1/26/2018 Editor's Note: 2015, 16, and 17 continued to be a mixed bag for the Jones Act fleets with the only real continuing growth being in the day excursion and ferry trades. As we enter 2018 we still face the illogical animosity
of Senator John McCain who apparently slept through his classes on sea power at the U.S. Naval Academy. While the exact numbers in this 2013 post are now dated, in a relative sense the post is still accurate in terms of the situation the Jones Act fleets find themselves in today.
1/5/2015 Editor's note: We did not do an in depth analysis of the economic health of the Jones Act Fleet in 2014. The drought that caused so much navigational difficulty for the inland towing fleet described in this post did moderate and the inland towing industry, as predicted, did recoup. In 2014 the fortunes of the American Offshore Oil industry support fleet fluctuated and are now poised for some sort of adjustment due to falling oil prices and the start of shutting in some wells. More new ferries were built and put into operation,and the excursion boat fleet continues to expand and modernize. Overall however, 2014 was a very mixed bag for Jone's Act fleet fortunes and we may be a quarter into 2015 before any real summary statistics become available. The worst news of 2014 for this backbone of the American Merchant Marine was the same as in 2013 and now 2015; Senator McCain's inexplicable determination to sink this sector of the American Merchant Marine. This is our most viable sector out of which the infrastructure and skill sets emerge when we are forced to expand sea lift capacity in times of war or international conflict, or shipping boycott by those who would control us. We recommend this post to all readers who may not be familiar with this segment of America's Merchant Marine despite the fact that some of the specific figures given are dated.
THE ECONOMIC HEALTH OF THE JONES ACT FLEET, THE REST OF THE STORY
Due to the drought that has gripped the Midwest (in 2013) and lowered water levels on the Mississippi to a critical point for tow boat and barge navigation we published a separate report on the status of that industry segment yesterday(back in 2013) . Today we will report on the general economic health of the other industry sectors that comprise the domestic American Merchant Marine Service, or "Jones Act Fleet". These are the services that in addition to the interstate towboat and barge system are comprised of vessels that by law must be built in America. These vessels must also be crewed by American citizens, who are vetted by the U.S. Coast Guard. These ships and work boats provide transportation or other services on our internal waters, coastwise trade, Great Lakes, or Outer Continental Shelf (OCS) waters. We include in what we call "the Jones Act fleet" for our reporting purposes all American commercial vessels exclusive of commercial fishing vessels. This year (2013) we hope to publish a separate report on the health of America's commercial fishing fleets. Some of the more robust sectors of the Jones Act Fleet other than the towboat and barge industry are the general towing industry which would include harbor towing, ship assist towing, salvage and rescue towing; then a very large sector is the offshore service vessel (OSV) fleet which includes crew boats, supply boats, anchor handling boats, and various utility craft including dive tenders. Ferries, and passenger excursion vessels, and water taxis form another industry segment.
Some ferries are are publicly owned and under the legal definition of the U.S. Merchant Marine are not counted as "Merchant vessels" under the law. However these "public vessels" are manned by licensed and certified Merchant Mariners which means the Coast Guard licensed officers, certified or vetted seamen serving aboard are counted in the total manpower of the Merchant Marine. These public vessels also contribute to the health of the Jones Act fleet ship building sector. It is easy enough to pull these public vessels out of the hull count but much more difficult to consider them separately in the manpower count and economic health of the "Jones Act", or "Second Tier", or "Work Boat" ship yards. Another group of public vessels not included in the hull count but contributing to Merchant Mariner employment roles and ship building health are harbor police and fire vessels. While many of these are manned by city or state commissioned police and fire fighting officers, very often the Captain and possibly one or more other officers depending on the size of the vessel may be required to be actively licensed Merchant Marine Officers.
Finally we should mention 'Industrial Vessels", vessels which don't primarily provide transportation service but instead provide floating platforms from which various types of work are done in the marine environment. "Industrial vessels commonly include dredges used to maintain channel depths both self propelled and non self propelled, mobile offshore drilling units, a sector that has received inadequate Jones Act protection and is over run with foreign competition pipe laying barges, and heavy lift barges which work both in the offshore oil industry and in the harbor in the longshoring industry. The Jones Act fleet consists of a wide variety of vessels providing a vast variety of maritime service to America and help the nation maintain the ship operational and building skills so vital in times of national emergency at very little cost to government. The American Merchant Marine is a "Naval Auxiliary" by law in war time and an industry in peace time. But our traditional deep draft or blue water fleets have never been able to compete with segments of the world merchant fleets that have crews who will work for a rice bowl. It has been our Jones Act fleet that has maintained the unsubsidized necessary capabilities as an industry between wars. Today we are happy to report that despite an on going problem caused by low water levels on the Mississippi for the towboat and barge industry, and a long standing issue of under enforcement of the Jones Act in the Mobile Offshore Drilling Unit sector, generally the domestic fleet is doing well. What's ahead in this report is the details.
Overall asset value of OSV vessels and other non inland river towing vessels is up, while the asset value of inland towing vessels and barges, despite the drought induced problems reported on yesterday are stable. The price of steel helps drive asset value, and the demand for steel in the maritime sector is up. The open hopper barge segment is the only area of concern where we see asset values poised for a possible slide due to a non drought related drop in coal exports. Open hoppers can't be used as such in the grain trade but can be used for hauling construction aggregates like sand, gravel, and lime stone, an uptick in construction could absorb any surplus open hoppers but any economic uptick under this administration and the present Congress is not something that we would bet the farm on. For more details on Asset value in this time frame we suggest WorkBoat Magazine, January 2013 issue, page 16, article by D.K. DuPont. The electronic version is available in our NEWS SECTION and the magazine offers free subscriptions to industry professionals. You can sign up for a free print monthly issue on line through the links in our news section.
Stock values of Jones Act fleet related companies including vessel owner operators, equipment and service providers and shipyards are generally doing as well or better than the major stock indexes. The WORKBOAT COMPOSITE STOCK INDEX after posting a small loss in October gained 2 percent in November. For the latest on the WORKBOAT COMPOSITE STOCK INDEX performance go to:
http://www.workboat.com/workboat-index.aspx . The only sector posting a loss in November in the WorkBoat Composite Index were the ship yards. We anticipate that this is a temporary situation, see the section in this article on new builds. The U.S. Gulf is still suffering a slow recovery in activity due to the slow pace of permits and lease sales as the new Bureau of Ocean Energy Management Regulation and Enforcement takes over the permit and leasing functions from the now disbanded Minerals Management Service in the wake of the BP disaster.
Utilization Rates and day rates continue to improve in the U.S. Gulf OSV and Industrial vessel sectors. Overall utilization rates in the U.S. Gulf rose about 10% in November but still lag below 80% for most vessel types as the slow recovery continues. Day rates for some vessel types have risen modestly , for some larger vessels by about $200 a day recently reflecting increasing demand and possibly some delays in reactivating idled equipment. The inventory is there to cover a 100% return to the highest pre- BP incident levels but the reactivation time for vessels long idled can create spot and temporary shortages keeping day rates up. The U.S. excursion boat sector is in its' expected and planned for winter doldrums but passenger counts in both the day excursion and ferry sectors are up.
New Ship Building, despite a down turn in second tier shipyard common stock values this past quarter (Back in 2013; see our News Service and Intelligence Resources Section for links to WORKBOAT, then see their Composite Index for up to the month health of the work boat ship building sector) , the yards are reporting decent order books especially on the U.S. Gulf Coast. New recent launches included a 250 passenger day excursion boat for Florida service launched by Gladding -Hearn Shipbuilding of Somerset , Mass. , A new towboat by A&B Industries Inc. of Morgan City, Louisiana, New double hulled tank barges, mostly from Gulf Coast yards but at least one last month from a West Coast yard. Olympic Tug and Barge of Seattle accepted delivery of a new tug recently and has employed it in the tank barge trade in Alaska. Harvey Gulf Marine, Tidewater, Hornbeck Offshore Operators and Jackson Offshore Operators have all recently announced new build plans. Over all the pace of business in the second tier yards looks promising for a profitable and near full employment 2013.
Our overall evaluation for 2013 is that the year ahead has only two readily identifiable troubled issues both are in the inland tow boat and barge sector and are of a temporary nature. These issues are the present low water emergency on the Mississippi and the downturn in export coal cargoes. The rest of the industry is starting 2013 with a lot of positive performance indicators. (2018 the down turn in coal exports appears to be very long term)
We did mention the exception of the Mobile Offshore Drilling Units or MODUs and Drill ships. This sector's Jones Act protections were ignored for so long by the U.S. Coast Guard and the Customs Service that in effect this industry sector is moribund, so really it has no where to go but up. These types of vessels were invented in U.S. Gulf Coast Yards and first operated by mostly Houston based companies. If you had attended the post BP incident Congressional hearings you would have heard the same story we did particularly under the astute questioning of former Democratic Congressman Gene Taylor of Mississippi. Basically these American MODU operators amassed large fortunes operating the first generation of American built equipment then invested in foreign, often Korean built MODUs, and registered them under the various flags of convenience such as Liberia and Panama. These were then employed in foreign oil fields and their original American flag vessels allowed to age or also re-flagged. Then over the years when drilling would pick up in the U.S. Gulf these companies would plead an unavailability of U.S. flag drill ships and MODUs and despite howls of protests by remaining U.S. flag operators and maritime labor, the Coast Guard would offer no objection and the Customs Service grant the requested exceptions dismissing the objections as a "labor dispute".
By the time the Congress looked into the MODU situation in the Gulf after the BP incident they were shocked to learn that there were virtually no American flag MODUs left and many of the biggest offshore oil drilling contractors and MODU owners which started life as Houston based companies were now incorporated in Switzerland and no longer eligible to own U. S. registered shipping. The Congress said it was going to rectify this situation but there can be no order mandating the elimination of these foreign flag MODUs now without shutting down U.S, offshore drilling operations entirely. The cure is going to require an intelligently managed "phase in" of a return to American flag MODUs . Meanwhile off Alaska we recently saw an example of what having these companies on our OCS with their foreign flag equipment means. The grounding of that MODU in Alaska a couple of weeks ago was not only an example of poor voyage planning but almost unobserved in the reporting was the fact that the rig was 30 years old. Twenty Years is old age for any type of vessel. The foreign operators didn't hesitate to deploy their oldest equipment to our most environmentally sensitive areas.
We really don't expect a cure out of the 113th Congress (2018 and no cure has emerged from any of the subsequent Congresses) , which is pretty much the same folks who failed us in the 112th Congress and some of the long standing members are the actual people who caused all of our problems in the first place. Both parties are expected to continue to argue along ideological lines avoiding practical and pragmatic solutions and failing to keep an eye on the White House and checking presidential abuse of power, or neglect of power. This is a White House (Refers to Obama's) that is sitting on the LNG export terminal permits (2018 that at least ended), slowing offshore exploration, fighting tight sand production through alternately failing to exercise presidential powers, or using them to obstruct commerce. This past week (2013) hundreds of thousands of Louisiana citizens submitted a petition for succession to the White House, which the White House had to respond to but the response failed the test of transactional analysis, it was a lecture of critical parent to miscreant child. We are here in Louisiana today, and tell you those signatories were for the most part, thoughtful and intelligent adults. They issued a clarion call to the administration for moderation, common sense, and pragmatism and got the usual ideologue cold slap in the face. The other big oil producing state in this nation , Texas, passed a nullification act and has a very visible secessionist movement. (2018 political observation Louisiana, Texas, Oklahoma, and Mississippi residents now seem to favor the expulsion of California , New York, and Massachusetts over succession of their own states) We believe that the U.S. Government has degenerated into near total ineffectiveness but apparently if they pretty much perform in 2013 as they did in 2012 the Jones Act Fleet and Yards minus the elements the government has already destroyed are poised for success, unless Washington actively intervenes. In our present governmental situation there is a lot to be said for benign neglect, or perhaps neglect is the most benign thing the government has proven itself capable of. If Washington just stays inside the belt way ignoring us and fighting each other the domestic maritime industry should come through 2013 with flying colors .(2018: So far the Trump Administration while seemingly pro Navy has not proved insightful on overall concepts of sea power, nor does the President appear to have any special knowledge or insight into maritime matters. He does seem to have identified Jones Act public enemy No.1 Senator John McCain as a RINO, that may prove helpful but at least for 2018 benign neglect is about the best we can hope for in terms of national maritime policies.
To learn more about American domestic water borne commerce and its role in our political, security, and economic history we recommend The AAB Book of the year for 2012 : THE WAY OF THE SHIP
(2018 we remind our Louisiana readers that due to the election of a democrat for Governor you are now liable for sales tax for anything you purchase over the Internet. You are expected to report all such purchases on your Louisiana State Income Tax form annually and remit the appropriate sales tax with your state income tax payment. WE ALSO NOTE THAT PROVISION OF THE LINK ABOVE TO A POINT OF PURCHASE OF THE RECOMMENDED BOOK IS SIMPLY A COURTESY TO OUR READERS, AAB RECEIVES NO SALES COMMISSIONS ON BOOKS ANY MORE, AMAZON SHUT US DOWN AS A COMMISSIONED PORTAL ONCE LOUISIANA IMPOSED ITS SALES TAX. IF THAT EVER CHANGES WE WILL REAPPLY FOR AMAZON "PORTAL STATUS").