Buying power: for high-volume scrap buyers and sellers, the inland waterways can offer distinct advantages.

A 1994 report from the U.S. Department of Transportation states: "Shallow-draft water transportation is the most fuel-efficient mode of transportation for moving bulk raw materials, is the least energy-intensive method of freight transportation when moving equivalent amounts of cargo and consumes less energy than alternative modes."

In an era of high energy costs, this is certainly a powerful statement.

Looking at the ferrous scrap flow map in the January 2006 issue of Recycling Today (found on p. $28 of the Scrap Metals Supplement), one cannot help but notice the high percentage of mills located on or near navigable waterways. Proximity to navigable waters provides not only maximum economy in bringing scrap into the mini-mills, but the system also affords the mills economies of scale in product distribution.

For a barge customer such as an EAF steel mill bringing in scrap, this very strong advantage has to be weighed against the need to make a very large purchase.

John Ferriola of Nucor Corp., Charlotte, N.C., says, "Obviously, you do best in terms of freight rate by moving larger quantities. But, sometimes in the scrap business you pay more for the larger buy that you make. So, everything has to be weighed against each other, and you have to look at all the different factors in making a decision."

SLOW GOING. While deliveries by barge can be slower than those via rail or truck, Ferriola says, "It's a relative question. If you're bringing it in by barge from New Orleans to Hickman, Ark., it's not much of a difference. It could [even] be faster."

The particular route can make a difference, he remarks. "We move scrap around. If you're moving it from Indianapolis to our mill in Crawfordsville, Ind., it doesn't take very long," Ferriola says. "If you're going from Charlotte to our mill in Crawfordsville, it takes longer. If you're going from New Orleans to our mill in Crawfordsville, it takes very long. That's true for barge and non-barge shipments," he says. "Now, sometimes you [actually] gain advantages by going by barge--because you can move more at one time.

A mill's proximity to the waterway system is a big factor in deciding whether to ship via barge. Al Cozzi, the scrap industry veteran who now co-owns Cozzi Consulting Group, Burr Ridge, Ill., says, "Even if the mill has direct waterway access, it requires additional handling to get it out of the barge and over to their stockpiles. If it comes in by truck or rail to a consumer, they can unload it right from the vehicle into their stockpile or direct-charge it into the furnace," he adds.

"With the barge, they have to unload it and move it to either their charging area or stockpiling area," Cozzi continues. "Most of the larger mills today use grapples to unload the barges. If the mill is not directly on the waterway, the scrap gets to the mill by truck or rail. Some of the mills engage on-site stevedores to handle the unloading, others do it themselves."

Generally, scrap is trucked from the shipper's yard to a barge terminal for loading.

In Cozzi's view, "They have to be relatively close to the water to make it worthwhile. If they're more than 20 to 30 miles from a navigable river, it doesn't even pay to think about getting it to the waterways."

STAYING AFLOAT. Just as with rail and truck transportation, barge transportation can be affected, in its own way, by weather and infrastructure problems. For instance, very cold weather can not only slow but completely stop traffic because of waterways freezing over.

When most people think of the Mississippi River, they picture the lower Mississippi--the wide river south of St. Louis that flows through relatively warm climates.

Over much of the upper Mississippi system and on the Ohio River, however, barge trains have to contend with transiting through locks. Those locks, which were built as long ago as the 1930s, are only 600 feet long, while newer locks measure up to 1,200 feet in length. To conserve capital funds and to minimize operating costs, the raising-and-lowering of the locks' water levels was (and still is) done by gravity rather than by pumps. This has required sometimes elaborate and time-consuming choreography for a barge train to transit a set of locks.

The lock system is just one of several factors that can affect how smoothly a trip by barge goes. For example, capacity limits can affect traffic flow and the number of available vessels for transport.

Tom Vorholt, vice president of dry cargo sales for the Ingram Barge Co., Nashville, Tenn., says that in terms of the waterways' overall ability to accommodate barge traffic, they are "nowhere near capacity." In terms of the current barge fleet's capacity to meet current demands, however, he (and others) sees the two as "close to equilibrium."

A March 2006 issue of Waterways Journal called attention to a 2,500-barge drop in the U.S. inland barge fleet--down from a historical high in 1999. "In the past year, although 328 new barges were added to the overall fleet, barge operators retired 714 barges, according to a report by Informa Economics, Memphis," the article notes.

Unfortunately for mills and scrap suppliers, most of the new capacity has been geared toward the transportation of liquid cargos.

Consulting firm Informa Economics has published barge industry statistics for many years. Ken Eriksen, vice president of the company's transportation services program, says, "Over the last few years, most of the new barges have been tanker barges rather than dry cargo barges ... When the order books are full of tanks, you can't build many dry cargo barges. Also, the prices for dry cargo barges have about doubled over what they were just three-to-four years ago (primarily because of higher steel prices, labor and other costs), there just isn't the capacity to build more barges."

Ingram Barge's Vorholt adds, "There haven't been a lot of new barges built since 2000 or 2001 because supply and demand is really just now getting back to equilibrium. Four years ago, you could build an open-hopper barge for about $187,000. With the run-up in steel prices, it's $400,000 today," he notes. "So, people have been putting off constructing new open-hopper barges to wait until better market dynamics and market rates improved to justify the investment in a $400,000 barge. But, we're pretty much there today. We're going to build over a 10-year period," Vorholt says.

"New construction on dry cargo barges is ramping up from 300 barges in 2005 to probably 1,200 barges by 2008," Vorholt adds. "The day of reckoning is here, and we're all starting to step up to the, plate and build some new equipment.

In general, dry cargo barges, like railroad boxcars or truck trailers, are designed to be multi-purpose and not dedicated to specific commodities. To highlight their interchangeability, Vorholt notes it's possible for a dry cargo barge that had been carrying cement or coal to carry grain in its next load. "It's just a matter of making sure you get the barge cleaned for the next load."

ON SCHEDULE. Regarding scheduling, Vorholt offers this guidance: "What we like to know is what people's requirements are--what the load schedules are--five to six working days ahead of time so that we can have the barge there on the day they say they need it to load."

Otherwise, complications can arise. "On short notice, it just depends," says Vorholt. "It depends on where and what I have in the area. If I have one at that facility unloading for someone else, I might just leave it there. Sometimes it just has to be cleaned; sometimes not, depending on what the previous commodity was. Sometimes, we can react on pretty short notice."

Vorholt contends there's no need for shippers to seek intermediaries to arrange bookings and to look for backhauls that would allow better rates. "We look at our book of business and determine what our front hauls and backhauls are, and in our business we make our money by doing our best to make sure we're loaded in both directions," he says.

"Our shippers do take advantage of back-haul economics when there are opportunities; I think all the barge companies do that," he notes. "Somebody has to foot the bill for an intermediary; they don't work for nothing. So, we try to work directly with the shippers, when we can, to cut out paying somebody else to do the things we can do collectively," Vorholt says.

While the barge system is used directly by large shippers and mills, smaller scrap dealers often indirectly participate in the economics of barge shipping. Al Cozzi says, "A lot of the larger dealers that have access to waterways right at their yards will buy prepared material from smaller dealers and have it delivered there and then they'll commingle that material with their own and others."

On the question of back-hauls, Cozzi observes, "In some cases, a steel mill will have a deal with the carrier where you--as a shipper--have to use the barge line they designate, and when the load gets to them, they'll unload and clean it out and, in many cases, reload it with their own products to be shipped out."

Mill operators themselves have a complex problem in trying to balance their daily scrap consumption, their inventory and what they have in their barge "pipeline."

Each mill company has its own logistics specialist involved in figuring out just how to accomplish this balancing act, and when mills develop a technique that works, they often keep it secret as a competitive advantage.

THE INLAND WATERWAYS AT A GLANCE

FAST FACTS:

* Combining the Mississippi, Missouri and Ohio rivers, the inland waterways touch or flow through Minnesota, Wisconsin, Iowa, Illinois, Missouri, Arkansas, Tennessee, Louisiana, Mississippi, Ohio, Pennsylvania, West Virginia, Kentucky and Indiana

* The Illinois Waterway affords connections to the Great Lakes and the New York State Barge Canal.

* The Gulf Intracoastal Waterway extends into Texas, Alabama, Georgia and Florida.

* The inland waterways handle some 15 percent of the United States' gross domestic product at only a bit more than 2 percent of the transportation cost.

* Customs collections contribute billions of dollars to the US. Treasury

* The primary commodities carried on the inland waterways as a whole are coal, grain, petroleum products and chemicals, aggregates, ores and minerals, iron and steel

* The oldest operating locks in the U.S. are Kentucky River Locks 1 and 2, built in 1839.

IMPEDING THE FLOW

Ferrous scrap shipments are tallied into a "miscellaneous" category that comprises less than 1 percent of the tonnage carried by barge on the inland waterways.

However, the barge industry sees the importance of ferrous scrap shipments to mini-mills. "It has become an important backhaul on the waterways," says Douglas Sheffler, manager, research and data analysis, American Waterways Operators, a trade association in Arlington, Va. "I and some other industry observers see that traffic as a big growth opportunity for us."

Looking at the future, the old 600-foot-long locks are problematic impediments to traffic flow. Given the number of states that benefit from the waterways and the range of commodities carried, one might expect broad support for waterways infrastructure funding. Indeed, some 80 U.S. Senators recently sent a letter to Senate Majority Leader Bill Frist urging action on a pending Water Resources Development Act (WRDA).

The outlook for its passage is uncertain. Assuming a positive outcome for funding, there still must be spending bills passed, then a design phase, followed by construction bids solicited and awarded. All in all, it will probably be some 10 years before any new locks are built and opened.

The author is a freelance writer based in the Cleveland area. He can be contacted at [e-mail].