Shipping: New Jones Act Tankers Are Great for Traders, Lousy for Owners
Delivered in December 2016, American Endurance was the first of four
Jones Act-qualifying product tankers for American Petroleum Tankers,
part of Kinder Morgan. Credit: Philly Shipyard
Once rare American-built oil tankers are now plentiful, changing U.S. gasoline flows and giving shipowners headaches.
These brand-new tankers have names like American Endurance, American Freedom, American Liberty and American Pride painted on their sterns. They’re part of a growing fleet of so-called Jones Act ships, named for a law almost a century old that mandates any commodities moved from one U.S. port to another are hauled by vessels manufactured in an American shipyard.
Government data show that in May, U.S.-made tankers had their best month ever transporting gasoline components from the Gulf Coast’s refinery row to Florida and other East Coast ports. The flood of new tankers means that even as the ships are at their busiest, hauling about 16 million gallons a day of products that do things like boost octane in gasoline, the owners of the tankers aren’t collecting bigger profits.
There are now about 94 active Jones Act vessels sailing around the U.S., up almost 10 percent since December, according to Overseas Shipholding Group, Inc., a company that owns a quarter of the total fleet. With more vessels to go around the marketplace, shippers aren’t willing to pay for long-term commitments.
OSG is seeing once committed charterers walking away from extended contracts to cheaper short-term rates. Its chargeable time on spot voyages versus time charters doubled this year as spot rates slumped 31 percent to $18,288 a day in the second quarter versus a year earlier, OSG said in a filing.
“If you see more stuff on spot, that favors the charterers,” said Barry Parker, a maritime consultant with Bdp1 Consulting Ltd. “In a perfect world for them, they wouldn’t commit to anything.”
As the cost to charter the Jones Act ships falls, supply flows are changing for both refined products and crude oil. In the past nine years, Gulf Coast-to-East Coast shipments of U.S.-manufactured gasoline blending components have soared from no deliveries at all to a record 388,000 barrels a day, outpacing imports from abroad by 10 percent.
The glut of product tankers is being exacerbated by a lack of economical routes for crude shipments. Two-thirds of the 29 spot fixtures done for ocean-going Jones Act tankers in the second quarter were for products service, said Samuel H. Norton, OSG chief executive, on the company’s second-quarter earnings call....MORE
