Low water levels along the Mississippi River have been causing problems for the barge industry, but could present an opportunity for railroads, some analysts say.
Analyst Patrick Tyler Brown at Raymond James explained that over the last two months, water levels on the Mississippi have been at lows not seen in over 30 years. “This has primarily affected parts of the lower Mississippi due to low rainfall in the Ohio River Valley and the Upper Mississippi feeder region, causing a slew of issues for the barge industry,” he wrote in a note to clients.
This has resulted in complete closures of parts of the river or “barge breakups” when a tow boat, which typically carries 30 to 40 barges, hits a sandbar, resulting in queues more than 100 vessels long.
To deal with these bottlenecks, initiatives such as a maximum tow size of 25 barges have been implemented, which Brown notes is a 17% to 38% reduction in capacity. Tow drafts, or the amount a vessel can be below the water line, has also been reduced to 9 feet, which Brown said reduces the tonnage per barge by between 24% and 30% compared with normal conditions.
Last month, Yale Climate Connections reported that rains from Hurricane Roslyn would help Mississippi River water levels, but still warned that, with an impending La Niña winter, the river’s long-term outlook is still very dry.
Set against this backdrop, railroads could benefit. And as Raymond James noted, Canadian National Railway Co.
is the primary rail operator along the Mississippi.
“Given barges’ exposure to bulk commodities, we believe that the rails have picked up some incremental volume from the low stage levels (barge-to-rail conversion) seen in the first half of 4Q22, particularly aiding grain shipments,” wrote Brown. “Shippers have spoken at length and for quite some time that they want to put more volume on the rails, once service levels improve.”
“Thus, we believe there is yet more opportunity to facilitate barge-to-rail conversion, although shippers can also store their product for longer or use trucking to move product to local livestock markets,” he added.
There has been concern about a potential railroad strike that many feel would devastate the U.S. economy, as more than half of the 115,000 workers represented by rail unions have rejected the deals brokered by President Joe Biden in September.
But after a coalition of more than 400 business groups sent a letter urging Congress to step in, and President Biden also called on Congress to use its power to impose the agreed on contract terms, Evercore ISI analyst Jonathan Chappell said the risk of a strike has effectively been removed.
Chappell said Evercore’s Washington, D.C. policy team believes there is enough bipartisan support in Congress to “proactively remove strike risk” as soon as the end of this week, well ahead of the Dec. 9 deadline.
“The impact of this letter to the threat of a strike cannot be understated, as it brings the labor-friendly Democrats to a proactive resolution (House is expected to vote as early as [Wednesday], with Nancy Pelosi calling for a vote this week) under its leaders, with sources noting enough Republicans on board to result in a bipartisan agreement,” Chappell wrote in a note to clients on Tuesday. “We were uncertain on Congress’s willingness to end a strike in a bipartisan manner (mainly owing to strong pro-labor leanings), let alone a week before the anticipated strike date, but this risk is now removed.”