Soybeans are big business for the U.S. dry cargo barge industry, which moves large quantities of the product down the inland river system to Gulf ports, where it's loaded on oceangoing ships and exported to places like China and India.
This is why the industry needs to pay particular attention to two emerging developments — expansion of the Panama Canal and new predictions by the U.S. Department of Agriculture that the U.S. is losing its dominance in the world soybean market.
A USDA report, released in August, says that although the U.S. is the top world soybean exporter, U.S. market share of the soybean trade is declining. This is due to changes in ocean freight rates and aggressive efforts of a main competitor — Brazil — to improve its transportation infrastructure, which reduces transportation costs and makes their product more competitive, according to researchers at the Agricultural Marketing Service.
If current conditions continue, and the U.S. fails to improve its infrastructure from farm to port, “the U.S. world market share could further decline by 20%.” A decline of just 1% in the U.S. market share is equivalent to $500 million lost in export sales based on a world soybean trade volume of 100 million metric tons and today’s price of soybeans, according to “Eroding U.S. Soybean Competitiveness and Market Share: What is the Road Ahead?”
The world’s soybean market is growing, but the U.S. market share is lower than it was in 1980. Argentina and Brazil have come on strong, forcing down the U.S. share from 71% in 1992, to about 47% in 2012. Continued erosion of the U.S. market share would have negative impacts on the covered hopper barge sector, which is already suffering from a drop in coal transport business.
It’s clear that U.S. infrastructure improvements — modernizing the inland waterways system and port improvements — are critical to maintaining the country’s competitiveness in the world soybean market, according to the report. This is why passage and now implementation of the WRDA legislation, which includes significant reforms in how U.S. inland waterways infrastructure is funded, is so critically important.
“Improved U.S. infrastructure would result in an increase in market share, more competitive U.S. exports, and higher income to farmers,” according to the report.
The other factor at play here for soybean traffic is expansion of the Panama Canal which serves as a shortcut between Gulf ports and key export customers in Asia. Soybeans are the top agricultural commodity that moves through the canal. An estimated 58% of U.S. soybean exports leave from the Gulf region, with the majority transiting the canal, says Mike Steenhoek, director of the Soy Transportation Coalition in Iowa.
Steenhoek toured the canal’s expansion site in August to mark the 100th anniversary of the canal’s construction. Completion of the expansion project, expected by December 2015, will be a significant plus for the soybean industry, he says, as bigger ships will be able to carry larger quantities of soybeans from the U.S. to international customers.
“Even though the project has incurred a number of delays and there is a disputed cost overrun between the Panama Canal Authority and the contractors, I think it is still laudable that so much work on such an expensive project has been achieved in only seven years.”
Steenhoek says the U.S., which built the canal, has a lot to learn from the country that now owns and operates it.
“We have examples of lock and dam projects in the United States that have experienced much longer delays and cost overruns,” he said in a statement after his return. “The Panamanians understand the connection between transportation infrastructure and a healthy economy. In the U.S., we too often only consider transportation infrastructure when it experiences a major failure. We fail to conduct regular maintenance of these important assets. The Panamanians have done a good job of taking care of the canal.”
A key to the project’s efficiency, he said, is that the funding was provided upfront, unlike the funding model used for water resource projects in the U.S.
A study by Steenhoek’s coalition a few years ago concluded that vessels at southern Louisiana export terminals along the Mississippi River will be able to load an additional 500,000 bushels of soybeans, which equates to $6.7 million in additional value per vessel. A customer of U.S. soybeans in Asia, for example, would save 35 cents per bushel simply due to the greater transportation efficiency resulting from the expansion.
So what can we draw from this? The canal project could very well be the saving grace for soybean exports, helping the U.S. retain its position as the top world soybean exporter. But this will not likely happen unless the U.S. makes much-needed investments in its own waterways infrastructure.