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July 10, 2012
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Kentucky’s Public Riverports

Post-Panamax shipping into the Gulf presents opportunity, but infrastructure upgrades are needed

By Sean Slone

Coal unloads at the River Road Terminal commodity transfer and storage facility operated by Buddeke Co. in Louisville. River Road competes with
public riverports while most private ports are tied to a specific entity such as a coal-fired power plant. Kentucky’s public ports want to upgrade their capabilities to service an increase in regional traffic expected when the widening of the Panama Canal is complete in 2014.

Editor’s note: This article, the second in a two-part Lane Report series on Kentucky’s public riverports, examines the impact the Panama Canal widening project will have upon its completion in 2014. Part one in June introduced the riverports and their role in regional economic development.

The glossy brochure lays out the vision for the Paducah-McCracken County Riverport. Its title: “Your Port Connection to America’s Heartland.”

“Located at the confluence of the Tennessee-Tombigbee Waterway, the Ohio River and the Cumberland River, the port is less than 50 miles from the Mississippi River,” the brochure touts. “As the nation’s northernmost ice-free riverport facility, you will be assured of year round movement of cargo. No other inland port provides a direct connection from the heartland to both New Orleans and Mobile.”

But port officials are hoping cargo flows in the opposite direction as well – especially after 2014, when a Panama Canal widening project is complete and larger “Post-Panamax” intermodal container ships are expected to call at Gulf Coast ports. Rather than traversing South America and using East Coast ports, wider and longer ships with up to triple the container capacity of current canal-going vessels could off-load freight bound for the North America midsection from Asia and elsewhere to river barges.

“The riverport is positioning itself to be an inland container port,” the brochure makes plain. “As tremendous growth in global trade occurs and adds to the existing congestion on roads and rail from coastal ports, the Riverport will have the capacity to become an inland distribution hub for container-on-barge moves. Coastal container hubs at New Orleans and Mobile will be the origins of major movement of inland containers.”

Indeed, some analysts believe intermodal container traffic could be a potential growth area and game-changer for Kentucky’s public riverports, which as we saw in part one in The Lane Report in June have so far been largely self-sustaining regional economic development engines but hardly huge profit generators. Getting a piece of the bigger pie, however, will likely require additional investment.

“(Paducah Riverport officials are) expecting that eventually some of the intermodal container traffic will get as far north as Paducah on the rivers,” said Chuck Knowles of the Kentucky Transportation Center at the University of Kentucky. “They want to be in a position to handle those containers, and that takes a pretty good investment in a crane just to pick those things up out of the barge and set them on either a truck or on the ground. Paducah is interested in some kind of capital improvement to increase its crane capacity.”

Those kinds of capital improvements can be pricey, riverport directors say, especially when profit margins are slim.

“The equipment that you unload barges with is very expensive,” said Ed Riney, president/CEO of the Owensboro Riverport Authority. “There are cranes that usually cost anywhere from $1.5 million to $3 or $4 million.”

While Paducah is planning to attract future container traffic, other port officials in the state say they are focused primarily on expanding existing business while keeping one eye towards the future.

“If the container business develops, the scope of our customers could change significantly,” Riney said. “Otherwise, I just see growth in the three segments we presently have through the port (agricultural, metals and paper products). … It would be foolish not to plan accordingly (for container traffic), but I don’t think there are any guarantees as to, one, how much volume is going to come up the inland waterway system, and two, where those containers will stop.”

Owensboro’s port master plan includes building a new dock, not specifically for handling intermodal containers but simply for redundancy, Riney said.

“We will build it in such a way that we … could add a gantry crane that could handle containers should that need develop as commerce for containers increases,” he said. “I believe the ports that are ready to install infrastructure and to at least handle (containers) on a limited basis, with the plan of increasing that capacity down the road, will be the winners should that inland-waterway container traffic develop.”

Other needs at the public ports

Setting aside efforts to upgrade Kentucky’s public port facilities to attract future container-on-barge traffic, the state’s riverports also face needs related to aging equipment and infrastructure, said Greg Pritchett, port director at the Henderson County Riverport.

Henderson County Riverport has infrastructure to handle what is now 760,000 tons of product annually, but public riverport operators say some of their facilities are at the end of their useful lives. They believe it is time to modernize and upgrade their facilities.

“There’s some good infrastructure in place, but it’s kind of coming to the end of its useful life,” he said. “That infrastructure that was built 40 years ago is getting to the point where it’s going to need some refurbishing. … You can’t just build it once and it will last forever.”

Paying for upgrades is the biggest challenge the ports will face.

“What I hear the port directors talk about is need for additional warehouse space, need for an additional crane, need to add another rail spur, increase the pad (hardened surface) outside they can store product on,” said consultant Norb Whitlock, a 40-year veteran of the river industry and member of the state Water Transportation Advisory Board. “Those are generally not real expensive, but it’s a big, big number for a riverport that may be only handling a couple million tons a year at most.

“They’re constrained by how much they can develop,” Whitlock said, “because there’s not a real strong financial business model at this point. Or they don’t have the financial resources to spend a lot of money to expand to attract new customers and bring new businesses in.”

State support for public riverports

As reported in June’s part one, Kentucky’s public riverports began life largely as city- or county-led endeavors aimed at attracting economic development and serving businesses in the immediate region.

“When the (Owensboro) port was started in 1976, the city put up about $400,000 and there was a grant from the state, I believe, for about $2.5 million,” Riney said. “And other than some interest payments that were made by the city up until the early ’90s, this port since that point has been self-sufficient. It generates its own capital. We do have bonding authority, although we have not used it and our debt at this point is very low. We run the port more like a private business.

“When we quote work, we don’t knowingly take on business that loses money. Our goal is to be a viable business that is self-sustaining without local government support. In fact, we pay a dividend back to the city of Owensboro on an annual basis. (We’re) probably the only port in America that does that.”

The ports would like Kentucky state government to play a larger role in helping improve infrastructure to increase business. The 2012 Kentucky General Assembly did include $1 million in the Transportation Cabinet budget for “dredging and maintenance work” at the riverports.

“It’s what I would call a constructive drop in the bucket, a move in the right direction,” Pritchett said.

Riney agreed Frankfort’s financial support was a significant milestone.

“I think that it’s a giant step forward. We have been working with the legislature and Transportation (Cabinet) for the last six years … and we feel pretty good that we are educating them, telling the story about the importance of waterways and getting their attention to the point that at least some funding will flow to the (Cabinet) and eventually to the ports.”

Knowles said UK’s Kentucky Transportation Center was supportive of designating money in the transportation budget for waterways.

“Traditionally, basically there hasn’t been any,” Knowles said. “(The $1 million appropriation) is coming from taxes that are assessed to the barge and towing industry. So the legislature agreed to put a little of that money back into the waterways system.”

Dredging to keeping waterways navigable by removing river sediments is an acute need at some state ports. Kentucky’s only Mississippi River facility, the Hickman-Fulton County Riverport, had to close temporarily in late May because loaded barges couldn’t get out of the harbor after unseasonably dry weather lowered water levels. Dredging (or rainfall) was needed to get barges moving again.

Other states upgrading ports aggressively

The public riverports would benefit from marketing, Knowles said, to tout facilities and services to prospective new clients. He suggests a portion of state funding should go to a marketing program.

Kentucky’s $1 million port infrastructure investment in the new biennium is much smaller than one of its neighbors.

“Across the river over in Indiana you see what’s called the Ports of Indiana,” said Pritchett. “Indiana has taken the notion of actually trying to create its economic opportunity in a very structured way and using three locations: the main, largest one being Burns Harbor to the north on Lake Michigan; and then Jeffersonville, Ind., across from Louisville; and Mount Vernon, Ind., down here across from (Henderson). Those (port facilities) are very much driven by state support.”

Indiana spent $125 million on its ports from 2009 to 2011.

Whitlock, the longtime river industry observer, has his eye on Indiana as well.

“I think Indiana has had a very strong program for many years and has done probably the best job of anybody (in the region) as far as developing riverports,” he said. “They’ve had a kind of concerted effort at the state level with their economic development and other agencies of government that are focused on trying to generate jobs for the region.

“I haven’t seen that in Kentucky. It’s more or less been left to the local riverport authorities; these are counties and they just don’t have the resources nor do they have in many cases the outreach to expand or develop in a concerted sort of way like what Indiana has done.”

Knowles believes funding to upgrade Kentucky’s public riverports ultimately will have to come from a variety of sources.

“I think it’s going to be a combination of both private investment with some public seed money possibly or the local communities selling bonds,” he said. “But you have to be assured you’re going to have a revenue stream that’s going to pay those bonds off, and that’s a little tenuous sometimes.”

Efforts are under way in Kentucky to find ways to fund investment in non-highway modes of transportation. Knowles and a research team at UK authored a report last year that included a look at how other states are funding and governing port infrastructure. Among the findings:

• Illinois, Oklahoma, Tennessee and Virginia are allowed to use fuel tax revenues to fund general or multimodal transportation purposes, something Kentucky and many other states are not;

• Oregon’s waterways program is part of its department of economic development; and

• Virginia is using a new “smart tax credit” to incentivize inland waterway shipping and foster economic development near ports.

The future for Kentucky riverports

Riney believes continuing high gasoline prices long term will make barges a more and more attractive transportation option for some economic sectors.

“Waterborne traffic especially is more efficient, it’s safer, it’s greener,” he said. “The only disadvantage it has is timing.”

New Orleans-to-Louisville transport takes a day by truck but up to two weeks by barge. That’s one reason observers say increasing Kentucky waterway barge traffic would require a shift in thinking among supply-chain managers reliant on just-in-time delivery.

“Barging takes a little longer, but once established it could be just-in-time delivery based on a longer term,” said Paul Lawson, operations supervisor for Buddeke Co.’s private River Road Terminal port facility in Louisville.

Kentucky’s automotive industry offers an example.

“The one thing that you do see moving by barge at close to just-in-time is … coil steel coming into the Port of Louisville,” said Whitlock. “That gets unloaded out of a barge, placed on a truck and it comes to the Ford Motor plant ready to roll off the line to go into production in making the automobiles.

“There are a lot of just-in-time type products. They’re usually large bulky products that trucks have difficulty dealing with because of weight limits on the road,” Whitlock said.

Coal, a key Kentucky natural resource, has the potential to play a significant economic role for public riverports.

“Coal (companies) have their own infrastructure to move coal out of their mines and onto the river or onto rail,” said Henderson’s Pritchett. “None of the public riverports in Kentucky has significant movement of that commodity. But what would make sense is if you had industries that were trying to do things with coal – coal gasification being one, converting coal into transportation fuel being another one. Something like that would certainly be a game-changer for riverports in Kentucky.”

Post-Panamax future is now in Mobile

Some 580 miles from Paducah, the future began arriving June 3 at the Port of Mobile when the first post-Panamax container ship, the MSC Laura, called. It was Mediterranean Shipping Co.’s first new weekly direct service from North European ports to Mobile.

“The MSC Laura call clearly removes any doubt of our capabilities in handling the larger container ships,” said Jimmy Lyons, director and CEO of the Alabama State Port Authority, according to news accounts.

The port authority and its partners invested $340 million at the Mobile Container Terminal, which opened in 2009, to accommodate post-Panamax sized vessels. Port officials believe a prosperous future for Mobile began in early June with much more to come after 2014.

The question is whether that prosperity can extend upriver to the commonwealth. Many in Kentucky believe it is imperative that the state’s public riverports be ready.

Successful on their own limited terms to date, to expand their reach in the years ahead the riverports will likely need some help and creative thinking, according to state water transport officials and observers, regardless of whether the goal is growth in familiar business and commodities or a whole new world of inland waterways commerce.

Sean Slone is the Senior Transportation Policy Analyst at the Council of State Governments in Lexington.

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Kentucky’s Public Riverports
Post-Panamax shipping into the Gulf presents opportunity, but infrastructure upgrades are needed


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