Prepared for: US Inland Barge Multi- Client Study Participants Evaluation and Outlook of the US Inland Barge Industry June 2003 Prepared by:
TABLE OF CONTENTS LIST OF FIGURES... 3 BACKGROUND... 7 METHODOLOGY... 18 SPECIFIC TASKS... 19 Task 1: Global Grain Outlook...19 Grain Summary...19 Coarse Grains (Corn)...19 World Oilseeds and Products (Soybean)...23 Wheat...25 Task 2: U.S. Grain Export Demand...27 Task 3: Non-Grain Movement...31 Coal...32 Natural Gas...41 All Chemical Fertilizers...44 Iron and Steel Products...46 Nonferrous Ores...58 Soil, Sand, Rock and Stone...60 Lime, Cement and Glass...62 Task 4: Barge Supply and Industry Structure...65 Three Decades of Covered Barge Construction...65 Current Structure of Barge Fleet...68 Barge Fleet Size Considerations...75 Barge Construction Considerations...88 Task 5: River System, Infrastructure and Ocean Freight Issues...90 Upper Mississippi River and Illinois Waterway Navigation Study...90 Inland River Trust Fund...91 Freight Rates...92 Task 6: Reconciliation of Supply and Demand of Covered Dry Bulk Barges...94 Survey Results of Fleet Retirements and Targeted Barge Pressure Index Replacement of Fleet...99 Life Cycle Retirements and Targeted Average Fleet Age Replacement...102 Fixed Age Retirements and 75 percent Fleet Replacement...106 Industry Supplemental Barge Scenarios...109 Task 7: Conclusions...120 Barge Demand Summary...120 Barge Supply Summary...120 New Construction...120 State of the Industry...120 Risk Factors...125 APPENDICES... 126 The information contained herein has been taken from trade and statistical services and other sources we believe are reliable. Sparks Companies, Inc. (Sparks) does not guarantee that such information is accurate or complete and it should not be relied upon as such. Opinions expressed reflect judgments at this date and are subject to change without notice. This copyrighted report is intended for the use of clients of Sparks only and may not be reproduced or electronically transmitted to other companies or individuals, whole or in part, without the prior written permission of Sparks Companies, Inc. 2
LIST OF FIGURES Figure 1 U.S. Inland River System...7 Figure 2 Weekly Spot Barge Freight Rates (Average of Illinois River, Mid-Mississippi River, and St. Louis locations)...8 Figure 3 Seasonal Variation in Barge Rates for Illinois River, Mid-Mississippi River, and St. Louis Locations (percent of tariff)...9 Figure 4 Seasonality of Grain Barge Rates, Peaks and Lows, Average for Illinois River, Mid- Mississippi and St. Louis Locations (percent of tariff)...10 Figure 5 Inland Waterway Barge Traffic, Total of All Commodities...11 Figure 6 Inland Waterways Traffic by Commodity, Ave. Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...12 Figure 7 Inland Waterways Covered Barge Traffic by Commodity, Ave. Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...12 Figure 8 Inland Waterways Open Barge Traffic by Commodity, Ave. Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...13 Figure 9 Inland Waterways Covered Barge Traffic of Farm and Food, Ave. Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the U.S.)...13 Figure 10 Inland Waterways Traffic by Commodity, Average Ton-Mile Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...15 Figure 11 Inland Waterways Covered Barge Traffic by Commodity, Ave. Ton-Mile Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...15 Figure 12 Inland Waterways Open Barge Traffic by Commodity, Ave. Ton-Mile Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the US)...16 Figure 13 Inland Waterways Covered Barge Traffic of Farm and Food, Ave. Ton-Mile Share 1997-2001 (Source: Compiled from Corps Waterborne Commerce of the U.S.)...16 Figure 14 Operational Ethanol Plants...21 Figure 15 Major Operational Ethanol Plants in the Western Corn Belt...21 Figure 16 U.S. Corn Fundamentals...23 Figure 17 U.S. Soybean Complex Fundamentals...25 Figure 18 U.S. Wheat Fundamentals...26 Figure 19 Shares of Grain and Soybean Exports by Port Range (percent)...28 Figure 20 U.S. Long-Term Grain and Soybean Export Forecast (million short tons)...29 Figure 21 Grain Barge Movements by Market...30 Figure 22 Top 5 Commodities Moved by Barge Type (percent)...31 Figure 23 Coal Production...32 Figure 24 U.S. Energy Consumption by Source...33 Figure 25 Percent of Coal Production East of the Mississippi River...34 Figure 26 U.S. Coal Production by Region...34 Figure 27 Share of Coal Moved by Transportation Mode (percent)...35 Figure 28 Coal Consumption for Electric Power Sector...36 Figure 29 Coal Consumption for All Uses Excluding Electric Power Sector...36 Figure 30 Coal Consumption by Sector Excluding Electric Power Sector...37 Figure 31 Electric Net Summer Capacity...38 Figure 32 Coal Consumption for Electric Power Sector and All Other Uses...39 Figure 33 U.S. Coal Exports by Country...39 Figure 34 Coal Barge Movements and Eastern Coal Production...40 Figure 35 Coal Barge Movements...41 Figure 36 NYMEX Natural Gas Monthly Futures...42 3
Figure 37 U.S. Weekly Natural Gas Stocks...43 Figure 38 Natural Gas Stocks and Price Scenarios...44 Figure 39 Total U.S. Crop Acreage and U.S. Corn Acreage...45 Figure 40 Fertilizer Barge Movements by Type...46 Figure 41 U.S. Steel Production...47 Figure 42 U.S. Share of World Steel and Pig Iron Production...48 Figure 43 Steel Imports, Barge Movements, and Pig Iron Imports...49 Figure 44 Primary Steel and Iron Barge Movements and Steel and Pig Iron Imports...49 Figure 45 Imports of Steel and Pig Iron...51 Figure 46 Primary Steel and Iron Barge Movements...51 Figure 47 Domestic and Imported Primary Steel and Iron Barge Movements...52 Figure 48 Waste and Steel Barge Movements...53 Figure 49 Steel and Iron Scrap, and Waste Scrap Barge Movements...53 Figure 50 Steel and Iron Scrap Consumption...54 Figure 51 Steel and Iron Scrap Consumption and Steel and Iron Scrap Barge Movement...55 Figure 52 Steel and Iron Scrap Barge Movements...55 Figure 53 Iron Ore Shipments and Steel Production...56 Figure 54 Percent of Iron Ore Moved by Barge...57 Figure 55 Iron Ore Barge Movements...57 Figure 56 Aluminum, Copper and Manganese Demand...59 Figure 57 Total Nonferrous Consumption and Barge Movements...59 Figure 58 Soil, Sand, Rock and Stone Barge Movements...60 Figure 59 Soil, Sand, Rock and Stone Barge Movements Versus Nominal GDP...61 Figure 60 Limestone and Sand & Gravel Barge Movements...61 Figure 61 Building Stone and Gypsum Barge Movements...62 Figure 62 Lime, Cement and Glass Barge Movements...63 Figure 63 Lime, Cement and Glass Barge Movements and Nominal GDP...64 Figure 64 Lime and Cement & Concrete Barge Movements...64 Figure 65 Dry Cargo Barge Construction Late 1970s to Early 1980s...65 Figure 66 Major Barge Line Consolidation Since 1980...66 Figure 67 Schedule of New and Retired Dry Cargo Barges During 1990s...67 Figure 68 Size of Covered Barge Fleet...69 Figure 69 Annual Change in Covered Barge Fleet...69 Figure 70 Age of Covered Barge Fleet in 2002...70 Figure 71 2002 Covered Barge Fleet by Operator...71 Figure 72 Size of Open Barge Fleet...72 Figure 73 Age of 2002 Open Barge Fleet...72 Figure 74 2002 Open Barge Fleet by Operator...73 Figure 75 Size of Tank Barge Fleet...74 Figure 76 Age of 2002 Tank Barge Fleet...74 Figure 77 2002 Jumbo Tank Barge Fleet by Operator...75 Figure 78 Survey Respondent Results for Covered Barge Fleet Retirements...76 Figure 79 Survey Impacts to Retirements of All Covered Barges...77 Figure 80 2002 Covered Barge Age Profile Survey Results...78 Figure 81 Covered Fleet Survey Response Retirement Schedule...78 Figure 82 Survey Respondent Results on Open Barge Retirements...79 Figure 83 Survey Impacts to Retirements of All Open Barges...79 Figure 84 2002 Open Barge Age Profile Survey Results...80 Figure 85 Open Barge Fleet Survey Response Retirement Schedule...80 4
Figure 86 Percent Covered Barge Fleet Retired, 5-yr. Moving Average, 1962-1983...82 Figure 87 Covered Barge Retirement Schedule by Age of Barge (percent)...83 Figure 88 Percent Open Barge Fleet Retired, 5-yr. Moving Average, 1962-1983...84 Figure 89 Open Barge Retirement Schedule by Age of Barge (percent)...84 Figure 90 Average Age of Covered Barge Fleet...85 Figure 91 Average Age of Open Barge Fleet...86 Figure 92 Covered Barge Fixed Age Retirement Schedules...87 Figure 93 Open Barge Fixed Age Retirement Schedules...87 Figure 94 Life Cycle Retirement and Targeted Average Age New Construction Schedule by Barge Type...88 Figure 95 75 Percent Replacement Schedule of Barges Retired at 28-years of Age...89 Figure 96 Inland Waterways Trust Fund Status Report, February 13, 2003 ($millions)...91 Figure 97 Ocean Freight Rates to Japan from Center Gulf and Pacific Northwest...93 Figure 98 Covered Barge Pressure Index, 1988 to 2001 (million tons)...94 Figure 99 Covered Barge, Tonnage and Pressure Index (1998=100)...95 Figure 100 Comparison of Indices for Standard Covered Barge and Deeper Hulled Barges and the Respective Pressure Indices (1998=100)...95 Figure 101 Covered Barge Pressure Index, 1990 to 2001 (billion ton-miles)...96 Figure 102 Open Barge Pressure Index, 1990 to 2001 (billion ton-miles)...96 Figure 103 Grain Barge Index and Covered Barge Pressure Index (1998=100)...98 Figure 104 Grain Barge Rate Index and Grain Barge Index (1998=100)...98 Figure 105 Survey Retirements and New Construction for a Targeted Barge Pressure Index Schedule by Barge Type...99 Figure 106 Covered Barge Pressure Index, Survey Results of Retirements and Targeted Barge Pressure Index Replacements...99 Figure 107 Survey Results for Covered Barge Retirements and Targeted Barge Pressure Index for Fleet Replacement (1998=100)...100 Figure 108 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis) for Survey Results Retirements and Targeted Barge Pressure Index...101 Figure 109 Open Barge Pressure Index, Survey Results of Retirements and Targeted Barge Pressure Index Replacements...102 Figure 110 Survey Results for Open Barge Retirements and Targeted Barge Pressure Index for Fleet Replacement (1998=100)...102 Figure 111 Covered Barge Pressure Index, Life Cycle Retirements and Targeted Average Fleet Age Replacement...103 Figure 112 Covered Barge Pressure Index, Life Cycle Retirement, Targeted Average Fleet Age Replacement (1998=100)...104 Figure 113 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis) for Life Cycle Retirement and Targeted Average Fleet Age...104 Figure 114 Open Barge Pressure Index, Life Cycle Retirements and Targeted Average Fleet Age Replacement...105 Figure 115 Covered Barge Pressure Index, Life Cycle Retirement, Targeted Average Fleet Age Replacement (1998=100)...106 Figure 116 Covered Barge Pressure Index, 28-Yr. Retirement and 75 percent Replacement...107 Figure 117 Adjusted Covered Barge Pressure Index, 28-Yr. Retirement, 75 percent Replacement (1998=100)...107 Figure 118 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis) for 28-yr. Retirement and 75 Percent Replacement...107 5
Figure 119 Open Barge Pressure Index, 28-Yr. Retirement and 75 percent Replacement.108 Figure 120 Open Barge Pressure Index, 28-Yr. Retirement, 75 percent Replacement (1998=100)...108 Figure 121 Covered Barge Pressure Index, Escalated Retirements to 250 in 2007...110 Figure 122 Adjusted Covered Barge Pressure Index, Escalated Retirements to 250 in 2007 (1998=100)...110 Figure 123 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis) for Escalating Retirements to 250 in 2007...110 Figure 124 Open Barge Pressure Index, Escalated Retirements to 500 in 2007...111 Figure 125 Open Barge Pressure Index, Escalated Retirements to 500 in 2007 (1998=100)...112 Figure 126 Covered Barge Pressure Index, Retirements and New Builds Equal 2002...113 Figure 127 Covered Barge Pressure Index, Retirements and New Builds Equal 2002 (1998=100)...113 Figure 128 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis), Retirements and New Builds Equal 2002...113 Figure 129 Open Barge Pressure Index, Retirements and New Builds Equal 2002...114 Figure 130 Open Barge Pressure Index, Retirements and New Builds Equal 2002 (1998=100)...115 Figure 131 Covered Barge Pressure Index, Targeting a Barge Rate of 175 Percent of Tariff by Adjusting Covered Tonnage and Using the Life Cycle Barge Schedule...116 Figure 132 Covered Barge Pressure Index, Targeting a Barge Rate of 175 Percent of Tariff (1998=100)...116 Figure 133 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis), Targeting a Rate of 175...116 Figure 134 Covered Barge Pressure Index, Adjusting to 10,000 Fleet Size in 2007...118 Figure 135 Covered Barge Pressure Index, Adjusting to 10,000 Fleet Size in 2007 (1998=100)...118 Figure 136 Barge Freight Rate Outlook (percent of tariff averaged for Illinois, Mid-Mississippi and St. Louis), Adjusting to 10,000 Fleet Size...119 Figure 137 Covered Barge Index Impacts by Barge Retirement and Replacement Schedules (adjusted for larger hulled barges)...121 Figure 138 Covered Barge Pressure Index Impacts by Barge Retirement and Replacement Schedules (adjusted for larger hulled barges)...122 Figure 139 Barge Freight Rate Impacts by Barge Retirement and Replacement Schedules (percent of tariff)...122 Figure 140 Covered Barge Fleet Size (not adjusted for larger hulled barges) by Retirement and Replacement Schedules...123 Figure 141 Covered Barge Fleet Size (adjusted for larger hulled barges) by Retirement and Replacement Schedules...123 Figure 142 Open Barge Index Impacts by Barge Retirement and Replacement Schedules123 Figure 143 Open Barge Pressure Index Impacts by Barge Retirement and Replacement Schedules...124 Figure 144 Open Barge Fleet Size by Retirement and Replacement Schedules...125 6
APPENDICES World Crop Area, Yield and Production Summary: World Wheat Area, Yield and Production... A-1 through A-3 World Rice Area, Yield and Production... A-4 through A-6 World Coarse Grains Area, Yield and Production... A-7 through A-9 World Corn Area, Yield and Production... A-10 through A-12 World Barley Area, Yield and Production... A-13 through A-15 World Oats Area, Yield and Production... A-16 through A-18 World Sorghum Area, Yield and Production... A-19 through A-21 World Oilseeds Area, Yield and Production... A-22 through A-24 World Soybean Area, Yield and Production... A-25 through A-27 World Rapeseed Area, Yield and Production... A-28 through A-30 World Cotton Lint Area, Yield and Production... A-31 through A-33 Food Grains Summary: World Wheat Summary... B-1 World Rice Summary... B-2 United States Food Grain Balance... B-3 Canada Wheat Balance... B-4 Argentina Wheat Balance... B-5 Australia Wheat Balance... B-6 European Union Wheat Balance... B-7 Central Europe Wheat Balance... B-8 Russia Wheat Balance... B-9 Ukraine Wheat Balance... B-10 China Food Grain Balance... B-11 India Food Grain Balance... B-12 Brazil Wheat Balance... B-13 Mexico Wheat Balance... B-14 126
Feed Grains Summary: World Coarse Grains Summary... C-1 World Corn Summary... C-2 United States Feed Grain Balance... C-3 Argentina Corn Balance... C-4 Brazil Corn Balance... C-5 European Union Feed Grain Balance...C-6 Central Europe Feed Grain Balance... C-7 China Feed Grain Balance... C-8 Republic of South Africa Corn Balance... C-9 Mexico Corn Balance... C-10 Russia Feed Grain Balance... C-11 Ukraine Feed Grain Balance... C-12 Canada Feed Grain Balance... C-13 United States Oat Balance... C-14 European Union Oat Balance... C-15 Oilseeds Summary: World Oilseeds Summary... D-1 World Soybean Summary... D-2 World Major Meals Summary... D-3 World Major Oils Summary... D-4 United States Soybean Balance... D-5 Brazil Soybean Balance... D-6 Argentina Soybean Balance... D-7 China Soybean Balance... D-8 European Union Soybean Balance... D-9 United States Rapeseed Balance... D-10 Canada Canola Balance...D-11 European Union Rapeseed Balance... D-12 China Rapeseed Balance... D-13 India Rapeseed Balance... D-14 Australia Rapeseed Balance... D-15 Central Europe Rapeseed Balance... D-16 United States Sunseed Balance... D-17 Argentina Sunseed Balance... D-18 European Union Sunseed Balance... D-19 127
Central Europe Sunseed Balance... D-20 Russia Sunseed Balance... D-21 Ukraine Sunseed Balance... D-22 United States Peanut Balance... D-23 India Peanut Balance... D-24 Malaysia Oilseed Balance... D-25 U.S. Specific: United States Major Crop: Price, Revenue and Return Summary... 1a United States Planted Acreage... 2a United States Corn Fundamentals... 3a United States Sorghum Fundamentals... 4a United States Barley Fundamentals... 5a United States Oats Fundamentals... 6a United States Wheat Fundamentals... 7a United States Rice Fundamentals... 8a United States Upland Cotton Fundamentals... 9a United States Soybean Complex Fundamentals... 10a Non-Grain Material: Domestic Internal Barge Traffic by Commodity, Tons... E-1 Domestic Internal Barge Traffic By Commodity, Ton-Miles... E-2 Domestic Internal Barge Traffic by Commodity Forecast Groupings... E-3 Aluminum Statistics... E-4 Bauxite Statistics... E-5 Cement Statistics... E-6 Clay Statistics... E-7 Coal Production... E-8 Coal Consumption... E-9 Coal Exports... E-10 Copper Statistics... E-11 Direct Reduced Iron Statistics... E-12 Gypsum Statistics... E-13 Iron Ore Statistics... E-14 Iron Oxide Pigments Statistics... E-15 Iron and Steel Scrap Statistics... E-16 Lime Statistics... E-17 128
Magnesium Compounds Statistics... E-18 Magnesium Metal Statistics... E-19 Manganese Statistics... E-20 Nitrogen Statistics... E-21 Peat Statistics... E-22 Perlite Statistics... E-23 Phosphate Rock Statistics... E-24 Pig Iron Statistics... E-25 Potash Statistics... E-26 Salt Statistics... E-27 Sand and Gravel Statistics... E-28 Slag Statistics... E-29 Steel Statistics... E-30 Stone (Crushed) Statistics... E-31 Stone (Dimension) Statistics... E-32 Sulfur Statistics... E-33 Wood Product Production... E-34 Supplemental Barge Fleet Profile Survey Cover Letter and Survey... F-1 Survey Results... F-2 129