The Jones Act Market is characterized by its very high barriers to entry in terms of capital requirements, citizenship requirements, high operational costs, etc. As such, the majority of the market has been mostly focused on the inland, the offshore trade in the US Gulf (read oil drilling and offshore platforms), the coastal trade of petroleum products and chemicals from the US Gulf Coast to Florida, along the Atlantic Coast / East Coast, and to the West Coast via the Panama Canal. There is of course the crude oil trade from Alaska’s North Slope to the West Coast of the USA, run by the Alaska Tanker Company (ATC.)
Last time the Jones Act tanker market made front-page news was when ExxonMobil ordered in 2011 two 115,000 dwt aframax tankers at Aker Philadelphia at the announced price of US$ 200 million each. It has been reported that the vessels are ‘full redundancy’ specification with two (fuel efficient) engines, two propellers and two rudders, and off course equipped to the latest standards of technology and navigation; the transaction had made news for the high construction cost of the vessels, when mainstream tankers from top-quality foreign shipbuilders could be had at the time at US$ 50 million per vessel, possibly for well below US$ 100 million per copy fully spec’ed to ExxonMobil’s standards for the sensitive Price Williams to California trade.
The other time in recent memory the Jones Act tanker market had been in the news was in 2006, when the now defunct Overseas Shipholding Group (OSG) agreed in 2006 to take on bareboat charter ten product tankers built at Aker Philadelphia, crew and manage them and offer them on timecharter to strategic clients like refineries, traders, and oil companies. The transaction was newsworthy for its size (ten-vessel newbuilding order is a wave-making deal in the Jones Act market; also, the total cost of the transaction was newsworthy at about US$ 930 million.)
However, ever since the exploitation of hydraulic fracturing technology (‘fracking’) and huge discoveries of shale oil in the US in the last four years, the Jones Act tanker market has been a major beneficiary of the structural changes for the crude oil and petroleum products trade. The market was caught off-guard and undersupplied, with reports that at least in one instance, a Jones Act product tanker trading crude oil managed a one-year fixture at US$ 100,000 per diem.
According to data tabulated by Karatzas Marine Advisors & Co. (please see table below), there are presently 28 ‘MR sized’ Jones Act tankers, 24 of which may be considered ‘modern’ with an average age of less than seven years.
In 2013 year-to-date, American Petroleum Tankers (a Blackstone sponsored company) andCrowley Maritime have announced newbuilding orders (including options) of sixteen more vessels to be delivered by 2016; twelve of these sixteen orders seem to be ‘firm’. If so, the firm orders represent 50% of the present Jones Act existing fleet.
No doubt that the economics of the Jones Act tanker market seem fabulous at present (US$ 100,000 pd gross freight revenue, less approximately US$ 22,000 pd vessel operating expenses, US$ 120 million cost basis but with overall cost of capital well into single-digit territory and long asset economic life); but 50% outstanding orderbook of the existing fleet isn’t like moving into ‘dangerous’ (oversupplied) territory? After all, we all in shipping know what happened when the orderbook for foreign-flag vessels reached historically high levels… unless of course it turns out that we are experiencing an once-in-a-lifetime ‘game changer’ event and the Jones Act tankers market turns out to be fully insulated from international shipping economics.
© 2013 Basil M Karatzas
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