Over USD 100m of Ships in the Search for Flight MS804

#MS804, #EgyptAir

#MS804, #EgyptAir


The Rise and Rise of VesselsValue

Five years ago, ship brokers were introduced to a scary new phrase, which was to forever disrupt the cozy and somewhat Delphic world of desktop ship valuations. That phrase was “quantitative analyst1”, which first appeared in a Tradewinds article describing the launch of the mapping, ship search and valuation provider, VesselsValue in May 2011. Today, most shipping people are familiar with work of “quants”, and their role in the examination of big data to produce meaningful and useful information, but five years ago, the launch of VesselsValue was nothing short of a revolution.

Behind that revolution was years of hard work. Indeed, the origins can be traced back to 1976, when VesselsValue CEO, Richard Rivlin, joined Clarksons as a trainee ship broker and helped set up a computer system for the Sale and Purchase department. Innovation is a theme throughout Richard’s career. He was a founding member of Braemar Shipbroking in 1983. In 1993, he formed Seasure Shipbroking and it was then that the outline for VesselsValue began to take shape.

The catalyst was the 2008 financial crisis, when a slump in ship sales forced ship brokers to declare that with no “last done” ship sale, the market was illiquid, and therefore ship values could no longer be given.

“This was exactly the time when banks required values,” says Richard. “It was then I decided to activate my plan for VesselsValue.” Together with his brother, Christopher, a professor of mathematics, they built the first version of VesselsValue in Excel. However, the complex multi-regression analysis needed a new approach. Ben Durber and BB Solutions were brought in to develop the model and the website, which went live on Friday 13th May 2011.

Looking back on the last five years, Richard feels the hardest part was building the ship database. “The database had to be in a particular format and structure to ensure high-speed access. We decided to build our own database, which is why we built up a large team of researchers and analysts,” he said.

Ship finance providers, with their familiarity with the role of “quants” and regression models were the first to subscribe to VesselsValue. For them it ticked the boxes of transparency and accuracy. The methodology also satisfied the rigorous requirements of the risk analysis and compliance departments.

The shipping industry was a bit slower to recognize the ascendancy of VesselsValue, but in September 2012, VesselsValue was awarded “Highly Commended” at the Lloyd’s List Global Awards for Business Innovation. Since then VesselsValue has continued to grow and add new features:

  • Friday 13th May 2011: VesselsValue goes live
  • October 2012: Daily historical values added back to 2007
  • November 2012: VV+ search tool added
  • February 2013: LNG and LPG added
  • November 2013: Small tankers added
  • September 2014: Isle of Wight office opened, led by Simon Hastain
  • May 2015: One million valuations!
  • June 2015: London team says goodbye Chiswick, hello Hammersmith
  • June 2015: Discounted Cash Flow (DCF) added to VV$ module
  • July 2015: Adrian Economakis and Georgina Gavin ring the Nasdaq closing bell during MarineMoney week
  • September 2015: VV opens SE Asia representative office in Singapore
  • May 2016: The launch of VV Offshore

The shipping banks have been the driving force behind demands for the valuation of offshore vessels. This sector is currently going through its worst slump in living memory, and the launch of VV Offshore is timely, and mirrors the launch of the original modules of VesselsValue.

Looking ahead, Richard sees the continuing growth of transparency of shipping information for all in the industry. “In shipping, the increasing automation of services will be applied to processes and business sectors, which many previously thought to be impossible to automate,” says Richard.

The VesselsValue state of play in May 2016:

  • Four offices (Isle of Wight, London, Singapore, Stoke)
  • 66 employees and growing fast
  • Cargo Shipping, Offshore, and other departments established
  • 20 languages spoken across the company
  • 300 current clients including the world’s leading banks, funds, ship owners, and others
  • 2,260 total mentions in the press, across 37 countries, ranging from Greece to Fiji
  • Richard Rivlins’s 40th year in shipping!

We’ll leave you with one final thought…

  • The largest taxi operation in the world owns no cars – Uber
  • The largest property rental company in the world owns no property – Airbnb
  • The largest music distribution company in the world owns no music – Spotify
  • The largest shipping valuation company in the world owns no ships – VesselsValue


Notes: 1 According to a search of the Tradewinds archive, the phrase “quantitative analyst” was first used in May 2011, in an interview with Alex Adamou, the quantitative analyst at VesselsValue.

VesselsValue Offshore Featured in Tradewinds

VesselsValue has spent five years honing its skill in general shipping and now turns its hand to offshore

Darrin Griggs Oslo (http://www.tradewindsnews.com/weekly/486738/big-data-meets-osv-values)

London-based VesselsValue has today rolled out a new online service aimed at the daunting task of giving accurate values, with daily updates, for the world’s entire fleet of offshore support vessels (OSVs).

While asset values are the core of the service, it also includes live, interactive maps of OSVs with a wealth of data per ship. A unique feature is that the OSVs can be overlaid on detailed maps of the infrastructure they serve, such as wells, rigs, pipelines, platforms and licence blocks around the world (see story, right).

Using statistical regressions to achieve a “bell-shaped curve” of results, the company is able to crunch big data via an algorithm to peg OSV values within an accuracy of 10%, indicates VesselsValue offshore manager Miles Cole.

And the service already has plenty of data to crunch. Cole says he and his team, including more than 40 analysts, have spent the past 15 months gathering 96 separate lines of data per ship for a whopping 7,200 offshore ships.

Of the total database, about 6,000 of those are platform supply vessels (PSVs) and anchor handling tug supply (AHTS) vessels, while the other 1,200 are fast support vessels (FSV), emergency response and rescue vessels (ERRVs) and oceangoing tugs.

Cole says VesselsValue has approached some large OSV fleet owners who have expressed “shock” at the sheer amount and detail of data it has collected on these ships.

“If a vessel is sold the night the before, we look to be within 10% on either side of the valuation accuracy on that bell-shaped curve. In terms of accuracy for anchor handlers and PSVs, we are in that region now,” Cole told TradeWinds, adding that the service is set to improve as the data grows.

As proof, Cole points to the historical sale of a Solstad vessel. Working from the data today, VesselsValue’s algorithm predicted a price of $18.66m for the sale of the 10,880-bhp AHTS vessel Nor Captain (built 2007), which went for $19m in June 2012.

Cole uses the example of the past sale because so few sales are happening now. With the help of brokers and owners, his team has registered about 660 trading sales from 1990 to 2016.

Broker valuations are the next best thing to trading sales, in terms of the way they feed data into the algorithm to develop accuracy and make comparisons, says Cole. So they also compare the algorithm’s results to 3,000 to 4,000 vessel valuations from offshore brokers.

VesselsValue is entering offshore at a critical time for valuations. Just about everyone in the industry knows OSV values are way down from book values and most owners, if not all, have been forced into large write-downs.

As these assets are connected to loan covenants, values are one of the most watched data points. And in today’s market, producing valuations is no mean feat, because of the severe downturn, lost charters and hundreds of layups, not to mention an extreme lack of trading sales, especially for newer ships.

Pegging asset values, with accuracy, for thousands upon thousands of individual OSVs is a “big data” promise that is certain to meet a wall of scepticism in the offshore sector — but it will not be the first such wall VesselsValue has encountered.

VesselsValue has spent the past five years building up in general shipping, for tankers, bulkers and the like. As a spin-off of Richard Rivlin’s sale-and-purchase specialist Seasure Shipbroking, the company entered general shipping back in May 2011.

It was also at a low point in the cycle and the company encountered its share of sceptics, says VesselsValue communications manager Claudia Norrgren.

“It has taken awhile but people are seeing the value of having this type of data instantly and in having the level of transparency that the market just never was provided before,” said Norrgren.

Today, it generates in the region of 50,000 live valuations daily and also counts about 80% of the world’s shipping banks among its customers, which includes also lawyers and finance houses.

TradeWinds cites VesselsValue on a regular basis in its stories. Some users say its values are “extremely close” in markets with a high volume of trading sales, such as tankers and bulkers, and show “good accuracy”, around 10% deviance in other markets with fewer trading sales, such as LNG and LPG.

Now, the aim is to duplicate the success for vessels in the oil-and-gas industry but the valuation algorithm is especially tailored for offshore vessels, and it is much more complex than many sceptics may first believe.

For the 96 rows of data per ship for the 7,200 OSVs, VesselsValue has detailed all the points that offshore brokers tend take into account for valuations, based on help from unnamed offshore brokers in seven global regions and shipowners, as well.

Along with obvious capacities like dwt, bollard pull and so on, the 96 separate data rows range from the ship design, to the engine type, to the under-deck tanks, to the generators, to winches, to navigation and communications systems. A value weight is given for the country of the equipment’s origin, the yard that built the ship and for the owner that ordered it, or for the owner that sold it.

In addition to these many features, Cole says VesselsValue has also found a high correlation with the oil price, which influences the predicted value by about 80%.

But why go into offshore?

“All of our clients have been asking for it,” said Norrgren.

“When you see values falling and no one can give an answer about where values actually are, then there is a huge gap in the market. There is a gap for clear, transparent valuations for people who have lots of different vessels on their portfolios and orderbooks. We see huge demand from existing and potential clients.”

Shipping Calendar (http://goo.gl/y0kdv) Update – May 2014

Shipping Calendar Update – May 2014


I have been updating the Shipping Calendar, and I have been trying to expand the coverage to include commodities events with a significant shipping element. Below is a summary of the forthcoming conferences, including the conferences I hope to attend.


May 2014

Recent additions to the Shipping Calendar include a rice conference in Africa rice-AFRICA conference on Rice for Food, Market and Development, and a wood and paper pulp conference in Brazil – Paper and Wood Pulp Conference. The later takes place in the middle of May, about a month before the FIFA World Cup starts. I have also included a sugar conference, Africa Sugar Outlook, but I am not sure if there is a significant shipping element. The trade in sugar has expanded enormously in the last few years, and requires specialist shipping knowledge. Bulk and bagged sugar shipping and handling might be an interesting one-day conference, and I can help with ideas and speakers if any of the specialist shipping conference organisers are interested.


June 2014

It’s an even year so June means Posidonia, which lasts from Monday 2 June to the Thursday afternoon. I personally am not so fond of the new location, and prefer the shabby but more convenient location of the customs shed of years gone by. If you haven’t been, you should go to at least one Posidonia and crash as many parties as possible. A tempting alternative would be the giant 2000+ delegates Coaltrans Asia event in Bali. Having been to the Coaltrans event in Goa, India, this year, I can say that Coaltrans’ organisation is first-class, with excellent networking opportunities. There was even a special purpose event app so you were always up to speed on when and where to go. After Posidonia, the shipping finance portion of the shipping party moves onto New York, and the Marine Money New York Week from Monday 16 June. Perhaps not as rock ‘n roll as New York but free to attend is Ro-Ro 2014  in the ExCel centre in the east end of London from 24 June.



Not much happening. If you have had your fill of shipping conferences, how about the European International Submarine Races !



The northern hemisphere will be on holiday, but Down Under there is Coaltrans Australia, taking place in Brisbane.



The Autumn conference season begins with SMM  the giant shipping exhibition in Hamburg, Germany. This has a German shipping finance conference on the first day. I have also included Metal Bulletin’s Steel Scrap Conference, which takes place in Rotterdam on the 22 September, but looking at the agenda is may be a bit light on the shipping of scrap – let’s wait and see. One event I may be attending is the The Red Sea and Gulf Bunkering Conference, but the link for the 2014 flutters in and out of view, so I am not sure if this event is on or not.



Following on from German shipping finance conference at SMM, there is a Greek shipping finance conference in Athens organised by Marine Money, plus one on the same day in Brazil. Maybe we can have a live Skype link up and debate? One event I have been to in the past is the Mare Forum event in Amsterdam, Mare Forum Shipowners vs. Capital Providers . I enjoy the format and the informality of the Dutch set-up, ad hope to be there again this year.



A new event to me is Global Shipping Trends & Trade Patterns. With a title like that I don’t know why I haven’t heard of it before, and I will be making an effort to attend this event on Wednesday 5 November in London. At the moment, there does not appear to be a clash between the Informa 27th International Ship Finance & Investment Conference in London on the Wednesday 12 November, and the equivalent Marine Money in New York, and / or the Hansa event in Germany, as was the case last year. However, these other two events has not yet been listed on the respective websites yet. They have already lost the Friday 14 November, as this is taken up with the Tradewinds Dry Cargo Charterers Forum in Geneva, which I did not attend but heard good things about last year.

The following week is a new wet conference, the Tanker Shipping & Trade Conference organised by Riviera, publishers of the magazine of the same title. This starts in London on Wednesday 19 November, and I hope to be there.



Into December, and the Middle East Iron & Steel conference in Dubai starting on the Monday 8 December. This is unlikely to be the last trade conference of the year, but that is as far as I have got at the moment.

If your event is not on the Shipping Calendar and you feel it should be, then send an email to craigjallal@hotmail.com with the details.


New Data Pages in Tradewinds

New Data Pages in Tradewinds

Tradewinds  have quietly updated the data pages in the back of the weekly paper. There was no announcement and I have to admit, it was a few weeks until I noticed. The range of data is more comprehensive, with relative new-comer Alibra Shipping (link) providing timecharter equivalent data and VesselsValue leveraging their Big Data approach to introduce some comparative value tables. For those of you without a copy of Tradewinds to hand, below is a description of the old and the new tables.


Old Pages

The previous Data Pages consisted of World Stock Watch, which ran over one and half pages. The alphabetical listing of share prices was supplemented by a table of high yield shipping bonds, a forex table and half page entitled Scorecard, which was showed share price movements in data and graphical form. These were followed by two pages entitled Market Figures. These consisted of graphs of the Baltic Exchange (link) indices (SSY Capesize, ICAP Handymax and Supramax), the Howe Robinson Containership Index (link), the Riverlake Tanker Index (link), and Clarksons Container Index (link). This page also contained list of tanker and dry bulk carrier fixtures. The facing page was largely taken up with the Fearnleys report. The VesselsValue.com ship prices table was a recent addition, plus Peninsula Petroleum’s bunker report. Finally, a couple of Baltic Exchange tanker graphs were tacked on for good measure. Altogether you had a share prices, the freight rates for the bulk, gas and container trades, ship value and a freight market report.


New Pages

The new version kicks off with a dramatically re-designed Stock Watch from Bloomberg, with companies listed by sector. The lists are alphabetical, and it is easy to pick out key comparators like market cap. The companies with the largest market cap in each sector feature separately in another table, but not in the main table, which I am not so keen about. Maybe duplicating the listing might be useful, so that the largest cap companies appear in both tables, making comparisons with peers easier.

The share price info is now confined to one page, giving more room for Markets Data. This starts off with (in my opinion) the most useful chart in the history of shipping analysis, the Clarksea Index. The Clarksea Index is the heart rate monitor of shipping, and the best chart to illustrate the current and historical health of the industry. Next to this are the Baltic Exchange indices, which are important to people in shipping, but difficult to understand for those on the outside (as shown by the mainstream business press reporting on a steep fall in the BDI with a picture of a containership). Below this is a new table of dry bulk carrier time charter estimates, provided by Alibra Shipping Limited, who I had not heard of before, but good for them for getting exposure in Tradewinds. You should check out their website, too. It has a useful TCE-required to service a sale price calculator, which later in the year will be the focus of a separate blog.

Alongside is the SSY Capesize indices, and below a welcome addition of the dry bulk and iron ore futures contracts from FIS. This is supplemented by the iron ore prices from The Steel Index. We then go straight to wheat prices from the Chicago Board of Trade.

The Peninsula bunker tables returns in an expanded form. The Howe Robinson Container Index also returns, with the addition of the Hamburg-based New Contex Time Charter Assessment, which is similar to the Clarksons container time charter rates in that the size range ends at the old Panamax size. Maybe Alphaliner or Dynamar could provide Tradewinds with some assessments for the larger size ranges? The third container chart is the World Container Index.

The final page contains the tanker data. There is a table of time charter assessments from our new data friends Alibra Shipping. The ICAP table of Worldscale TCE estimates has a very useful assessment of the impact of slow steaming. In the 7 March table, a VLCC on the standard Ras Tanura to LOOP route fixed at WS29.5 was calculated as a loss of USD3548/day whereas the same voyage slow steaming is a positive US$6281/day. The Baltic Exchange tanker charts are still on the page, as is the table of crude oil prices.

Sales and purchase data from VesselsValue (VV) cover the final third of the page, and there are some interesting additions. The VV Momentum Index indicates the direction of prices for a particular vessel type during the previous 90 days. If in those 90 days there was an upward movement in price for 45 days, and a downward movement for 45 days, these would cancel each other out and produce a flatline growth, equal to an index number of 50. Therefore, any index number over 50 indicates upward momentum, and an index number of less than 50 indicates downward momentum. VV also contribute a price Volatility Index, or any sort, is brave, because the standard deviation is not well an everyday concept, but here in graphical format it is clear. There is a sharp upward turn in the red line (or there was in mid-March 2014) when I wrote this) and this means there is a high level of uncertainty of the direction of VLCC price. The Tonnage on the Water table is a bit like the fleet table in the Shipping Intelligence Weekly but without the aggregate numbers, so it is lacking context. Below this is the Seasure demo table. The untitled table at the bottom right of the page is US$ per cargo unit, either dwt, teu or cbm. The Fearnleys data re-appeared last week (18 April 2014) as an additional page

So next time you pick up a copy of Tradewinds, do not close the paper after glancing through the job adverts, take a closer look at the new and more comprehensive data pages.


Time to Ditch RMS Titanic as a Benchmark?

Senior Lecturer Paul Stott of Newcastle University is no stranger to this blog, and was recently in the national media after drawing attention to the need to use another benchmark when comparing the size of ships. The RMS Titanic is the iconic benchmark most often used – but is it a good comparison?

Despite conjuring up images of vastness and opulence, Titanic was actually no bigger than a North Sea ferry and could easily sit on the deck of a large container ship.

“The reality is that – even if any living person had seen the Titanic – it would not be particularly large in the modern context,” he explains.
“Whilst large in her day, Titanic would be equivalent only to a mid-sized ferry in the modern era, the sort of ship many have sailed on to get to France or Holland, and this normally comes as a revelation.
“Its size was exceeded by a factor of two with the Queen Mary in 1936, almost 80 years ago and it is no more than 20% of the size of the largest ship currently afloat.”

Finding a new benchmark
Benchmarking ship size in the popular context is a complex task. Obvious measures such as length and weight do not do justice to the physical size of ships and weight is unreliable because of the varying nature of different designs of ship.
“Whilst the Costa Concordia is more than double the physical size of Titanic, their weights are very similar (around 55,000 tonnes) because modern designs are inherently much lighter than Edwardian engineering,” explains Mr Stott.
Linear parameters were tried as well as weight but none convey the right message about how heroic the salvage effort is. “Stating that the Costa Concordia is equivalent in length to 26 London buses conveys no impression of the size of a cruise ship. The comparator has to be volumetric”.
The research shows that none of the usual volume comparators, such as the use of Olympic sized swimming pools, are of any use. The research does, however, identify benchmarks that can be used to convey the correct impression of modern large ships.
“Stating that the Costa Concordia is around twice the size of St Paul’s Cathedral in London, in terms of their physical size, conveys in a direct way quite how large the object salvors were manhandling is.
“It also turns out that the Costa is equivalent in size to the Gherkin in London. Stating that the salvors were using brute force to move an object the size of a sky scraper, which many have seen and can therefore relate to directly, really gets across the message of how heroic the task achieved was.”

Source Information: “The Use of Benchmarks in the Popular Reporting of Commercial Shipping: Is the Titanic an appropriate measure to convey the size of a modern ship?” Paul Stott. Mariner’s Mirror
DOI: http://dx.doi.org/10.1080/00253359.2014.866378

Mr Paul Stott, Senior Lecturer, School of Marine Sciences & Technology; Tel: +44 (0) 191 208 6721; email: paul.stott@ncl.ac.uk

Happy Birthday OPA ’90

Final Provisions of OPA ’90 Come into Force at the end of 2014 (http://goo.gl/WLIkd2).

I am grateful to Bob Beegle of barge and ship brokers Marcon International Inc, USA, for allowing me to re-print in full the following article from their Winter 2014 newsletter. In it, Bob examines the impact of OPA ’90 on the domestic US fleet, and is a useful reminder of the long tail there is to one of the most important pieces of regulation in modern shipping.

Link to the PDF version of the newsletter.

Happy Birthday OPA’90

By Bob Beegle 

It has been 23 years since the Oil Pollution Act of 1990 became law. The sunset date is December 31, 2014, at which time all single hull tank vessels and barges in the United States will be phased out of petroleum service. The law was mainly a result of the massive oil spill in Prince William Sound, Alaska on March 14, 1989 when the “Exxon Valdez” struck Bligh Reef. At 257,000bbl, it was one of the largest oil spills in U.S. history in terms of volume release – at least until “Deepwater Horizon”. The rising public outcry to regulate the waterborne petroleum trade to better protect the environment created the impetus for the U.S. Congress and the President to pass the Oil Pollution Act of 1990 increasing the liability for spills and requiring the use of double-hull tank vessels and barges operating under U.S. Registry in addition to other provisions. OPA-90 allowed for a gradual 25 year implementation period for U.S. Owners to comply with the federal law which would require the phasing out of all single hull barges and vessels engaged in petroleum transport by December 31, 2014. With this law’s passing there were obvious cost increases to rebuild the U.S. fleet with double-hull tonnage. Some allowances were made for existing double hull vessels and barges to continue trading, as double hulls were already being used in many areas and for specific cargoes. However, in many instances existing units did not technically comply with the void space measurement requirements (i.e. beam ÷ 15 = double hull void space) and they also faced restrictions on trade and/or future phase-out dates. There was a lot of grumbling in the industry when the law was first formulated, but it is now solidly in place and the market has adjusted accordingly over the past 23 years.

The costs to the overall industry to absorb these new regulations into their US operations obviously increased the cost of doing business for those who made their living transporting petroleum products on the water. Calculations based on the additional costs to construct double-hull tonnage pushed hard up against the earnings and charter rates which were standard in the market at the time. Many major operators at the time the law was passed had already invested large sums of money into upgrading their single skin tank vessel and barge fleets. The case of Maritrans, Inc. and their subsidiary, Maritrans Operating Partners L.P., was the most notable example of a U.S. tug and barge company which went on record at the time to protect their large capital investments in 37 large, single hull, ocean tank barges – which was one of the largest domestic fleets of U.S. flag oceangoing petroleum barges operating along the Gulf and Atlantic Coasts. Maritrans filed a suit against the U.S. Government for a ruling that it was engaged in “illegal takings” with passage of Section 4115 of OPA-90 being a violation of a U.S. citizen’s rights under the Fifth Amendment to the U.S. Constitution. The amendment specifically prohibits the U.S. Government from taking private property for public use without just compensation. The case was eventually dismissed by a ruling in December 2002 by a U.S. Court of Federal Claims. In the US $1 billion lawsuit the Court ruled Maritrans’ claim invalid that the double-hull requirement in the Oil Pollution Act of 1990 was equivalent to an unlawful taking. With that legal argument over in the United States, owners and operators, as well as the oil majors who chartered the tonnage, had to figure out how this was all going to work out and affect their bottom lines. This was a lot more involved than just figuring the costs of building a new double hull tank vessel into the daily charter rates. Existing charter rates at the time would not necessarily compensate Owners for the constantly increasing newbuilding costs. Some early owner/operators of double hull tonnage were initially forced to charter out their new double hull assets at a loss in order to secure a long term position in the market. Other consequences that came into play with enactment of OPA-90 included the need for higher horsepower tugs to handle the larger size, but sometimes same or lower capacity barges; higher insurance premiums as insurers themselves started to realize their potential liabilities in event of a spill; and plummeting book values for single hull tonnage which was especially worrying to publically traded companies. It was a rough time as owners and operators endeavored to get a handle on the changing playing field.

Luckily for many involved in the trade, the average WTI spot price for crude oil, at $14.42 in 1998, started climbing. By 2000, the average WTI spot price had more than doubled to an average of $30.38 and some pundits forecasted that we would eventually see $100/bbl, $200/bbl and maybe even $300/bbl as we approached a theoretical day of “peak oil” production. After a slight slump in 2001 and 2002 the price for crude was back to over $30/bbl in 2003 and eventually peaked at an average of $99.67 in 2008 before falling over $38/bbl due to the Great Recession. During the 10-year run-up in the price of crude, oil  companies’ earnings increased and the higher costs to charter in new double  hull tonnage could more easily be absorbed. Single hull barges were also departing the market and being sold overseas, scrapped or otherwise removed from oil trade at an increasing pace. Between 1990 and 2013 alone, Marcon International, Inc. sold 138 inland and ocean tank barges with an aggregate capacity of over 7.485 million barrels capacity (approx. 1,000,000dwt) with most being non-OPA-90-compliant units.

Higher crude oil prices resulting in a higher value cargo and declining competition from single hull barges finally created a tipping point which allowed U.S. Owners to better recoup their investments in new double hull tonnage. The double-hulling of coastal tank vessel fleets accelerated after 2007 as single-hull vessels built during the 1978-1983 boom period reached OPA-90 phase-out dates. During 2007-2011, 58 tank vessels were removed from service while 73 new/rebuilt double-hull tank vessels entered service. As of year-end 2011 – three years before the final cut-off date, the double-hulling of the coastal tank vessel fleets was nearly complete. While most of the U.S. flag single hull ocean and some inland barges departing the domestic market prior to 2011 were sold foreign, that market is also rapidly changing. Overseas, IMO II double hull requirements were generally adopted in 2003, although initially with only 14 countries and the European Union signing on. Most countries in the world now mandate double hull requirements for new tonnage trading on international voyages, being built or imported in the country and many are also placing age restrictions on imported barges, whether double hull or not. There are very few areas of the world now where single hull  petroleum barges can trade and these markets for the older oil barges are rapidly diminishing.

The increased costs of OPA ’90 requirements and the high liability exposure in the case of an oil spill has also pushed the industry into a consolidation mode to spread the costs and reduce overall liability costs under the new law. The liability for tank vessels larger than 3,000 gross tons was increased to $1,200 per gross ton or $10 million, whichever is greater. Responsible parties at onshore facilities and deepwater ports are liable for up to $350 million per spill; holders of leases or permits for offshore facilities, except deepwater ports, are liable for up to $75 million per spill, plus removal costs. The Federal government has the authority to adjust, by regulation, the $350 million liability limit established for onshore facilities. Offshore facilities are required to maintain evidence of financial responsibility of $150 million and vessels and deepwater ports must provide evidence of financial responsibility up to the maximum applicable liability amount. Claims for removal costs and damages may be asserted directly against the guarantor providing evidence of financial responsibility. The fine for failing to notify the appropriate Federal agency of a discharge was increased from a maximum of $10,000 to a maximum of $250,000 for an individual or $500,000 for an organization. The maximum prison term was also increased from one year to five years. The penalties for violations have a maximum of $250,000 and 15 years in prison. Civil penalties are authorized at $25,000 for each day of violation or $1,000 per barrel of oil discharged. Failure to comply with a Federal removal order can result in civil penalties of up to $25,000 for each day of violation.

Exxon was originally ordered by a federal court to pay $5 billion in punitive damages in 1994. A federal appeal in 2006 reduced that award to $2.5 billion, and in 2008 the United States Supreme Court further reduced the damages to just over $500 million. However, more than $2 billion had been spent on cleanup and recovery during that time, and to date Exxon has paid at least $1 billion in damages. These fines and penalties, coupled with the pervasive negative publicity, have become just too much for many individual companies to absorb. It now made more sense for some of the largest oil companies in the world to hire in its towing and shipping operations versus exposing themselves to greater liability risk and negative publicity in order to ship their oil. Exxon exited the U.S. domestic market as far as shipping petroleum in January 2003 when Kirby Corp. acquired SeaRiver Maritime’s fleet of 48 double hull inland tank barges and seven inland towboats, the privately held U.S. transportation arm of Exxon Mobil Corporation which was formed in the early 90s following the “Exxon Valdez” oil spill. Spentonbush/Red Star Group, affiliates of Amerada Hess Corporation also divested itself of nine ocean-going tugs and ocean-going tank barges and their related coastwise transportation businesses in early 2001 when Hornbeck acquired these assets and entered into a long-term contract of affreightment with Amerada Hess as its exclusive marine logistics provider and coastwise transporter of petroleum products in the northeastern United States.

Coupled with the Clean Air Act Amendments of 1990, the impact of environmental compliance costs in the U.S., in regards to refining, resulted in increased capital costs on a broad front. Resulting from this we saw a massive wave of joint ventures, mergers and restructuring in the oil business during the 1990s and the “super majors” were born. In 1990 there were 19 major U.S. energy companies. By the year 2000 there were 10. Chevron and Texaco merged in 2001 and Exxon’s merger with Mobil in 1998 created the world’s largest publicly traded energy company. With individual state laws also coming on the books, usually after another spill (i.e. Buzzard’s Bay in April 2003), covering specifically sensitive areas with often a higher exposure than Federal Law, this was an unpredictable landscape indeed.

Many small to mid-size companies quickly got out of the oil towing business altogether over the next several years as they were unable or unwilling to comply with the “deep pocket” requirements in order to continuing operating under the new regulatory regime. In 1983, there were 23 principal operators in the United States hauling petroleum products by barges over 3,000dwt – Sonat Marine (472,579dwt), Crowley (313,140dwt), Amerada Hess (309,400), Bouchard Transportation (158,473), Coastal States (110.789), Moran (96,824), Cirillo Bros. (90,814), Hvide Seabulk (90,360), Amoco Oil (87,597), Texaco (86,527), Ingram (56,249), Bulkfleet Marine, Penn – Morania (67,252), Hannah Marine (60,097), LeeVac (55,995), Charter Oil – Nepco (53,620), Exxon (52,952), Pittston Marine (51,235), McAllister Bros. (50,835), Allied Towing (49,218), Berger (48,000), Sun Transport (44,233), and Marathon (40,000) – with an aggregate total of 212 or 84% of the 285 U.S. fleet of petroleum barges over 3,000dwt. How many of those companies do you recognize today as still being actively transporting petroleum cargoes?

Newbuildings costs for vessels and barges in the U.S. are another major factor in the increased cost of transporting petroleum. Suddenly there was a demand for double hull barges and tank vessels to replace all of the single skin tonnage – and it had to happen in a maximum period of 25 years by either retrofitting existing single hull vessels and barges or building new. Neither option was cheap. In 1990, Marcon International estimated that a 60,000bbl ocean double hull tank barge, depending on coatings, heat, bells & whistles, etc., would cost about US $90-100/bbl to build. That same barge to build new ten years later in 2000 was still running close to about that same level. During this period annual inflation levels were running at an average of about 3.35% (1990-2000) based on the Consumer Price Index as reported by the Bureau of Labor Statistics. Costs to build a new double hull tank barge were relatively flat, but we were still fifteen years away from the final date for OPA-90’s phase out of non-compliant barges. The next decade, however, was not so kind with respect to newbuilding prices. Between 2000 and 2010 the newbuilding cost for a double hull ocean tank barge effectively doubled – and then some.  The Cost to build a new double hull ocean tank barge of abt. 60,000bbl today is about US $225-250/bbl. Inflation rates (as per the C.P.I. calculated via B.L.S.) for the 10 year period from 2000-2010 averaged 2.72% – so obviously this calculation of inflation has little to do with the actual increase in the cost to build new barges.

Now twenty-four years after OPA-90 hit the books, almost all single skin tank vessels and barges have been phased out of the U.S. market, despite it still being legal for a few remaining single skin barges to trade up until Dec 31, 2014. The oil majors have basically purged their refineries and dockside facilities of single skin tank barges and vessels as a result of the liability exposure, perceived operating safety records and the rising number of available double hull barges in the market. This rising number of barges trading does not necessarily mean that there is a rising number of double hull barges in the S&P market. With the highest utilization rates in memory, continued expansion of the U.S. production of oil and gas to levels not experienced since the 1970s, good times are here again for many U.S. owners, operators and shipyards. According to a report released by the Energy Information Administration Summer 2013 – barge shipments of crude oil from  the Mid-West shale production of crude oil in Canada, the Dakotas and Pennsylvania which need to get to the US Gulf refineries for refining and export, reportedly increased almost 80% from the same time in 2012. In the North Dakota region, oil output could hit 1 million bbl/day by the end of 2013. The state’s Mineral Resources Department reported in Fall 2013 that in May the production hit 850,000bbl/day and in August that level surpassed 900,000bbl/day.

As a result of these production increases, US waterborne transport has continued to grow and the traditional systems of moving both crude oil and potentially millions of gallons of shale gas wastewater cargoes in the future to disposal sites will test the limits of all available sources of transport including pipeline, truck and rail. Under U.S. law, vessel operators must report domestic waterborne commercial movements to the U.S. Army Corps of Engineers. 18.8  million tons of petroleum and chemicals were carried in November, down 17.5% from October’s 22.8 million short tons, but still above the 2013 average  to-date and the highest tonnage carried for the month since November 2003 when 20.2 million tons of petroleum and chemicals were carried. Potential future Federal safety requirements for rail cars transporting crude oil and ethanol are to include an outer steel jacket around the tank car (i.e. “double-hull”), thermal protection, full-height head shields and high-flow capacity relief valves. These changes could see 78,000 out of 92,000 existing tank cars currently moving flammable liquids out of service for retrofitting or phase out and another 14,000 newer tank cars requiring certain retrofit modifications and enhancements.

With expectations that U.S. oil production will not peak until 2020, there continues to be growth projected in the tank barge market over the next several years. Since 2006, US tight oil production has risen from roughly 300,000bbl/day to just under 2 million bbl/day. The EIA announced in December 2013 that shale oil output is expected to hit a high point of 4.8 million bbl/day by 2021. Production in 2013 will reportedly rise to 3.5 million bbl/day, which is an increase of 1.2 million bbl/day over 2012, and this production is expected to surpass the 4 million bbl/day level in 2014. Peak production from tight oil sources (i.e. shale deposits) is expected not to peak until 2020, with estimates as high as 8 million bbl/day, at which time the US will likely see another decline in overall production as the horizontal drilling / fracking boom is expected to begin to diminish. A sure sign of the increased demand in the waterborne trade was the announcement in late November that Jeffboat was hiring 100 additional workers between now and March 2014 to ramp up their barge newbuilding business and to open a new production line in order to meet this continued demand for newbuild tonnage. Earlier this year  we reported that Jeffboat was not taking any newbuilding orders for inland hopper barges, traditionally the shipyard’s historical main stay of production, as it was re-tooling its shipyard production to focus strictly on the tank barge business.

All of this activity has pushed any good available tonnage in the second-hand market towards the price levels of newbuilding – if anything at all can be developed. There are very few, double-hull tank barges available in the market for sale in the US, except under situations where unsolicited offers may be submitted directly to the Owners of this tonnage, and in most instances those Owners would only be interested in seeing that tonnage sell out of the US Registry to foreign Buyers. Colombia and Mexico have been expanding their production of crude oil as well, and their demand for tonnage both for storage and transport has been growing. Typically the costs required to buy tonnage in the US and export to those regions may be found to be cost prohibitive, so there is also demand rising in South America for newbuildings at local or nearby shipyards. Owners in the US today are generally able to sit back and entertain offers from parties without quoting formal prices for sale even though the tonnage may be out of service and in lay-up at the time of the sale. Some older double-hull units have been rebuilt and are continuing to trade in the US even when one might have thought that their age would restrict them from service for oil majors. However, with demand for shipments running so high, these assets are finding continued service in the market, and make them “near and dear” to Owners if a Buyer wishes to pursue them on an outright cash basis.

Copyright © 2014, Marcon International, Inc. All rights reserved.
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