Shipping commodities up and down America’s inland waterway system got pretty hard to do in 2022, especially along the Mississippi River. Extended drought cut water levels to almost impassable levels and resulted in shipping grinding to a halt in the river. The good news is those levels are finally beginning to rebound.
Mike Steenhoek is the executive director of the Soy Transportation Coalition, a group that keeps a sharp eye on shipping and the waterways year-round. They’re happy to see those river levels starting to rise because ships are once again carrying commodities to southern ports in the U.S.
Mike Steenhoek of the Soy Transportation Coalition. (photo by the Iowa Soybean Association)
“Meaningful precipitation has occurred over the past several months,” he said from Ankeny, Iowa. “It’s made a significant impact throughout the entire inland waterway system.”
Steenhoek offered up Memphis, Tennessee, as an example, calling it one of the “ground-zero” locations for the low-water conditions last fall. That location is currently 10-10.5 feet of water depth in relation to the gauge.
“Last year at this time, we were at 19 feet,” he recalled. “So, we’re below last year. To give that some perspective, we were just about at a negative 11 feet in late October. We’re easily more than 20 feet better than we were in October, which is a significant increase making shipping easier.”
St. Louis, Missouri, was another example of “ground zero” in the low water level picture. That location is just a bit higher than at the same time in 2022, so the area has seen a nice rebound from the low levels. He says the moral of the story is the waterways have returned to a degree of “normalcy.” But there is a catch.
“It won’t take a lot of sustained dry conditions to tip us right back into lower conditions,” Steenhoek said. “It could critically impact some of those areas like St. Louis to Cairo, Illinois.”
Shipping commodities is getting back to near-normal levels, for now. The waterways need continued rainfall in case dry weather returns. (Photo by AgFax)
Cairo (pronounced KAY-row) is a significant point in the waterway system. That’s where the Ohio River meets the Mississippi and provides a big influx of water into the system so that St. Louis to Cairo area can be very susceptible to low water conditions.
How dry did some of those areas get? The levels sank so low that ships were actually running aground and getting stuck in the Mississippi River. When that happens, one of two things usually occurs.
“Those ships sometimes had to get dug out,” he recalled. “Sometimes, they had to sit there until water levels rose to the point they could move again.
We also had sediment buildup, or ‘shoaling,’ in multiple locations,” Steenhoek said. “That resulted in shipping having to stop or significantly slow down. That meant there was a lot of dredging activity occurring last year and continuing into 2023.”
The timing for ships getting stuck last fall was awful, as that’s a time when a high percentage of U.S. exports occurs between September and February. “That’s when the U.S. soybean spigot is turned on and we supply a lot of soybeans to the world market,” he said. “Bad time for one of the main ways we move product to our ports to go down.”
Steenhoek monitors shipping in the waterways closely and says there is good movement up and down the waterways right now. U.S. export volumes are comparable to even a little higher than where they were last year.
“That’s really good news,” he said. “The reports I’m getting, particularly from the export facilities down in the New Orleans area, say they are back to a healthy degree of normalcy.
“As I mentioned, we’d love to see steady precipitation continue,” Steenhoek added. “We don’t have a lot of excess water in the tank to rely on if things go that dry again.”
Port slowdowns are still clogging up the nation’s supply chains, and it’s a big problem to solve. Ray Bowman is Director of the Small Business Development Center of Santa Barbara and Ventura counties in Southern California. He’s also the program chair for the District Export Council of Southern California. The business veteran and trade consultant said things have improved a bit but only on one side of the import-export equation.
America’s port slowdowns are showing minimal signs of improvement but only on the export side. (Photo from splash247.com)
“Many things are going on to help with the port slowdowns,” he said on the phone from his office in Camarillo, California. “Most of us have seen the news footage of ships backed up and waiting to unload their cargo. A big part of the backup is the unprecedented buying demand we saw during COVID-19.”
He says the Biden administration moved to get the nation’s ports operating on a 24-hour basis or, at least, get that framework in place to help relieve congestion. Bowman says it’s helped somewhat on the import side of the business, where he says things are about 30 percent better than before.
“Unfortunately, I don’t see that it’s improved on the export side,” Bowman says. “So that’s been tough on American shippers who need to move their goods overseas.
“We knew there would be a significant increase in buying during COVID-19,” he said. “Up until recently, we haven’t seen much of a slowdown in purchasing. Companies are likely still trying to fill orders backlogged for months.”
Ray Bowman is an international trade consultant from southern California with over 30 years of experience. (Photo from edcollaborative.com)
With so much demand for containers on the import side, it’s very difficult for shippers to simply find export containers to load their goods in. Companies started focusing more and more on the import side because they were making so much more money.
When it comes to export containers, fewer goods are leaving the country, so it tends to be cheaper to purchase export containers. They aren’t worth as much to the steamship lines as the larger volume of goods coming into the country. “Because of the demand for imports, steamship companies put all their space availability on the import side,” he said. “They didn’t pay as much attention to the export side, making containers much harder to find.
“The price of those containers is another limiting factor,” Bowman said. “As demand increased, the price shot higher at an unprecedented rate. We knew the price would increase because those costs have gotten suppressed in recent years, but we didn’t expect it to climb by ridiculously huge amounts.”
Limited amounts of containers and exorbitantly high prices hit the small and medium-sized companies harder than the larger businesses. He said the larger companies have economies of scale built into their business structures. Many typically have contracts for consistent shipping availability and trucking services regularly available.
“Small and medium companies buy their services primarily off the spot market,” Bowman said. “So, those higher prices hit those companies even harder than their larger competitors. These things like container shortages haven’t come out of the blue. This has been going on for some time, but when buying spikes as we’ve seen recently, there’s a point at which a system can’t efficiently handle the excess demand. That’s when we get significant port slowdowns.”
Port slowdowns are still ongoing as shippers try to process orders for goods made up to 90 days ago, so it will take some time to work through the backlog. (Photo from theguardian.com)
In addition to the small pool of available containers, Bowman said warehousing space for unloaded goods is almost maxed out. American warehousing only has roughly three percent of its total space available, which is not a good thing. He says the West Coast ports have less than two percent of space available.
“That only makes the container shortage worse because you have to be able to empty containers to make them available,” he said.
Many truckers who deliver to ports run into something called a “dual transaction” requirement. Bowman said that means if a trucker has a container to drop off, they’d better have another one to pick up. If a driver has a container to pick up, they’d better have another one to drop off. It’s efficient on paper, but if a driver doesn’t have that second part of the dual transaction, they’ll have to go find one.
“Another big challenge at the ports is something called the ‘Box Rule,’” he said. “When a trucker drops off a container to a particular shipping company, you have to have a chassis. Those are the wheels on the bottom that you load the container on.
“These steamship companies have contracts with different chassis makers,” Bowman said. “A steamship line will say, ‘if you’re going to tender one of our containers, you also have the chassis of the company we’ve contracted with.’ If you don’t have the right chassis to go with the right container, you’ll find yourself with cargo, the booking, and nowhere to unload it.”
Bowman, a business veteran with over 30 years of experience, says there is a lot of conversation about not having a Box Rule at the country’s ports. Shippers don’t want to worry about where the chassis comes from. Instead, they want the companies to bill whoever needs to get billed to use a chassis.
The Box Rule is a big problem in the nation’s ports. (photo from joc.com)
“Because of rules like this, roughly 30 percent of truck drivers miss their appointments,” Bowman said. “if you aren’t there on time for whatever reason, such as looking for a chassis, there’s no recourse. You’ve missed your appointment. It’s not unusual, at all, for a trucker to get there hours early and miss their appointment because they’re stuck in a queue.”
Another big reason that things get bogged down is a backlog. A lot of the shipments coming in right now got booked 90 days ago, if not longer.
While shippers, port officials, and government officials are looking at how to rectify these different challenges, Bowman says one of the biggest challenges is a lack of adequate infrastructure at the ports. Most of America’s ports were built when ships were typically much smaller than they are today.
“When I started in the shipping industry, a large ship was around a 4,000-container capacity,” he recalled. “In the 1980s, that was a big ship. Now, we have ships that can hold between 10,000 and 20,000 containers.
“Not only are they bigger, but these ships also just aren’t one carrier like they used to be,” Bowman added. “It used to be one carrier, one ship. You now have what are called ‘Shipping Alliances.’ In fact, there are three big ones in the U.S. As many as four or more steamship lines can be sharing space on one ship.”
Bowman said one of his biggest personal concerns is agricultural goods. If a shipment of consumer electronics takes a long time to get where it needs to go, the products aren’t in any danger of spoiling. Agricultural shipments contain perishable products that won’t wait long for a container and ship.
“A lot of attention needs to get paid to that,” he said. “Those are some of our best exports, and we need to protect that part of the supply chain.”
Bowman is an internationally-respected business consultant who says he’s never seen anything like this before. “There have been port slowdowns in the past, but this is truly unprecedented,” he said.
Here’s the complete conversation with Arlan Suderman of INTL FCStone on the commodity markets reaction to the coronavirus outbreak.
Coronavirus headlines and the commodity markets. It’s been a while since we’ve seen the commodity markets this reactive to news headlines on an almost daily basis. While it’s not unheard of, one commodity expert says it’s been over a decade since the markets have been hit this hard by the news. Arlan Suderman is the Chief Commodities Analyst for INTL FCStone, talks about why the news coronavirus headlines seem to be playing havoc in the commodity markets.
“I think that’s a question a lot of people have these days,” Suderman says. “It’s a valid point to discuss.
Arlan Suderman, Chief Commodities Analyst at INTL FCStone says the commodity markets have been hit hard by news reports surrounding the coronavirus, as well as the resulting “fear outbreak” from people all over the world.
“I was initially downplaying the market reaction in January,” he recalled, “before doing some research at the end of that month. This is the type of virus that’s going to trigger a lot of fear in people. When you have that much fear, the fear of the coronavirus headlines will be worse than the threat of the virus itself.”
He points out that when people get afraid, they stay home, they don’t travel, and they don’t go out in public as much. That’s been the case in China as everywhere the disease has hotspot outbreaks, everybody stays home.
“Shanghai, a city of millions of people, is now a ghost town,” Suderman said. “Now we’re seeing pictures of that in lots of other places, including Italy.
“When people stay home and don’t go out, they tend to consume
less food,” he added. “That includes consuming less meat and a lot more
starches. Overall, it does tend to change consumption patterns a lot.”
People also consume less energy in these situations as they aren’t driving a lot while airlines are also canceling flights as people don’t want to travel. Less consumption in the energy markets hurts the biofuels markets as well.
Even things like shipping commodities get much more complicated as people are staying home, thanks to the coronavirus headlines. That’s been the case in China and is becoming prevalent in other countries too.
“People didn’t show up to work,” he said. “Ports become
congested, ships don’t get unloaded, and shipping slows way down. That’s lost
demand you likely don’t get back. You may get some of it back, but not all.
