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The Potential Impact of 5 Feet on the Mississippi River

Dredging the lower Mississippi from 45 to 50 feet could get soybeans to market in larger, more cost-effective shipments that accommodate larger global ports, says new Soy Transportation Coalition research. Doing so would improve competitiveness of U.S. grain and provide better prices for international customers. Is it in the near future for the U.S.?

Background

The Mississippi River, a 2,320-mile (3,730 km) waterway, runs through the center of the United States. The 256-mile stretch of the Mississippi River from Baton Rouge, Louisiana, to the Gulf of Mexico accounts for 60 percent of all U.S. soybean exports and is by far the leading export region.1The existing draw area (the area that farmers travel to bring their product to the river) of 150 miles from the Mississippi and Ohio Rivers impacts 59 percent of U.S. soybean production.2Keeping transportation avenues up and running is critically important for U.S. soybean exports and thus, soybean farmers. Maintenance of the river and its draw comes in many forms, from new locks and damsto new bridges and roads traveled to reach the river, but a new study looks at the impact of river depth and increased shipping loads.

Currently, the Mississippi River depth is 45 feet that can be dredged to 47 feet to ensure certain vessels don’t hit the bottom of the riverbed.2The Soy Transportation Coalition (STC) is made up of thirteen qualified state soybean boards, the United Soybean Board and the American Soybean Association, and works to promote a cost-effective, reliable and competitive transportation system. In May 2018, STC enlisted the help of Informa Economics to determine the potential impact of dredging the Mississippi River from its existing depth of 45 feet to 50 feet. Increasing the depth of the river an extra five feet would increase thereliabilityof the channel during low-water events and allow larger vessels with more cargo to navigate the river.

The project will deepen the river as it passes through four of the nation’s top 15 ports measured by tonnage. Those ports handle more than 500 million tons of cargo a year, including 60 percent of the nation’s grain.6

Vessel Sizes

When the Panama Canal expanded in 2016, the maximum cargo size capable of traversing the canal increased from 56,700 metric tons to 99,000 metric tons on a Post Panamax, small Cape Size or Neopanamax vessel. Several vessels, built expressly for the expanded Panama Canal, can be loaded from 84,000 metric tons to 86,000 metric tons in the current depth of 45 feet on the lower Mississippi River.2Vessels traveling on the lower Mississippi River to load grain and soybeans have been loaded to over 90,000 metric tons for shipments to Europe, but this is not a common loading configuration at this time.2 According to Mike Steenhoek, CEO of the Soy Transportation Coalition, there are a wide array of reasons that a vessel may not be loaded to its full capacity, from depth of the berth at the export terminal, the water depth at the destination port, and more. Increasing the depth of the Mississippi River would reduce the costly practice of loading ships with less weight than their size allows.6

Below are different soybean transportation vessels and their capacity:

  • Panamax: At a river depth of 45 feet, Panamax vessels on the lower Mississippi River can load about a maximum 70,000 metric tons of cargo to take advantage of the expanded Panama Canal or to go around the Cape of Good Hope, but typically only load to 66,000 metric tons.
  • Neopanamax: If the proper conditions exist, a Neopanamax vessel can be loaded to 77,000 metric tons under 47-foot depth.
  • Capesize: If the river depth is 50 feet, a small Capesize vessel can be loaded to 99,000 metric tons, and a large Capesize vessel can be loaded to 120,000 metric tons.

Allowing for a large Capesize vessel of 120,000 metric ton volume, extends the drawarea of the lower Mississippi River to 247 miles and 82 percent of U.S. soybean production.2This is a key motivation to increasing the dredge of the river — to give U.S. farmers another viable transportation option for their crops. Diversifying the reliability of transportation options will continue to increase profitability options for U.S. soybean farmers, and will ensure consistent, reliable supply of U.S. soybeans around the world as well as keeping prices affordable for buyers.

Another potential impact of increasing river depth is vertical clearance, the distance in excess of the air draft that allows a vessel to pass safely under a bridge of object. Based on air drafts, if the lower Mississippi River depth is deepened to 50 feet, a large Capesize vessel should not have an issue transiting beneath the many bridges on the lower Mississippi.2

The report estimates this would increase average loaded volumes from 66,000 deadweight tons to 78,000 deadweight tons. Deadweight tons refer to the load carrying capacity of the vessel, not the weight of the vessel itself. He adds it is the sum of the weight of cargo, fuel, ballast water, the crew, etc. Cargo is the biggest contributor to deadweight tonnage.

Cost and Risk

The impact of a deeper draft on the lower Mississippi River will save $5 per metric ton in ocean freight as the average volume loaded increases from 66,000 metric tons to 78,000 metric tons, as projected by the report.2A 50-foot depth on the lower Mississippi River allows the CenterGulf the ability to load a large Capesize and save upwards of $20 per metric ton when loading greater volumes onto one ship.1

According to the STC, the research findings estimate a 50-foot depth for the lower Mississippi River will yield farmers in the 31 evaluated states an additional $461 million annually for their soybeans. Those states in closest proximity gain the most, while states further away also benefit. This is due to increased competition between other transportation modes such as rail.

According to the STC news releaseon the topic, “When modal competition increases, a downward pressure on shipping rates will often occur. With barge transportation becoming more viable for a larger percentage of the soybean-producing areas of the country, there will be a greater degree of overlap between areas served by railroads and barge. Soybean shippers will benefit from this modal competition.”2

Steenhoek shares that the project would have three phases:

Phase 1: Dredging the area nearest to the Gulf of Mexico, called the Southwest Pass.

Phase 2: Dredging an area between New Orleans and Baton Rouge that is hampered by sediment deposits.

Phase 3: Relocating utility pipelines buried under the rivers near Baton Rouge.

Steenhoek explains that the total cost of the project is $245 million, and the cost of phases one and two are broken up between federal and non-federal funding. The third phase would be covered entirely by the state of Louisiana. He outlines the cost in detail:

  • $245 million: Total Cost
    • $100 million: cost to dredge the approximately 30 miles of the Southwest Pass, the area nearest to the Gulf of Mexico. This initial phase of the overall project would be 75% federal ($75 million) and 25% non-federal ($25 million). The non-federal entity is the state of Louisiana.
    • $65 million: cost to dredge an area of the river between New Orleans and Baton Rouge called The Crossings — a serpentine area of the river, resulting in sediment deposits. This second phase of the overall project would be 75% federal cost-shared($48.75 million) and 25% non-federal ($16.25 million). The non-federal entity is the state of Louisiana.
    • $80 million: cost to relocate some utility pipelines that are buried under the river closer to Baton Rouge. This third and final phase of the project, in contrast to the above two phases, would be 50% cost-sharedby the state of Louisiana and 50% by the pipeline owners. There is no federal responsibility forthis portion.

The Army Corps of Engineers endorsed the plan in August 2018, and according to the Louisiana Department fo Agriculture and Forestry Commissioner Mike Strain, the project could begin as early as October 2019.5

Another factor to consider isterminals along the river. Private terminals are responsible for their dredging, and they must apply for permits with the Army Corps of Engineers to dredge. Steenhoek adds, “This is very similar to a grain shipper that upgrades in order to load longer trains. First,the actual channel would be deepened, and then the export terminals would make investments to catch up to that.”

All forms of transportation need to be continually updated for the U.S. to remain competitive. Over the past ten years, the export market share of soybeans and soybean meal exiting through the Center Gulf has increased 10 percent and 9 percent versus other export locations, respectively.2 This deepening project could increase these exports, and profits, over the next decade.

International Impact and Competition

The U.S. is a grain-surplus country dependent on exports. Because South America is also a grain-surplus region that exports to the same countries as the US, the price of corn and soybeans in the U.S. and South America are linked. Any improvement in the Mississippi River System will improve the competitiveness of the U.S. farmer and grain companies’ locations within the U.S., which will result in a stronger cash basis.2

According to the report, ocean rates for soybeans to North China are more expensive from the Gulf when compared to Brazil, so any improvement in the U.S.to improve ocean rates will translate to a more competitive price.

Brazil

The Port of Santos rests on the alluvial plain of Sao Vicente Island in the State of Sao Paulo, Brazil. The current depth of the port stands at 49.2 feet (15 meters) with bulk drafts of 46.6 feet (14.2 meters). Brazil plans to dredge the Port of Santos canal to a depth of 55.8 feet (17 meters) with new terminals on both sides of the canal, particularly on the Right Bank of the estuary of Santos.

On average, nine countries have the port logistics capabilities to harbor bulk grain carriers on a maximum average basis of nearly 80,000 metric tons. Several European countries can accommodate larger payloadsat their ports, including Germany, Holland andSpain. Japan, Korea andThailand have been able to receive slightly bigger grain cargos from Brazil compared to the U.S. Gulf.2

However, according to the Farm to Market Report, Brazil has 39,060 miles (62,860.98 km) of river-lake surface water and 27,280 miles (43,902.90 km) of navigable rivers, but only 8,060 (12,971.31 km) miles are commercially navigated.1,3Despite the Amazon’s shipping advantage, it is one of Brazil’s most underutilized corridors. The United States has more than 250,000 rivers, which translates to approximately 3.5 million river miles (5,632,704 km), according to the American Water College4. This provides additional opportunity for other export channels in the U.S., such as the Pacific Northwest.

China

For all vessels, the trend is shifting towards accommodating the 65,000-metric ton to 70,000-metric ton range. The reason is China and other Asian locations want the larger volume and the resulting lower freight rate. As the fleet shifts towards larger vessels, average weights loaded will increase.

Six of the ten largest ports in the world are in China.2China is the largest importer of soybeans in the world, and primarily uses a handful of ports as a gateway into its domestic consumption. These key soybean ports include Dalian, Tianjin, Qingdao, Shanghai, Ningbo andHuangpu, which have drafts that exceed 50 feet.2

Although trade sensitivities persist between the U.S. and China, Steenhoek adds that dredging of the Mississippi River wouldn’t only benefit shipments to the Asian markets. “Since sixty percent of soybean exports depart from Mississippi Gulf export terminals, deepening the lower river will enhance our ability to access other markets besides China.” He says, “Obviously, if the China situation is resolved, the deepening project will allow us to access that market more competitively as well, but having an improved lower Mississippi River will better position our industry to expand and diversify our customers.”

Takeaways

Maintaining U.S. transportation avenues is critical to agricultural success. The 2016 Farm to Market Report underlines this sentiment: The average transportation route of soybeans from farm to the finaldestination in the U.S. requires 74 miles (119.1 km) by truck, 377 miles (606.72 km) by rail, and 217 miles (349.23 km) by barge.1One of U.S. Soy’s main competitive advantages is the diversified transportation system; it does not rely solely on one method of transportation. Countries like Brazil rely much more heavily on roadways as the primary transportation method, according to the Farm to Market Report.1

Deepening the Mississippi River would allow larger vessels to load more product and ship to countries at a cheaper price. It would allow for U.S. river terminals to accept more product, pulling in more farmers and giving them another option for delivering their beans to market. The project may be in initial steps, but investments would continue to promote a reliable and competitive transportation system in the U.S.

Additional Links/USSEC Resources:

Sources:

1 https://unitedsoybean.org/wp-content/uploads/FarmtoMarketUpdateFinal2016.10.03.pdf

2 http://www.soytransportation.org/newsroom/PressRelease-DredgingTheLowerMississippiRiver07-09-18.pdf

3https://ussoy.org/deep-dive-global-infrastructure-comparison-by-the-numbers/

4 https://www.americanwatercollege.org/us-rivers-canals/

5 http://www.wafb.com/2018/12/13/mississippi-river-deepening-project-closer-reality/

6 https://www.usnews.com/news/best-states/louisiana/articles/2018-08-21/dredging-of-mississippi-river-gets-critical-endorsement

Ken Eriksen
Ken Eriksen

Senior Vice President

Agribusiness Intelligence | IHS Markit

Ken Eriksen is a senior vice president at Agribusiness Intelligence | IHS Markit.