Rising costs and uncertainty hinder demand for new tugs

Signet Shipbuilding crews build a three-engine Advanced Rotortug at the Pascagoula, Miss., shipyard.
Signet Shipbuilding crews build a three-engine Advanced Rotortug at the Pascagoula, Miss., shipyard.
Signet Shipbuilding crews build a three-engine Advanced Rotortug at the Pascagoula, Miss., shipyard.

Signet Shipbuilding crews build a three-engine Advanced Rotortug at the Pascagoula, Miss., shipyard.

Anyone in the market these days for a large purchase of any kind, from a vehicle to a camper to a home, knows the feeling well. It’s one of sticker shock following several years of fast-rising costs. 

It’s no different for tugboat operators looking to build a new vessel. And it’s one of many factors that have, taken together, helped reduce the number of new tugboats built over the last year. 

“We were somewhat fortunate, in that we locked in prices for shipyard, main engines, z-drives, bow winch and other components when we signed the contract back in November 2022,” said Scott Slatten, president of Bisso Towboat Co., which is building another z-drive ship-assist tugboat at Main Iron Works. 

“Still, this newbuild will be about 13 percent higher than the Capt. Joseph Bisso (delivered in late 2021) and with far longer lead times, 12 months or so, for most of the big-ticket items.”

Bisso Towboat’s experience with rising component, materials and construction costs is a sign of the times for tugboat operators around the United States. 

The Great Lakes Towing Co. tug Indiana during construction.
The Great Lakes Towing Co. tug Indiana during construction.

Jon Leivo, vice president of engineering at Great Lakes Shipyard, based in Cleveland, Ohio, said pricing has steadily increased for the company’s Cleveland-class tugs. Construction started about seven years ago, and company’s 7th tug in the series, Indiana, is profiled on page 42. 

The cost of steel is one of the biggest drivers. Steel plates 8 by 40 feet in size that are blasted, primed, cut and formed cost 58 cents a pound in 2018. For Illinois, built in 2021, the cost had risen to 63 cents a pound. By last year, the price had jumped yet again to $1.06 a pound. 

The price of certain key components, such as keel coolers, has also far outpaced the rate of inflation. Units that cost about $4,800 apiece in 2022 are now pushing $8,000 each. 

Great Lakes Towing Co. Fleet Captain Jeff Stabler helped design Indiana’s ergonomic wheelhouse layout.
Great Lakes Towing Co. Fleet Captain Jeff Stabler helped design Indiana’s
ergonomic wheelhouse layout.

“At the beginning of Covid, we didn’t see the full impact,” Leivo said recently. “By the end of ’21 and beginning of ’22, we really started to see pricing and delivery issues. My take on it, lately, is that common/general items have gotten better in availability and pricing, but the more specific items we use in vessel construction are still significantly increased and delayed.”

Lead times for reduction gears, for instance, have more than doubled to almost a year for the next Cleveland-class tugboat already under construction. Generator sets, which in the pre-Covid era required around 10 or 12 weeks of lead time, now must be ordered a year in advance. AC electrical panels are also pushing a year, Leivo said.

Since the project started, according to Great Lakes Towing Co. president Joe Stark, “our costs have increased almost 25 percent and our period for construction has increased from eight months to about a year.”

Long lead times and challenges finding quality workers are hindering deliveries of all new vessels, not just tugboats. Some issues are out of the shipyard’s control. But regardless, delays create tension between shipyards and owners who are anxiously waiting for their new tugs to deliver. 

But in some cases, shipyards share the blame for failing to meet delivery schedules. Some yards took on too many jobs and found themselves overwhelmed and unable to keep up. Others used overly-aggressive delivery time frames to help win contracts. 

Joey Rodriguez, who owns Rodriguez Shipbuilding in Bayou La Batre, Ala., delivered the pushboat Boyce B. for Weeks Marine (profiled on page 30) ahead of schedule. It was no miracle or one-off. In fact, he expects to deliver another tug later this year for Boyer Towing of Seattle earlier than the contract requires. 

“For one thing, I didn’t overestimate the time it took to build the boat,” Rodriguez said in a recent interview. “I am 68. I am not trying to impress someone. I have been doing this for 48 years and I am not playing no games. 

“One of our advantages was, I am not overbooked out with work. I did not bid delivery schedules I knew were impossible to make. I also pre-bought everything possible I could find, because I did not want any delivery problems,” Rodriguez continued.

Peter Soles, who handles business development and marine operations for Glosten, the Seattle-based naval architecture firm, said there are a litany of challenges operators considering whether to build a new vessel must navigate. 

These include the obvious issues that arose during Covid-19, such as supply chain disruptions, ever-longer lead times for components and parts, and labor issues that can slow down the pace of construction. But other factors, he said, are causing some operators to take a “wait and see” approach.

Inflation has done more than push up materials costs. It has also led to a sharp rise in interest rates that, in turn, increase borrowing costs for businesses as well as consumers. Lenders, in some cases, have tightened requirements for business loans, making credit harder to come by. Worries about a possible recession only compound these challenges.

Shifts in global shipping trends are also reducing demand for new tugboats. In general, tugs make money for their owners by performing towing jobs. And in some ports, the number of ship calls is flat or falling compared to historical levels. The primary culprit is the rise of larger containerships calling U.S. ports.

This trend is already playing out in some large ports despite healthy cargo numbers. From 2017 to 2021, the most recent data available, the Port of Savannah registered 300 fewer ship calls a year, down to 1,882 ships in 2021. But during the same period, it recorded a 36 percent increase in total container volume. 

The Port of Virginia, which includes ports in and around Norfolk, Va., saw similar trends. In 2022, the port moved 2,053,524 containers, an increase of 15 percent over the prior year. But its total ship calls fell 4.4 percent to 1,471. 

Meanwhile, regulatory changes on the West Coast are creating uncertainty about the long-term viability of any tugboat built today. There are very real concerns, particularly in California, that any new tug built now will run afoul of new rules well before the end of its useful life, harming the overall investment. 

The sum total of all this, Soles said, it is a perfect storm for operators looking to build a new vessel.

“What I can say is that, despite all the factors noted above, this is precisely when folks should be building to capitalize on all the grant funding that’s been made available,” he said. “In many cases, grant funds can cover the additional capital investment required for modern propulsions systems, and that opportunity won’t always be there.”

He described a wide range of programs available at the state and federal levels, including the U.S. Department of Energy. Grant opportunities can run the gamut from engine upgrades in existing vessels to the development of pioneering new designs that will help pay for design and construction.

“The problem is that most small- to medium-scale workboat operators either don’t know about this, or don’t have the bandwidth to do the research and develop competitive grant applications,” Soles said. 

The Bay-Houston Towing Co. tug Hayden Grace.
The Bay-Houston Towing Co. tug Hayden Grace.

Despite these many challenges, there are signs of life in the tugboat construction market. Orders for new tugboats fell sharply during the heart of the Covid-19 pandemic, but for many operators the need for new vessels has not gone away. 

Seabulk engineer Buck Shoemaker III poses alongside electrical equipment on the hybrid tug Titan in Port Arthur, Texas.
Seabulk engineer Buck Shoemaker III poses alongside electrical equipment on the hybrid tug Titan in Port Arthur, Texas.

The cost of maintaining older vessels, meanwhile, has risen more or less in tandem with the cost of building new vessels. As such, the price of repairing older vessels could make new construction look more appealing. 

Within the last year, several major operators have placed orders for new vessels. These include Moran Towing, which is building two tugs at Master Boat Builders in Bayou La Batre, Ala. American Commercial Barge Line, meanwhile, ordered Tier 4 towboats from Steiner Construction and C&C Marine. 

Crescent Towing is building another ship-assist tugboat at Blakeley Boatworks in Mobile, and Master Boat Builders is nearly finished building the first-ever all-electric tugboat, known as eWolf, for Crowley. And Signet Maritime Corp. is building two Advanced Rotortugs outfitted with three engines and three z-drives at its yard in Pascagoula, Miss. 

The N.Y. Power Authority, which runs tugboats on the Erie Canal, also has a tender out for multiple tugboats designed by Bristol Harbor Group. Other operators are said to be getting close to pulling the trigger on new orders as well. 

And just like homebuyers who were initially scared off by higher interest rates but have since returned to the market, the “new normal” has set in for many businesses. Waiting to make a big purchase in hopes that prices will fall, in this environment anyway, has meant paying more later for the same boat. 

Slatten, the president of Bisso Towboat Co., said they experienced the situation firsthand when considering whether to build their latest z-drive tugboat.  

“If we had waited until 2023 to sign the contract,” he said, “we were looking at an additional five percent on the cost of a newbuild.”