The following is from the Detroit Free Press article from March 3, 2016
WASHINGTON – A U.S. Department of Homeland Security report indicates a 6-month shutdown of the Poe Lock in Sault Ste. Marie, if one occurred, would plunge the nation into recession, closing factories and mines, halting auto and appliance production in the U.S. for most of a year and result in the loss of some 11 million jobs across the nation.
The report, obtained by the Free Press through the Freedom of Information Act, paints a grim picture of the outcome of any long-term shutdown of the Poe, the only one of the so-called Soo Locks able to handle the 1,000-foot-long vessels that each year move millions of tons of iron ore from mines in Wisconsin and northern Michigan to steel mills dotting the lower Great Lakes and beyond.
And while the Poe may not be imminently threatened with such a closure, there also is no question that it and the other operational shipping lock at the Soo, the smaller MacArthur, have seen more delays and closures in recent years, prompting shipping companies and manufacturers to agitate for a second Poe-sized lock – authorized by Congress some 30 years ago, but never adequately funded – to finally be built.
“The beauty of what (Homeland Security) has done is they’ve done a high level analysis of the impacts — not just regionally, but nationally,” said James H.I. Weakley, president of the Lake Carriers Association, a trade group representing companies that ship on the Great Lakes.
Weakley noted that there is a scenario under which a gate failure at the Poe — an enormous 1,200-foot-long channel through which vessels the size of four 747 aircraft lined up end-to-end sail in and are lifted or lowered to account for a steep difference in water levels at the St. Marys River — could result in a six-month outage. To the credit of the Army Corps of Engineers, he said, it has worked to try to prepare for such an eventuality and reduce the closure time should it happen.
But what is also clear from the Homeland Security report is that while a longer-term shutdown would be catastrophic, even a shorter one could have a much wider impact than previously thought: If such a closure occurred at the Poe during the March 25-Jan. 15 shipping season, for instance, as much as 75% of the nation’s steel output could be halted within two to six weeks.
Even the Army Corps, which operates and maintains the Soo Locks, has acknowledged that the 48-year-old Poe is in need of major upgrades, which have been limited by funding constraints. The Corps is “slowly overhauling components” of the lock each year, but, as Corps spokeswoman Lynn Rose told the Free Press some months ago, “As the lock ages, the probabilities of failure increase.”
Late last year, the Obama administration authorized $1.35 million to do a cost-benefit study of finally building a new Poe-sized lock — a process which, even if the study concludes it should be done, could take a decade or longer if funding is available for what would be a $580-million project. The study itself, however, could take years to complete and even then, under Corps guidelines, may include nothing more than the direct impact on shippers, not the potential impacts across the country.
Members of Congress have taken notice of the threat. Michigan’s delegation was key in pushing for the study to be funded and has called for it to be accelerated. And at a hearing with Corps officials this year, U.S. Rep. Bob Gibbs, R-Ohio, noted that a new Soo lock is a project of “national significance.”
“How much figuring does it take to figure out that the Soo Locks, if they go down, that’s a huge economic impact, because you can’t get into Lake Superior or into the Great Lakes?” Gibbs asked Corps officials. “During World War II we had a garrison guarding that up there because it was so important. … I just don’t want to hear too much that the economic analysis is going to take this long.”
If nothing else, the Homeland Security report — the first to look at the comprehensive effects of a long-term closure through the supply chain — underscores the risks of a catastrophic failure at the Poe during the shipping season, while noting there are “no plans or solutions that could mitigate the damage” from such an outage.
Previous studies done by the Corps have concluded that a 30-day closure of the Poe could have an economic impact of $160 million. But the Homeland Security report — which had been previously available to some industry insiders in draft form, but kept secret from the public — went much further, outlining economic and employment impacts across the country, and even into Canada and Mexico, calling the Poe, “the Achilles’ heel of the North American industrial economy.”
Such a long-term event, the report said, would send an economic tidal wave crashing across U.S. manufacturing. Iron ore mining would virtually stop and production of steel-related items — from cars and construction and equipment, to railcars and appliances — would halt, with millions losing work until the problem was resolved and work recommenced, which would likely that months more.
Even when the lock reopened, it would take months for mines and mills to return to full capacity, the report said. And during the intervening period, unemployment would skyrocket, rising nearly 6% across the nation and even more in the Midwest, topping 20% in Michigan and Indiana.
More ominously, for even any short-term closure, it concluded that any plans to react — by using trucks or rail, for instance, to move iron ore — would almost certainly fail.
Without any redundancies or contingencies built into the system, the report said, any long-term closure during the shipping season would almost inevitably lead to “a severe recession.” And unlike other recessions — where monetary policies can be brought to bear to react — little could be done to account for this one, given the intricacies and limitations of the integrated and specialized steel markets.
“All industry experts expressed concern about a potential longer-term failure of the Soo Locks,” read one footnote in the report. “Some indicated they awake each day and cross their fingers that the Soo Locks will operate that day.”
The reason the Poe Lock is so important is a simple matter of geography, infrastructure and the nation’s manufacturing supply chain. Automakers and manufacturers of construction and farm equipment, appliances and railcars rely on steel. And that steel largely comes from mills on or around the Great Lakes that get their iron ore from mines along the western shore of Lake Superior.
And that iron ore, produced as heavy pellets, is largely moved on one of 13 “thousand-footers,” vessels capable of carrying 70,000 tons of iron ore with each trip and spend the season each year supplying the mills — either directly to ones on the Great Lakes or to other ports where they are shipped, often still by water, to more inland mills.
But to get to those destinations, the thousand-foot freighter must go through the 1,200-foot Poe at the Soo, where the locks lower or raise them and other vessels to account for what otherwise would be a treacherous 21-foot drop in a three-quarter mile stretch along the St. Marys River.
In past studies, there have been suggestions that the iron ore might be moved by truck or by rail, but the Homeland Security report makes clear that each of the thousand-footers carries the equivalent of seven trains with 100 rail cars each or about 3,000 trucks — a demand which would be impossible to meet, even if steel mills were equipped to take the iron ore by road or by rail, which they are not.
Other suggestions — such as loading steel onto smaller vessels or shipping by rail to Escanaba, on Lake Michigan, for delivering from a port there — were likewise severely limited and, even if they could mitigate some of the damage, there were questions about which mills got priority and whether the necessary infrastructure to make those measures possible could be put in place quickly.
“Moving iron ore from the mines to the mills is not a viable mitigation,” the report said. “(As) one industry executive put it, ‘it’s not even in the realm of the possible.’ … Even if the steel mills could accept iron ore from rail transportation, congested rail lines and the lack of equipment would make the use of rail impractical.”
As for trucks, the report said: “There are not enough trucks, or drivers, in the nation, to move the iron ore from the mines to the mills.” Importing iron ore, or steel, would be costly, further hurting manufacturers, and would be a temporary measure at best. And while increasing inventory at the mills for iron ore could help in advance of a closure, few have the space or the capital to tie up in doing so just to protect against a Poe shutdown.
While a few steel mills — one each in Alabama, Illinois and Ohio, and two in Ontario — could continue to operate, they would not be able to meet the demand for steel, especially for the varied specialized steel needed to build domestic automobiles. Within a short time, the lack of steel would also hurt parts suppliers, too.
“The scenario closure would have catastrophic impacts on the regional and national economy,” the report continued. “Economic modeling … shows that approximately $1.1 trillion in economic output … and over 10.9 million jobs would be lost in the first year.”
The report didn’t make any recommendations, but noted that even a move to twin the Poe Lock, if it started immediately, wouldn’t necessarily address the problem, since in the best case scenario it would probably take a decade or more to compete.
“In terms of an impact to the North American economy,” the authors wrote, “it is hard to conceive of a single asset more consequential than the Poe Lock.”