|A container ship operated by China Shipping Container Lines unloads its cargo at the Port of Los Angeles. Statistics indicate that U.S. container imports may be declining while container exports are increasing. (Photo courtesy Port of Los Angeles)|
With economic indicators looking increasingly gloomy, and fuel prices already at painful, record levels, most tug operators are taking a cautious let’s-wait-and-see attitude about business prospects for the coming year.
As of this spring, many aspects of American marine business — sectors like oil movements, ship arrivals, domestic imports and exports — were remaining steady or declining, while gloomy economic news has been trumpeted daily by news-media outlets.
The threat of a substantial business downturn is ever present. There are signs that Americans may be buying fewer products and cutting back on oil and gas. Less money spent on consumer goods and reduced gas consumption could spell downturn for the average tugboat operator.
Containers in and out
|U.S. Shipping Partners continues with construction of its five-boat program of new ATB units. The ATB Freeport was delivered last summer, and ATB Galveston, shown here, is slated for delivery later this summer. The 12,000-hp tugs are 150 feet long with Wartsilla heavy-fuel compatible engines. (Photos: Brian Gauvin)|
That’s because much of the stuff that Americans are fond of buying comes from overseas and arrives here in containers aboard large ships. Ships need tugboats for docking and undocking and they often require the services of a host of other companies in the marine business each time they visit. When Americans spend less on goods from overseas it translates directly into fewer ships arriving here, and thus, less need for tugboats.
At the beginning of 2008, international shipping executives were forecasting a slowdown in shipments of containerized goods to the U.S. for 2008 although the extent of such a slowdown was uncertain. Inbound container traffic was already declining in some cases beginning in 2007. For instance India’s containerized exports to the U.S. fell 5.7 percent in the first 11 months of 2007, compared to the prior-year period, according to shipping reports. An official of Maersk Logistics predicted that growth of containerized shipments to the U.S. would slow appreciably in 2008.
Traffic at the nation’s major retail container ports was forecast to see weak or even negative growth compared with last year, according to the National Retail Federation (NRF).
“Container traffic at the ports is a leading economic indicator because it reflects retailers’ expectations for sales,” reported an NRF vice president. “With the industry expecting the slowest growth in half a dozen years, we’re going to see little increase in cargo on the docks.”
The Port of Los Angeles reported a 1.4 percent drop in total container volume for 2007, although the port still led the nation with 8.4 million TEUs handled for the year.
“With soft consumer spending and the weak U.S. dollar, our 2007 results were on par for the most part with West Coast and national volumes, a reminder that ports are a reflection of the economic climate,” said Geraldine Knatz, executive director of the Port of Los Angeles. “One example is the housing slump, which correlates into a decline in consumer demand for furniture, which is our largest containerized cargo import.”
|Western Towboat, the entrepreneurial Seattle-based tugboat company, launched the latest in its Titan series of offshore towing vessels in March 2008. The 120-foot Alaska Titan is a 5,000-hp z-drive vessel designed to tow deck-loaded container and cargo barges from the U.S. mainland to Alaska. Western Towboat was founded by Bob Shrewsbury in 1948 and today it is operated by his sons, Bob and Ric Shrewsbury, shown here. (Photos: Mark Freeman)|
Similarly, the Port of Seattle reported a drop in total TEUs handled in 2007 to 1.98 million from 2.1 million in 2005. The port also reported that vessel calls at its facilities have decreased to 1,221 in 2007 from 1,345 in 2005.
After several years of record cargo performance, Port of Tacoma cargo volumes flattened in 2007, due in part to a softening U.S. economy, a weakening national housing market and the rising cost of inland transportation, according to Tacoma port officials. From 2002 through 2006, Tacoma set successive containerized cargo records, with ?volumes growing from 1.5 million TEUs to 2.1 million TEUs. In 2007, the port’s container volume totaled 1.9 million TEUs. The Port of Tacoma’s noncontainerized cargoes remained strong in 2007.
In Florida, the Port of Miami reported that total cargo tonnage and total TEUs handled were both down 9 percent in 2007 compared to the prior year, while the number of cargo ships docked declined to 1,622 from 1,852.
With consumer spending dropping, a surge in retail bankruptcies was reported in the first half of 2008 while a number of well-known retail chains reported they would close hundreds of stores nationwide during the course of the year.
Trade deficit narrows
As U.S. imports of consumer goods have diminished, the U.S. trade deficit has remained steady or declined in recent periods, with an overall drop for the full year 2007, according to the U.S. Commerce Department.
The trade deficit — defined as the excess of goods imported compared to goods exported — was reported declining to $738.6 billion in 2007, a 9 percent drop from $811.5 billion in 2006. A further narrowing of the overall deficit is expected for all of 2008. Helping it to narrow in the past year or so has been a dramatic increase in goods exported from the United States.
Here is a saving bit of good news for tugboat operators. The decline in the U.S. dollar value over the past two years has helped spur strong increases in U.S. exports, with American goods now cheaper and thus more competitive in many overseas markets.
U.S. exports rose 12.2 percent in 2007, providing lots of business for shipping firms.
Louisiana’s worldwide merchandise exports, which set a record in 2006, exceeded that level in 2007 by nearly 30 percent, the second largest percentage increase of any state, according to a report issued recently by the World Trade Center of New Orleans.
Louisiana’s top six exports in 2007 were agricultural products, petroleum, coal, chemicals, processed foods, machinery and transportation equipment. Five of these increased by double-digit percentage gains over 2006, according to the New Orleans trade center.
In previous years, with imports at continuously record levels, thousands of empty containers were stacked up at U.S. ports and either sent back empty or scrapped for lack of outbound cargoes. Now many of those containers are being filled with outbound American-made products and shipped out on container vessels happy to have a return cargo for a change.
Whether or not the U.S. economy will continue to slump remains to be seen, but if containers are loaded and moving — it doesn’t matter in what direction — it’s got to be cheering news for owners of tugs that assist the container vessels in and out of port.
Coal: a hot U.S. export
One particular good-news exportation story — helped by the diminished U.S. dollar value — involves exports of American coal.
A boom in coal exports and in coal prices has helped to lower the U.S. trade deficit. Coal exports, which account for 2.5 percent of all U.S. exports, expanded by 19 percent to $4.1 billion in 2007, according to the National Mining Association.
With demand for coal soaring almost everywhere around the world except in the United States, a substantial increase in U.S. exports is also expected this year.
Peabody Energy Corp. in St. Louis reported in March that it had already exported more in the first few months of 2008 than it did in all of 2007.
The United States will export 7 or 8 percent of its coal production this year, up from about 5 percent last year, according to the NMA. U.S. exports of coal grew from 49 million tons in 2006 to about nearly 58 million tons in 2007, according to coal industry statistics, while domestic production increased by 1 percent. Exports are expected to reach 80 million tons in 2008, according to industry forecasts, and with railroad and port improvements, further increases are anticipated.
Much of the coal shipped out of West Virginia for instance goes east by railroad to ports like Norfolk, Va., — where large colliers are assisted in and out of port by tugs of Moran, McAllister and other tug companies. Officials at the Port of Hampton Roads (Va.) were anticipating that coal exports could rise by as much as 50 percent, to 42 million tons in the coming year.
Coal from the West is more likely shipped south for export out of New Orleans (after being loaded onto barges at St. Louis), or west to Vancouver, Canada.
A decline in oil consumption
Most Americans have long wished that the nation could find a way to decrease oil consumption. Well, now that is what’s happening and it’s not necessarily good news for the tug and barge industry.
For the year 2008, U.S. consumption of petroleum-based fuels is expected to decline by about 85,000 barrels per day, as a result of both high prices and an economic slowdown, according to the U.S. Department of Energy.
|AEP Mariner is a newly-delivered 6,000-hp towboat built by Quality Shipyards for AEP River Operations. The 166-foot towboat is powered by EMD 12-710G7C engines with Lufkin gears. Tending to those engines, along with other machinery, are crewmembers Thomas Sheppard, left, and Chief Engineer Dennis Johnson. (Photos: Brian Gauvin)|
Included in this decline will be a sharp drop in consumption of gasoline, according to DOE reports. U.S. demand for summer gasoline is expected to shrink for the first time since 1991, according to the Energy Information Administration (EIA). Demand for gasoline could shrink by about 190,000 barrels a day this year, compared to 2007, according to the Department of Energy. At the current rate of consumption, U.S. citizens have been using about 380 million gallons per day just to power the roughly 235 million cars, light trucks and SUVs that are on the road.
The reports of reduced overall oil consumption started to roll out early in the year. For the first quarter, U.S. oil consumption dropped by nearly 475,000 barrels a day, compared to the prior year. This has been the biggest decline in oil’s demand in any quarter, ever since the fall in oil consumption in the fourth quarter of 2001 after the Sept. 11 attacks. However, experts say that drop in U.S. demand doesn’t necessarily mean that oil prices will decrease because there is a strong worldwide demand for oil, regardless of what happens in the United States.
Data from the EIA suggests oil demand for the month of January dropped by 2.2 percent, meaning a decrease of 45,000 barrels a day.
Industry reports indicate that overall U.S. crude oil imports in 2007 declined about 1 percent to 3.66 billion barrels. Canada, one of the largest worldwide exporters of oil, reported that its exports to the United States declined in the first months of this year.
It seems unlikely that the beginnings of a declining trend in U.S. oil consumption is making too much of a dent in revenue and profits of the companies which move so much of that oil by ship and by tug and barge. The fact is that Americans still consume close to 25 percent of the world’s available oil and as much as 60 percent of total U.S. oil demand is imported. That dependence on oil may be regrettable in one sense, but it also translates into huge amounts of business for owners of tankers, tugs and tank barges. In a normal year, the U.S. tank-barge industry alone (not including ships) moves about 69 billion gallons of petroleum products, according to the American Waterway Operators.
Many U.S. companies in the petroleum-transport business (by water) have been investing heavily in new equipment — some of which is described in every annual edition of American Tugboat Review. Companies like Hornbeck, Crowley, U.S. Shipping, K-Sea, Moran, Bouchard, Reinauer, Penn, Foss, Sause Bros. and many others have all been building new tugs and tank barges and reinventing their existing equipment as part of long-term capital programs. Operators of inland tank barges are doing the same. Most of these companies have yet to slow down their fleet expansion and refurbishment plans, but that could change if stagnating or declining economic conditions continue to choke off the flow of oil in all of its various forms and products.
Uncertainty dampens LNG boom
A pall of uncertainty has even spread over the LNG importation business, one of the true bright spots for major players in the U.S. tugboat industry. With several new LNG importation facilities already opened for business this year, industry sources say there could be a developing over-building of importation terminals, possibly related to an anticipated decline in imports of LNG. Whether such a decline is related to economic conditions or to worldwide competition for energy is unclear, but U.S. energy officials are forecasting that imports of LNG in 2008 will be about 12 percent below levels of 2007. However, as worldwide supplies of LNG increase, that trend could reverse itself in 2009, according to the EIA.
Meanwhile as many as a dozen tugboats are currently under construction intended for LNG work at newly opened LNG importation facilities. These include tugs for well-known companies like Edison Chouest of Louisiana, Moran Towing of Connecticut, the two Texas companies Bay-Houston Towing and Suderman & Young, and Harbor Docking & Towing of Lake Charles, La. Two additional tugs that were originally being developed for LNG work by Signet Maritime of Houston have since been chartered to Foss Maritime for general ship-assist work on the West Coast. The development of LNG terminals along the U.S. coasts is impressive but the current gas boom only benefits a handful of the largest tugboat companies (e.g. those with the assets and reputation to win contracts and those with the means to construct the expensive new tugs that are stipulated by LNG terminal operators.)
Fleet modernization and expansion, like port modernization, is an undertaking requiring commitment to a plan that transcends short-term economic trends. For that reason alone we are likely to observe the continuation of an active tug and barge shipbuilding trend regardless of economic news in the next year or two. With hundreds of tugs, towboats and barges under contract for construction in the next couple of years, news from coastal towns like Panama City, Fla., Bayou La Batre, Ala., and Houma, La., will continue to announce the latest launchings, sea trials and christenings.
To make daily life even more uncertain for your average tugboat operator, there is still the ever-present issue of fuel prices. Like truckers, tugboat operators are getting hammered by skyrocketing prices for diesel fuel. Typical prices this past spring were way over $3 per gallon, depending on circumstances. Although in many cases fuel costs are entirely or partly passed on to clients, the pressure at the pump is still there with no obvious relief in sight. Company managers and tug skippers now make it a daily part of their routine to encourage operation of engines and boats as efficiently as possible, not only for the sake of fuel economy, but also for increased health and longevity of engines and related machinery.
Like truckers, those who are unable to pass on the high cost of fuel through surcharges or contract provisions may well have to consider keeping some equipment tied to the dock if fuel-price increases continue.
All in all, it’s not a very pretty picture for owners and operators of today’s tugboats. While some are well entrenched in lucrative markets and contracts, others are not so lucky. But if many of the factors mentioned in this story continue to worsen, it is possible that there may be fewer tugboat companies to report on in the next year or two.