Cover Story: River Rising

River Rising Barge markets continue to rebound.

By Pamela Glass, Washington Correspondent

After suffering big losses as demand for barging plummeted in the early days of the pandemic, business over the past year has been steadily improving across all barging sectors. Operators are busy again moving cargo along inland rivers, including an unusual bump in coal exports, effects of the pandemic appear to be waning, and many companies report that demand has returned to pre-pandemic levels.

Movements of construction and steel materials are strong, re ecting spring construction season demand and an infusion of federal infrastructure money, coal and corn are on the move to export markets disrupted by the war in Ukraine, and re ned petroleum and petrochemicals have rebounded as re neries have red up production. Strong barge utilization coupled with scant new barge construction due to high steel prices have kept barge supply tight and freight rates elevated.

“We’re off to a very strong start to 2022, with the rst quarter having the highest volume that moved on the inland waterways since 2013,” said Ken Ericksen, senior vice president and expert in energy, transportation and agribusiness at IHS Markit, a consulting rm. “It’s a big rebound that has taken place, and it’s been broad in scope.”

As David W. Grzebinski, president and CEO of Kirby Corp., Houston, the nation’s largest tank barge operator, put it: “As soon as Omicron started to dissipate in March, things really started hopping. Barge utilization is up to 90 percent and still going strong. Re ners and petrochemical companies are doing better, and there has been about the best pricing environment we’ve seen” for barge contracts.

But operators have been thrown a new curveball: repercussions from Russia’s invasion of Ukraine are causing shortages of certain products, a disruption of the world agricultural and steel markets, supply chain and trade problems, and skyrocketing fuel and energy prices that are the main drivers of in ation.

Consumer prices were 8.6% higher in May compared with the same month a year ago, the fastest growth in 41 years, driven by pent-up consumer demand after the pandemic lockdowns were lifted and persistent supply shortages. The situation has worsened since the Russian invasion of Ukraine in February. Analysts now predict weak global economic growth coupled with rising in ation at a time when the world is struggling to recover from the pandemic.

This outlook has many barge companies worried.

The 2,600-hp Kirby Navigator pushing a tank barge tow on the Atchafalaya River near Morgan City, La.

SUPPLY CHAIN AFFECTED

Although Kirby is predicting strong earnings throughout this year and next, the current economic recovery could be in jeopardy if the Ukraine war drags out and in ation leads to a recession. “What could derail us is a recession, but that feels like a ways off, and we’re all watching the Ukraine if something happens more global, that would derail things,” Grzebinski said.

Austin Golding, CEO of Golding Barge Line, a tank barge operator in Vicksburg, Miss., that moves energy and chemical products along the inland system, said the Ukraine war may seem far away but it does have implications for U.S. barging. When the supply chain is disrupted elsewhere in the world, a shift of buyers to U.S. products will affect the supply chain in the U.S., especially in the energy sector, he said. “We’re all part of a global supply chain, and we’re all paying for the nonsense of this war.”

In ation and high labor costs, operators say, are in many cases negating positives such as higher freight rates and increased demand for barging.

“The cost of products is so in ated now that we wonder if people can afford the products we are carrying for much longer, how much more expensive will it become to make them, and what it’s going to do to demand,” Golding said. “All of the commodities we carry are part of the global wheel that is now thrown into ux. We’re all worried about our cargoes. We’re all worried about costs of operations.

“Our [freight] rates are de nitely improving, but they’re improving at the same rate that in ation is eating up whatever ground we’ve gained,” Golding continued. “We’re at a rate structure that is improving but we’re still not to the point where we need to be nancially to meet the headwinds of high labor costs and the general costs to run our operation.”

A big impact has been the surge in oil prices that has forced up the price of gasoline, diesel and energy. Oil prices spiked in early June after the European Union moved to cut off Russian crude, a signi cant economic penalty for Russia in the wake of its Ukraine invasion. This comes at a time when Americans began driving and ying more and more U.S. barges were returning to the waterways.

Inland operators have seen a 60-centper-gallon increase in diesel fuel prices since the beginning of March, according to River Transport News, which tracks the inland barge industry. Diesel prices in May hit new all-time record highs, RTN said, surpassing comparable

ACBL’s 6,140-hp towboat Noble C. Parsonage pushes a coal tow through downtown Louisville. ACBL said that fuel accounts for approximately 30% of the company’s costs.

year-ago levels by $2.20 a gallon, depending on location.

The barge industry and expert observers never saw such a transformative and significant increase in fuel prices coming, according to Mike Ellis, CEO of American Commercial Barge Lines, Jeffersonville, Ind., one of the nation’s largest dry and liquid operators. He said fuel costs have doubled in a year and account for almost 30% of the company’s overall costs.

“With fuel costs up, new (barge) builds are down, so the supply and demand of barges has tightened,” Ellis said in a May 26 interview with CNBC. Inflationary costs have affected all aspects of ACBL’s business, especially involving imports moved on the waterways. “Our customers have had to change the supply source and source from somewhere else. They’ve had to go to Brazil and all over the world to find substitutes” (for certain products), he said. “It is not coming from Ukraine or Russia, it’s coming from all other parts of the world and parts of our country.”

High fuel costs also offer an opportunity for barge companies to tout their efficiencies as a transportation mode, said Golding of Golding Barge. He said his fuel costs have risen 25% since January and are passed on to customers through contractual obligations. As fuel costs go up, attention turns to opera-

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Golding said well-designed boats and engines operated by highly skilled mariners can produce efficiencies and cost savings that are important during times of high fuel prices and can be attractive to potential customers.

Rising fuel prices combined with a tight supply of empty barges, a spike in grain demand caused by the war, plus high water that reduced barge tows this spring, have also driven up barge freight rates, the U.S. Department of Agriculture’s Grain Transportation Report said in its March 17 newsletter.

After reaching a peak soon after the Russian invasion of Ukraine on Feb. 24, grain freight rates from the St. Louis area have been falling, trading at levels near 300% of benchmark tariff in May, RTN said. In mid-March, by contrast, the St. Louis rates were 871% of the benchmark, 220% higher than last year, according to USDA figures. These rates partially reflect a shift in the international grain market as a result of the Ukraine war, with the U.S. picking up some new corn business.

“Black Sea traffic disruptions are expected to further increase near-term demand for U.S. barges,” the USDA’s GTR said on April 14. “The war may amplify pressures on an already tight barge supply, as global consumers turn to U.S. grain and other commodities to fill voids left by Russian and Ukraine. The depleted supply will only intensify demand for empty barges to fill commitments in the second quarter. Plus, grain shippers continue to compete with other commodities such as coal and energy products for available barges.”

With Russia and Ukraine major suppliers of the world’s corn, wheat the sunflower oils, the closure of ports in the Black Sea has made global customers frantic to find substitute producers. While the situation has set off alarms about global food shortages, it benefited U.S. farmers and barge lines that move grains, as there was a “seasonably uncharacteristic surge in U.S. corn exports” from the end of February, RTN said, adding that volumes began to decline in March.

MORE COAL DEMAND

One of the most unexpected consequences of the war has been a bump in international demand for the already tight supply of U.S. coal. With Russia being a major supplier to the global market, and European sanctions on coal set to begin in August, customers are looking to the U.S. and other suppliers to ll the void.

“We have more demand on the Ohio River for steam coal now than I’ve ever seen and I’ve been doing this for 27 years,” said Peter Stephaich, chairman and CEO of Campbell Transportation, Houston, Pa., a major mover of coal along the inland system. “The demand is unbelievably strong, with 20-30 percent increases on year to year volumes.”

Operators who can play in the spot market can make a lot of money, Stephaich said. But the problem is getting the coal, as supplies have been diminishing due to U.S. demand falling, federal emission rules to curb fossil fuel use, lower-priced competitive fuels, and scant investment in new mining and maintaining power plants. “There’s basically not enough coal

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Campbell Transportation is seeing big demand for steam coal, but the company is not taking part in the export boom because all its coal barges are committed to existing customers.

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The pushboat Andrew Golding and tow on the Ohio River at Paducah, Ky. The overall availability of barge equipment is tight throughout the industry.

coming out of the mines to go around to cover everyone who wants it,” he said, adding that his company is not participating in this export boom because all its coal barges are committed to existing customers. “We’ve turned down spot moves regularly. Normally we’d do that. We have a certain number of barges we use in the spot business, but we’ve decided to use that for our long-term contractual services.”

The industry shouldn’t get too excited about a spike in coal demand, however, as the U.S. supply is not likely to meet the global demand and create long-term business opportunities, according to IHS Markit’s Ericksen. “We won’t see major investments or capital investment just to take a one-shot export program where there could be a regime change in Russia,” he said. “and there are many sustainable emission targets that have been put in place” in many parts of the world that will limit coal use.

Supply disruptions and sanctions caused by the war also disrupted northbound imports of pig iron and fertilizer that originate from Russia and Ukraine, according to RTN. Pig iron is barged upstream through the Lower Mississippi River to U.S. steel plants that use it as feedstock in steel production. About 65% of all pig iron imports last year came from Russia and Ukraine, RTN reported, with the remainder from Brazil and South Africa. The overall availability of barge equipment remains tight throughout the industry, as the high cost of building barges (now at around $1 million each compared to about $500,000 in 2019) and the high price of fuel to power them, has kept the fleet from being overbuilt with new equipment. “We’re not in an imbalance where we have too much demand and not enough equipment. It’s pretty equalized,” said Golding.

LABOR ISSUES

Another big concern for operators is the high cost of labor and the difficulty filling open positions both on vessels and shoreside. This was on everyone’s mind at the American Waterways Operators spring meeting in May, according to AWO CEO and President Jennifer Carpenter.

With labor shortages across all sectors nationally, barge companies are competing with other industries that offer good salaries, signing bonuses and no time away from home.

Barging “is an essential sector with strong implications for national security, so we need to make sure we have a pipeline of people who want to come into this industry and make a career of it,” Carpenter said. “The short term challenge (for operators) is making sure we’ve got people to run the boats now and we have the people to grow the industry into the future. Those are big issues for our members.”

There is no immediate solution and companies must take a multifaceted approach to recruiting and employee retention, Carpenter said.

Many are being creative and proactive. Campbell Transportation has hired a professional recruiter to help attract and screen potential hires, and amped up its training program to emphasize jobs that lead to long-term, well-paying careers.

Golding Barge is venturing well beyond its base in Mississippi deep into rural areas in the Southeast to reach potential recruits, emphasizing longterm salary and career opportunities. All companies are making creative use of social media.

Labor difficulties aside, Carpenter said that while the current market rebound and high barge utilization rates are positive signs, it should be noted that the world is not yet free of the pandemic and there are many other factors affecting the industry’s performance.

“I qualify this because there are seasonal ups and downs, so getting out of pandemic-induced demand destruction does not mean that we’re going to be flying high 365 days a year. That’s not how it works,” she said.

“Different companies are differently situated depending on their debt load and their own financial profiles, there are seasonal fluctuations in the markets, and this year’s harvest is not yet here. Inflation is a real issue that affects fuel prices, wages and component parts, steel prices remain high, and now hurricane season is upon us,” Carpenter said. “But that shouldn’t overshadow the positive news that markets have begun to recover well.”