Company town reborn

Remember the “company town” where everything from housing to the local store was owned by the company? The early model for U.S. industrialization was the company that owned everything from raw materials to the final product. Steel company mills were supplied from by own coal and ore mines, and their own railroads and barge lines handled shipments too. This setup also existed in the forest products industry and other sectors.

Until recently, the prevailing business norm was to eliminate integrated enterprises and focus on the core product. Consequently, steel companies sold their coal and ore mines, railroads and barge companies. Similar disintegration occurred in most other sectors, including forest products.

The company town concept of the large industrial enterprise disintegrated into a network of independent enterprises. The theory was that it would foster competition among independent suppliers, raw material producers, and transportation companies.

But recent instances of raw material shortages and price increases are now bringing the company-town model back. To be assured of a continued supply of raw materials and steady prices, companies are integrating again. The competition is for the control of a limited supply of raw materials. As a result, large companies are acquiring raw materials suppliers and vendors, paying premium prices to ensure they are not locked out of the market.

Currently, this new integration does not extend to the barge industry. But there is a possibility that some companies will purchase barges and do some contract towing if there is a sustained shortage of bottoms. This would become more likely if the barge industry has trouble securing sufficient long-term commitments from customers to finance new equipment.

The sources of new barge supply, whether from towing companies or third parties including shippers, will tell us a lot about how much change the brownwater sector is undergoing.

Will it be unusual to see steel and grain companies invest in barges again in the face of sustained bottom shortages? With the re-emergence of the company-town model, the answer is no.

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Workboat Staff

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