Strong U.S. economy and prospects keep tug business moving ahead

Americans, vigorous consumers to begin with, are benefiting from a strong economy, and that spells good news for the tugboat industry.

The U.S. economy, despite all the hurdles blocking its path, has been growing for several years. Despite dramatically higher oil prices, rising interest rates, and a significant deficit in both federal spending and the balance of trade, economic indicators are generally favorable, reflected by the irrepressible American stock markets. The economy is forecast to grow by 3-4 percent this year, a repeat of last year’s performance.

All this means that, barring a terrorist attack, a doubling of energy prices, or natural catastrophe far greater than those of recent years, Americans will continue their consuming habits and that means more, or at least larger, arriving container ships and more movement of petroleum products along all of our coasts.

American tugboat companies are making sizable investments in new tugs and barges, undoubtedly anticipating continued economic strength.

Meanwhile, reports from major U.S. ports indicate that business was booming in the last year with forecasts of continued growth this year.

Ports from Boston to Seattle report increased movement of containers and gross cargo tonnage. Even battered New Orleans reported it had recovered to the point of achieving 80 percent of its pre-Katrina container cargo levels by the end of 2005, with the number of ship calls rising each month.

A good example of continued port growth comes from the Port of Houston. The port had a record year in 2005 with a 13 percent increase in revenue, according to the Port of Houston Authority. The port handled 34.6 million tons of cargo in 2005, up from 32.8 million tons in 2004.

On the West Coast, the Port of Seattle claimed itself to be the fastest growing container port on the continent in 2005, as a record 2.08 million TEUs moved through the system, up 17 percent from the prior year. Local port officials predict the Seattle harbor could soon reach a level of three million TEUs.

“The volume of ship calls nationally is growing, and trade is up a bit,” said Brent Dibner, a maritime consultant and president of Dibner Maritime Associates. “It is a growing market, and there really are not many Jones Act markets that are growing,” he added.

Dibner, who keeps track of such things, estimated that the American fleet of about 400 ship-assist tugs is already at a level of better than 50 percent tractor-style propulsion, either z-drive or cycloidal.

“The order book for new tugs of this type continues to chug along at about 15 new-builds a year,” he said. One might think the number of newbuilds might be slowly diminishing, said Dibner, except that the rush to build powerful new tractors for future LNG contracts is helping to keep up those numbers.

Ted Tregurtha, president of the Connecticut-based Moran Towing Corp., noted that the largest tugboat companies have constantly aging fleets and need to build one or two tugs per year, on average, just for replacement purposes.

“These companies have to build anyway,” Tregurtha said. “So they are likely to just keep building in the future, and most of them will choose a tractor tug design.”

This issue of American Tugboat Review features more tractor tugs than conventional tugs by a margin of about 2:1. Other main categories are tugboats matched with oil barges and inland towboats.

High oil prices and the prospect of continuing high oil prices have triggered active energy exploration and production activity in the Gulf of Mexico, which translates into good news for Gulf Coast tug operators.

Utilization rates for OSV, AHTS and offshore tug operators in the Gulf are in the 90 percent range. Average fleet day rates for top OSVs are $15,000-$20,000 depending on vessel category, and in the vicinity of $15,000 for double-hull tug and barge equipment.

Oil exploration activity in the Gulf is reported at 43 percent above that of last year, while gas exploration is up 14 percent, according to government reports. At the same time, the weekly average for crude oil spot prices has been 15 percent ahead of last year.

Potentially on the down side, however, is the continued threat from increasingly destructive hurricane seasons. Resumption of the hurricane season this year could drive oil prices sharply higher, according to financial forecasters, while continued disruption of oil exploration and production activities in coming years could increase America’s dependency on imported oil above its current level of about 65 percent.

Hornbeck Offshore, a publicly owned maritime company based in Covington, La., recently reported sharply increased revenue and earnings for 2005 with prospects for continued financial growth in the future.

Record day rates for Hornbeck’s OSVs and tug-barge units, spurred by increased energy activity in the Gulf, are likely to continue in the near future, predicted Todd Hornbeck, chairman and CEO.

Meanwhile, Hornbeck and other Gulf Coast operators like Edison Chouest, Seacor and Rigdon Marine are busy building additional OSV tonnage as fast as they can.

High prices for diesel fuel continue to annoy most tugboat operators, but most, by now, have also figured out how to use surcharges or pass-along agreements to avoid a direct hit to the bottom line. Fuel prices reached their peak in the fall of 2005 and then dropped dramatically. They have since been working their way back up, however. Average diesel fuel prices nationwide at the end of March were about 35 cents per gallon higher than they were a year ago with a sharp increase occurring in mid-March. Diesel fuel prices generally mirror trends in crude oil prices.

At the same time, those who use large quantities of diesel fuel to trundle even larger quantities of petroleum products from port to port in barges are managing not to grumble too loudly about the cost of filling up their tanks.

Domestic waterborne oil transportation is a strong business in the United States and, despite the threat of rising oil prices, it keeps getting better. U.S. energy consumption is forecasted to continue increasing, and in the Northeast and parts of the Pacific Coast, that generally means moving more oil by tug and barge.

“It seems unusual for a towboat operator not to be complaining, but the state of business is actually quite good right now, particularly in our chosen part of the trade, which is oil transportation,” said Bob Shields, president of Vancouver, British Columbia-based Island Tug & Barge, Ltd. “We are certainly very busy,” he added. “I wouldn’t say that we are necessarily getting paid any more money than we used to, but we are certainly busy. “

Shields said that an important growth area for his company is barging refined oil products across the border to customers in the United States.

In the Northeast, a sizable contingent of tug and barge operators are keeping their fleets busy fulfilling the delivery requirements of customers from Delaware Bay to Maine. Most of those operators — big companies like Bouchard, Maritrans, Reinauer, Penn Maritime, Moran and others — are building new equipment as well, most of it with articulated coupler systems.

With all the activity and with forecasts for a continued strong economy, shipyards in America are enjoying something of a boom.

While the cost of fuel continues to increase, costs of steel may be stabilizing or at least increasing less dramatically, according to shipyard operators. In some cases shipyards are reporting that they are fully booked for at least the next year or so. A shortage of skilled shipyard workers, however, particularly in Gulf Coast states, has put the squeeze on yard managers, slowing the output of completed vessels.

A good example of the state of business at a domestic shipyard can be found at Eastern Shipbuilding in Panama City, Fla. Included in the current order book for Eastern are a pair of tractor-style tugboats for Seabulk Towing, five offshore service vessels for Harvey Gulf International and approximately 20 inland towboats for Florida Marine Transporters. That’s enough work to keep any small shipyard busy for many months to come.

Further west on the Gulf Coast, Conrad Industries reported that numerous orders for new vessels at the beginning of this year had swelled its backlog of business to $58 million as of March, compared to $34 million at the end of 2005.

The trend of ever-larger cargo ships continues, sometimes with adverse effects on local tugboat companies. Container vessels continue to get larger, as do some tankers, which means they are handling more cargo, but they don’t usually need the help of additional tugboats, said Dibner.

“The ships are larger and there may or may not be more of them, depending on a number of factors, ” said Dibner, “but the customers are still expecting more powerful and more capable tugs to do these ship-assist jobs.”

While tug managers describe the general ship assist business as “stable,” it appears that the customers are going to get the bigger and more powerful tugs in the near future, whether they are willing to pay for them or not.

By Professional Mariner Staff