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TOP CONTRIBUTORS

Commercial shipping is the use of ships to move goods over water. Waterborne commerce represented just 7.4% of U.S. freight tonnage in 2004,[1] but is a critical component of the country's transportation network because of its cost advantage over other forms of transportation.The average cost per ton-mile of barge transportation is 66%[2] less than rail transportation, and 97%[2] less than truck transportation. That advantage comes, in part, because the average ton mile per gallon of fuel of one barge is 40%[2] greater than a rail car, and 270%[2] greater than a truck’s, with similar efficiencies for tankers and dry bulk carriers.

The main dry cargo that is shipped both domestically and internationally is grain, iron ore and steel, coal, and cement. The main liquid cargo shipped by U.S. companies includes oil, natural gas, petrochemicals, ethanol, and bio-diesel.

Inland River Transportation

The Gulf Intracoastal Waterway, the Mississippi and Ohio River Systems, and many other waterways can be found throughout the U.S. The barges moving along these waterways are not self propelled, however. More than 50 are latched together at a time and pushed by towboats, or pulled by tugboats from one port to another. Although some barges can transport both dry and liquid cargo, most are specialized to move just one of the two. Companies can be classified by the type of goods that they transport, but many move both dry and liquid cargo.

Dry Cargo

The inland dry cargo transportation industry is dominated by four large companies - their barges account for a little less than 2/3rd's of the industry total.[3] Grain, steel, and coal constitute the majority of goods moved, and are classified as non-bulk items. Bulk items include salt, alumina (which is used to make aluminum), fertilizers, cement, ferro alloys, ore, and gypsum. Growth in demand for bulk and non-bulk items has been meager, in 2007 the volume of dry goods shipped fell by about 10%.[4] Although much of that decline came as a result of a temporary decline in wheat production, brought about by poor weather conditions, growth in the industry itself is slowing, unlike with the inland liquid cargo shipping and international dry cargo shipping industry.

Source: [3] Dry Cargo Barges Average Age Of Barges (Yrs)
Ingram Barge Company3,63316.4
American Commercial Lines (ACLI)2,63920.4
AEP/MEMCO Barge Line, Inc.2,62810.9
American River Transportation Company2,06125.7
Cargo Carriers95814.8

Liquid Cargo

The liquid transportation industry is small, accounting for just 15% of the overall inland shipping industry in 2007.[5] However, that share has been rising; in 2007 the volume of liquid goods shipped rose 10%,[4] while the volume of dry goods shipped fell by that same amount. Volume has been rising because demand for petrochemicals, ethanol, and bio-diesel has been increasing. A number of petrochemical production facilities are located along U.S. inland waterways, translating greater refinery production into increased inland liquids shipping.

Source: [3] Liquid Cargo Barges Average Age of Barges (Yrs)
Kirby (KEX)91224.1
American Commercial Lines (ACLI)37122.6
Marathon Ashland Petroleum18019.1
Canal Barge Company, Inc.1706.1
Ingram Barge Company16528.5

Marine Transportation

Oil and Gas

In 2007, 58% of the petroleum consumed in the U.S. came from other countries.[6] Be it from Canada or Saudi Arabia, the oil needs to be brought to the U.S. Supertankers are capable of transporting more than 2 million barrels of oil across the ocean per journey. Because of their size, many can't unload at docks and travel through coastal waterways, and so must transfer their cargo to smaller (but still large) tankers.[7] Within the U.S., crude oil needs to be shipped from oil wells to refineries. Then the finished products need to be shipped to distribution centers.

FY 2006 Ships Owned Ships Charted Shipping Capacity (Millions of Deadweight Tons) Revenues Net Income
Double Hull Tankers (DHT)7[8]0[8]1.4[8]$81M[9]$28M[9]
Frontline (FRO)20[10]63[10]19.35[10]$1.58B[11]$516M[11]
General Maritime (GMR)30[12]0[12]2.4[12]$255M[13]$45M[13]
Overseas Shipholding Group (OSG)74[14]63[14]11.7[14]$1.13B[15]$211K[15]
Teekay Shipping (TK)82[16]47[16]19.3[16]$2.01B[17]$262M[16]
Tsakos Energy Navigation (TNP)14[18]26[18]4.5[18]$428M[19]$196M[19]

Dry Cargo

Liquid shipping accounts for 38% of sea-based trade[20], while dry bulk shipping accounts for 36%.[20] The principal goods moved on dry bulk vessels include iron ore (used to make steel), coal, cement, and wheat.

' Revenue Net Income Dry Bulk Capacity in Deadweight Tons
Mitsui O.S.K. Lines (MOL) ??30.3M[21]
Cosco Corporation (F83-SG) ??16.4M[22]
Excel Maritime Carriers (EXM) $400M$168.3M3.9M
Navios Maritime Holdings (NM)$206M[23] $21.1M[23] 3.6M[24]
DryShips (DRYS) (2006)$248M[25] $56.7M[25] 3M[26]
Genco Shipping (GNK) (2007)$185M[27] $107M[27] 2.02M[28]
Diana Shipping (DSX) (2007)$190M[29] $134M[29] 1.8M[30]
Eagle Bulk Shipping (2007)$125M[31] $52.M[31]916K[32]

Oilfield Services

Shipping oilfield service companies perform vital functions for oil and gas companies, moving personnel and cargo, handling anchors and other marine equipment, and supporting construction and maintenance work for offshore oil and gas platforms. Liftboats have the multipurpose space and capacity to do all of that, and are self-elevating, letting them attach to similarly elevated oil and gas platforms.[33] To put the fleet size of the companies below into perspective, in 2007 there were some 235 liftboats in operation worldwide.[34]

' Liftboats Revenues Net Income
Hercules Offshore (HERO)65[35]$766M[36]$136M[36]
Superior Energy Services (SPN)37[37]$1,572M[37]$281M[37]
' Achor Handling Towing Supply Crew & Mini-Supply Towing-Supply & Supply Standby Safety Other Total Fleet Revenues Net Income
Tidewater (TDW)114[38]49[38]276[38]0[38]23[38]463[38]$1.1B[39]$357M[39]
Trico Marine Services (TRMA)6[40]7[40]49[40]0[40]11[40]73[40]$256M[41]$67M[41]
Seacor Holdings (CKH)20[42]98[42]40[42]29[42]13[42]206[42]$692M[43]$288M[43]

Shipping Trends & Forces

  • The Jones Act: The Jones Act prohibits the transportation of goods or people between U.S. ports by vessels built outside of the U.S, and require that these vessels be owned, operated, and manned by U.S. citizens. The act protects domestic shipbuilding and transportation operations. Due to the expensive nature of owning and operating barges and tankers, competition can be scarce. For example, there are only 3 companies shipping between Hawaii and the U.S., and the largest inland liquid transportation company has more barges than those of the next four largest companies combined.[3] The lack of competition helps the industry, but raises shipbuilding expenses.
  • Shipbuilding Costs: The Jones Act requires vessels moving between U.S. ports to be constructed by U.S. shipyards. Given that there aren’t that many, shipbuilding costs rise rapidly. For example, there is a virtual duopoly in the barge manufacturing industry - Trinity Industries (TRN) and American Commercial Lines (ACLI) combined have 99% of the industry's market share.[44] In 2006 alone, shipbuilding costs rose 40%.[45] From April 2007 to April 2008, steel prices rose more than 35%,[46] meaning new construction contracts will be even more expensive.
  • Fuel Expenses: Rising fuel expenses are not a problem for vessels operating domestically. Either through fuel cost recovery clauses or rate increases, higher fuel expenses are passed on to the industry's customers. However, for tankers and dry bulk carriers, higher fuel costs are a problem. Shipping along international routes is highly competitive, limiting the size of price increases. The exception is dry bulk carriers capable of transporting raw materials, of which there is a large undersupply.
  • Ship Supply: The supply and age of ships within a particular industry relative to demand affects shipping rates and shipbuilding demand. If there is an oversupply of barges, shipping rates will be low, and new shipbuilding orders will be small. That’s what the oil and gas shipping industry is expected to look like in 2012, by which time more than 700 new oil tankers are expected to have been constructed (compare to the 1,979 crude oil tankers operating in 2008).[47][48] At the moment, however, there is a near universal shortage of ships, especially for dry bulk carriers and barges moving liquid goods. In the inland liquid cargo shipping industry, the average age of a barge has increased by more than 20% in the past 10 years – the situation is similar in the dry cargo inland shipping industry. [44] With so many barges old and needing replacement, there’s a $2 billion backlog in new barge orders.[2]
  • Rising Oil & Gas Prices: As oil and gas prices rise, big oil is getting busy. From 2003 to 2008, jackup and semi-submersibles utilization rates in the Gulf of Mexico rose by more than 30%.[49] Worldwide, rig utilization has pushed past 90%.[49] Running rigs requires ships to move and supply, pushing rates for shipping oilfield service companies ever higher. Higher oil prices didn’t mean much for oil tankers in 2007, when actual demand growth for oil was only 1.8%. [50]
  • The Baltic Dry Index (BDI): The Baltic Exchange is a global marketplace for brokering dry cargo shipping contracts. The BDI is a daily average of the prices required by shipping companies on the Baltic Exchange to transport raw materials across the sea. The BDI doubled from 2005 to 2007.[51] Because the BDI did not rise as a result higher expenses, most of the rate appreciation found its way into dry bulk shipping companies’ income. The rise was mostly caused by strong growth in China, which caused demand for raw materials and ships to move them to increase. With shipping rates so high, many companies have been converting oil tankers into dry bulk carriers.

References

  1. AASHTO - The Global Economy and the Water Transportation Challenge
  2. 2.0 2.1 2.2 2.3 2.4 American Commercial Lines JPMorgan Presentation March 19, 2008
  3. 3.0 3.1 3.2 3.3 ACLI 2007 10-K, Item 1, Page 11
  4. 4.0 4.1 American Waterways - Industry Stats
  5. Hoovers - Inland Barge Transportation Industry
  6. Energy Information Administration - Where Does My Gasoline Come From
  7. International Marine Consultancy - Ship Sizes
  8. 8.0 8.1 8.2 2007 DHT 20-F, Item 4, Page 19
  9. 9.0 9.1 DHT 2007 20-F, Item 3, Page 5
  10. 10.0 10.1 10.2 FRO 2006 10-K, Item 4, Page 26
  11. 11.0 11.1 FRO 2006 20-F, Item 3, Page 1
  12. 12.0 12.1 12.2 GMR 2006 10-K, Item 6, Page 16
  13. 13.0 13.1 GMR 2007 10-K, Item 6, Page 29
  14. 14.0 14.1 14.2 OSG 2006 10-K, Item 1, Page 9
  15. 15.0 15.1 OSG 2007 10-K, Item 6, Page 39
  16. 16.0 16.1 16.2 16.3 TK 2006 10-K, Page 17
  17. TK 2006 20-F, Item 3, Page 5
  18. 18.0 18.1 18.2 TNP 2006 10-K, Our Fleet, Page 18
  19. 19.0 19.1 TNP 2006 10-K, Business Overview, Page 12
  20. 20.0 20.1 RTT News, DryShips - Buoyant Or Ebbing Away?, February 2008
  21. [1]
  22. Carrier&leftnav=/7/2
  23. 23.0 23.1 2006 NM, 20-F, Item 3, Page 3
  24. 2006 NM, 20-F, Item 4, Page 19
  25. 25.0 25.1 2006 DRYS, 20-F, Item 3, Page 2
  26. 2006 DRYS, 20-F, Item 4, Page 20
  27. 27.0 27.1 2007 GNK, 10-K, Item 6, Page 40
  28. 2007 GNK, 10-K, Item 1, Page 4
  29. 29.0 29.1 2007 DSX, 20-F, Item 3, Page 4
  30. 2007 DSX, 20-F, Item 4, Page 18
  31. 31.0 31.1 2007 EGLE 10-K, Item 6, Page 32
  32. All Business - Freight Trucks of The Oil Patch (Liftboats)
  33. Liftboats.com - What is a liftboat?
  34. HERO 10-K, Item 7, Page 33
  35. 36.0 36.1 HERO 10-K, Item 6, Page 31
  36. 37.0 37.1 37.2 SPN 2007 10-K, Item 7, Page 22
  37. 38.0 38.1 38.2 38.3 38.4 38.5 TDW 2007 10-K, Item 1, Page 7
  38. 39.0 39.1 TDW 2007 10-K, Item 6, Page 16
  39. 40.0 40.1 40.2 40.3 40.4 40.5 TMRA 2007 10-K, Item 1, Page 4
  40. 41.0 41.1 TMRA 2007 10-K, Item 6, Page 20
  41. 42.0 42.1 42.2 42.3 42.4 42.5 CKH 2007 10-K, Item 1, Page 3
  42. 43.0 43.1 CKH 2007 10-K, Item 6, Page 36
  43. 44.0 44.1 American Commercial Lines Investor Presentation May 21, 2007
  44. Nationwide scramble is on to build more barges
  45. World Carbon Steel Transaction Prices
  46. 2007 DHT 20F Page 14
  47. Silk Road Investor - Oil Tankers Set to Fork Over Profits
  48. 49.0 49.1 PHI 2006 424B3, Item 1, Page 5
  49. Teekay Corporation - General Comments on the Market
  50. Capital Link - BDI
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