On The Duluth Waterfront
Vanta Coda takes the pulse of the U.S. economy from his modest headquarters amid the tracks, railcars and heavy equipment spread across Rice’s Point in Duluth. He’s the executive director of the Duluth Seaway Port Authority, so he’s got a good sense of when commerce is on the upswing or shipping is declining.
Last year, the port received and shipped out more than 37.5 million tons of cargo, a 2.3 percent increase over 2013. That included iron ore, coal, grain and bulk materials such as sand, road salt and limestone. Equipment for mining, oil and wind-energy industries also passed through the port.
“To have the numbers that we have is amazing considering how we lost a month” at the beginning of the shipping season because of extremely cold weather, Coda says. “And even the second month wasn’t that great.”
To tourists and some Duluth residents, the Port of Duluth-Superior might seem like a charming industrial relic. It’s fun to watch the big, stately boats as they move slowly through the harbor. But in fact, the port plays a crucial role in Minnesota’s economy. Coda envisions the Port of Duluth-Superior’s role as even larger.
“We’re a natural resources port, and that means commodities,” Coda notes. He freely acknowledges that thanks to worldwide gluts in steel and oil, the prices for these key goods have taken a tumble. The price of iron ore has fallen precipitously. Oil prices plummeted a few months ago and then rebounded. These price swings have caused concern, especially since a major portion of Duluth-Superior’s trade has involved steel and machinery heading to the oil and gas fields of North Dakota and Alberta, Canada.
In mid-March, U.S. Steel announced that it would idle its Keetac taconite iron ore operations in May. That move is expected to affect about 400 workers. Two other mine closure announcements preceded the Keetac news.
“The current downturn appears to be the worst on the Range since 2009, when all of the state’s major mining operations were shut down at once due to the global economic recession,” according to the Duluth News Tribune.
“Global iron ore prices have dropped by more than 50 percent in the past 18 months, with slower demand in China and huge increases in iron ore output in Australia. Since 2011, iron ore prices have dropped by two-thirds, from nearly $190 per ton to about $62 per ton today. That’s less than the price of production for some local operations,” the newspaper reports.
Most of the ore shipped out of Duluth-Superior will be heading to big Midwestern mills that supply steel to U.S. automakers, and the auto industry is projected to have a strong year.
In the energy sector, though billions of dollars’ worth of oil and gas projects have been taken off the books, “the projects that are underway are already booked,” Coda says. Wind turbine equipment is scheduled for shipment in 2015, and those projects are not under threat, he says.
Based on his experience with project cargo, Coda says “it’s usually the year after that the pain is felt, when you really see the downturn.” So while 2015 should be a good year, “come ’16, we’ll probably need to scramble to replace some of that project cargo.” Long-term, “the [Alberta] oil sands and the Bakken [oil fields in North Dakota] aren’t going away. Eventually, that will stabilize; the market will clear.”
As the new shipping season comes into view, Coda is looking forward to infrastructure improvements in the port. The 2015 commercial shipping season got underway March 23.
The biggest project is the renovation of the C and D docks, a $16 million project that will begin this summer. The Port Authority also approved a purchase agreement to acquire Dock 7 on Duluth’s Grassy Point from XIK Corp., an Illinois-based industrial manufacturer that grew out of the former Interlake Steel Corp. (The infrastructure story isn’t all about Duluth: There also have been improvements made during the last few years on the Superior side of the port.)
Coda says that the two upgraded dock spaces will provide “Cadillac” and “Chevy” options for shippers. Docks C and D could serve as a heavy-lift area for large equipment that’s destined for wind farms and the oil fields. Dock 7 can be used by lakers—vessels that don’t leave the Great Lakes—for bulk cargo such as stone and aggregate. It’s additional space that Coda believes the port could put to good use.
Big lake, big opportunity
In 2014, Duluth-Superior welcomed three ships from Spliethoff, the Netherlands’ largest shipping firm. Spliethoff, which operates more than 100 vessels, is primarily a niche-market shipper. That means its market focus is on break-bulk—cargo that must be loaded separately, not in bulk like grain or taconite pellets. For Spliethoff, those goods include forest products, bulk paper, specialty steel and oversize equipment.
Jamie Tolis, a Spliethoff chartering representative in Montreal, says that her shipping company has recognized an opportunity in the Great Lakes/St. Lawrence system and the eastern Canadian ports. Last year, it began service between Cleveland and Antwerp. “That service has gone quite well and has opened up possibilities of cargo with other ports in the Great Lakes,” Tolis says.
While visiting Duluth in 2014, Tolis and colleague Bart Peters performed some market research. “In talking to people and understanding the difficulties that they currently experience shipping their cargo from the Upper Midwest either down to the Gulf or to the East Coast to send it off to Europe, we decided this would be a nice opportunity for them,” Tolis says. “We can ship from Duluth to Antwerp in 21 days. In some cases, via truck and rail, it’s taking some of these companies 16, 17, 18 days just to get their cargo to the Gulf, for example.”
Spliethoff’s objective, she adds, is to bring one ship to Duluth-Superior each month during the shipping season. Tolis projects that that cargo would include industrial machinery and steel, as well as specialty grain outbound. Last season, Spliethoff brought in to Duluth-Superior a massive excavator used for mining, plus oil and gas equipment. Based on her research, Tolis also sees Spliethoff offering shipping options to regional manufacturers. An Upper Midwestern business might need to send a large piece of equipment to a customer in northern Africa, Tolis notes. “All the industries [on the Great Lakes] have the potential to grow their market.”
Spliethoff could accommodate these small, global customers through its parceling service. “Oftentimes, a lot of the vessels that are calling [at] the Great Lakes are expecting their customers to fill up the majority, if not the whole vessel,” Tolis says. “So you’re looking at anywhere between 5,000 and 8,000 tons of cargo. And if they don’t have that, they’re still paying for the [entire] space onboard.” Parceling allows Spliethoff to fill ships with a variety of cargo for multiple customers. “Maybe we’ll have some steel, some project cargo, some machinery, some containers, and we’ll have a good voyage,” Tolis says.
Coda explains that Spliethoff’s overture marked the first time in a while that a shipping company has taken an interest in parcel loads to this region. He believes the timing is right for such service. With rail lines congested primarily due to oil production, regional businesses were having difficulties getting their products out to the coastal ports. “Some of the numbers I’ve seen put us close to the ‘peak [railroad] freight’ of 2007,” Coda says. Though rig counts have been declining in the oilfields, production actually has been rising. “There’s still a supply-chain bottleneck problem in those regions,” he says. That suggests that there could be more logistics woes for Upper Midwest and Central Canadian businesses seeking to ship and receive cargo to and from overseas locations. And that could point to a big opportunity for the Port of Duluth-Superior.
Though it’s no Long Beach, Calif., or Newark, N.J., Duluth-Superior does have something akin to those big coastal ports’ multimodal capabilities, with road, rail and water connections available. And while Duluth-Superior will never be a container port—the waters of the Great Lakes and the St. Lawrence Seaway aren’t deep enough to host big container ships—it can accommodate a Spliethoff vessel carrying as many as 200 boxes. By way of comparison, the largest container ships at sea today can carry from 14,000 to 19,000 containers, and there’s talk of building ships that could hold 22,000.
“Right now, the East Coast is locked up,” Coda says. With supersized container ships expected to become more common, he argues that traffic from coastal ports will become even slower. He’s talked to trucking firms whose employees have had to sit and wait for their cargo, and railroad executives who have little room to expand their networks. “Whereas for any Midwest traffic, you can bypass that by coming through the Great Lakes system,” Coda says. “For the long term, I think there’s a real opportunity to grow that traffic.” This wouldn’t be a matter of stealing cargo from the coastal ports, he adds, but rather taking additional traffic.
With infrastructure improvement a major topic in Minnesota and nationwide, Coda naturally believes that more money should be spent on the Great Lakes seaway system. The Port of Duluth-Superior has plans for about $30 million in improvement projects this year and next. That’s dwarfed by the billions being proposed to upgrade land transportation. But infrastructure, Coda says, “isn’t just roads and bridges.” Road costs range from $2 million to $50 million per mile, according to the Minnesota Department of Transportation. But “you can get much more on a capacity perspective on the water,” Coda says.
Indeed, he argues, “in Transportation 101, they teach you: Keep it on the water as long as possible.” Spend more on seaway system ports, and “we can show ROI.” The Great Lakes, Coda maintains, are “a great example of an underutilized system. The capacity gains that we could absorb are huge. Some estimate 50 percent more. I think that’s probably a little bit low.”
Whether the Port of Duluth-Superior can attract additional infrastructure funding—and more and different cargo types for Midwestern and central Canadian customers—will be the metaphorical big boats to watch for in the coming years. “The working waterfront is going to be an important future endeavor not only for our harbor but the Great Lakes,” Coda says. “Working waterfronts create good-paying jobs, and we want to make sure we don’t miss out on any of those opportunities.”
Gene Rebeck is a Duluth-based freelance journalist who writes monthly for Twin Cities Business.