(The following report by Peter Passi appeared on the Duluth News Tribune website on November 11.)
DULUTH, Minn. — With poor harvests in Eastern Europe and bumper crops of durum and spring wheat in the Midwest, you might expect to see an unusually large volume of grain flowing through the St. Lawrence Seaway these days.
Throw in the fact that the U.S. dollar’s value relative to other currencies has softened in the past year, and you’d have even more reason to predict that seagoing ships would be streaming into the Great Lakes this fall.
But they aren’t.
“It’s been terrible,” said Don Willecke, president of the Western Great Lakes Pilots Association.
Members of his organization rely on ocean-going ships — often called salties — for their livelihood.
Willecke estimates year-to-date saltwater ship traffic in Lake Superior and Michigan has been only about three-quarters of last year’s volume. And 2002 was nothing to brag about. He figures that last year, salties’ visits to the western Great Lakes declined by about 18 percent from 2001.
Put another way, Willecke said he and his peers have seen a 50 percent drop in business in the brief span of two years.
Statistics from the Minneapolis Grain Exchange bear Willecke out. Through October, the exchange reports that the port of Duluth/Superior has loaded 37.4 million bushels of grain and beans into the holds of ships bound for overseas markets. That may sound like a lot of produce, but it’s 24 percent less than the Twin Ports delivered for export during the same period last year. And the decline came on the heels of a comparable reduction the prior year.
TARIFFS HURT CARRIERS
Chuck Hilleren, president of Guthrie-Hubner Inc., a Duluth ship agent, said that since steel tariffs went into effect last year, many foreign-flagged ships that once carried steel products into the Great Lakes and backhauled grain have struggled to find nonsteel replacement cargoes.
“Having inbound and outbound cargo is what made the whole thing work,” he said.
Willecke agreed that steel tariffs have eaten away at the number of salties entering the Great Lakes.
“I certainly understand why steelworkers wanted protection from foreign competitors,” Willecke said. “But the tariffs have hurt our business, and a lot of folks don’t realize how many people here depend on ocean-going ships for work. There are the tugs, the agents, the linehandlers and the stevedores…. It carries all the way through.”
There have been other disincentives to foreign-flag ships calling on the Great Lakes, as well.
For one, seafaring vessels have been in high demand and short supply, largely because of China’s economic boom and its growing appetite for materials. The Baltic Dry Index, a key international indicator for commodity freight rates, has doubled in just the past two months.
Hilleren said Great Lakes freight rates are about twice what they were a year ago.
Ron Johnson, the Duluth Seaway Port Authority’s trade development director, noted that the cost of shipping crops by way of barge down the Mississippi River has gone up a lot, too.
Chuck Keeler, superintendent of the Burlington Northern Santa Fe terminal in Superior, said many agricultural commodities from the Upper Midwest have been moving by rail to the Pacific Northwest instead of to the head of the Great Lakes or down the Mississippi.
Couple rising freight rates with the high drought-driven prices of some crops, such as soybeans, and the cost of delivering American-grown crops to foreign destinations is considerably less attractive than in the past.
Nevertheless, Hilleren believes significantly more grain would be moving if steel tariffs weren’t in place.
Moving crops by rail has had its problems this year, as well.
Recently, a frustrated North Dakota Gov. John Hoven called on the federal Surface Transportation Board to investigate rail delays and rate structures as elevators across the state that have run out of storage capacity have resorted to piling corn and beans on the ground.
RAILROADS’ ROLE
Railroads across the region are playing catch-up.
About 20 percent of Canadian Pacific Railway’s orders for October service remained unfilled as of Friday, said company spokeswoman Laura Baenen.
But she said the railway made adjustments, adding 1,800 covered hopper cars and 35 new locomotives to its fleet this fall after meeting with a shipper advisory board. Baenen referred to the current hopper fleet in the Northern Plains states as “one of the largest on record.”
Nevertheless, Steve Strege, executive vice president of the North Dakota Grain Dealers Association in Fargo, believes that railroads are not adequately equipped. He said the BNSF has reduced its hopper car fleet from 35,000 to 23,000 today.
Keeler said he couldn’t speak to the exact size of BNSF’s hopper fleet. He agreed that it has shrunk in size, but said the railroad is moving as much, if not more, agricultural commodities because of improved efficiencies. BNSF and other rail companies have leaned increasingly on 110-car shuttle trains that can be quickly loaded and unloaded with automated systems.
“It’s all about velocity,” Keeler said. “The faster you can move, the fewer cars you need.”
Johnson takes encouragement from some of the investments that Twin Ports’ grain terminals have made to handle shuttle trains.
Just this year, CHS (formerly known as Cenex Harvest States) installed equipment that enabled its Superior facility to receive shuttles. And the previous year, the Peavey Co. upgraded its Connor’s Point elevator to do the same. Now, three of the Twin Ports’ five waterfront elevators are set up to receive shuttle trains. The Cargill Inc. elevator in Duluth was the first in the area to handle shuttle trains.
Hilleren views the terminal improvements as critical to the future health of local grain shipments.
“Shuttle trains are the direction everyone is moving in, and if you’re not in a position to receive grain on that basis, you wind up on the back shelf as a customer,” he said.
Willecke said he’s heard several fellow pilots talk about taking second jobs to make ends meet this winter.
Still, he remembers other tough periods and hopes for a turnaround like he’s seen in the past. One thing is for certain: He’ll be glad to relegate 2003 to the record books.
“This is probably the worst year we’ve had since forming our association in 1992,” Willecke said.