Barge freight rates continue to remain near historic lows. [A detailed explanation of barge freight rate calculations is provided at the end of this article.] While barge rates have recently shown some signs of life, the three-month forward barge rate and spot barge rate for the percent of Illinois River Barge Tariff Rate are below 400%. The barge rates were lower in 2019 versus 2018 despite river conditions that greatly increased operating costs. By comparison, the last time the river was closed due to high water in 2014, the percent of Illinois River Barge Tariff Rate exceeded 1,000% versus in 2019, percent of tariff for Illinois River only exceeded 600% one week and fell below 400% during one of the most extreme weather events in U.S. history.
Coal and crops are transported in a dry barge with coal in an open barge and crops in a covered barge. The largest commodity in terms of barge movement volume is coal, which continues to decline as coal plants switch over to natural gas. The Energy Information Agency continues to forecast a decline in domestic coal consumption. The explosion in higher U.S. liquid natural gas exports is also replacing potential coal exports. In term of ton-miles, grain and soybeans are the most important commodities. A ton-mile is distance times number of tons loaded on the barge. Crop barge movements are much longer distance than coal barge movements. The bottom-line is that without a major infrastructure bill that increases the movements of other bulk commodities, such as concrete, steel, and aggregates, barge commodity movements will be even to down in 2020.
While the oversupply of barges versus demand is taking a toll on barge companies, the tariff rates not skyrocketing is positive news for soybean farmers. Declining barge freight rates will improve the soybean basis in the Corn Belt. As dredging projects continue to be completed, expect barge freight rates to further decline.
According to The U.S. Department of Agriculture’s (USDA) Agricultural Marketing Service (AMS), “the U.S. Inland Waterway System utilizes a percent of tariff system to establish barge freight rates. The tariffs were originally from the Bulk Grain and Grain Products Freight Tariff No. 7, which were issued by the Waterways Freight Bureau (WFB) of the Interstate Commerce Commission (ICC). In 1976, the United States Department of Justice entered into an agreement with the ICC and made Tariff No. 7 no longer applicable. Today, the WFB no longer exists and the ICC has become the Surface Transportation Board of the United States Department of Transportation. However, the barge industry continues to use the tariffs as benchmarks as rate units.
To calculate the rate in dollars per ton, multiply the percent of tariff rate by the 1976 benchmark. As an example, a 200 percent tariff for Minneapolis-St. Paul barge grain would equal 2.00 times the benchmark rate of $6.19, or $12.38 per ton. Each city on the river has its own benchmark (see table below), with the northernmost cities having the highest benchmarks.”
