Accelerated Economic Reevaluation Report on Second Poe-Sized Lock at Sault St. Marie, Michigan

GOAL: The Corps of Engineers and Office of Management and Budget (OMB) have reprogrammed $1.3 million to fund a Economic Reevaluation Report on a second Poe-sized lock at Sault Ste. Marie, Michigan.  The flawed study performed in 2005 produced a benefit/cost (b/c) ratio of less than 1.0, so the project has been ineligible for funding in an Administration budget.  The current timetable calls for the report to be completed in late 2017 or early 2018.

BACKGROUND: The Soo Locks connect Lake Superior to the lower four Great Lakes and St. Lawrence Seaway.  The locks make possible the shipment of iron ore from mines in Minnesota and Michigan, coal from western states, and grain from American and Canadian farms.  Cargo movement through the Soo Locks routinely tops 80 million tons per year.

The need for a second Poe-sized lock becomes more critical each passing day.  Poe-class vessels (their length and/or beam restrict them to the Poe Lock) represent nearly 70 percent of U.S.-flag carrying capacity on the Great Lakes.  The new generation of Canadian lakers are likewise restricted to the Poe Lock.  Were the Poe Lock incapacitated for a lengthy period, the Great Lakes steel and manufacturing industries would come to a standstill.  The U.S. Army Corps of Engineers has estimated that a 30-day closure of Poe Lock would result in an economic loss of $160 million.

A 2016 Department of Homeland Security study found that a 6-month closure of the Poe Lock would throw nearly 11 million Americans out of work and cost the economy $1.1 trillion.  Approximately 75 percent of U.S. integrated steel production would cease within 2-6 weeks of the lock failing and nearly all North American production of automobiles, appliances and heavy equipment would end soon afterwards.

Construction of a second Poe-sized lock would be a boon to the Great Lakes basin’s economy.  Consider just these facts:

  • At the peak of construction of the lock proper, 250 workers will be employed.
  • During the 10 years of construction, the project will generate 1.5 million man hoursAn economist has observed that construction would be “the equivalent of a small auto assembly plant operating for 8 years.”
  • Nearly 1 of every 4 dollars spent on the project will wind up as regional incomes in an area where a good-paying job means maybe $20,000 per year.
  • The project will use more than 1.1 million tons of domestically-quarried limestone, 60,000 tons of U.S.–made cement, and 25,000 tons of American-made steel.
  • While most dollars will go to local workers, expenditures for gates, electronics, machinery, and engineering will mean jobs for workers and manufacturers nationwide.

BENEFITS: The American economy cannot thrive without reliable shipping through the Soo Locks.  The Great Lakes region is home to 50 percent of the nation’s steelmaking capacity, an industry that generates 135,000 direct jobs, and another 865,000 in supplier industries.  The vast majority of the iron ore that feeds those mills transits the Soo Locks.  The Soo Locks make possible the shipment of clean-burning, low sulfur coal from western states to Great Lakes basin power plants.  The Soo Locks also allow grain from the Plains States and Canadian provinces to be shipped overseas.

FLAWED STUDY HOLDING PROJECT BACK: When a flood of dumped foreign steel nearly drowned America’s steel industry in the late 1990s and early 2000s (a tragedy being repeated today), the resulting plunge in iron ore cargos required the Corps to reassess the project’s b/c ratio.  A flawed analysis of the impacts of a lengthy closure, coupled with a reduction in the forecast of cargo moving through the locks, produced a b/c ratio of less than 1.0, which precludes its inclusion in the Administration’s budget.  Another fatal flaw in the analysis is the false assumption the railroads could move the cargo that was transiting the locks.  The railroads have neither the rail connections nor the rolling stock to even begin to absorb what moves through the Soo Locks.

OTHER BENEFIT OF NEW ECONOMIC ANALYSIS: An accurate assessment of the Soo Locks’ role in our economy will also facilitate much-needed maintenance and upgrades of the existing Poe Lock and MacArthur Lock in the years ahead.