Final year for money-losing Upper Harbor Terminal

Minneapolis is finally pulling out of the port business.

This is the last year that the city-owned Upper Harbor Terminal will unload steel, twine, pig iron and ­fertilizer from trucks and Mississippi River barges, marking the end of a long decline in investment and hopes for a venture that loses money every year.

Though the move has been in the works for years, separate City Council committees recently approved the final budget for the terminal that again is projected to run in the red for 2014, prompting the terminal to begin telling its customers that the closure is looming in December.

As the city considers how to redevelop the 48-acre site into parkland and office space, local leaders are examining how the inability of barges to unload goods destined for farms in northwestern Minnesota, North Dakota and beyond could burden regional roads with additional trucks.

"We need to think about how the stuff gets where it gets," said Minneapolis city planner Haila Maze.

Meanwhile, Upper Harbor manager Jerry Christensen said they could lose far more than the $277,771 expected this year, given that ­customers may look for other alternatives before the terminal shuts down.

The city owns the terminal and receives all the revenues, but has a longtime agreement with River Services Inc. to operate it. The company must compensate Minneapolis for any deficit, paying the city $421,699 for losses in the last four years alone.

The terminal is just off I-94, Exit 228, spanning Dowling Avenue to 33rd along the river in north Minneapolis. It houses a 110,000-square-foot warehouse and enormous concrete domes that store fertilizer shipped from China and the Middle East to the Gulf Coast and up the river that eventually winds up in Midwestern farms. While the river is frozen this time of year, and barges cannot travel through, the terminal continues running. It unloads trucks and rail cars filled with agricultural twine, mulch, steel coils and other commodities and stores them until different trucks arrive to transport them farther.

Northern Metals and Aggregate Industries, both private firms, also operate on the port.

Upper Harbor Terminal customers now "have to scramble to find out who will take their business," said Christensen. "Down in St. Paul there's only so much room."

St. Paul's port is older, larger and more profitable — and the St. Paul Port Authority is hopeful that it can pick up additional business from barges willing to stop a little farther south. While Minneapolis only has a port authority on paper, St. Paul's port agency is a thriving operation that takes in 5 million tons of commodities a year and also takes on economic development projects, such as the $3 million purchase of the vacant downtown Macy's for redevelopment into housing or commercial uses.

It has poured investments into its port, recently building a 1,000-foot dock wall at its South Port terminal that offers additional space for barge loading and unloading, and adding two tenants there, one in the feed and fertilizer transport business and the other involved in metal recycling.

St. Paul will try to accommodate the additional barge traffic that could come as a result of the looming closure in Minneapolis, said Kathryn Sarnecki, vice president of redevelopment and harbor management.

"We're trying to reach out to some of those companies to try and keep that business in the Twin Cities area," she said.

Large heaps of salt and coal sit along the Mississippi in the decades-old photos in Christensen's office on the river, a testament to the once-bustling industry that traded hands in the upper reaches of the 2,300-mile river. But salt delivery ceased over environmental concerns. Coal shipments fell dramatically. The payroll has fallen by about two-thirds since then, to 11.

The creation of an upper river harbor was realized in the 1960s, when the U.S. Army Corps of Engineers yielded to pressure from local leaders, including U.S. Sen. Hubert Humphrey, to construct two locks and dams above St. Anthony Falls to make it navigable for commercial barges.

The Upper Harbor Terminal fell into trouble as far back as the '80s, when the operator — then Packer River Terminal Inc. — rarely met its goal of handling 1 million tons of barge traffic a year. Dwindling business even led the city to defer the fees owed by Packer River, a dispute that wound up in court.

River Services took over operations in 1991, a time that Christensen recalled as "wild."

"It was just crazy trying to keep things running, keeping everything afloat … but it was good times," he said.

But the arrival of ethanol plants hurt their grain business; the grain elevator closed a decade ago. The city put a stop to shipments of de-icing salt. Major customers of coal and other commodities left. And the location never quite worked as well as for many businesses as those farther down the river.

"I don't think it was that well thought-out when it was built … it seems like it's been contentious ever since it was completed," said Christensen.

City officials have acknowledged that the venture was born partly out of desire to compete with St. Paul, even as that drive stopped a long time ago.

As long ago as the 1990s, "a decision was made to get out of it and we've made no investment in adding equipment, maintaining equipment, keeping up with the times for contracts that could be landed to run a barging operation," said Carrie Flack, a senior project coordinator for the city. "We've just been in a holding pattern."

The city has long examined how to redevelop the site as part of a broader vision for the upper riverfront, amending a plan last year that calls for linking it to the Grand Rounds park system, bringing in new businesses and improving public access to the river.

Even after the terminal closes, the process of bringing in developers will not be quick. The 48-acre site will have to be surveyed, the structures will have to be demolished, and a road will have to be built for the area to even be attractive for businesses.

There has been broader discussion in recent years of closing the locks, which would require an act of Congress. That is particularly due to the threat of invasive Asian carp but also because of the slowing business: In a recent five-year period, the tons of commodities that went through the Upper Locks at St. Anthony Falls declined by 47 percent.

Maya Rao • 612-673-4210