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Floods Raising Freight Rates, Washing Away Revenues

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Floods Raising Freight Rates, Washing Away Revenues

Hundreds of barges remain stalled on the Mississippi River, blocking the main artery of the Farm Belt economy that has been devastated by a spring season full of relentless torrential rains and the melting of record-setting snowfalls. Railroads and highways have been closed as well, limiting the amount of crops sent to market.
A large number of barges that are tied up are carrying grains, mainly corn and soybeans. These are the loads that weren't able to be rerouted to different waterways, or offloaded onto a rail car or a truck. As a result of high water and fast currents, almost 300 barges are being held at two locks along the Mississippi. This is according to the Waterways Council Inc., an organization that tracks barge movements. Deb Calhoun, the council's senior vice president, told Claims Journal on June 10 that hundreds more barges are waiting in St. Louis, as well as Cairo, Illinois and Memphis, Tennessee.

"It's a big bottleneck," Calhoun stated.

These loads need to get to the Gulf Coast for export. The Port of New Orleans on the Gulf Coast – or Port NOLA as it's often called – is connected to America's heartland by the Mississippi River and its tributaries. Besides agricultural products, it handles a wide range of other cargoes such as rubber, coffee, steel, containers, coal and manufactured goods. Several thousand vessels carry around 500 million tons of cargo up and down the Mississippi each year, including more than half of the country's grain exports.

Farmers are definitely feeling the pressure. Bob Hemesath is a farmer in Decorah, Iowa, about 35 miles west of the Mississippi River. He had planned to deliver about 20,000 bushels of corn to a Bunge Ltd. (NYSE: BG) facility in McGregor, Iowa in March and April. Instead, he ended up sending the grain to a local ethanol plant because the Bunge facility was closed due to high flooding.

He knows nearby soybean farmers who are waiting to send their crops down the river as well. U.S. farmers still have large amounts of crops in their silos from their 2018 harvests because selling hasn't made financial sense during the U.S.-China trade war, slow demand and slumping prices. Now, with northbound and southbound river traffic at a halt, Hemesath is worried about what the barge backlog is going to look like this fall.

"We are going to be missing almost three months of river traffic; I don't even know how we will get caught up," he told the Claims Journal, also on June 10. "If the river facilities don't have barges [because they are loaded with] old crop they won't be able to ship new crop. It's another stress for farmers."


U.S. locations at or above flood stage, as of June 11, 2019. (Sources: NOAA, USGS)

The latest Grain Transportation Report from the U.S. Department of Agriculture (USDA) states that so far this year, 13,194 barges of grain have been unloaded at ports on the lower Mississippi River. That is 15 percent fewer than this time last year, and 13 percent below the three-year average. Year-to-date tonnages of down-bound grain at locking portions of the Mississippi, Ohio and Arkansas rivers total 10 million tons, 29 percent lower than this time last year, and 35 percent lower than the three-year average.

Upper Mississippi River Locks 12 to 27 – from the Illinois-Wisconsin border to St. Louis – are closed due to flooding. St. Louis Harbor is closed until the river level falls below 38 feet, which may not occur until June 19 or 20. Mississippi River levels at St. Louis crested at 45.9 feet the weekend of June 8 and 9 – 3.7 feet lower than the record level of 49.6 feet set on August 1, 1993.

The Arkansas River is also closed due to high water. Barge traffic on the lower Mississippi River has been disrupted by reduced tow sizes, and transit is being restricted to daylight hours under certain bridges.

For the week ending June 1, barge grain movements totaled 272,950 tons. This is 50 percent lower than the previous week and 72 percent lower than the same period last year. For the week ending June 1, 153 grain barges moved down river on the Mississippi. This is 171 fewer barges than the previous week.

U.S. Class I railroads originated 22,495 carloads of grain for the week ending May 25. This is 3 percent lower than the previous week, up 13 percent from last year, and 4 percent below the three-year average.

For the week ending May 30, 26 ocean-going grain vessels were loaded in the Gulf. This is 7 percent less than the same period last year. However, 51 vessels are expected to be loaded within the next 10 days, 6 percent more than the same period last year. As of May 30, the rate for shipping a metric ton (mt) of grain from the U.S. Gulf to Japan was $44.00, 1 percent more than the previous week. The rate from the Pacific Northwest to Japan was $24.25 per mt, also a 1 percent increase from the previous week.

SONAR Critical Events: Assets such as ports and oil refineries still in Medium risk for flooding along the Mississippi River, as indicated by the orange dots and "doughnuts."

The ships that carry U.S. grain across the oceans are generally Panamax-class bulkers. These ships also carry other bulk commodities around the world. Based on a recent report from Fidelity National Information Services (NYSE: FIS), some people believe the Baltic Panamax Index has been trading down in the past week at least in part because of the ongoing flooding. This implies that at least some derivative investors believe flooding is having a negative shipping demand effect in the Panamax market.

There's still some uncertainty about the flooding's long-term impact on the waterways. Meteorologists at the National Weather Service (NWS) say numerous places on the Mississippi River could remain above flood stage through July, and the repercussions may ripple through the economy for the rest of the year. Crops sown late in the season to be moved by barge, truck and train traffic could soon be stretched thin. Besides the widespread nature of the flooding, its longevity is making the situation that much more difficult and unique.

Image Sourced by Pixabay

Posted-In: flooding Freight Freightwaves Logistics Supply ChainNews Markets General

 

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