The Angel Of Competition

by Joseph A. Farrell, President American Waterways Operators, Inc.

From an address recently presented to The Annual Meeting of the Propeller Club of the United States Our inland and coastal barge industry is too little understood, indeed it is largely invisible and we have only to look into the mirror to discover who is to blame for that.

Our indictment might read, "They have done poor work, but they are slow." Early in this job of president of the American Waterways Operators, Inc., working late one night, I grew increasingly angry as I contemplated the federal government's initiatives to confiscate ever larger user taxes from our depressed industry.

How could they do that, I wondered.

And then the light dawned: because they don't know anything about us, especially the great benefits derived by the American consumer from the competitive force engendered by the barge industry.

Beginning that night, AWO has been embarked on a campaign to educate our government, and the people at large, about this industry.

Since the earliest days of the republic down to the present day, all American Presidents and Congresses have acknowleged America's seafaring character, fronting as we do on oceans, lakes and the Gulf of Mexico. Our government has always recognized the need for a strong and healthy merchant marine through the substance and direction of U.S.

maritime policy. This maritime pol- icy understandably has focused on the deep draft fleet. But, it is well past time that constructive federal policy extend to the inland and coastal tug and barge industry.

Our industry uniquely and independently contributes to the economic well being and the national security of the United States. It is composed of about 1,000 companies operating a massive fleet of tugboats, towboats and barges: 4,400 towboats on the reaches of 25,000 miles of navigable inland rivers, and 2,600 tugboats on the Atlantic, Pacific and Gulf Coast tow over 32,000 barges. Over f00,000 direct jobs for our citizens come from this industry.

Fifty-seven percent of all onboard jobs in the U.S. flag merchant marine are on the vessels of this fleet. Indirect employment is in the millions.

Competition is the centerpiece of our industry, providing a choice for shippers of the bulk products which fuel our economy. Lower prices resulting from this competitive choice ultimately benefit the individual American consumer. We carry 13 percent of the nation's freight for 2 percent of the national transportation cost. We are the most efficient, safest and least expensive mode of transport.

Our industry has also been a vital adjunct to our armed forces in times of war: • Submarines built in inland shipyards in the Second World War; • Commodities vital to the war effort shipped along the Gulf Intracoastal Waterway, safe from enemy submarines, in that same war; • Transporting and distributing huge quantities of material off loaded in Saigon during the Vietnam War; and • Resupplying the remote dewline radar sites in Alaska.

With all that, we are a deeply troubled industry.

The barge and towing industry has not come back with the general economy. We are in a depression, not a recession, and we are not recovering.

Witness a study done by the renowned accounting firm of Arthur Andersen & Co. They gathered financial data from 15 of the largest inland barge companies. In 1980, these companies earned an aggregate profit of $130 million on $1.1 billion in revenue. In 1982, these same companies lost $30 million. In 1983, they lost over $40 million.

Mind you, these are among the largest companies. You can imagine how the little fellows have fared. Bankruptcies abound. The downward spiral is unmistakably clear.

What happened?

The industry is dependent upon bulk products, largely petroleum, coal and grain. All three commodities are depressed.

President Carter's disastrous grain embargo savaged this industry.

We carried 46 percent of all U.S.

grain for export. In 1980, before the embargo was imposed, the U.S.

shipped 20 million metric tons of grain to the USSR. That went to zero until last year when this administration signed a new agreement with the Soviets for 8-12 million metric tons. It will be very difficult to recapture the market share we once had. The Soviet government, to protect its own interests, has diversified its purchases to include Australia, Canada and Argentina.

The economies of western Europe and Japan have lagged the robust recovery of the American economy.

As a result of that and fissures in the OPEC cartel, the world is awash in petroleum. Demand is slack and transportation of the black gold is down.

What has been good for the United States has hurt the barge industry: energy conservation has taken hold. Last year, demand for electricity actually went down for the first time in our history. And, with it, domestic coal consumption slowed. Barge traffic suffered.

Overhanging all this is a vast surfeit of equipment in the industry.

New tax laws brought hordes of investors . . . physicians, dentists, attorneys . . . into barge owning partnerships used to shelter their income. We are about 15 percent overbuilt.

Understanding its importance and its troubles, I have been asked to address, "What is the role of the federal government in the waterways industry?" That depends on who you talk to.

My old friend Dave Stockman, director of the Office of Management and Budget, says the federal government should recover between 70-100 percent of all federal expenditures on the waterways and the ports.

Senator Abdnor and Senator Stafford believe the federal government should recover 100 percent of federal capital outlays for inland projects and 30-100 percent of port development.

The Interstate Commerce Commission believes that the Panama Canal Act is outmoded and railroads can own barge lines.

Bob Roe, Congressman from the 8th District of New Jersey, believes that the industry should pay a third of the cost of inland capital projects, no inland operation and maintenance costs, 50 percent of superport development and no port operation and maintenance costs.

President Reagan believes that the maritime industry is "important in peacetime and critical in times of conflict," but has done so little as to consign that statement to an empty rhetoric bin.

So, you see what the federal government's role is depends entirely on who is talking. Let me tell you what I believe.

I want first to persuade you that we have every reason to be proud of and pleased with our nation's overall transportation system. Indeed, our domestic transportation system is one of the most highly developed— and envied—in the world, providing the foundation upon which American economic growth progresses— or declines. Our prosperity as a nation is due in large part to the success of that system, and to the two hundred years of ever advancing technology, combined with oldfashioned know-how which has enabled us to build such a formidable network of highways, railroads, airways, pipelines, and last, but not least, inland and coastal navigable waterways.

The system is in fact so all pervasive and so efficient that those who are outside our industry rarely give it a second thought, like the air they breathe. This attitude is due in part to the fact that the role transportation plays in our day to day lives is virtually inseparable from life itself.

Our daily commutes to and from work, shopping centers, learning centers—all involve transportation.

Our social, political and cultural unity as a nation, as well as our national defense, are all embedded in this sweeping transportation network.

And, the great engine that drives what benefits us all in this network is competition: competition among the various modes of transportation.

The general economic health of our nation is, to a very great degree, dependent upon its national transportation system as a vital link in the chain of production, distribution and sale of goods. The keystone of national transportation policy must be healthy, separate modes, free to compete with one another. It is only through the continued competition among and between the various modes that the public will be served by: lower costs, better service, and increased efficiency.

Our transportation network should exist today as a balanced system.

No single mode should reign supreme. All forms—rail, water, motor, pipeline, air—have roles to play. Each is a vital link in the chain.

Historically, the uniting force provided by transportation has been stimulated, encouraged and supported by the federal government.

As far back as 1787, the Northwest Ordinance stated, "The waterways shall forever remain free," thus recognizing the public benefits flowing from this national treasure. So, too, our government, nursed the infant rail industry through federal land grants beginning in 1850.

The operation of the modes born in the 20th century, trucking and the airlines, also drew the attention of the federal government. Under one of the programs begun by President Franklin Roosevelt in 1934, called the Civilian Works Administration, 500,000 miles of roadways were built or improved as part of his program to cure the devastating unemployment of the depression.

President Eisenhower followed that with the mammoth interstate highway network, begun in the 50's.

Later, the government subsidized the regional airport program, building 500 new airports as well as the upgrading of an equal number.

It is the possible weakening and eventual breakage of the waterways link in that chain that concerns me today. As I have already suggested, it is the singular ability of the water mode to provide a choice for such crucial commodities as petroleum (and its products), coal, chemicals and fertilizers, grain, sand, ore, gravel and lumber, that makes barge carriage so attractive. If this most efficient form of transport—the barge industry—were removed from the overall traffic system, there would be a marked and immediate increase in the cost of some of the necessities of life—electricity, cereal, gasoline, automobiles and housing.

Unfortunately, the future ability of the barge and towing industry to continue to offer bargain transportation of these vital commodities is being threatened by current misguided legislative and executive branch initiatives. Mindless attempts to impose higher levels of user taxes on the navigation industry, the loosening of the protections now afforded shippers and our industry by the Panama Canal Act are the two looming threats to the foundations of this industry. There are many other issues which command our attention, also .. . assaults on our cabotage laws, proliferating, and unnecessary regulations of vessels and crews, labor union excesses, to name a few .. . but, for now, I'll dwell on the two giants.

That infant the federal govern- ment nurtured, the railroads, grew up with a mean streak. After completing their transcontinental linkup the railroads turned their attention to eliminating barge industry competition by purchasing marine terminals and barge lines, cutting the rates and ultimately driving all independent operators off the rivers.

This is what led to the creation of the Interstate Commerce Commission in 1887.

By 1912, the necessity of bolstering that independent regulatory body charged with assuring balanced treatment of the modes became evident when rail interests made a feint to divert traffic from the newly-opened Panama Canal.

Alert to the rail industry's inclination to exercise its monopoly power and determined to nourish the new Canal, Congress enacted an amendment to the Interstate Commerce Act in 1912, which prohibited, with conditions, ownership by a railroad of a competing water carrier.

For three quarters of a century, the Panama Canal Act was unchallenged.

Then, in June of 1983, the CSX Rail Corporation announced its intention to purchase Texas Gas Resources with its big barge subsidiary: American Commercial Barge Lines. The case was argued for six months before the Interstate Commerce Commission. On July 24th, the Commission voted 4-0 to allow the transaction, thereby standing the law on its head.

That law says: A railroad cannot own a water carrier with which it does, or may, compete unless Competition will not be diminished on the water route in question, and The public interest will be served by the acquisition.

Even the ICC, which my friend Carl Bagge, president of the National Coal Association, calls " . . . a wholly owned subsidiary of the American Association of Railroads," conceded that CSX and American Commercial Barge Lines do, in fact, compete.

Will competition be lessened by this transaction? Last year, CSX hauled 20 million tons of coal to the river. Two million tons of that coal were transshipped in American Commercial Barge Lines bottoms, the remaining 18 million tons were carried by American Commercial Barge Lines' competitors. If CSX had owned American Commercial Barge Lines last year I contend that not one lump of coal would have gone to the competition.

There goes competition. There goes the public interest.

The barge and towing industry will appeal this decision of the ICC to the Appellate Court and, if necessary, to the Supreme Court in an attempt to receive a fair hearing.

Our industry cannot afford to go into the clutches of its chief competitors, certainly not gently.

The other marauders on the loose threatening the barge industry, and therefore the American consumer's pocketbook, are the government bureaucrats who blind to all reason pursue the imposition of even higher user taxes on this industry. We are awash in studies which show high user taxes will surely: • Harm U.S. exports by decreasing their competitiveness; • Hurt the already bleeding American farmer who must bear the brunt of increased costs; and • Cause a net drain on the U.S.

Treasury due to lost export related jobs.

As I have said around the country, in their reckless quest to kill what they believe is a "free ride vampire," they would drive a stake into the heart of the angel of competition.

Witness the case of coal. Today, we are the beneficiaries of electric generating plants that provide us with some of the cheapest utility rates in the world. However, this bargain electricity may be in jeopardy.

A new user charge "impact" assessment conducted by Walter J. Wills, economics professor emeritus at Southern Illinois University's School of Agriculture, warns that increasing user taxes on waterways transportation could damage the coal industry in the "eastern interior basin" and increase electricity rates. "A 10c per gallon (barge fuel) tax would increase electricity rates about 2 percent, a 34

It is the barge industry which holds down the price of the kilowatt.

Clearly it is in the national interest to keep utility rates at low levels to stimulate production, making American goods more attractive to other countries by making them cheaper to produce.

Without question it is also in the individual consumer's interest to pay lower utility rates, enabling him to have more discretionary buying power.

Look at export coal. In 1982, the U.S. exported 105 million tons of coal. During 1983, total U.S. coal exports equalled only 76.9 million tons at a value of $4.07 billion.

According to the Department of Commerce, through May of this year, coal exports have exceeded the 30 million ton mark and are running ahead of last year, but only slightly- There are several reasons for declining U.S. coal exports. Canada, Australia, South Africa, Poland and increasingly, Columbia, have been able to capture large shares of the export market due to lower production costs and lower transportation costs. Transportation costs of U.S.

coals account for 30-50 percent of the price of U.S. export coal. Here is where the barge industry is able to have a positive impact toward reducing the total price of this important commodity.

History reveals that where railroads have to compete directly with barge lines to haul coal traffic, miraculously, the rail rates are reduced to meet the barge competition.

According to published Tennessee Valley Authority statistics, the rate for shipping coal by rail from Coalmont, Tennessee to Birmingham, Alabama, is $20.10 per net ton where the railroads face no competition from the waterways. The identical shipment costs $15.14 per net ton where waterborne competition comes into play, a difference of $4.96 per net ton. Such water-compelled rail rate reductions range from 40-110%, and using the rail industry's own estimate, force the railroads to charge almost $1 billion less per year—industry wide—for shipment by rail.

These are only two examples of two issues in a jungle of federal forays, many of which are misguided and based upon no information or misinformation. Again, our own failing.

To paraphrase Jack Kennedy, "ask not what your government can do for you. Be damn sure your government knows who you are and what you can do for it."

Maritime Reporter Magazine, page 34,  Nov 1984

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