Fresh Water Rising: Charting Great Lakes Shipping

A once-flourishing means of transportation is poised to not only withstand change, but also thrive on it.

Once a thriving and vital transportation artery supporting manufacturing, energy, and agricultural industries across the U.S. and Canadian heartland, the Great Lakes and St. Lawrence Seaway (GLSLS) system invariably fell victim to innovation, deregulation, and globalization.

In its wake, containerization growth and the emergence of bi-coastal mega ports locked into global supply and demand flows consigned Great Lakes ports and freighters to a fading domestic niche.

But that same global tide is once again shifting conventional transportation strategy, freeing up new opportunities for moving freight into, out of, and within the United States through old channels.

Ongoing dialog about the future of U.S. transportation and trade, specifically infrastructure and capacity constraints, rising transport costs, and the expected wave of container volume from Asia over the next two decades, has brought the GLSLS system back into peripheral view for some enterprising ports, carriers, and shippers.

The GLSLS system, popularly termed Highway H2O, spans the St. Lawrence River, St. Lawrence Seaway, and Great Lakes region, covering 2,400 miles of navigable rivers, lakes, canals, locks, and ports.

From the Port of Halifax on Canada’s Atlantic coast to its most westerly port in Duluth, Minn., the marine system flows directly into the continent’s heartland, reaching one-quarter of the U.S. and Canadian populations combined. Remarkably, the Seaway currently operates at only half its capacity.

The idea of selling inland waterborne transport and short sea shipping as an alternative or complement to existing surface options, and therefore reaching out to new global shippers and cargo, is gradually picking up pace.

Both public and private sector interests—from ports to carriers to federal, state, and provincial authorities—are laying the groundwork for introducing legislation, investing in infrastructure and vessels, and developing services to revitalize a maritime institution.

If global trade and containerization patterns are any indication, the GLSLS system is already positioned as a promising global gateway.

By example, the Port of Montreal, situated at the crossroads between the St. Lawrence Seaway System and the Great Lakes region, has experienced solid growth in container traffic over the past decade. Since 1998, volume at the port has climbed from 860,000 TEUs to 1.3 million TEUs, with the bulk of freight originating in Europe.

Container shipments at the deep-water Port of Halifax, located on Nova Scotia’s eastern seaboard, have remained steady—averaging more than 500,000 TEUs over the same period.

Further afield, plans are underway to invest $500 million in two new container terminals—Melford and Sydport—on the Nova Scotia side of the Strait of Canso to capitalize on emerging trade from Asia through the Suez Canal.

The facilities, which are expected to be operational by 2011 and capable of accommodating the largest ocean-going container ships, will bring an additional two million TEUs of throughput capacity to Atlantic Canada.

New Sailings

Because shippers in today’s value chain are becoming more sensitive to transport costs and times, the Great Lakes-St. Lawrence Seaway system is deploying four types of container vessels that can compete against road and rail in terms of both speed and economy.

Containers on barges is a term used for flat-bottomed barges that can move stacks of containers through the system. Such vessels consume far less fuel, making them relatively inexpensive. On the down side, they move very slowly.

Container ships are now available that have a cruising speed almost double that of older vessels. Although their energy consumption is higher, the faster ships are considerably more efficient compared to truck, rail, and even container-on-barge services because of capital cost savings.

Faster speeds directly address shipper concerns about time, making this mode competitive against ground transportation. Ship speeds are still limited by locks and channels; but on open water, faster vessels reduce travel time significantly.

Fast freighters (or ferries) use very powerful engines to operate at high speeds. They are often used as automobile and truck ferries. Speed, however, is achieved through high fuel consumption: freighters can use almost 20 times more fuel per forty-foot equivalent unit (FEU)-mile than a container ship.

That also means that a fast freighter consumes substantially more fuel per container shipped than does a truck for the same distance.

Partial air cushion support catamaran (PACSCAT) is a surface-effect ship—a vessel that uses an air cushion to partially lift itself out of the water. This reduces the draft of the vessel as well as its wakes.

The vessel operates in water displacement mode at lower speeds but raises itself out of the water for faster travel. Again, its higher speeds are achieved at the expense of fuel efficiency.

Going With the Flow

With container flows into the East Coast growing, the notion of pushing more volume through the Seaway into the Great Lakes system—in lieu of offloading boxes into congested road and rail networks—could provide a much-needed cost and capacity cushion for domestic shippers and importers.

Seaway authorities and businesses are looking to create a regional feeder system that transships containers from large ships at deep-water coastal hubs onto smaller and faster vessels for transit to shallower Great Lakes ports.

Such a network would augment the tug and barge and lake freighter capacity that already exists, and specifically accommodate container traffic.

Dean Haen, port manager at the Port of Green Bay, Wisc., likens this hub-and-spoke feeder system to that of a domestic Class I and shortline railroad network. Others have compared it to a regional LTL marine highway.

For areas such as Green Bay, the opportunity to siphon some of the swelling volumes coming into container facilities in Montreal, Halifax, and the planned development on the Strait of Canso could be a real boon in terms of port and regional economic development growth.

One challenge is being time-competitive with the railroads. “We’re currently four days from Montreal, so there is a real possibility we could be competitive,” says Haen.

From an overall transportation standpoint, the marine system can match up with rail, as current shipment times from Halifax to Montreal generally average between three and five days, according to Bruce Hodgson, director of market development at the St. Lawrence Seaway Management Corporation.

At the same time, both Haen and Hodgson see a greater opportunity partnering with Class I and shortline railroads to create an intermodal system that can operate year round and help fill in the seasonal gap (generally three months) when ice renders Great Lake ports and waterways inaccessible.

“The marine system could act as a relief valve for the railroads, especially when peak volumes are difficult to handle,” says Hodgson. “But we want to work with all modes, partnering with trucking companies to develop trailer-on-barge services as well.”

Shippers Jump on Board

Whether marine options can compete with truck or rail in short- and long-haul markets may ultimately be a moot issue. Given recurring fuel, capacity, and congestion constraints, businesses are becoming more strategic in how they plan transportation to better reconcile spend with speed and demand.

Shippers with less time-sensitive cargo may be inclined to consider transporting larger quantities of product via slower modes if the price is right—in terms of direct and indirect benefits.

For example, greater use of short sea shipping, with Ro/Ro vessels capable of seamlessly loading and unloading truck trailers for overland moves, provides an opportunity to circumvent congested areas, thereby reducing energy consumption, carbon emissions, freight spend, and conceivably transit time depending on market congestion.

“Marine transport lends itself to heavier commodities and lower value merchandise that can adapt to longer transit times. Shippers, in turn, can adjust their transportation schedules and work with manufacturers to manage production flows,” Hodgson reports.

Some shippers already indicate willingness to pursue inland waterborne options if there are economic incentives.

Shippers responding to a 2007 Great Lakes St. Lawrence Seaway Study, commissioned by a group of U.S. and Canadian public authorities including the U.S. Department of Transportation and the St. Lawrence Seaway Management Corporation, identified pricing concessions that might attract them to the GLSLS.

The survey revealed that:

  • Raw materials shippers using rail would require a discount of five percent in transportation costs to induce a switch to the seasonal mode.
  • Food, semi-finished, and finished goods shippers using rail require a discount of 14 percent.
  • Food shippers transporting product by truck need a 25-percent cost reduction.
  • Shippers are less concerned about seasonality because they draw up transport contracts according to spot markets, monthly arrangements, or on short terms.

“Shipper attitudes suggest that the GLSLS is highly competitive against road and rail in the transport of semi-unfinished goods. As the global economy grows, the challenge for the GLSLS is to capture a share of this expanding market, using its competitive advantages to provide a valuable complement to multimodal transport services based on road or rail,” the study concluded.

“Regrowing” Pains

Despite this positive feedback and other promising signs that shipper interest in the GLSLS system is growing, some obstacles need to be addressed—notably, the Harbor Maintenance Tax (HMT), which levies duties on domestic waterborne shipments.

“Port-to-port movement is taxed every time a vessel stops at another port,” says Haen. This invariably undermines the economy of short sea shipping for both importers and domestic shippers.

At the moment, legislation is on the docket in Congress to amend the HMT and further incentivize short sea shipping and feeder line operations. If passed, The Great Lakes Short Sea Shipping Enhancement Act of 2007 (H.R. 981) will provide an exemption to the tax for the movement of non-bulk commercial cargo by water in the Great Lakes region. Most observers expect it to be repealed sooner rather than later.

When the HMT is resolved, Haen believes the next challenge is revisiting the Jones Act, which mandates that vessels operating between U.S. ports be built in the United States. To make the GLSLS viable, “we’d have to build more U.S. ships or allow waivers to Canadian lines so they can move point to point,” he reports.

As it is, a shortage of vessels meeting these requirements could pose a capacity constraint, further dissuading shipper commitment to marine transport. While changes to the Jones Act are arguably less feasible than the HMT, short sea shipping advocates have lobbied U.S. Customs for exclusions that would allow foreign vessels into the system and commence activity while U.S. shipbuilders get up to speed.

Beyond legislative action, there is no guarantee railroads will welcome partnerships with feeder lines and short sea carriers that take freight out of their own networks.

Concerns have also been voiced about aging system infrastructure, such as the Welland Canal; environmental considerations, including ongoing efforts to stem ballast water contamination and invasive species infestation within the Great Lakes ecosystem; and water level management for both navigational and ecological purposes.

All these factors will likely become magnified with greater shipping activity throughout the GLSLS.

These issues notwithstanding, as testament to the potential of rethinking and retasking the GLSLS system for more freight movement, some companies are already looking ahead and investing in its future. Great Lakes Feeder Lines, a Burlington, Ontario-based short sea carrier, recently finalized the purchase of Canada’s first dedicated, European-style, short sea shipping vessel.

The carrier is preparing to launch a year-round service between Halifax and Montreal as well as a seasonal service carrying containers to Toronto/Hamilton on the St. Lawrence Seaway and Great Lakes.

The Great Stake

Perhaps the greatest hurdle, and opportunity, is convincing U.S. shippers that marine transport is a viable complement to rail and truck modes.

This is a challenge, acknowledges Hodgson, but “we’re using direct sales efforts and working with port partners and carriers to develop new business leads.”

The St. Lawrence Seaway has also introduced a toll structure that provides business incentives for new users bringing freight into the system.

Others observe that the U.S. logistics industry as a whole needs to begin thinking about the long-term challenges and opportunities that increasing inbound trade, institutionalized fuel costs and congestion, and shrinking capacity might bring.

Greater utilization of marine transport provides an opportunity to bring additional capacity online, while also giving global shippers a more economical and reliable channel for moving freight into the North American heartland.

“We need to look out 10 years from now and figure out where shippers see themselves,” says Mark Chesnes, president and CEO of InterChez Logistics Systems, a Stow, Ohio-based 3PL that operates near Lake Erie. “We need to clear the woods of archaic thinking, put a road down, and figure out where that road is going.”

Chesnes sees efforts by the Cleveland Port Authority to create a new container port on Lake Erie, thereby re-conceptualizing the role of the St. Lawrence Seaway within the broader context of the U.S. freight transportation network, as evidence of this strategic mindset and an opportunity to pave a new marine highway for U.S. trade.

“A litany of issues need to be resolved, but getting through them brings Midwest companies closer to the market,” Chesnes says. “Cleveland can be an international port city if we don’t let the tactical stand in the way of the strategic. There are one million reasons why we can’t; there is one reason why we should—because it’s a good idea.”

Chesnes is not alone. A growing number of people in the domestic maritime industry believe a once-flourishing means of transportation is poised to not only withstand change, but also thrive on it.

Such is the promise of GLSLS container-freight shipping.

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