Merchant Marine Interests:
THE ECONOMIC HEALTH OF THE JONE'S ACT FLEETS AND YARDS
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Report No. 2, last report March 9, 2012
Updated 3/11/2016
Updated 3/11/2016
The "Jones Act Fleet" refers to the commercial vessels registered in the United States and manned by, or at least officered by Coast Guard documented members of the United States Merchant Marine and providing transportation and other services on our near coastal and interior waters . Typically the fleet includes tugs, towboats, barges, off shore service and support vessels, the Great Lakes grain and iron ore boats, ferries, dredges, excursion boats and a variety of other vessels. All totaled this fleet employs over 126,000 American merchant mariners and an uncounted number of personnel not documented by the U.S. Coast Guard in the inland towing trades below the level of licensed officer or certified tankerman. For a more complete description of the Jones Act fleets and yards and their economic and security importance to America see our first report on this subject dated March 9, 2012. The latest available information on the economic health of this fleet is up to date through February 2012.
The slow recovery of drilling activity in the U.S. Gulf in the wake of the British Petroleum disaster continues slow but relatively steady. WORKBOAT MAGAZINE 's April 2012 issue reported a 6% gain for work boat operators whose stock the magazine tracks as part of their "WORKBOAT COMPOSITE INDEX". This recent (2012) 6% gain is part of an overall rise of 79 points in the "WORKBOAT COMPOSITE INDEX" of commercial work vessel operating, supply, and boat building companies since our last report. According to the April "WORKBOAT " The overall Composite Index rose 182 points in January. For the month of January Workboat Composite Index stocks had "winners" out numbering "losers" by a ratio of more than 2 to 1. Update 3/11/2016 the offshore oil industry support vessel fleet is undergoing a period of idled vessels , shrinking revenues from both shortages of charter contracts and shrinkage of day rates as a result of the shrinking price of oil. Recent US discoveries on land particularly large shale oil finds have made offshore oil expensive by comparison and uneconomic in many cases given the total amount of oil on present markets. The WORKBOAT COMPOSITE INDEX IS PUBLISHED MONTHLY IN WORKBOAT MAGAZINE
Vessel operators were not the only "winners"in 2012. The supplier's index gained 5.7% and the "second tier" shipyards in the index rose 5.4%. Complete details on the performance of the Workboat Composite Index may be found on page 12 of the April 2012 issue of WORKBOAT. We have a hyperlink to the WORKBOAT website and information on how to obtain a free subscription in the "Merchant Marine Interest"section. By 2016 we see a fall in stock prices across the board in the index as the towing industry remains somewhat static, the offshore support vessel industry shrinks, and only the excursion boat and ferry sectors appear healthy.
The Philadelphia Oil Service Index tracks some stocks that are redundant with certain of the Workboat Composite Index stocks but is more focused on oil exploration and production, major economic drivers of the offshore service and supply vessel industry and a major cargo source for the inland towing industry. The Philadelphia Oil Service Index may at times be something of the canary in the miner's cage for parts of the Jones Act fleets. Fortunately, at present, the index indicates a pretty healthy canary. The Philadelphia Oil Service Index gained 17 points on a slow but steady rise in the post BP oil disaster market that is now 9 points above its close of 245.12 in 2010. In 2016 this index like the WORKBOAT COMPOSITE INDEX does not show much in the way of promise for our Jones Act fleets.
The towboat and barge sectors are are predicted to have a good year for the export grain trade (2012). While U.S. harvests of late have averaged a bit below forecasts , the existing world inventories are relatively low. Foreign drought conditions have reduced this year's competitive pressures by nearly 25%. Grain cargo availability is is up while the excessive covered hopper barge capacity of the past has been reduced. Hopper barge availability has been described this year as "tight", while grain prices are rising. It is difficult for us to imagine a better combination for profitable "ton mile" freight rates for grain. In 2016 ton mile rates for grain carriage remain favorable but there is no over all boost to the system since 2012, the towing sector is stable at best, exclusive of the offshore support segment within the towing sector.
Another large cargo provider for the towboat and barge industry, particularly for open hopper barges is coal. Domestic coal burns declined over the winter due to mild weather in the Eastern U.S.. Export coal is booming and a new cargo is appearing. Shale gas production fueled by the Marcellus shale gas boom is generating cargoes suitable for open hopper and deck barges related to the hydraulic fracturing and horizontal drilling required to extract natural gas contained in shale formations. Ton mile rates for open hopper and deck barges remain profitable and appear to be improving. In 2015/16 both mild winters continued as well as the trend towards the Marcellus shale gas boom. Unfortunately, gas can not be acrried in open hopper barges, so accommodating the transition requires more construction of expensive tank barges. One fleet of barges is being reduced while another is coming into being, while the number of towing vessels employed remains rather steady, a formula for static profits.
In the tank barge sector heating oil consumption was down due to mild winter weather, gasoline, aviation fuels, and chemical transport volumes for the winter were apparently unremarkable. Despite the slow start to the year for the tank barge sector deliveries of inland tank barges certified for red flag cargoes reached 165 at the close of 2011. Transportation demand for crude oil being generated out of new fields in the Midwest are generating new south bound liquid cargoes that have more than made up for the reduction in north bound refined products due to the mild winter. Again these trends continued through the first quarter of 2016 to a large extent.
Many of the "second tier" ship yards that service the Jones Act trades are doing well, especially barge builders. At the close of business in 2011; 165 inland tank barges had been delivered with more on the ways as 2012 opened. This is up about 49 hulls over the 2010. At close of Business for 2011 hopper barge construction was up 10% over the previous years with more hulls still on the way and many builders reporting decent starts in the first quarter for their order books. Tank barge giant Kirby Corp of Houston announced record net earnings for the fourth quarter of 2011 of $56.2 million or $1 per share, compared with #31.6 million , or 59 cents per share the year earlier period. The second tier ship yards are not doing as well in 2016 but barge construction continues, along with excursion, ferry, public service ( often fire boats ) hulls. SOme yards profit briefly from increased lay up work for idled offshore vessels but over all stock prices for many of the publicly traded second tier yards were down from 2012 levels.
For the offshore service vessel sector day rates and utilization rates were a mixed bag in February 0f 2012. The larger supply vessels or "deep water" units reported an average day rate increase for February of $1,900 and a 1% increase in utilization rate. Large crew boats which compete not only with the passenger capacity of supply vessels but also with helicopters for the crew change trade experienced a $220 drop in the day rate and a drop in utilization of about 1%. More new drilling vessels are arriving on the Gulf Coast in response to the resumption of deep water permitting and these will require service vessel support.The Interior Department has reported a decrease in the review time for new drilling permits. This is also a positive indicator of future increased demand for offshore service and supply vessels. We were wrong in 2012. While there were the indications described and while such usually indicate future demand, we did not see the global oil glut, and its effect on the offshore industry. In the first quarter of 2016 the offshore service vessel sector continues to experienced reduced demand.
The overnight cruise trade is returning to the rivers after the post 9/11 loss of the Delta Queen steamboat company. The Queen of the Mississippi is nearing construction at Chesapeake Shipbuilding in Salisbury, Maryland. Its inaugural cruise will be in August from New Orleans to Memphis. American Cruise lines is beginning to fill the void left by the venerable Delta Queen line. America's reluctance to engage in recreational air travel due to the annoying security requirements continues to negatively impact inland passenger trades both for overnight and day excursion services but overall the industry is coming back from the worst days after "9/11". In 2015 news was received of a venture to return the venerable DELTA QUEEN to overnight service on the rivers, at this writing she is undergoing renovations in a Louisiana yard.
Our conclusion (for 2012) was updated from our guardedly optimistic conclusion of March 9th. With the 2011 year end data in and the first two months of the first quarter complete, the out look for the Jones Act Sector for the remainder of 2012 appeared good with recoveries where needed finishing out that year, and real growth in several sectors. But we cautioned then that no one should make investment decisions on our analysis. We track and report on this sector for a variety of reasons none of which involve investment. Our 2016 analysis is not promising in the short term and as we have reported elsewhere Sen. John McCain and the usual suspects are busy again this season (2016) attempting to destroy the Jones Act. We will continue to track and report economic conditions in the Jones Act industries through out the year because things change and we don't trust our crystal ball , only God can really see the future and trend is often not future.
Vessel operators were not the only "winners"in 2012. The supplier's index gained 5.7% and the "second tier" shipyards in the index rose 5.4%. Complete details on the performance of the Workboat Composite Index may be found on page 12 of the April 2012 issue of WORKBOAT. We have a hyperlink to the WORKBOAT website and information on how to obtain a free subscription in the "Merchant Marine Interest"section. By 2016 we see a fall in stock prices across the board in the index as the towing industry remains somewhat static, the offshore support vessel industry shrinks, and only the excursion boat and ferry sectors appear healthy.
The Philadelphia Oil Service Index tracks some stocks that are redundant with certain of the Workboat Composite Index stocks but is more focused on oil exploration and production, major economic drivers of the offshore service and supply vessel industry and a major cargo source for the inland towing industry. The Philadelphia Oil Service Index may at times be something of the canary in the miner's cage for parts of the Jones Act fleets. Fortunately, at present, the index indicates a pretty healthy canary. The Philadelphia Oil Service Index gained 17 points on a slow but steady rise in the post BP oil disaster market that is now 9 points above its close of 245.12 in 2010. In 2016 this index like the WORKBOAT COMPOSITE INDEX does not show much in the way of promise for our Jones Act fleets.
The towboat and barge sectors are are predicted to have a good year for the export grain trade (2012). While U.S. harvests of late have averaged a bit below forecasts , the existing world inventories are relatively low. Foreign drought conditions have reduced this year's competitive pressures by nearly 25%. Grain cargo availability is is up while the excessive covered hopper barge capacity of the past has been reduced. Hopper barge availability has been described this year as "tight", while grain prices are rising. It is difficult for us to imagine a better combination for profitable "ton mile" freight rates for grain. In 2016 ton mile rates for grain carriage remain favorable but there is no over all boost to the system since 2012, the towing sector is stable at best, exclusive of the offshore support segment within the towing sector.
Another large cargo provider for the towboat and barge industry, particularly for open hopper barges is coal. Domestic coal burns declined over the winter due to mild weather in the Eastern U.S.. Export coal is booming and a new cargo is appearing. Shale gas production fueled by the Marcellus shale gas boom is generating cargoes suitable for open hopper and deck barges related to the hydraulic fracturing and horizontal drilling required to extract natural gas contained in shale formations. Ton mile rates for open hopper and deck barges remain profitable and appear to be improving. In 2015/16 both mild winters continued as well as the trend towards the Marcellus shale gas boom. Unfortunately, gas can not be acrried in open hopper barges, so accommodating the transition requires more construction of expensive tank barges. One fleet of barges is being reduced while another is coming into being, while the number of towing vessels employed remains rather steady, a formula for static profits.
In the tank barge sector heating oil consumption was down due to mild winter weather, gasoline, aviation fuels, and chemical transport volumes for the winter were apparently unremarkable. Despite the slow start to the year for the tank barge sector deliveries of inland tank barges certified for red flag cargoes reached 165 at the close of 2011. Transportation demand for crude oil being generated out of new fields in the Midwest are generating new south bound liquid cargoes that have more than made up for the reduction in north bound refined products due to the mild winter. Again these trends continued through the first quarter of 2016 to a large extent.
Many of the "second tier" ship yards that service the Jones Act trades are doing well, especially barge builders. At the close of business in 2011; 165 inland tank barges had been delivered with more on the ways as 2012 opened. This is up about 49 hulls over the 2010. At close of Business for 2011 hopper barge construction was up 10% over the previous years with more hulls still on the way and many builders reporting decent starts in the first quarter for their order books. Tank barge giant Kirby Corp of Houston announced record net earnings for the fourth quarter of 2011 of $56.2 million or $1 per share, compared with #31.6 million , or 59 cents per share the year earlier period. The second tier ship yards are not doing as well in 2016 but barge construction continues, along with excursion, ferry, public service ( often fire boats ) hulls. SOme yards profit briefly from increased lay up work for idled offshore vessels but over all stock prices for many of the publicly traded second tier yards were down from 2012 levels.
For the offshore service vessel sector day rates and utilization rates were a mixed bag in February 0f 2012. The larger supply vessels or "deep water" units reported an average day rate increase for February of $1,900 and a 1% increase in utilization rate. Large crew boats which compete not only with the passenger capacity of supply vessels but also with helicopters for the crew change trade experienced a $220 drop in the day rate and a drop in utilization of about 1%. More new drilling vessels are arriving on the Gulf Coast in response to the resumption of deep water permitting and these will require service vessel support.The Interior Department has reported a decrease in the review time for new drilling permits. This is also a positive indicator of future increased demand for offshore service and supply vessels. We were wrong in 2012. While there were the indications described and while such usually indicate future demand, we did not see the global oil glut, and its effect on the offshore industry. In the first quarter of 2016 the offshore service vessel sector continues to experienced reduced demand.
The overnight cruise trade is returning to the rivers after the post 9/11 loss of the Delta Queen steamboat company. The Queen of the Mississippi is nearing construction at Chesapeake Shipbuilding in Salisbury, Maryland. Its inaugural cruise will be in August from New Orleans to Memphis. American Cruise lines is beginning to fill the void left by the venerable Delta Queen line. America's reluctance to engage in recreational air travel due to the annoying security requirements continues to negatively impact inland passenger trades both for overnight and day excursion services but overall the industry is coming back from the worst days after "9/11". In 2015 news was received of a venture to return the venerable DELTA QUEEN to overnight service on the rivers, at this writing she is undergoing renovations in a Louisiana yard.
Our conclusion (for 2012) was updated from our guardedly optimistic conclusion of March 9th. With the 2011 year end data in and the first two months of the first quarter complete, the out look for the Jones Act Sector for the remainder of 2012 appeared good with recoveries where needed finishing out that year, and real growth in several sectors. But we cautioned then that no one should make investment decisions on our analysis. We track and report on this sector for a variety of reasons none of which involve investment. Our 2016 analysis is not promising in the short term and as we have reported elsewhere Sen. John McCain and the usual suspects are busy again this season (2016) attempting to destroy the Jones Act. We will continue to track and report economic conditions in the Jones Act industries through out the year because things change and we don't trust our crystal ball , only God can really see the future and trend is often not future.
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