A few years ago, with grain volumes on the rise, adding more barges to the fleet seemed a good idea to many U.S. shippers. More barges. Bigger loads. Larger profits. But things haven’t worked out as planned, even with the recent record-breaking harvests of corn and soybeans.
And though several factors have played a role in creating the current glut of barges, experts point to the decline in coal shipments as the main cause.
Tracking barge traffic from 2012 to 2015, the U.S Army Corps of Engineers documented these figures:
- A rise of 21 percent in grain barge shipments to a near-record 89.7 million tons
- A decrease in coal shipments by nearly 47 million tons
The decrease in coal shipments is likely to be permanent. And now, with too many vessels chasing too little cargo, shippers have been forced to drop their rates to stay competitive. In St. Louis, for example, barge rates for export grain in late September of last year peaked at $16.76 per ton, 35 percent lower than the five-year average for that month.
In response to this trend, some shippers have chosen to idle part of their fleet. As reported by Reuters, “One small barge company spent $75,000 in December to idle nearly half of its 225-barge fleet. The company had estimated it would lose $450,000 in the month if it kept operating the barges, said a broker who asked not to be named because he was sharing his clients' business information.”
Said the broker, "I learned that math in the first grade. Losing $25 a day (per barge) or $150 a day. That's a no-brainer."
Other factors in the current barge glut
While the decline in coal shipments is the key factor in the glut, there are other factors, as well. Ideal shipping conditions—including higher than normal water levels—have led to fewer delays and faster turnarounds. At first glance, that would seem to be a positive. But that situation has raised the fleet’s existing capacity by 15 to 20 percent, according to industry analysts. In effect, it’s like adding more barges to the estimated 13,000 covered barges in the U.S. fleet today, up from about 10,500 in 2014.
Also, five years ago demurrage rates—the fees paid when a barge or other vessel is unable to unload its cargo on a promised date—went up. The grain exporters on the Gulf Coast then expanded their storage capacity, which led to quicker turnaround times, which also had the same effect as adding more barges.
And then there’s the fact that the newer barges are typically larger than the ones they replace. Most have 13-foot or 14-foot hulls, compared to the 12-foot hulls of the ones that came before. So fewer barges are needed today to move the same amount of cargo.
An uncertain outlook
Even at the height of last autumn’s record harvest, barge rates didn’t see a jump, and that “tells the story of overcapacity right there,” said Sandor Toth, veteran publisher of the River Transport News.
So, given the conditions just described, what’s the outlook for the barge industry?
Some predict that in response to the lack of revenue in current payloads, hopper owners will move to consolidate their fleets, and retire marginal equipment—like barges with 12-foot hulls—earlier than usual.
But the industry’s profitability ultimately depends on improvement in demand for barge loads. And that’s where things like our trading policies with China—a main overseas market for many U.S. commodities—could come into play.