Navigating Troubled Waters: The Mississippi's 2023 Drought and Its Economic Ripples

A Dive into the Consequences of Reduced Water Levels for U.S. Agriculture and Transportation

2023 has not been a kind year to the Mississippi after floods earlier in the year; drought has brought water levels down three feet below the three-year average. Water depth is 24% below 2022 and 45% below the three-year average (The measurements are taken vs. a standard depth at St. Louis, which is 379 feet above sea level). But why does this matter? Why should we care about the water depth in the Mississippi?

Let's take a look at the economics of the Mississippi River System. The Mississippi is one of the most underappreciated pieces of natural infrastructure powering the American economy. Each year, 500 million tons of cargo aboard more than 12,000 ships traverse its waters, which accounts for nearly 80% of all goods transported via U.S. waterways. The economic impact of trade on the Mississippi is estimated at almost $400 billion annually and supports 1.3 million jobs. About 60% of agricultural products depend on this system for transportation: 95% of corn, 94% of soybeans, and 45% of wheat. Agricultural products from the interior are transported quickly and cheaply, while input products like fertilizer and fuel can travel upriver to the source of demand.

The underlying reason for the economics of the Mississippi is transportation. All the and effectively transport goods from one place to another. In one way or another, most economic systems have depended on transportation from low-cost production sources. For most of human history, water quite literally decreases the friction in trade. Despite all the advances in transportation technology, water transport is still nearly an order of magnitude greater than some of the alternatives. One gallon of fuel can transport a ton of goods about 59 miles in a truck or 202 miles by rail; for barges, a single gallon of fuel can move a ton 514 miles, which is substantially more effective than the alternatives. The costs are similarly skewed to transport via barge, which costs about $0.97 per ton vs $2.53 for rail and $5.35 for trucking. Water transport has a clear advantage under normal conditions.

The issue is that conditions are only sometimes normal. Drought means two things: a shallower but also narrower river, which decreases the weight capacity of each barge, and the total number of barges that can be side by side at a time (Think cutting lanes from a freeway). To account for river depth, barges cut capacity by about 10% for each foot of lost depth, which is a big deal when the average barge can carry 1,500 tons each. The narrower river also has a substantial effect; barges travel together in groups pushed by a tow boat. Mid to large tow groups will typically push around 40-45 barges. However, under current conditions, those same tow groups only push 25-30 barges to account for the narrower river.

Three feet lower rivers mean that each group of barges goes from ~60,000-67,500 tons transported to around ~26,250-31,500 tons. Just a few feet can more than half the capacity of a tow group. It's no wonder the costs per ton for transportation were, on average, 51% higher in 2023 compared with 2021. Unfortunately, replacing the capacity for transport via the Mississippi is easier said than done. To replace the traffic on the river would take 6.3 million additional rail cars or 25.2 million more truckloads per year. Barges have substantially more capacity than the alternatives (one barge carries as much as 15 jumbo rail hoppers or 58 trucks), which makes replacing transport on inland waterways infeasible and impractical.

What does this mean for us, and why does this all matter? One of the primary drivers of inflation has been higher transport costs and supply chain disruptions. Shallower river depths mean both a direct impact on prices (i.e., higher transport costs as part of the product cost) and indirect costs (Delayed components/materials driving more expensive "downstream" production).

It is interesting to think that just a few feet less depth spikes transport costs for a significant majority of American crops in addition to other goods that, in turn, impact the price. As the next harvest season rolls around, I may very well be checking St. Louis depth readings to get a pulse on inflation!

Sources:

1. Environmental Defense Fund Blog - "Mississippi River: America's Trade Artery & Resilience to Climate Change" (March 2, 2020) URL: https://blogs.edf.org/growingreturns/2020/03/02/mississippi-river-americas-trade-artery-resilience-climate-change/

2. CBS News - "Mississippi River Closing Would Cost U.S. $300M Per Day" URL: https://www.cbsnews.com/news/miss-river-closing-would-cost-us-300m-per-day/

3. FarmWeekNow - "Low Mississippi River Levels Drive Up Grain Transportation Costs" URL: https://www.farmweeknow.com/news/extra_intel/low-mississippi-river-levels-drive-up-grain-transportation-costs/article_e2cd3d76-5e16-11ee-bdc1-472145ab72ba.html

4. Marketplace - "Low Mississippi River Water Levels Drive Up Shipping Costs" (November 15, 2022) URL: https://www.marketplace.org/2022/11/15/low-mississippi-river-water-levels-drive-up-shipping-costs/

5. Arkansas Waterways Commission - "Why Waterways?" URL: https://www.waterways.arkansas.gov/education/why-waterways/

6. Agriculture Dive - "Mississippi River Drought's Impact on Barge Exports and Transportation" URL: https://www.agriculturedive.com/news/mississippi-river-drought-barge-exports-transportation/696003/

7. AGU Publications - "The Mississippi River System and Its Role in the U.S. Economy" URL: https://agupubs.onlinelibrary.wiley.com/doi/full/10.1029/2023GL104619

8. CBS News Minnesota - "Report on Mississippi River Commerce's Economic Worth" URL: https://www.cbsnews.com/minnesota/news/report-says-mississippi-river-commerce-worth-400-billion/

9. U.S. Army Corps of Engineers - "Inland Waterways: Value to the Nation" URL: https://www.mvp.usace.army.mil/Portals/57/docs/Navigation/InlandWaterways-Value.pdf

10. Bureau of Transportation Statistics - "Commodities on the Mississippi River (2019)" URL: https://www.bts.gov/modes/maritime-and-inland-waterways/commodities-mississippi-river-2019

11. U.S. Government Accountability Office - "Report on Inland Waterways" URL: https://www.gao.gov/assets/820/818530.pdf

12. Professional Mariner - "Drought Impacts on Cargo, Barges, and Towboat Operators" URL: https://professionalmariner.com/drought-means-less-cargo-fewer-barges-and-higher-costs-for-towboat-operators/