What do agricultural products, fertilizer, oil, and coal have in common?They all travel on the Mississippi River to reach the consumers who use those commodities.The challenge is that the river is at historically low levels and the barges carrying these products cannot transit.
Per Bloomberg, a drought has created low water levels that “are causing severe impacts to navigation not seen since 1988.” Nearly all the Mississippi River basin, “from Minnesota through Louisiana, has seen below-normal rainfall since late August. The basin from St. Louis south has been largely dry for three months, according to the National Weather Service.”
This is happening at the worst possible time as farmers are trying to get crops to market, there is a global shortage of fertilize at a time when it needs to be in the fields, and the price of gas is once again on the rise.
Nearly 30 percent of the nation’s soybean crop is transported by barge. Approximately two-thirds of corn that is exported from the U.S. also travels by barge. The low water levels have caused fewer barges to dock in New Orleans to be exported.
“The U.S. Department of Agriculture’s Grain Transportation Report, released on October 6 said that 1,890 grain barges have unloaded in New Orleans since September 1, about 39% fewer than the five-year average.” This has caused rates to skyrocket. Recently, “barge rates hit $49.88 per ton. That is the highest price on record and a 50 percent jump from 2021 shipping rates.”
Interestingly, the low water levels and reduced shipments have caused the price of soybeans, wheat, and corn to decrease slightly, as the demand for U.S. grain exports have decreased, due to the uncertainty of supply. This downturn in pricing should be short-lived as the on-going drought, high barge prices, and the scarcity of fertilizer will drive prices up.
Why don’t companies simply shift to other modes of transportation like rail and truck to move their products?
They are, to a certain extent. Companies are moving commodities such as steel, aluminum, and agricultural product via rail and truck, “despite costs that are up to five times more than what they would normally pay by barge.”But this is not a sustainable, long-term solution.
“In order to move the amount of freight that currently is in transit via barge on the Mississippi, it would require an immense amount of capacity that is unique from an equipment standpoint…the trailers required to haul grain versus coal and versus bulk liquids are all different and there are limited options.” In addition, the trucking and rail industry are still in crisis mode as the U.S. tries to recover from its supply chain crisis.
The U.S. Army Corps of Engineers is doing its best to free grounded vessels and dredge the river where it can, but groundings are causing challenges. The U.S. Coast Guard said, “at least eight groundings of barges have been reported in the past week, despite low-water restrictions on barge loads.” These groundings have halted river traffic in both directions for days.
This under-reported issue will add to the on-going inflationary pressure in the U.S. and abroad. If river traffic is not able to return to normal levels soon, we will see farmers miss the “fertilizing season,” which typically occurs in November. This will reduce crop yields and drive prices up. A reduction in the flow of oil, coal, steel, and aluminum will impact the prices of everything from cars to electricity and will drive home heating prices up.
It may be a long, cold winter.