corn loads to the Gulf for export then empties back upriver to reload,” he said.
Ida’s labor impacts came on top of an already difficult labor situation due to the pandemic. “The ongoing pandemic has presented issues on the Lower Miss, and all river segments as it affects the availability of crewmembers,” Buchanan said. “Losing a crew for just three days results in 300-400 miles lost on the Lower Miss, then throw in another 36 hours of fleet delays and the logjam continues. Logistics ultimately dictate our ability to execute in the market, getting empties from the Gulf to origin and loads from origin to the Gulf.”The barge imbalance was compounded, Buchanan said, by a worker imbalance. “The [labor] issue seems to be improving, as most [affected] areas have rebuilt and many workers have returned. I expect the industry and terminals to work more efficiently this year.”
Northbound barge movements this spring will likely be affected by the fertilizer shortages and price rises, which are partly due to tariffs and partly to COVID, as the price of nitrogen fertilizer doubled in 2021. In recent weeks it has dropped somewhat, but experts still see it stabilizing at a higher level. The price of crop inputs including fertilizer could affect planting decisions by farmers this spring, leading more to plant soybeans, which use less fertilizer, over corn, which is more fertilizer-intensive.
High Barge Rates Continuing
Buchanan sees upward pressure on barge rates continuing throughout the coming year. “My biggest prediction will be a higher floor for [barge] rates than we have seen in several years. Typically, we are talking about or projecting when we will be trading breakeven levels later this spring/summer. But, given all the unknowns surrounding the virus, the political climate, inflation, etc., it is difficult to imagine values pressing toward breakeven levels. We are currently seeing increased demand and interest in new crop fall values at higher levels than we have likely seen in some time. So ultimately, I predict a very strong year, but it won’t come easy!”
‘Normalizing’ Steel Prices
As demand rebounded from the COVID lockdowns, steel use has risen. The American Iron and Steel Institute (AISI) reported on January 10 that for the month of November 2021, U.S. steel mills shipped 7,893,990 net tons, a 16.9 percent increase from the 6,753,447 net tons shipped in November 2020. Shipments were down 3.9 percent from the 8,215,071 net tons shipped in the previous month, October 2021.Shipments year-to-date through November2021 were 86,848,042 net tons, a 17.4 percent increase vs. 2020 shipments of 73,950,515 for eleven months.
“Steel prices are determined by market forces,” the AISI told The Waterways Journal. “A rapid rebound across the U.S. manufacturing sector began in the summer of 2020 and contributed to an increase in steel prices as supply chains adjusted to unprecedented volatility. Pandemic-related uncertainty had similar effects on many commodities and industrial products. However, steel production and utilization have risen sharply from low levels in the spring of 2020, and new industry capacity is coming online. In addition, steel production is up more than 60 percent from its low point in May 2020, and mill utilization has consistently run above 80 percent for more than six months.”
The November steel trade figures came after President Joe Biden signed an agreement with the European Union in October that repealed President Donald Trump’s tariffs on European steel and aluminum. Trumps’ tariffs—25 percent on imported steel and 10 percent on imported aluminum—that were imposed March 1, 2018, remain in place for countries that have not signed such a deal.
As the Peterson Institute for International Economics pointed out, the agreement between Biden and the EU was more complex than Biden’s statement that “it immediately removes tariffs on the European Union” suggested. It called for zero U.S. tariffs on European metal exports—but only at a volume set by historical patterns, through a new system of bilateral tariff rate quotas. These quotas, said PIIE, “could turn into voluntary export restraints, ushering in a return to the ‘managed trade’ era of the 1980s, when governments, not market forces, controlled much of international commerce.”
Standard and Poors predicted in early January that 2022 would see “normalization” of steel prices as increased supply and shorter lead times put downward pressure on them.
For the barge industry, high steel prices have a double effect. On the one hand, companies get higher prices for their scrapped barges. But they also make new construction more expensive and can slow down build decisions.
Container-On-Vessel Moves Ahead
A big announcement in inland waterways sustainability came on December 17 in Herculaneum, Mo., when Sal Litrico, CEO of American Patriot Container Transport LLC (APCT), revealed that after years of planning and preparing partners, APCT has issued a solicitation to seven U.S. shipyards for construction of four of the patented, low-draft container vessels that will provide a new model for waterborne transportation of containers, and an option for four more.
The new vessels will run on liquefied natural gas and, when they are available, should make a significant dent in shippers’ carbon footprints.
The call for submissions was issued December 14 and proposals are due at the end of February, Litrico said.
Finally, this year will see the final implementation of Subchapter M, as all inland vessels will have to have earned certificates of inspection by July of this year.
Asked what her top issue is for the coming year, Carpenter said, “I think 2022 will be the year in which the benefits of Subchapter M for our industry will crystallize. It’s the final year of implementation, and some older and more marginal equipment has already been retired. This trend will likely accelerate as the July 19 deadline for 100 percent fleet certification approaches. AWO members are on track to meet that deadline.
“I’m very bullish on our industry, which is more relevant than ever, responsive, resilient and poised for growth.”