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Inland navigation: yesterday’s price is not today’s price

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Since tugs can hold up to 110,000 gallons of diesel fuel, the increased cost is passed on to the tug operator, shipper, farmer, etc. (Credit: Shutterstock/Earl D. Walker)

By Tracy Zea, WCI President and CEO

Anyone who has shopped for groceries, dined out, paid rent or bought just about anything in recent months knows that we are facing unprecedented economic challenges for many of us. Soaring prices for everything propelled inflation to a new four-decade high in June. According Moody’s Analytics, it costs the average American household an additional $327 per month, for a total of $4,000 per year. Consumer prices rose 9.1% from a year ago, the biggest 12-month increase since 1981, according to the US Department of Labor.

The ink of the Infrastructure Investment and Jobs Act (IIJA) was barely dry as this crisis hit us all in the wallet. And where has it been most apparent this summer? At the pump. The gasoline price spike started in April and peaked (we hope) in June, where gasoline prices were up nearly 60% from June 2021.

International crude prices have doubled since the end of last year. There are myriad causes – Russia’s invasion of Ukraine and sanctions imposed by the United States and others, and America’s reduced refining capacity, to name a few. -ones. Our ability to convert oil to gasoline is down 900,000 barrels a day since late 2019, according to the Department of Energy. Closed refineries cannot reopen overnight. And the increase in energy consumption has intensified with people returning to travel as we leave COVID in the rearview mirror.

Inland waterways are not immune to these economic challenges. For the transportation sector, increases in fuel costs are spread along the supply chain. In a CNBC special, Inflation United States as of May 28, Mike Ellis, CEO of American Commercial Barge Line, said up to 30% of his company’s costs are fuel. “When our fuel costs double, our prices have to go up.” Tugs have a unique relationship with fuel compared to other modes. Of course, diesel fuel powers these boats, but fuel is also a necessary element to balance a tug. Fuel weight is crucial to ballast and its distribution contributes to overall efficiency.

With tugs that can hold up to 110,000 gallons of diesel fuel, rising costs are passed on to the tug operator, shipper, farmer, refiner, consumer, and even the federal agency tasked with modernizing the system to become more efficient and competitive. And products have to move, as Ellis later pointed out on the CNBC special, saying, “If we don’t move, America doesn’t move.” Rising fuel prices are just one factor why this year’s dollars won’t go as far as last year’s.

Thinking back to the IIJA, it was a huge win largely because it funded so many projects to completion – or so we thought, under normal circumstances. However, the realization of these projects will certainly be impacted by price increases of all kinds. Metallurgical coal and steel in particular threaten the effectiveness of not only IIJA funding, but could impact annual appropriations from Congress and even the Inland Waterways Trust Fund.

For example, at the April Waterway User Council meeting (the first in more than a year, thanks to a zero-based moratorium on advisory boards under the Department of Defense), the Kentucky Lock will require an additional $332 million in construction financing, bringing the total cost of the project to $1.5 billion and extending its completion date by several years. To put that into perspective, Kentucky Lock was authorized in the Water Resources Development Act of 1996 at a total cost of $393.2 million. It is not known if other projects will meet the same fate.

But there is hope. New lock chambers through the construction of the IIJA will improve the system with 1,200-foot locks, further leveraging barge transport as the most fuel-efficient mode of surface transportation. The industry will continue to improve as a responsible steward of the environment and a trusted part of the supply chain. And as always, the resilience of the industry will prevail in the face of these unprecedented challenges.

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