Friday, July 13, 2012


Report No. 3, Prepared July 13, 2012
Previous Reports: March 9, 2012 and may 4, 2012 

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  July 1, 2012.

 The overall health and confidence in this sector continues guardedly optimistic despite some set backs since the May report. Despite considerable bipartisan support for the Jones Act protections of our domestic trades, counter Jones Act forces led by Senator John McCain of Arizona pushed through legislation weakening the requirements for shipping domestic cargoes between U.S. ports on foreign registered ships. Gulf of Mexico oil exploration rig activity was flat during May but the day rates charged for offshore supply vessels increased moderately. The rig rate utilization rate at the end of April stood at approximately 64.9% and rose to 65.2% by June first the last date we have data for. Average day rates for Offshore Service Vessels (OSVs) rose. Large OSVs utilization rates rose by 1% in June. According to WorkBoat's Composite Index the overall stock market for Jone's Act type commercial vessel building, operating, and supply companies fell 13 % recently losing "a whopping 191 points in May". Despite the bad news it appears that new vessel  building activity in the under 1600 gross registered ton market is up. Cargo tonnage and ton mile rates remain profitable for the Western Rivers Towing Industry. 

 The dark clouds on the horizon that keep our prediction of economic performance "guarded" include a May U.S Department of the Interior report indicating that 72% of the Outer Continental Shelf under lease is not under production or subject to pending or approved exploration or development plans. We don't think the Department of Interior understands how the offshore oil industry works. We don't find the report alarming but the typical stock broker or passive investor probably views such a report with something like alarm. The constant attacks on the Jone's Act from from elements in our own Congress and the failure by Congressional supposed Jones Act supporters to block harmful legislation is of more concern. 

 We also are concerned with U.S Army Corps of Engineers valuation methods for ascertaining the worth of given navigation projects. In these times of tight budgets the Corps could fail to maintain, or upgrade critical inland navigational infrastructure due to inappropriate valuation methods. For example the Corps evaluates waterways based on tons of cargo moved with no consideration of value of cargo. So a waterway moving vast quantities of coal would rate a high priority for funding with the Corps while a waterway that moved lower tonnage cargo, but cargo of higher cash value per ton, such as oil field equipment might go unfunded. From our perspective the Jone's Act maritime sector is doing what it should be doing and the corporate coffers are doing decently well. The dangers on the immediate horizon are all policy blunders by Congress. In the Jone's Act sector of vessel operators and shipyards the recovery is the government's to lose through blunder, or assure mostly through not doing harm. It is because of this dependency on a lack of government lunacy that our optimism remains "guarded". 

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