Going Global

Workboat companies can’t ignore world trade patterns.

By Pamela Glass, Washington Correspondent

It might not be obvious, but there’s a direct kinship between Shanghai and Seattle, Mobile and Mombai, and New Orleans and Ningbo.

In an era of interconnected economies, globalization and world trade are increasingly influencing the business climate of domestic workboat markets, making them more sensitive to international economic and political developments and launching them into a new identity as global businesses with hometown roots.

The domestic market remains the backbone for most U.S. workboat companies, but an increasing percentage of commodities being hauled on U.S. waterways and through U.S. ports arrive from overseas, or are exported. In 2000, for example, one out of every two containers arriving at West Coast ports came from China, while this year an estimated 63 percent of imports to the West Coast will come from China. It is predicted that Chinese imports to the West Coast will double by 2015.

“We’re a lot more impacted by world events than we’ve ever been,” said Mark Knoy, president, MEMCO Barge Line, Chesterfield, Mo., a large dry-bulk transport specialist with over 2,700 hopper barges.

“Globalization affects us in a pretty significant way,” added Daniel T. Martin, senior vice president and chief commercial officer for Ingram Barge Co., Nashville, Tenn., the nation’s largest inland barge line with about 4,000 barges and 140 towboats. “We’re not just a regional carrier of barge freight. We operate systemwide to the Gulf and carry imports and exports, so we have to pay a lot of attention to what’s going on in the world market.”

Driven by rapid Third World development, U.S. grains are headed to China and India as cattle feed that is needed to satisfy a hungry population that is improving its diet with higher protein foods. Corn is exported to Europe for ethanol production, and soybeans are shipped to China and Japan. U.S. coal is making its way to Brazil, Mexico and Canada. And containers leaving U.S. ports are carrying consumer goods that are in high demand by people who now have disposable income in countries emerging from poverty.
On the import side, ships arrive daily in the U.S. loaded with electronics, steel, petroleum, cement, chemicals, natural gas, and toys and other consumer goods. 

“These have certainly been positive developments, as they have brought different types of volumes and cargoes that have brought more affordable goods to U.S. consumers,” said Ken Eriksen, senior vice president, transportation services, at Informa Economics Inc., Memphis, Tenn., which provides research and analysis of inland transportation trends.
World trading patterns are also expected to change. International trade used to be dominated by the developed world, most notably the U.S. But by 2050, experts predict that China, growing annually at a record 11 percent GDP growth, will overtake the U.S. as the biggest economy in the world.

“There is the perception that the United States drives everything, but we must relook at this in the next 20 years,” Dr. Mary Brooks, an internationally recognized researcher in transportation policy at Dalhousie University in Halifax, Nova Scotia, said at a recent meeting of the Transportation Research Board in Washington, D.C. “Foreign direct investment is going to China, Russia and Brazil and more than half the world’s trade is among multinationals.”

GLOBAL EFFECT

Globalization can have a big impact on waterways traffic volumes. It can put pressure on busy ports that are scrambling to upgrade infrastructures, place added stress on an antiquated inland lock-and-dam system, and tighten barge supply.
All this can affect the bottom line of many workboat companies as their work is increasingly tied to the ups and downs of international trade as well as the domestic economy.

Barge lines that operate in the Midwest and Gulf regions must closely watch events in Asia, Europe, Africa and Russia, knowing that economic changes there could eventually affect the demand for their services on the inland waterways.

For example, a recent tight supply of global coal amid increasing demand could mean a continued surge in U.S. coal exports.

The situation tightened even more in late January when China, which uses coal to generate 75 percent of its power, halted coal exports for two months to meet domestic demand during an unprecedented cold winter. Consumers in South Korea, Japan and Taiwan must now replace imports of Chinese coal, and they will probably consider buying more expensive U.S. coal, according to news reports.

Ports, already feeling a capacity squeeze, are also gearing up for increased international trade, adding new terminals and dredging to accommodate the larger vessels that will be coming, especially after expansion of the Panama Canal is complete.

Increased trade puts more pressure on an already stressed U.S. transportation system. But on the plus side, it creates opportunities to develop more container-on-barge and other services, especially those that are not time sensitive, from coastal to inland ports.

“We facilitate that import-export move, so we’re absolutely affected by container traffic,” said Christian O’Neil, president of Osprey Line LLC, a Houston-based container-on-barge service that operates between several Gulf ports. “Almost everything we handle is for import or export so you can see the demand for our services ebb and flow with the growth of types and amounts of cargo in and out of our gateway ports.” As a result of the weak dollar, he said, Osprey has handled more exports.

The success of container-on-barge services will depend on market demand and whether shippers have enough incentive to switch from other transport modes. One incentive could come from more rail and road gridlock caused by growth in international container trade, O’Neil said.
           
DOLLAR DOLDRUMS

Several workboat sectors have been affected by the declining dollar. 
“The weak dollar has brought about strong demand in export coal, sales that we’ve not seen in years,” said MEMCO’s Knoy.

Suppliers of workboat equipment are also benefitting as their products become more cost competitive in international markets so they can exploit opportunities to sell in countries that are expanding their inland waterways, said Paul Bingham, an economist with Global Insight, a forecasting firm that tracks water transport.

“There are both opportunities and threats to the industry, and neither can be ignored,” Bingham said. “In the prudent operation of a company, you don’t want to miss an opportunity for new growth or miss foreseeing a potential threat of competition entering your market.

“This is a multidecade trend,” continued Bingham. “Despite the ups and downs and cyclical nature of the business cycle, and despite protectionist tendencies, the desire of economies to interact and source things more cheaply will continue to have an effect on the U.S. economy.”

“Whether globalization is good or bad, it’s a reality,” added Martin of Ingram. “It’s absolutely part of our equation.”

SIDEBAR

Old barges find new homes south of the border

Globalization has its benefits, especially when combined with a strong market in the U.S. workboat sector.

These two factors have created a market for retired vessels from U.S. barge and offshore service companies in Latin America.

“They had an immediate need for barge assets to handle soybeans and iron ore,” said Daniel Martin, senior vice president and chief commercial officer at Ingram Barge Co., which sold 50 barges to Argentine customers last year with plans to sell more in 2008.
He said that as the U.S. barge industry has enjoyed an exceptionally strong business climate, barge companies are retiring old equipment and investing in new barges. Instead of selling them for scrap, old barges have found new owners and homes on the inland waterways of Latin America.

The Ingram barges, vintage 1980, are transported from New Orleans on semisubmersible ships that are normally used to transport floating drilling platforms.

After arriving in Argentina, the barges are sent to a local shipyard for any needed rehabilitation work.

A booming business in soybean exports is fueling the demand for barges in Latin America, according to David Sehrt, senior vice president and COO at Ingram. “They grow and export almost all of it,” he said, so they need bottoms to get it from the production regions to the ports. All the big grain companies there have built plants to crush soybeans for use in exported oil and meal.

Latin American waterways are “in an expansion mode,” Sehrt said. “With soybeans going for $12 a bushel, there’s a lot of excitement in the soybean business.”

Other companies have seen opportunities as well. SCF Marine, St. Louis, a subsidiary of SEACOR Holdings Inc., entered into a joint venture early last year with a third party to operate two 4,600-hp towboats along with 40 hopper barges on the Paraguay-Paraná river system in South America.

“South America is again a booming frontier. Iron ore now moves from Brazil to Argentina’s ocean export terminals to feed hungry steel mills in China,” Charles Fabrikant, SEACOR’s CEO, said at the International WorkBoat Show in December. “The ore movement is in addition to grain, which fueled the last inland boom in South America.”

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