with Walter Kemmsies
Neglect of the inland waterway system undermines the Midwest’s ability to import and export heavy cargo, especially grain and oilseeds. Overlooking the importance of the inland waterway system is easy to do and may require a little imagination to understand.
Try to imagine how the United States would have developed if it did not have navigable rivers. Most likely the population of North America would have been concentrated on the coasts and perhaps the country would not stretch from coast to coast. The Midwest, which became the bread basket that fed many nations during and after the world wars of the last century, might still be a wilderness and the world political structure would likely be very different than it is today.
Development of a global economy is due to U.S. and European efforts to increase trade by opening their large consumer-driven economies to emerging market economies. Japan, Taiwan, Korea, Eastern Europe, Mexico and recently China and India have benefitted greatly from these trade policies. Although the U.S. consumer has benefitted from low-cost manufactured goods imported from emerging market economies, substitution of imports for domestic production resulted in a substantial trade deficit and low employment growth as export-oriented industries and employment lagged.
U.S. inland and intracoastal waterway system.
Efforts to increase exports, such as the National Export Initiative, have not been accompanied by significant tangible support for those commodities where the United States has a comparative advantage. (In economics, comparative advantage refers to the ability of a country to produce a specific good at a lower marginal and opportunity cost over another good. Even if one country is more efficient in the production of all goods — absolute or competitive advantage in all goods — than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.)
Commodities where the United States has a comparative advantage are those that benefit from low raw material costs, low cost of capital, and technology innovation. These include fuels (oil, gas and coal), agricultural products and goods that use these raw materials but do not use a lot of labor, such as industrial equipment. These exports are different than the type of commodities that the United States imports, which tend to be consumer goods.
Export infrastructure is different in many cases than what’s required for imports. Export goods are heavier — meaning ships draw more water and require deep-draft ports; heavy-weight freight movement corridors need to be developed, including stronger bridges and wharves; and consolidation facilities such as transload centers are required.
U.S. inland waterways are an important means of transporting heavy exports as well as imports. In December 2011 the United Soybean Board published a report called America’s Locks & Dams: A Ticking Time Bomb for Agriculture
, which was commissioned by the Texas Transportation Institute. (see www.unitedsoybean.org/wp-content/uploads/Americas_Locks_And_Dams.pdf
The USB report noted “The rapidly deteriorating condition of the nation’s lock and dam infrastructure imperils the ability of the waterborne transportation system to provide a service that will enable U.S. agricultural producers to continue to compete. Should a catastrophic failure of lock and dam infrastructure occur, agricultural producers — and consequently the American consumer — will suffer severe economic distress… A high percentage of these commodities pass through one or more locks on their way to market. Should a waterway be closed due to one or more lock failures, the resultant increase in costs that would be incurred in utilizing truck or rail transportation would decrease or even eliminate the cost advantage of U.S. Midwestern producers.” The report further noted “The economic service life for navigation structures is typically 50 years and is usually extended through major rehabilitation to 75 years. Currently, 54 percent of the Inland Marine Transportation System’s (IMTS) structures are more than 50 years old and 36 percent are more than 70 years old… The age of these facilities is reflected in lock outage statistics. On the Ohio River, for example, navigation outages have increased more than 3-fold since 2000, going from approximately 25,000 hours to 80,000 hours.”
The deterioration of the inland waterway system has occurred as U.S. agricultural exports have increased in economic and strategic value. Food prices have risen significantly since China entered the World Trade Organization in 2001, largely due to growing demand from the swelling middle classes in emerging markets. As food prices rise this basic necessity becomes unaffordable for the middle and lower classes. Over the last few years this has spawned social unrest in many less developed areas and is considered to be one of the sparks that set off the Arab Spring uprisings.
Meanwhile other major agricultural export countries such as Canada and Brazil, which have per acre yield levels comparable to the United States and lots of land, have been or are about to embark on major freight movement investment programs. In a large interior region of Brazil up to three harvests of soy can be grown. That region suffers from lack of access to deep-water marine ports, but this could soon change as the country deploys a major inland and marine port investment program. Expansion of the Panama Canal could see Brazil’s agricultural exports to Asia shift from the currently longer route around the African Cape of Good Hope. U.S. agricultural exports could soon be at a competitive disadvantage.
There is a lot at stake and time is not a friend to U.S. export competitiveness.
Kemmsies is chief economist at Moffatt & Nichol, a marine infrastructure engineering firm. He can be reached at (212) 768-7454 or by email.