State Of The Industry 2024
Each year, when The Waterways Journal asks leaders in the inland waterways industry about the challenges and opportunities of the coming year, perennial issues recur: how to sustainably finance locks and dams; how to stay profitable amid the uncertainties and ever-changing weather of the rivers; how to move America’s goods safely and sustainably, while providing a fulfilling career for crews and sending them home safely.
But as the Greek poet Heraclitus said, “No man ever steps into the same river twice, for it is not the same river, and he is not the same man.” Rivermen know that no two days on the river are the same. Neither are any two years.
Lock And Dam Financing Challenges
At this writing, the government is once again operating on a continuing resolution to prevent a shutdown as legislators in Congress struggle to craft a 2024 budget. It’s hard to look too far downriver when there’s a logjam right in front of you.
Tracy Zea, president and CEO of Waterways Council Inc., told The Waterways Journal, “2024 is going to be a pivotal year for the inland waterways construction program. If the ball bounces the right way on a couple of items, it will set this system up for future success. But if other things do not happen, the system could be set back for decades.”
The first ball, Zea said, is the enactment into law of the Fiscal Year 2024 Energy and Water bill. “If a full-year continuing resolution is enacted into law, it will mean that no inland waterways construction projects will receive funding. This could be detrimental to the inland navigation construction program because Chickamauga Lock is slated to receive more than $230 million and to be funded to completion. If it does not receive funding, it will require more money in FY25, which would suck up other dollars that are meant to fund the Lower Mon Project to completion, and to get closer to completion of Kentucky Lock.”
The Corps of Engineers and the Inland Waterways Users Board are currently in the process of crafting a five-year update for the Capital Investment Strategy, Zea said. “The CIS has been a guiding document that allows industry to advocate with one voice. It is going to be important to get this update right so that industry can continue to advocate singularly and to safeguard against regionality in advocacy efforts.”
Next, Zea said, the remaining $113 million of Infrastructure Investment and Jobs Act (IIJA) dollars must be spent on completing projects to their operational stages. “Within the Water Resources Development Act 2024 also being negotiated in Congress now, WCI is looking to keep Congress’s intent to have all projects funded by IIJA remain 100 percent federally funded,” Zea said. “This will ensure that construction on these projects can be done efficiently, and that the benefits to the nation are delivered in a reasonable timeframe.”
“WCI feels good about a WRDA bill being enacted into law in 2024,” Zea said. “When Speaker [Mike] Johnson took over the House, WRDA was one of his main agenda items to be accomplished in 2024. Both the House and Senate have started their processes of soliciting priorities from offices and drafting the bill.”
Flexibility In Money Shifting
Keeping enough flexibility for the Corps to shift money to where it is needed is also a priority, Zea said. “Reallocating funds from the MKARNS [McClellan-Kerr Arkansas River Navigation System] deepening project to the Three Rivers project is a priority for the Inland Waterways Users Board, as well as for WCI. The Three Rivers project needs to issue a contract in the late February/early March timeframe to ensure that it stays on schedule to become operational and to avoid additional costs. The Corps can reallocate the money that is not being used for MKARNS deepening and won’t be needed for some time to ensure that the Three Rivers contract can be executed.
“This makes sense because the funding is being kept within the same part of the system, and if Three Rivers fails, then there is no point in having a 12-foot channel on the MKARNS system. WCI remains hopeful that this plan will be executed and is working with the Assistant Secretary of the Army (Civil Works) Michael Connor to ensure that it does.”
One positive development, Zea said, is that the industry has managed to convince Congress that waterways projects need not be “shovel-ready” to qualify for IIJA support. This is important given the long timelines for many projects.
“We were encouraged by how fast the administration has rolled out funding, but we wish the physical construction of the projects would be expedited. For instance, the Corps has said Lock and Dam 25 and Montgomery will take 10 years to construct, but WCI would like to see construction take six to eight years at most.”
An election year always adds drama and noise to Congress’ deliberations. But Zea believes this election year will be a net win for waterway advocates, because “the inland waterways system is something that has been able to achieve bipartisan support and agreement in the past. WCI remains optimistic that this trend will continue in 2024, as we have a lot to get accomplished through appropriations and WRDA. The nice thing about an election year is usually members of Congress are trying to get wins to show their constituents that they are helping their state/district, and usually those wins fall within the water resources category.”
Positive Media Attention
Each year that Jennifer Carpenter has led the American Waterways Operators, the waterways part of our supply chain has gotten more and more positive attention from regular media. The COVID-19 virus and its supply chain disruptions, rail strikes, floods and drought all brought opportunities for waterways advocates to educate the public.
“I think our industry has done a really good job over the last few years connecting the dots between things that policymakers, the media and the public are concerned about and the role our industry plays as part of the solution,” Carpenter told The Waterways Journal. “Supply chain disruptions, national and homeland security and competition with China, inflation, environmental sustainability, ‘They’re talking about what we’re talking about,’ as a colleague put it to me recently.”
“We’re seeing an increasing number of major media outlets contacting our industry to ask how developments like low water on the Mississippi or the problematic California harbor craft emissions regulations will affect the supply chain. This interest gives us a great opportunity, which we are seizing, not only to tell our industry’s story, but to advocate for our public policy objectives, to say, ‘Here’s what we need to make sure these things don’t become major problems.’”
Jones Act Defense
“Similarly, Congress is very concerned about the security implications of China’s maritime ambitions and about U.S. border security, which gives us a perfect opportunity to make the case for the Jones Act in just a few words,” Carpenter said. “If you’re concerned about China or border security, you need to be for the Jones Act.”
Carpenter’s long-time commitment to the Jones Act was recently recognized by the maritime industry when she assumed additional duties as CEO of America’s Maritime Partnership, a coalition of maritime interests dedicated to supporting and advocating for it (WJ, January 7). Carpenter will combine those duties with her responsibilities at AWO.
“We will be in the Jones Act advocacy business for as long as we want the Jones Act to exist, which is to say, forever. There will always be people–businesses, foreign governments–who see an economic or strategic advantage for themselves in weakening or doing away with the Jones Act, and those business and foreign government interests have a long track record of funding think tanks and publications to make their case. In 2024, AWO and AMP will work side by side to beat back those threats (and show them for what they are).”
Energy Transition Pause Points
The effort to develop alternate forms of energy to oil and gas hit a number of “pause points” during the past year as market conditions forced some reappraisals. A Danish wind development firm, Oersted, withdrew from two major wind farm projects off the U.S. East Coast, accepting a penalty payment of $2 billion, because, it said, rising interest rates and supply chain difficulties made them uneconomic.
Offshore wind farms are a growth area for workboat and supply boat companies. The withdrawals provided another bogus excuse for attacks on the Jones Act, Carpenter said. “We should not be surprised when a for-profit business (whether an oil trader or a foreign offshore wind developer) sees a financial advantage to using foreign-flag vessels in the domestic commerce of the U.S. and not complying with U.S. law. Now, it’s not exactly a winning public policy argument to say, ‘I could make more money for myself if I could just dispense with the pesky business of complying with U.S. law like any other business has to do.’ … So, they pretend it’s about the greater good: ‘If I could get a Jones Act waiver, consumers could save money on fuel.’ … It’s our job as domestic maritime industry advocates to debunk these arguments and show how giving in to self-interested cries for Jones Act workarounds is harmful.”
Carpenter believes wind power will continue to progress. “Offshore wind is happening in the U.S.—the first commercial-scale power generation is now underway—and it’s going to be a huge opportunity for the domestic maritime industry. Not every target set by a federal or state government is going to be met, and some projects are going to have to be rebid with terms that allow investors to make a reasonable return on their investment. A number of offshore wind projects, in the U.S., Europe and Asia, were bid under very different financial circumstances, when the cost of money (interest rates) was next to zero and before pandemic-induced supply chain disruptions impacted schedules. Those will have to be reworked. But it will happen, and thanks to the Jones Act, it’s going to a generational opportunity for the American maritime industry.”
California Harbor Emissions Rules
Last year, AWO members and officers helped draw attention to draconian and unrealistic emissions regulations enacted by California’s Air Resources Board that could severely restrict activity on the water by commercial harbor craft. That fight will continue during the coming year.
“AWO is going to fight hard until we get these problematic regulations fixed,” Carpenter said. “They’re dangerous for mariners, they’re unworkable for vessel owners, and they’re going to cause major problems for the state of California if this crucial link in the supply chain is damaged or severed. Forty percent of U.S. imports and exports move through California ports. That does not happen without tugboats. Ports don’t get dredged without harbor craft. Millions of tons of biofuels and other critical commodities don’t move without ATBs. And we’re going to keep working until that message gets through and reasonable policymakers say, ‘Whoa! Why are we doing this to ourselves? We can’t let this happen. We need to fix it.’”
Safer Seas Act Implications
The California regulations show that serious challenges to waterways businesses emerge from courts, bureaucracies and legislatures as well as from the economy, weather and supply chain challenges.
“One of the more significant recent legal developments in the maritime space was the passage of the Safer Seas Act in December 2022,” maritime attorney Chris Ulfers, a partner in the maritime practice group at Jones Walker, told The Waterways Journal. According to Ulfers, the act imposes potentially significant costs and reporting requirements on both blue- and brown-water operators and presents risks to mariner licenses as well–even in situations where reporting is deemed to be inadequate under the new provisions.
The act was passed in response to a September 2021 blog post by a female cadet of the U.S. Merchant Marine Academy who recounted instances of sexual harassment and sexual assault while she was serving on a U.S. flag vessel. The Midshipman X affair, as it became known, led to ongoing investigations of sexual harassment by the Coast Guard itself as well as the merchant marine academies. It has resulted in the surrendering of two licenses to date. Since the original Midshipman X made her allegations, another female cadet, Midshipman Y, came forward with additional allegations. The U.S. Merchant Marine Academy at King’s Point suspended its Sea Year program during the investigations.
The issues detailed in the Midshipman X and Y cases took place on ocean-going vessels operated by blue-water vessel operator Maersk during Sea Year tours of duty. However, brown-water operators are included in the act’s provisions.
“The Safer Seas Act imposes a variety of new requirements on vessel operators that are designed to reduce—and hopefully prevent altogether—instances of sexual assault and sexual harassment from occurring on board U.S.-flag vessels,” Ulfers said. “The act requires responsible entities of U.S.-flag vessels to immediately report to the Coast Guard any complaints or instances of harassment, sexual harassment and sexual assault.” A responsible entity is defined in the act as “the owner, master or managing operator of a documented vessel engaged in commercial service” or “the employer of a seafarer on such a vessel.”
The report must be made immediately after the responsible entity learns of the sexual assault or sexual harassment and must include:
• the name, official position or role in relation to the vessel, and contact information of the person making the report;
• the name and official number of the vessel;
• the time and date of the incident;
• the geographic position or location of the vessel when the incident occurred; and
• a brief description of the alleged sexual harassment or sexual assault being reported.
A responsible entity that fails to immediately report faces a civil penalty of $50,000. After the initial report is made to the Coast Guard, the reporter must submit an after-action summary within 10 days of the initial report, detailing the actions taken to respond to the incident. The after-action summary should include the results of any investigation and any actions taken against the offending individual.
Failing to provide an after-action summary may result in a civil penalty of $25,000 and an additional $500 for each subsequent day of noncompliance.
“It’s worth noting,” Ulfers said, “that the use of the term ‘harassment’ in 46 U.S.C. § 10104(a)(1) alongside the terms ‘sexual harassment’ and ‘assault’ has caused some consternation within the [maritime] industry, as it seems to broaden the act and its application to require instances of mere harassment to be reported to the Coast Guard.” As of this writing, Ulfers said, efforts to clarify the language of Section 10104(a)(1) have proven unsuccessful, leaving the plain language of the statute unchanged and seemingly requiring instances of more loosely defined “harassment,” in addition to sexual harassment and sexual assault, to be reported.
The SSA also requires operators to take additional steps to prevent sexual assault and sexual harassment. The act had the effect of amending 46 U.S.C. § 3203 to require vessel owners and operators to incorporate policies on sexual assault and sexual harassment into their Safety Management Systems (SMS). A vessel owner or operator must now include in its SMS, in the context of sexual assault and sexual harassment, policies on annual training, prevention, bystander intervention, reporting, response and investigation.
The SSA requires oceangoing vessels with overnight accommodations for at least 10 people to install video and audio surveillance equipment that can monitor doorways.Vessel owners and operators are also now required to post notices in crew berthing areas addressing sexual assault and sexual harassment. More information on the notice requirements can be found in 46 U.S.C. § 11101.
In addition, the SSA requires owners of inspected vessels to ensure that their vessels are equipped with master key control systems that provide “controlled access to all copies of the vessel’s master key” to a limited group of individuals. The act also mandates that the vessel owner maintain a logbook that tracks the access and use of the vessel’s master key with (i) the date and time of access, (ii) the room or location accessed, and (iii) the name and rank of the crew member who used the master key.
License Risks
The SSA includes provisions that require the suspension and/or revocation of a mariner’s credentials following an official finding of sexual harassment or sexual assault. As set forth in 46 C.F.R. § 7704a, the U.S. Coast Guard is required to suspend or revoke a mariner’s license, certificate of registry or merchant mariner’s document if the mariner was the subject of an official finding of (i) sexual harassment within the previous five (5) years or (ii) sexual assault within the previous 10 years.
The term “official finding” is defined to include not only formal legal proceedings but also a more informal “determination after an investigation by the Coast Guard that, by a preponderance of the evidence, the individual committed sexual harassment or sexual assault if the investigation affords appropriate due process rights to the subject of the investigation.” The “preponderance of evidence” standard is one used in civil suits rather than criminal law.
Vessel, Equipment Financing Advances
New laws bring benefits and opportunities as well as challenges. Veteran attorney Jim Kearns, special counsel to the maritime practice group at Jones Walker, draws attention to two important developments that will continue to play out in the coming year. Two recent developments with the Capital Construction Fund (CCF) program of the U.S. Maritime Administration (MarAd) provide new financing opportunities to operators of inland vessels and terminals; both were reported in The Waterways Journal in 2023. The first was the passage of legislation in late 2022 expanding the scope of the CCF program to vessels operating on the inland waterways. The second was the introduction of a bill this past summer proposing to expand the CCF program to the acquisition of cargo-handling equipment by U.S. marine terminals.
Bonus Depreciation
“In recent years, the tax benefits of the CCF program have been overshadowed by the availability of bonus depreciation,” Kearns said. In 2022 the bonus depreciation percentage was a full 100 percent, but under current law bonus depreciation decreases by 20 percent each year thereafter and will be phased out completely for property placed in service after December 31, 2026. If passed, the recently proposed Tax Relief for American Families and Workers Act of 2024 would extend 100 percent bonus depreciation for qualified property placed in service between December 31, 2022, and January 1, 2026. Although there will continue to be some tax benefits from vessel ownership, the loss of bonus depreciation could make the tax benefits provided by the CCF program of increased interest to the owners of vessels on the nation’s inland rivers, including financial institutions that provide lease financing for such vessels.
“Each fund in the CCF program is governed by an agreement between the fundholder and MarAd that is tailored to meet the specific needs and circumstances of the vessel owner or operator,” Kearns said. “The funding for each CCF account comes solely from the fundholder, so it does not depend on the periodic and often unpredictable authorization and appropriation of funding by Congress. Nor does an applicant need to compete against others in programs in which outright grants are made from limited funds appropriated by Congress.”
Repowering, Coating Applications
“Although MarAd has not yet issued regulations that reflect the expanded CCF program, we understand that the term ‘reconstruction’ of a vessel will include the repowering of a towboat and the application of new or refreshed coating to a barge,” Kearns said. “As owners and operators of towing vessels on the inland rivers well know, repowering of towboats happens with some frequency, not only to enable them to handle larger tow sizes, but also to meet scheduled increases in regulatory emissions standards. Barge owners know that applying new coatings to barges to extend their economic useful life is also a regular occurrence as a result of normal wear and tear.”
Perhaps the single most telling indicator of the impact this expansion of the CCF program will have on the inland waterways industry is to see how quickly and broadly the owners and operators of vessels on the inland waterways are signing up for the program.
Port/Terminal Equipment
The U.S. inland waterways transportation system includes ports and terminals. Prompted by recent governmental and industry policy priorities to reduce and eliminate carbon emissions of cargo-handling equipment at U.S. ports and terminals, bills have been introduced in Congress to expand the CCF program still further to help domestic ports and terminals meet these objectives.
The H.R. 4993 bill, introduced in the House in late July 2023, would extend the CCF program to U.S. marine terminal operators by allowing them to make deposits into a CCF account of income from operating their marine terminals in an amount equal to the depreciation of their cargo-handling equipment, the net sales or insurance proceeds from the disposition of such equipment and the investment income earned by the amount held in the fund. Each of these amounts would reduce, or be excluded from, the taxable income of the fundholder.
The bill, which has been referred to the Subcommittee on Coast Guard and Transportation of the House Committee on Transportation and Infrastructure, has 13 co-sponsors at the time of writing.
Although a number of federal grant programs are available to inland ports and terminals to pursue the goals of low- or zero-emission cargo-handling equipment, the CCF approach has the same advantages for them as it does for vessel owners and operators—namely, a CCF account is funded by the fundholder with its own revenues, is not dependent on appropriations from Congress and does not compete with other participants in the program for the program’s benefits. “Expanding the program to the landside counterparts of the CCF program’s participants on the water would be a logical extension of the program’s ultimate goals,” Kearns said.
Recruitment, Retention, Repair Costs
Alan J. Savoie, currently a consultant for the Cooper Group, has experience in virtually every facet of inland waterways, fleeting and terminal operations. In addition, Savoie is a long-time organizer of the Greater New Orleans Barge Fleeting Association’s annual seminar on maritime law issues.
When asked about the coming year’s biggest challenges for operators, Savoie replied, “All of the above!” He points to “safety, regulations and, ultimately, the weather as all having an impact on profitability.”
“As we are now in 2024 and still experiencing low water, we can only hope for a mild winter to keep the low water levels from exacerbating present conditions. The industry is resilient and hopefully will continue to work through this issue. Events such as the 2023 low water are not considered when budgeting for the contract rate. A fleet operator being required to absorb those daily costs can be disastrous.”
Two issues that loom large for Savoie are the rising costs of crew recruitment and vessel repairs. “Competition in this [inland] market is overwhelming,” he said. “Wage demands have risen sharply recently, with no end in sight. With inflation and supply chain issues, repair costs have also seen dramatic increases. As many of our operations are rate based, whether daily or towage, it has been very difficult to keep up with the rapidly increasing costs. The market is doing its best to keep up with inflation. However, the challenge will become increasingly difficult. I am afraid we will see many of the mom and pop, smaller vessel operators, succumb to the burden of these increases.”
“Subchapter M has changed the dynamics of vessel operation,” Savoie continued. “With the increased inspections and repair requirements, vessels are spending more time in the shipyard. This puts a demand on the availability of power. Unfortunately, there is no easy or quick answer to this dilemma. In fact, it is possible if not probable that power will become more expensive as we navigate through the world of Sub M. The industry, as it has always done, will adapt and find its way.”
One issue that raises concern for Savoie, as for many in the industry, is recruitment, training and retention of new mariners and shoreside team members. “There are so many opportunities in this wonderful industry!” he said. “It is the senior mariners’ responsibility to inform and educate our entry-level employees of the multiple career paths available. We need to share with everyone that the reward of being a part of something special is more important than a desk, computer and telephone. This is a 24 hour a day business that truly doesn’t sleep. It is incumbent on each of the senior mariners that we include our next generation in making decisions that will impact their futures.”
Bringing In Team Members
Savoie praises inland marine companies that are putting mentorship programs in place to help older and retiring workers pass their knowledge on to new team members.
“Many larger companies have mentoring programs to assist their senior personnel in passing on their knowledge to the next generation. Companies are using any and all available resources to keep the long-standing traditions alive and develop new practices in the process,” he said. “Social media and technology have become a relevant part of our makeup. However, this is also a challenge! Understanding the direction of our younger generation, companies must evolve along with them.
“The pandemic showed that this industry can and will continue regardless of the circumstances. It is our responsibility to further the passion of this industry to the next generation.”
Echoing Savoie, Carpenter said, “People power our industry. At the micro level, companies need to be, and need to market themselves as, places where hard-working, drug-free, career-minded folks can make a terrific living, with great opportunity for responsibility and advancement. Employees need to see what the opportunities are and understand how they can seize them. And at the macro level, we need to partner with government and with other private-sector organizations both to tell the story of the opportunities available in our industry and remove regulatory and other obstacles to folks coming aboard and making a career here.”
