Horizons—At, On And Over The Horizon

Many WJ readers are already familiar with Ken Eriksen. He has often been quoted in these pages as an economist/consultant and a supply chain and commodities expert through his work with Sparks Companies, Informa Economics, IHS Markit and most recently S&P Global.  Eriksen has been a frequent speaker at the Inland Marine Expo.  Prior to Sparks Companies, Eriksen worked for the United States Department of Agriculture after working in the Department of Agricultural Economics of Washington State University. 

Now, we are pleased to announce that Eriksen, managing member and strategic advisor of Polaris Analytics & Consulting, will be a regular columnist for The Waterways Journal and its sister publication, High Plains Journal, writing about economic considerations important to the inland marine transportation industry and—especially for High Plains Journal—agriculture.  Generally, his column will alternate weeks between the two publications, so you can expect to read it here every other week. In addition, Eriksen will be compiling data and providing analysis for products to be offered by The Waterways Journal including the Mississippi River System Barge Fleet Survey.

Eclipsing The Infrastructure

Last week many people across the drainage basin of the Mississippi River System witnessed the total solar eclipse of the sun, a truly remarkable event. Depending on where you were, a person could have experienced more than four minutes of darkness in the middle of the day. It was a long-anticipated event, and people from around the United States and other countries made plans to be a part of history to watch the sky and see the full eclipse.

While people watched the sky for a four-minute phenomenon, navigators will watch the horizon for direction and guidance. Keeping an eye on the horizon is a way to remain on course by keeping oneself well-aligned. These regular columns, named Horizons—At, On and Over the Horizon, will bring attention to key economic considerations impacting markets and the economy of the United States.

At the Horizon is something that has happened, which we have experienced or are experiencing, such as when the solar eclipse took place. Being On the Horizon means we can see something in the distance and know something is going to happen and try to prepare for that, such as planning and preparing to witness the solar eclipse. But Over the Horizon is something out of sight that is unknown, such as an unexpected disaster or tragic event. The most immediate event that comes to mind is the mv. Dali colliding with the Francis Scott Key Bridge in Baltimore, Md., leading to the collapse of the bridge.

For the inland waterways, water levels can be known at nearly any location on the river system, but there are many unknowns, such as the impact of a drought and low water levels or a failure of the infrastructure (a collapse of a lock or breach in a levee), a natural disaster (such as hurricanes Katrina and Rita in 2005 or Ida in 2021) or a change in policy (for example when China imposed significant trade tariffs on U.S. products and commodities including soybeans in April 2018). These events all impact the economy to one extent or another.

Infrastructure is everything to an economy, and for transportation, infrastructure is how commodities and products roll or float over or flow through connecting markets around the world. The waterway systems of the United States are the envy of the world and have been copied but seldom imitated. However, as infrastructure ages, it becomes obsolete or has not kept up with technological advances. For the waterways there are many types of infrastructure including locks, dams, dikes, levees, piers, terminals, etc. If any of those are impeded for a particular reason, there will be impacts on the commodities and products that need to be transported.

For commodities, it is important to understand that a person is not trading corn, soybeans, coal, petroleum products, etc.; rather, people are trading freight. Freight is what enlivens the time and location of commodities to realize their value. Without transportation, farmers have a mountain of debt while someone goes hungry, without fuel and other life-sustaining needs met. Those commodities and products flow like water, seeking the path of least resistance.

Consider the economic framework for infrastructure, specifically the inland navigable waterways of the United States. The waterways infrastructure allows towboats and barges to float on and operate over the inland rivers. If there is an impediment to that infrastructure, then those commodities that were to be moved across or through the infrastructure back up. In the case of low-water events, barges are often light loaded (e.g., less cargo is loaded to achieve a safe navigable draft level), while the size of the tow could be restricted.

With restricted loadings and tow sizes, more barge capacity is required to move the same volume. To attract additional capacity, barge freight rates rise to compensate for the lack of capacity.

The higher freight rates are then transferred as higher costs to shippers or buyers. For agricultural commodities such as corn or soybeans, their flows slow or come to a stop. That volume then backs up to the farm gate, where basis (the difference between the futures price and cash price) collapses as a signal to the farmer not to move their crops to market.

For buyers on either side of the impediment, whether a U.S. domestic market or a market overseas, supplies are sought and acquired from other markets to meet consumption requirements. The impediment thus bolsters competition elsewhere.

As that competition demonstrates ability and consistency supplying a market, new trade pathways of least resistance emerge.

As those pathways mature, the economies near and around the infrastructural impediment weaken while those elsewhere prosper.

In summary, infrastructure has a design life, and if it is not maintained adequately, its useful life diminishes all the faster. Investing in infrastructure requires much lead time, planning and coordination. Unfortunately, the investment pattern of the inland waterways over several decades became “fix as fails,” but by then it is too late. When infrastructure fails, overseas buyers hear about it and think it will not be fixed and look to other markets to meet their consumption requirements.

The waterways industry, through the work of the Waterways Council Inc. and American Waterways Operators, along with commodity associations such as corn and soybeans, the National Grain and Feed Association and many others, must be commended for their efforts to ring the bell, sound the alarm and awaken policymakers and regulators to invest in infrastructure with major rehabilitation and construction efforts to assure the United States maintains its competitive advantage.

Without continued investment in waterways infrastructure, the U.S. economy dependent on those waterways will be eclipsed by competitors elsewhere.