Sense and Nonsense about Transportation Costs

Mon, 25 Aug 2008 22:59:24 +0000

Christopher Leonard and Catherine Tsai of the Associated Press have an article about the shipping challenges facing American farmers as they seek to meet increased world demand for U.S. exports:

It's the dark side of the booming global demand for U.S. corn, wheat and soybeans. The surge in exports is revealing inefficiencies in the country's railways, highways and rivers that carry the grain that helps feed the world. And those bottlenecks are costing farmers, shippers and ultimately consumers millions of dollars a year.

So the question is what to do about it (if anything, given costs in the millions on shipments in the billions). Let the special pleading begin:

The Association of American Railroads estimates it will cost about $148 billion to expand rail lines over the next 30 years to handle increased demand. But the group says railroad companies can only afford to fund about 70 percent of that.

The AAR and farm industry groups are backing legislation that would offer tax credits for investments in freight rail expansion.

That's absurd times two.<!--break--> If the need to expand is coming from increased demand, then the profits earned by the increased demand are sufficient to pay for the expansion. Otherwise, there is no "need to expand," just a desire to expand if financed by someone else. Likewise, there is no need for tax credits for investments in rail. The opportunity to transport and sell the additional product provides all the financial incentive to expand the rail as is appropriate. The U.S. taxpayers need not be asked to fund the profits of agribusiness.

Similar arguments are

Barges floating down the Mississippi have long been a cheaper shipping alternative for farmers who aren't landlocked. But the barge traffic is hampered by Depression-era locks and dams.

A modern sized barge tow is typically 1,100-feet long - but the locks they must pass through are roughly half that length. The means the barges must split in two to get through, with the back half waiting for the first half to make the passage before rejoining it on the other side.

The delays add about 50 hours of travel time along the upper stretch of the Mississippi, said Corps Manager Scott Whitney. The barges must burn fuel and pay workers as they wait, racking up an estimated $725.6 million in extra costs along the Illinois and Mississippi Rivers between 1996 and 2005.

Congress authorized the Army Corps last year to update locks and dams along the Mississippi. But Congress must approve funding for the project, which is estimated to cost $2.21 billion over more than 20 years.

So we should spend $110 million ($2210/20) a year to avoid $73 million (725.6/10) a year, even allowing an inflation adjustment on the latter? That doesn't sound like a smart use of funds. Even if the project is deemed worthwhile (due to added benefits not identified in the article), there is no reason why it cannot be funded out of additional fees on transported cargo.