Page 20: of Marine News Magazine (December 2015)

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COLUMN FINANCE

Trailblazing Transactions in the Jones Act Market

The supply chain and logistics comes full circle.

By Basil Karatzas

Taking a look from the bridge of a order for ten Jones Act products tankers at an average cost ship in port, little more than the pres- of $89 million each and bareboat them for the long-term, ently lower trading activity can be re? ecting an overall daily rate of $50,000 pd (including seen: ships sailing high on the water, OpEx). The second excitement of the decade came almost huge containerships half-empty with two years ago when oil major ExxonMobil chartered a containers, idling barges at the end of Jones Act products tanker for one year at $120,000 pd, a the bay. The slower trading activity is rate which was almost twice as high as the historic long- discernible to the cognizant observant, term average.

Karatzas but there are several more undercurrent Most of the shipping assets in the Jones Act market are movements, so to speak, that have, to owned by US-domiciled shipping companies that do not date, received little notice. own the cargo but just offer transport services to the cargo

In the September issue of MarineNews, the changing owners and end users – sort of the truck drivers deliver- seascape for extending credit in the brown water and Jones ing goods when and where the customer desires. Crowley,

Act markets was discussed, where ever bigger banks and Kirby, OSG America, Keystone are names that typically ? nanciers have been looking for well-established and ever stand out in this market.

bigger operators and asset players to ? nance, leaving the traditional ‘mom-and-pop’ owners with few options to D T

RIVING THE RUCK obtain ? nancing. The ? ip side of the changing ? nancial Post-Lehman-Brothers, institutional investors have industry is that the shipowning structure has already been looked and eventually invested in the Jones Act tanker mar- shifting, in interesting ways. Probably it’s too early for the ket, mostly enticed by the limited and protected market, changes to be sensed by the smaller, local owners of a hand- the constrained availability of shipbuilding capacity by a ful of barges or tugs in the brown water market where the handful of shipbuilders in desperate need of survival (who industry is highly fragmented and in need of ‘consolida- also managed to pull a political level or two), and special tion,’ in ? nancial parlance. However, at the top end of the ? nancing and tax considerations that made such projects market with the big players and the expensive assets, for enticing from the ? nancial point of view. The fact that shale the Jones Act product tanker market, two transactions that oil came from nowhere and caught everyone by surprise took place in the last twelve months are likely the trailblaz- was the least expected bonanza that made these projects ers of things to come. even more pro? table than the initial projections. These ? - nancial owners had vessel management arrangements with

L L P US-based vessel owner and managers. Blackstone has been

OOMING ARGE IN THE ORTHOLE

The Jones Act tanker market is ‘boring,’ one may be the primary investor in this industry, but there were also tempted to say by international tankers standards, al- lesser names involved, such as Alterna Capital.

though there is nothing boring or routine in shipping, as Thus, whether shipowners or ? nancial owners, ship- there are only ninety-seven tankers and large barges (ITBs/ ping assets so far in the Jones Act market have primarily

ATBs) in this market. The trade for crude oil consists of owned and operated by companies with shipping as their 12 crude tankers transporting crude oil from Alaska to the core business; they just provide the seaway transport of the continental US, and product and chemical tankers and cargo, if and when the customer calls, with little other in- barges transporting petroleum products along the Gulf volvement in the value chain. There are some variances, and Atlantic coasts. Quite often, integrated oil companies but overall, all these players had the same common de- and end users either employ these vessels directly or in- nominator in terms of market exposure and volatility, cost directly on long term charters. The biggest excitement in of capital, access to cargoes, to name a few. They all were this market happened ten years ago when OSG exploited competing for the same business without a strategic ad-

Aker Philadelphia’s phoenix-like aspirations and placed an vantage, and they have almost similar access to resources.

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