Forbes Calls Inland Shipping "Corporate Welfare"

[U][B]On The Mississippi, An Industry Is Floating On Taxpayer Money
[/B][/U][I][SIZE=2]This story appears in the April 15, 2013 issue of Forbes.

Christopher Helman, Forbes Staff

[/SIZE][/I][B]The great drought of 2012 was the worst disaster to hit the Mississippi River in 50 years. Will it turn into an even bigger mess for taxpayers?
[/B]
On a brilliant March day aboard the towboat John R. Ingram, [B]Rick Calhoun[/B], head of Cargill’s American barge business, was avidly pointing out the sights as we eased down the Mississippi River toward New Orleans at 11 mph. There was a lot to see. As a bald eagle floated overhead, the crane operator of a giant Mumbai-bound ship gobbled coal from a [B]Cargill[/B] barge. In front of our boat was a vast array of barges, a row of 5 lashed together with another 5, then another 5– 25 in all, stretching out 1,000 feet, filled with 45,000 tons of coal and grain.Industry surrounds us. Dow Chemical, Nucor Steel, Exxon Mobil, Archer Daniels Midland, Bunge and many more industrial giants operate massive complexes on the Mississippi.

Taken together the 150-mile stretch of the river from the Gulf of Mexico up to Baton Rouge is the busiest port in the Western Hemisphere, moving some 400 million tons of cargo a year. Cargill alone moves more than 90 commodities on the river and operates 1,300 barges. [B]Ingram Barge Co.[/B], which owns the towboat I rode, has roughly quadruple that number. In all, 16% of America’s coal, 20% of petroleum products and nearly all the fertilizer consumed here are shipped on the Mississippi. The action here is so thick that the crew of the Ingram calls this “suicide alley.”

There’s actually a better name for it: corporate welfare. Once the thriving centerpiece of 19th- and early-20th-century logistics, and despite the massive profits rung up by companies like Cargill and Ingram, the river barge business has become a ward of government largesse. Washington picks up more of the cost of riverborne shipping than any other type of logistics enterprise in the U.S. except, perhaps, resupplying the International Space Station. And yet, despite the efforts of both the Bush and Obama administrations and the growing brawl over shrinking federal dollars, the Mississippi’s river of subsidies stands little chance of shrinking.

In fact, those who profit from this subsidy are working mightily to increase it, using the oldest maxim in government intrusion: Never let a crisis go to waste. The crisis, in this instance, is the historic drought conditions in the Midwest that have squeezed water levels on the Mississippi. With navigation theoretically threatened, the river barge industry is now clamoring for billions of additional dollars for new reconstruction projects with the backing of some powerful heartland politicians. Their threat: Inaction will lead to strangulation of America’s great water highway, with dire economic consequences. “There’s no contingency plan for the river shutting down,” says Calhoun. “We don’t just have railcars and trucks sitting around.”

That may or may not be true. But one thing is certain: Trains and trucks largely pay their own way. Barges don’t. The U.S. Army Corps of Engineers spends roughly $800 million a year building, operating and maintaining locks, dams and channels on the river system. Of this, the barge operators pay a minuscule share, a diesel tax of 20 cents per gallon that goes into something called the Inland Waterways Trust Fund. Last year the shippers’ part amounted to just $80 million, barely 10% of the annual spend on construction and maintenance. The barge operators don’t pay any kind of toll or fee to move their cargos through the 200-plus locks on the river system. The trust fund is nearly broke.


[I]Pointing out the sights: Craig Philip of Ingram Barge (top left) and Rick Calhoun of Cargill (top right). Credit: Craig Mulcahy[/I]

Compare that with railroads, which got a lot of land gifts a century ago but now cover all the costs of construction and maintenance along their rights of way–amounting to $20 billion in 2011. Even trucks repay most of the damage they do to the Interstates. Federal highway outlays were $40 billion last year, though $30 billion of that came from fuel taxes and other fees. Both rail and road move far more cargo than rivers do.

Still, in recent months Calhoun and his colleagues have bellied up to the federal trough, taking advantage of the 2012 drought to bend politicians’ ears and press their case for even bigger handouts. “Cargill is agnostic about transportation,” Calhoun says of his employer, the largest privately owned corporation in the world, with annual revenues in excess of $130 billion in 2012. “We use rail, and we load thousands of trucks a day, but the waterways are extremely important to our customers. Farmers need the waterways to get their product to customers.”

It’s an argument that plays emotionally to a country with literary roots from the Hudson River’s Washington Irving to the Mississippi’s Mark Twain. But economically, “if railroads can afford to maintain their networks,” say Robert Criss, a professor at Washington University in St. Louis who has studied the river for decades, “barge operators should, too.”

While Washington’s management of the Mississippi dates back to the 1820s, subsidization of the river barge business really began in the 1940s. That’s when the federal government, swept up in the construction frenzy of WWII, dumped more than $50 billion (in today’s dollars) to make the Missouri River navigable by deepening it from Sioux City, Iowa to St. Louis. It seemed like the classic government infrastructure project that would quickly pay for itself, as the shipping and agriculture lobbies estimated the resulting annual river traffic would total 12 million tons a year. With the rise of the Interstate Highway System, the opposite happened. By the late 1980s the Missouri floated just 2 million tons annually. In the 2000s that number had fallen to just 200,000 tons. Still, by 1985 they were able to convince Washington to spend another $1.8 billion to dig a related 234-mile ditch connecting the Tombigbee and Tennessee rivers in Mississippi and Alabama. Similarly, cargo traffic on the new canal turned out to be only a fraction of what had been forecast to justify the outlay.

Meanwhile, costs go up. The biggest current cash drain on the river system is the Ohio River’s Olmsted Locks & Dam project. It was authorized by Congress in 1988 at an estimated cost of $775 million to replace old locks built in the 1920s. A quarter of a century later it’s still not done–and costs have ballooned to $3 billion.


[I]Traffic on the lower Mississippi. Credit: Craig Mulcahy[/I]

Looking to stop the hemorrhaging of taxpayer dollars into the rivers, the Bush Administration proposed that companies pay fees of roughly $50 per barge, per trip to use locks. The push went nowhere. Then, in 2009, the Obama Administration proposed creating enough new annual fees for shippers operating on the rivers to raise $900 million between 2014 and 2021–not enough to cover the actual costs of maintaining the river but more than the pittance shippers pay today.

Nature intervened in the fight. In late 2012 drought wrung water levels on the Mississippi River to their lowest point in decades–about 9 feet around St. Louis. To squeeze through a narrow channel there without scraping bottom operators could load their barges only halfway. A jam of headlines screamed of a possible river closing and irreparable damage to the U.S. economy.

Executives from the likes of Cargill, Ingram, oil-shipper [B]Kirby Corp.[/B] and the rest of the navigation industry pounced. They were “running around with their hair on fire,” says one person close to the scene.

They rallied governors, senators, congressmen. Their industry groups like the American Waterways Operators put out a report warning that a shutdown of the river in December and January would strand more than $7 billion worth of cargo and “impact” 20,000 jobs and $130 million in wages. There was talk about a repeat of the summer of 1988 when river levels got so low that hundreds of barges got stuck.

With water levels looking dire, Calhoun took advantage of the emergency to conflate short-term concerns with long-term desires. In testimony to a Senate committee last September he insisted that America’s aging system of seaports and waterways were in desperate need of $30 billion in investment by 2020 in order to maintain navigation and that it was up to the federal government to foot the bill. “It’s critical that we continue to invest,” says Calhoun, pointing out that more than half the locks on the river are more than 50 years old. “If you quit feeding a cow you’d better be prepared to stop milking it, too,” he warns.

Dozens of senators, congressmen and state governors urged the Obama Administration to declare an emergency on the Mississippi and overrule the U.S. Army Corps of Engineers, which had rejected requests to release enough water from behind dams on the Missouri River to raise the Mississippi.

But somewhat surprisingly, given that Obama’s home state of Illinois is tied inextricably to the river, no such declaration was declared nor did the Missouri water come.

Nor, it turns out, did the disaster. Traffic was slowed and operators were forced to push “tows” of just 15 barges instead of 25 or 40. And although the Corps of Engineers agrees that the drought was as bad or worse than any in 50 years, they made sure that even around St. Louis they maintained a navigation channel at least 9 feet deep and 300 feet wide, and spent $10 million (all taxpayer dollars) blasting a series of rock pinnacles around Thebes, Ill. that had been a longtime source of navigation headaches.

A spokeswoman for the Corps says that they never doubted their ability to fulfill their mission of keeping the river navigable.

Facts, Of Course, Matter Little in the midst of a cash-fueled hysteria. The drought threat has reenergized efforts to grab billions in new funding for Mississippi infrastructure. In recent weeks a group of senators led by Democrats Bob Casey of Pennsylvania, Mary Landrieu of Louisiana and Amy Klobuchar of Minnesota have introduced the RIVER Act (Reinvesting In Vital Economic Rivers). And a bunch of congressmen, led by Kentucky Republican Ed Whitfield, have introduced another acronym-happy bill known as the Waterways are Vital for the Economy, Energy, Efficiency & Environment Act (WAVE4). Both bills would appropriate some $8 billion for new river infrastructure and increase federal payments into the waterways trust fund. “The real reason to do this bill,” says Whitfield, “is because the Inland Waterways Trust Fund, like nearly every other federal trust fund, is broke.” In return for these billions, the barge industry has agreed to pay as much as an extra 9 cents a gallon tax on their diesel–amounting to a piddling $40 million a year.

Why can’t industry pick up more of the tab? Craig Philip, the CEO of Ingram, says that would be unfair. “Consider all the other beneficiaries of the river,” he urges me. “People use it for drinking water, hydropower, flood control, wildlife conservation, recreation and irrigation. And yet none of these other beneficiaries pays anything. To add insult to injury, last December the Corps declared that there was enough water on the Missouri River to permit oil and gas drilling to extract it for ‘fracking.’ ” Which sounds well and good, except that spending billions on barge lanes does nothing to help fisheries (they’re often ruined by it) or flooding (there are more floods than ever) or, especially, recreation. “ A sailboat doesn’t need a 9-foot channel,” says Criss. “And besides, how fun is it to sail a boat while having a big barge come crashing by?”


[FONT=Georgia][I]At Cargill’s Westwego grain elevator loading a ship bound for Egypt with 66,000 tons of grain. Credit: Craig Mulcahy[/I]

In terms of barge lanes as a national interest, times have changed. Rivers remain important for moving cargo, but the nation could now get by without them. According to the U.S. Department of Energy, America’s waterways are used for shipping some 160 billion ton-miles per year (1 ton-mile is the movement of 1 ton of cargo over a distance of 1 mile), most of that on the Mississippi system. Compare that with railroads, which do 1.3 trillion ton-miles, and trucks, also at 1.3 trillion ton-miles–all at very little cost to taxpayers. Splitting all that waterborne cargo between them would require roughly 10% more trains and trucks. It could be done, and arguably should be, in a post-sequestration era. But don’t expect that to happen anytime soon. “We love it out here,” Josh Tingle, one of the crewmen on the Ingram boat told me as we stood amid the coal barges on the front of the tow. “Once you wear out your first pair of boots you’re done–the water gets in your blood. As long as God’s willing I’ll be out here.” And so, it seems, will taxpayers.[/FONT]

Where do these pricks get off calling inland shipping companies a bunch of welfare cases when 1) the commerce these douche-bag journalists benefit from EVERY DAMN DAY would grind to a quick and painful halt without US and 2) the American public, but people who wright for Forbes Magazine especially, know absolutely NOTHING about merchant sailors, or what the merchant marine even does?

This guy said someone provided him with the excuse that “There’s no contingency plan for the river shutting down. We don’t just have railcars and trucks sitting around.” and his response to that was “That may or may not be true. But one thing is certain: Trains and trucks largely pay their own way. Barges don’t.” WHAT!? WHAT!? I can’t even generate a response to that… I am at a loss for words if only for being in the presence of sheer, unadulterated stupidity.

Someone help me! Please!

Yes, he’s spouting nonsense in order to support his position. Railroads do benefit from tax largesse like any other mode of transport in this country. Especially the AMTRAK passenger system, which is publicly funded (that’s why the tickets are so cheap).

However, is it unreasonable to ask for tolls on the Mississippi? Tolls don’t slow down traffic through the Panama, Suez and St. Lawrence Seaway, do they? The money to keep the river open for business has to come from somewhere. Hell, it costs one big rig $75 bucks to cross the George Washington Bridge.

I didn’t see the author bag on the barge crews or merchant mariners at all. The main point I took away from that article was that the businesses that use the rivers don’t contribute as much money towards the maintenance of the rivers as he would like. You can disagree, but when the country is $16 trillion in debt (or 17 now?) it’s a conversation worth having.

[QUOTE=PaddyWest2012;108838] Trains and trucks largely pay their own way. Barges don’t." WHAT!? WHAT!? I can’t even generate a response to that… I am at a loss for words if only for being in the presence of sheer, unadulterated stupidity.

Someone help me! Please![/QUOTE]

Here is some material to help you articulate a response:

http://www.camsys.com/pubs/FreightRailReport.pdf

The people you need to worry about don’t suffer from word loss and they will eat your lunch. Provide an argument rather than just calling them names.

[QUOTE=50thState;108853]I didn’t see the author bag on the barge crews or merchant mariners at all. The main point I took away from that article was that the businesses that use the rivers don’t contribute as much money towards the maintenance of the rivers as he would like. You can disagree, but when the country is $16 trillion in debt (or 17 now?) it’s a conversation worth having.[/QUOTE]

Yes, exactly. They should contribute toward river maintenance and in light of the trend toward extremes in climate (I believe it’s changing, how and why is a topic for another thread) it would be prudent for the Corps of Engineers and any local authority to ask for help with the costs of keeping the shipping channel open. For crying out loud, it can cost a quarter mil and up for a large contaner ship to pass thru the Panama canal, reasonable tolls on the Mississippi are not too much to ask.

I am not opposed to the idea of a toll, charge away. Any route of transportation, be it highways, rivers, or rail roads, are expensive to maintain and like it or not they have to be paid for some how, some way. I understand that and I think it is fair for the people who use those means of transportation most frequently to share that burden. We all have to do our part.

What I am opposed to is the attitude that shipping is an industry that the country can survive without because other methods can get the job done and it is a succubus to the tax payers. Trucks and trains are a poor replacement for shipping and the individual consumer in this country would suffer dearly for it.

Lets look at air pollution , barging versus rail and trucking. A Army Corp engineer study determined that air pollution resulting from water transport is far less than truck and is comparable to or less than rail. Depending on such variables as terrain and route and etc. this is a 1994 study so might be a little out date, however the outfit I work at has replaced all of the old EMDs with MTUs that are way more fuel efficient .

Not to mention less trucks on our highways, and the rail congestion at the ports…

Did you know that, until very recently, I wrote for Forbes?

I can’t say why I left but, by the accuracy of this article, maybe you can guess…

Don’t trust everything you read (especially when it comes to our industry!).

[QUOTE=PaddyWest2012;108859]I am not opposed to the idea of a toll, charge away. Any route of transportation, be it highways, rivers, or rail roads, are expensive to maintain and like it or not they have to be paid for some how, some way. I understand that and I think it is fair for the people who use those means of transportation most frequently to share that burden. We all have to do our part.

What I am opposed to is the attitude that shipping is an industry that the country can survive without because other methods can get the job done and it is a succubus to the tax payers. Trucks and trains are a poor replacement for shipping and the individual consumer in this country would suffer dearly for it.[/QUOTE]

You are in good company here and you won’t find anyone who disagrees with that at all. Nobody wants to see our tug and barge outfits taken over by foreign concerns. For that reason, it is even more important that domestic shipping companies step up the game and be willing to pay a bit more to do business here.

Just my 2 cents. Wish I had better ideas…

[QUOTE=john;108862]Did you know that, until very recently, I wrote for Forbes?

I can’t say why I left but, by the accuracy of this article, maybe you can guess…

Don’t trust everything you read (especially when it comes to our industry!).[/QUOTE]

Oh, we know, especially those of us who use the alternate press and foreign press. Forbes used to be pretty good but lately the quality has tanked, and is very partisan, same goes for television news like CNN (I know one of the original writers/reporters) which was great in the beginning, but is now little more than a high tech video tabloid. CNN International isn’t bad, however.

[QUOTE=catherder;108845]Yes, he’s spouting nonsense in order to support his position. Railroads do benefit from tax largesse like any other mode of transport in this country. Especially the AMTRAK passenger system, which is publicly funded (that’s why the tickets are so cheap).

However, is it unreasonable to ask for tolls on the Mississippi? Tolls don’t slow down traffic through the Panama, Suez and St. Lawrence Seaway, do they? The money to keep the river open for business has to come from somewhere. Hell, it costs one big rig $75 bucks to cross the George Washington Bridge.[/QUOTE]

Amtrak is publicly funded for sure as is I-40, I-95, every public airport and port. Public funding for transportation benefits everyone.Taxes are higher via tolls or gas tax for heavy users as they should be. It is not corporate welfare. When I think of corporate welfare I think of public subsidies for ethanol grown from corn which benefits ADM primarily, GE not paying any tax etc. Forbes has bigger fish to fry should they wish to point out how the many support the few but then they would be talking about their friends.

If they could install a system like EasyPass or SunPass that would automatically work with AIS to deduct tolls from a vessel’s account that might be ok. But I fear another huge and ineffective program like TWIC that would be operated by some crony capitalist low bidder with the best lobbyist.

That huge Olmstead lock boondoggle was mostly caused by government mismanagement. There should be a special toll to recover some of the cost of building large special projects, but it would not be fair to attempt to collect cost overruns due to mismanagement.

Fuel consumption is probably a good proxy for river use, it would probably make the most sense just to increase the fuel tax. The inland tug and barge business should pay its fair share. However, the Army Corp projects serve other purposes too, like flood control and irrigation.

When they askedWillie Sutton ( a famous bankrobber) why he robbed banks he replied “Because that’s where the money is.” If Forbes or anyone else wants to see something done about corporate welfare, they should stop fretting about chicken feed and go where the money is.

They should start with Walmart, Lockheed Martin, the shipyards, and agribusiness.

Seems everyone has forgotten all the wall street taxpayer bailouts, (AIG, Bank of America, Wachovia, Wells Fargo). They didn’t use taxpayer money for any of those Forbes listed companies if you adjust your point of view to the axis of the spin masters. Subsidies are ok as long as they benefit you or your company.

It has always killed me about how the Representatives for Farming States bitch and moan about how much extra it costs to ship on U.S. Bottoms. These A-Holes always seem to conveniently forget about ALL of the Subsidies that these “Farms” get.

A lot of these F.O.C. ships that we have to compete with come from Countries that give subsidies to the Yards that build these ships.

I am not sure if we will ever be able to get these Idiots in D.C. to get their heads out of their butts and realize that this Country needs a strong Merchant Marine.

Agreed.

The farm interests are one of our biggest enemies. The problem is that senators of farm states have little to worry about but helping farmers while the senators of maritime states, due to high population densities, have too many concerns to worry about shipping.

The president doesn’t take action for the same reason… farming senators lobby the president for farming initiatives but coastal senators have bigger worries.

This (farming states total lack of interest) is the primary reason that US shipping has been left to rot by washington.

Things are slightly better in the house which is why we, very occasionally, get some traction on new legislation (which dies in the senate).

Here’s another issue with farms. Ethanol corn. Ethanol corn subsidies are a major gimmedat. You can’t eat ethanol corn, it’s inedible by humans (maybe cattle can eat the silage, I dunno)

How much arable land is taken up by ethanol corn?

Ugh, I need to log off and get some stuff done around the house, I got about two weeks left here in town…

[QUOTE=Tugs;108921]It has always killed me about how the Representatives for Farming States bitch and moan about how much extra it costs to ship on U.S. Bottoms. These A-Holes always seem to conveniently forget about ALL of the Subsidies that these “Farms” get.

A lot of these F.O.C. ships that we have to compete with come from Countries that give subsidies to the Yards that build these ships.

I am not sure if we will ever be able to get these Idiots in D.C. to get their heads out of their butts and realize that this Country needs a strong Merchant Marine.[/QUOTE]

Couldn’t agree more. If only we had a tenth of that lobby horsepower. MarAd gives a little money to the shipyards, and has their poorly run Title XI loan program (yeah, let’s fund high speed ferries, enviro impact statement be damned), and the schools, but to me it seems like a pittance compared to what other nations invest in their maritime industry.

Yeah they hate pork when it’s someone else’s , but when they go home and find projects that have been chopped then they sing a different tune.we do need to repair our infrastructure that includes our inland navigation system. Call it subsidies or pork barrel spending, I call it taking care of business…

What’s sad is what we’re talking about here is just one little slice of the pie. Our inland waterways need to continue to be promoted, and developed, but what we do in blue water needs even more elbow grease and cash flow.