Shipping along the Mississippi River could prove to be a massive headache in 2024, per a recent report from the National Oceanic and Atmospheric Administration.
An unusually warm and dry winter — which allowed the Upper Mississippi River shipping season to begin earlier than usual this year — might herald drought conditions in key areas of the Mississippi River Basin over the coming months.
“Of growing concern will be the potentially low flows on the Mississippi River this summer into fall due to well-below [average] snowpack and precipitation in most of the Northern Plains and Midwest,” Ed Clark, director of NOAA’s National Water Center, said in the report. “This could have potential impacts on those navigation and commercial interests that depend on water from the Mississippi River.”
If this forecast comes to pass, it would mark the third consecutive year in which the Mississippi River was at risk of bottlenecks.
Stuck between a shoal and a dry place
Shipping via barges along the Mississippi River is vital not only to the transportation industry but also to the broader U.S. economy. In 2019, for instance, more than 60% of soybeans grown in the U.S. were shipped along the Mississippi. The U.S. is the world’s largest producer of soybeans as well as its second-largest exporter.
In that same year, nearly one-fifth of the U.S.’s total crude oil exports traveled along the mighty Mississippi.
These freight flows took on heightened significance in early 2022, when the war in Ukraine threatened the world’s supply of such commodities.
But it was also in 2022 when the Mississippi was stricken by an extreme drought: At one point, more than 100 towboats and 2,000 barges — equivalent to 140,000 semis’ worth of freight — were stuck in the mud.
As a result of the capacity crunch, barge rates more than tripled their three-year average. Not even the wildest days of the 2020-21 truckload spot market saw such runaway growth.
Alternatives for grain shippers were limited at the time: Railroads were struggling to remedy service issues while the industry appeared to be barrelling toward its first strike since 1992 — though that was ultimately avoided by government intervention.
By the end of 2022, the Mississippi River drought is estimated to have cost the U.S. $20 billion in lost economic output.
Given the previous year’s challenges, it would have been hard for 2023 to bring about a comparable crisis. Somehow, it managed.
The culprit was once again an extreme drought that brought water levels in the Mississippi to historic lows at the height of grain’s shipping season.
For a five-week stretch from late August to late September, downbound grain barge rates were up by an average of 25% year over year (y/y) — highly impressive growth over what was already a monster year for rates.
But by October, barge rates were moderating closer to their historical averages, despite no improvement in waterway conditions.
In its weekly Grain Transportation Report from Oct. 19, the U.S. Department of Agriculture noted that “barge rates are still below average — likely reflecting low corn and soybean export sales to China.” In fact, U.S. soybean exports fell 32% y/y in 2023.
The amount of crude oil and its products (e.g., gasoline, fuel oil) moving along the Mississippi also took a hit, though for the opposite reason: 2023 was a record-setting year for U.S. exports of oil and petroleum products, given the energy supply crisis that Europe was facing. Total exports of crude, gas and other fuel oils in 2023 were up 6.6% y/y and 180% on a 10-year basis.
Meanwhile, the amount of crude oil and petroleum products moving from the Gulf Coast to the Midwest on barges and tankers fell almost 20% y/y and 24% on a 10-year basis.
Murky waters ahead
Even assuming that 2024 fails to match the chaos of the two years prior, it is unclear what the future holds for the humble barge. As Rachel Premack summarized for FreightWaves in 2022, the industry is in the unenviable position of having the “low-margin, ultra-heavy shipments of rail, combined with the ease of entry of trucking.”
One forecast pins the U.S. barge transportation market at a 7.2% compounded annual growth rate (CAGR) from 2021 to 2028. Depending on whom you ask, such growth is either middling or magnificent.
On the one hand, large and mature companies typically expect a CAGR between 5% and 12%, with 8% being a broadly accepted benchmark.
But a comparison to the railroads might be more appropriate, given that both modes handle similar types of cargo and share a similar level of maturity. According to data compiled by New York University, four major rail companies have posted an average CAGR of 2.5% over the past five years, with an expected CAGR of 2.8% over the coming half-decade. Suddenly, the barge sector’s 7.2% target looks downright radiant.
The industry will also get a boost from federal spending thanks to the 2021 signing of the Bipartisan Infrastructure Law, which allocates a total of $2.25 billion to the Port Infrastructure Development Program (PIDP). The PIDP, in turn, is funding proposals like the Multimodal Port Enhancement Project in La Grange, Missouri, which aims to turn $11 million into a “new dry bulk cargo handling facility along the Mississippi River.”
But the commodities shipped in these barges have an uncertain future on the Mississippi. The USDA expects U.S. soybean exports to rise 9% y/y, albeit to a level 12% below the average of the past three years. Domestic crude production, meanwhile, is forecast to set new records in 2024 and ’25, positioning the U.S. for a continued streak as one of the top oil exporters at a time when Saudi Arabia and Russia are withholding supply.
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