Accurate Benefit/Cost Ratio for Building a Second Poe-Sized Lock at Sault St. Marie, Michigan

GOAL: The U.S. Army Corps of Engineers is conducting an Economic Reevaluation Report (ERR) on a second Poe-sized lock at Sault Ste. Marie, Michigan.  The Corps’ 2005 analysis incorrectly assumed the railroads could move the cargo that transits the Soo Locks at no additional cost.  That false premise resulted in a benefit/cost (b/c) ratio of less than 1.0, so the project has been ineligible for funding in an Administration budget.  Stakeholders have actively engaged in the ERR to correct the errors that produced the low b/c ratio.

BACKGROUND: The Soo Locks connect Lake Superior to the lower four Great Lakes and St. Lawrence Seaway and allow the shipment of iron ore from mines in Minnesota and Michigan, coal from western states, and grain from American and Canadian farms to end users in the United States, Canada and overseas.  Cargo movement through the Soo Locks can top 80 million tons per year.

The need for a second Poe-sized lock becomes more critical each passing day.  Poe-class vessels (their size restricts them to the Poe Lock) represent nearly 70 percent of U.S.-flag carrying capacity on the Great Lakes and in 2016 moved 97 percent of the 48.8 million tons of cargo American lakers moved through the Soo Locks.  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, power generation and manufacturing industries would come to a standstill.  Grain exports would suffer too.  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.  A 2107 study commissioned by the U.S. Treasury Department finds that a second Poe-sized lock would have a net economic benefit of as much as $1.7 billion and a b/c ratio between 2.0 and 4.0.

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

  • At the peak of construction of the lock proper, 250 workers will be employed and over the length project 1.5 million manhours will be generated.
  • 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.

The Soo Locks are now the only way iron ore can be shipped by water from the mines in Minnesota and Michigan to U.S. steel mills.  The iron ore mine that shipped through Escanaba, Michigan, on the north shore of Lake Michigan has exhausted mineable reserves and the final cargos were loaded in April 2017.

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.