Rehabilitating Locks and Dams in the Upper Mississippi Waterway Through PPP: A New Business Model

Abstract:Many supply chains rely on barge transportation along the Upper Mississippi waterway system. However, locks and dams that enable traffic flows through the waterway system are aging and causing disruptions frequently, bringing considerable financial damages to shippers. Cost of the major system rehabilitation is estimated to be over $1 billion, and the prospects for getting such a large funding from the government are bleak. Public-private partnership (PPP) based on the conventional business model that requires collecting end-user fees to provide revenue to the participating private firms has been proposed, but not implemented due to the regulatory barriers that forbid the collection of user fees. This study proposes a new PPP business model that does not require collecting user fees. This model seeks to attract funding from shippers in exchange for reducing their financial losses due to frequent system disruptions. We describe the model concept and examine its effectiveness by performing a series of analyses that combine analytical, econometric, and simulation techniques. Results show that the proposed model is not only viable, but also financially attractive to shippers if the invested amount is optimal, allowing them to reduce supply chain disruptions considerably while also achieving sizable investment returns.