Logistics in Focus: U.S. Waterways
By Max Schlubach
For more than 200 years, tugboats, towboats and barges have plied the United States’ vast inland river
system, its Great Lakes and its three coasts. This distinctly American industry has built the coast of the
Great Lakes into a global manufacturing center, enabled the U.S. to become the world’s largest wheat
exporter and, today, provides the flexibility needed to become a major oil producer. Yet despite the critical
role that it plays in the U.S. economy, the inland and coastal maritime industry is little known outside of the
transportation sector.
14 Brown Brothers Harriman | C O M M O D I T Y M A R K E T S U P D A T E
Jones Act Vessel Type
The tugboat, towboat and barge industry is the largest segment
of the U.S. merchant maritime fleet and includes 5,476 tugboats
and towboats and 23,000 barges that operate along the Atlantic,
Pacific and Gulf Coasts, the Great Lakes and the inland river system. The industry is fragmented and, for the most part, privately
owned, with more than 500 operators either pushing, pulling or
otherwise helping move waterborne cargoes through the United
States’ waterways. The industry is bifurcated into inland and coastal
sectors, which have little overlap due to the different vessels and
licenses required to operate in their respective environments.
Tankers
61
0.7%
Ferries
591
6.5%
Dry Cargo
2,911
32.2%
The tugboat, towboat
and barge industry
makes up the majority
of the Jones Act fleet.
Recent market dynamics, particularly in the energy sector, have
resulted in seismic shifts in supply and demand for the U.S.
water transportation sector. This article looks at the current state
of affairs in the market, with a focus on barges.
Towboats
5,476
61%
As of December 31, 2014.
Source: U.S. Army Corps of Engineers.
Mississippi, Missouri, Tennessee, Hudson and other major riverways. Typically, towboats push barge tows of up to 15 barges
through locks and around river bends to deliver agricultural commodities to export markets in New Orleans, crude oil to refineries
along the Gulf Coast and coal, chemicals and building materials to
industrial sites throughout the inland river system. On the Lower
Mississippi River, where there are no locks to restrict tow size, massive towboats powered by up to 10,000 horsepower engines can
transport 40-barge tows toward the Gulf of Mexico.1 At today’s coal
price, a 15-barge tow carrying 22,500 tons would be transporting
a little under $1 million worth of coal.
Inland and Coastal Sectors
Before delving into recent market trends, it may be helpful to give a
brief overview of the market structure in towing and barging. There
are effectively five main markets in the U.S. water transportation
industry: inland tank barge, inland dry cargo, coastal tank barge,
coastal dry cargo and coastal ship assist.
Inland towing companies, which comprise roughly 60% of the
U.S. towing fleet, operate vessels called towboats or pushboats.
Towboats have square bows that are used to push groups of
barges lashed together on the Columbia-Snake, Illinois, Ohio,
1
T he Lower Mississippi River begins at the confluence of the Ohio and Mississippi Rivers in Cairo,
Illinois, and flows nearly 1,000 miles to the Gulf of Mexico.
BARGE TYPES
Inland Liquid Cargo Tank Barge
Coastal Oceangoing Tank Barge
297 Feet Long
1,000,000 Gallon Capacity
Carries: Petroleum Products, Petroleum,
Fertilizer, Chemicals, Orange Juice
Open Dry Cargo Barge
550 Feet Long
225,000 Barrel Capacity
Carries: Petroleum and
Petroleum Products
Covered Dry Cargo Barge
195 Feet Long
1,500 Ton Capacity
Carries: Grain, Soy Beans, Salt, Sugar,
Paper Products, Packaged Goods
195 Feet Long
1,530 Ton Capacity
Carries: Coal, Steel, Ore, Sand,
Gravel, Lumber
CARGO CAPACITY
Barge
1,500 Tons
52,500 Bushels
15-Barge Tow
22,500 Tons
767,500 Bushels
Jumbo Hopper Car
10,000 Tons
350,000 Bushels
100-Car Unit Train
10,000 Tons
350,000 Bushels
Large Semi
26 Tons
910 Bushels
Source: Celtic Marine Corporation.
Issue 2 2016 15
Tank Barge and Tugboat Annual Construction
350
300
Total Constructed
Coastal towing companies constitute the remaining 40% of the
U.S. towing fleet and operate vessels called tugboats. Tugboats
have high, pointed bows and are used to transport goods coastwise – over the open ocean between ports – or to assist oceangoing
vessels docking within a harbor. Tugboats engaged in commodity
transportation are traditionally designed to transport a single large
barge either “on the hawser,” using a thick cable up to 2,000 feet
long, or “in the notch” by pushing a barge from behind.
250
200
150
100
50
Articulated tug-barge (ATB) units are the industry’s newest vessel
class and consist of a purpose-built tug and barge that rigidly connects to create a single vessel that looks and handles like a ship.
They offer higher speeds of up to 12 knots (14 mph) and are almost
exclusively built to handle petroleum products.2 Furthermore, ATBs
can be the size of a small oil tanker carrying as much as 330,000
barrels (bbls) of petroleum and are powered by up to 16,000 horsepower engines – nearly three times the typical 6,000 horsepower
engine of modern heavy freight locomotives. At today’s crude
prices, an ATB with capacity of 300,000 bbls would be able to
carry about $14 million worth of crude oil.
Tugboats engaged in ship assist work in teams to guide ships
safely within a harbor. While older ship-assist tugs have traditional rear-facing propellers, newer, more sophisticated tractor
tugs have swiveling Z-drive propulsion systems that allow them
to pull or push in any direction. Z-drive tugs have also become
common on the inland rivers, where maneuverability is of heightened importance. These vessels typically have between 2,000
and 6,000 horsepower engines.
0
1987
1993
1996
Tank Barges
1999
2002
2005
2008
Towing Vessels
2011
2014
Source: U.S. Coast Guard.
Coincident with the surge in U.S. shale oil production volumes
from 2010 to 2015, barge operators saw tremendous demand
for crude transportation. The trend can be witnessed in the
total domestic crude oil delivered to refineries by barge, which
grew by a factor of five between 2010 and 2015 to 250 million
bbls annually. In anticipation of continued crude oil production
growth, between 2010 and 2015, tank barge operators placed a
record number of new orders for barges. In addition, the industry
recently completed a 25-year phaseout of single-hulled barges,
which are no longer permitted to carry petroleum products as
of January 2015. As a result, the tank barge fleet is now the
youngest segment of the industry and will likely remain as such
in coming years as more vessels are completed and delivered.
Tonnage Carried on Internal U.S. Waterways
60
Drill Down: The Tank Barge Sector
55
Millions of Short Tons
The tank barge sector is driven by the production and transportation of four main types of bulk liquid commodities: refined
petroleum products (50%), crude oil (30%), agricultural and petrochemicals (10%) and black oil and asphalt (9%).3 The fortunes
of tank barge operators have tended to follow crude production
levels in recent years. While operators have the flexibility to reallocate barges across product types as demand fluctuates, the
process of cleaning and preparing barges for different products
can be cost-prohibitive and time-consuming.
1990
50
45
40
Tonnage
35
12-Month Moving Average
30
2000
2002
2004
2006
2008
2010
2012
2014
2016
Source: U.S. Department of Transportation.
2
A
handful of dry bulk ATBs exist; however, the vast majority are designed to carry petroleum products.
3
S ource: U.S. Army Corps of Engineers.
16 Brown Brothers Harriman | C O M M O D I T Y M A R K E T S U P D A T E
Failing a drop in foreign crude oil production, the
most likely outcome of a 20% increase in Jones Act
tanker capacity is a drop in coastal chartering rates.”
Issue 2 2016 17
Percentage of Fleet
Age of Towing Industry Fleets
THE JONES ACT
50%
Tank Barge Fleet
45%
Dry Covered Barge Fleet
40%
Dry Open Barge Fleet
35%
Towing Vessel Fleet
The Merchant Marine Act of 1920, colloquially referred to as
the Jones Act, is a 96-year-old maritime law stating that all
goods transported by water between U.S. ports must be car-
30%
ried by U.S.-flagged ships that are built domestically, owned
25%
by U.S. companies and crewed by at least 75% U.S. citizens.
20%
15%
10%
5%
0%
0-5
6-15
16-25
26-35
36-45
Age of Fleet in Years
Older
Source: U.S. Army Corps of Engineers.
Forces Shaping the Industry
Several converging forces are likely to drive further industry
consolidation in the coming years. Previously surging crude oil
production volumes, insufficient pipeline takeaway capacity and
a closed market prompted a historic rise in orders of inland and
coastal Jones Act tank barges and ships. In the coastal market
in particular, 17 new product tankers and ATBs with a combined
capacity of more than 4.5 million barrels will be delivered to Jones
Act operators in the next 18 months, boosting fleet capacity by
20% before the end of 2018.4 Failing a drop in foreign crude oil
production, the most likely outcome of a 20% increase in Jones
Act tanker capacity is a drop in coastal chartering rates. U.S.
waterway operators are no strangers to the boom-bust cycles
that characterize the shipping industry, but the forthcoming capacity shock aligns with new regulatory requirements, as well.
300
3,000
250
2,500
200
2,000
150
1,500
100
1,000
50
500
0
MMbbls
MMbbls
Crude Oil Movement by Barge and Pipeline
The Coast Guard’s new Subchapter M regulation, finalized on June
20, 2016, is a major event for the entire towing industry. In it, the
Coast Guard establishes safety regulations governing the inspection, standards and safety management systems of U.S. waterway
towing vessels. Under the rule, every U.S. towing operator must
obtain a certificate of inspection (COI) for every tugboat and towboat
it operates. To comply, companies must choose to either have all
vessels regularly inspected by a Coast Guard official or implement
a companywide safety management system (SMS) that is audited
by an independent organization. Both options pose economic and
logistical challenges for companies, and compliance expenses are
estimated to be $100,000 per vessel or more for those without an
existing SMS.5 However, larger companies, including members of
trade associations such as American Waterways Operators, have
SMS already in place and will face little incremental cost in complying with Subchapter M. Observers expect Subchapter M to drive
industry consolidation as compliance costs weigh on operators illequipped for the new regulatory regime.
Tugboat, towboat and barge operators have weathered many
storms over two centuries. Moreover, this epoch will not be
the last trying time for an industry that has endured advances
in technology, competition from trucks and trains and a market that can refuse to cooperate with even the best-laid plans.
It is with that spirit of adaptation that we can expect Jones Act
carriers to continue to sail on, following William Arthur Ward’s
advice that “the pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”
0
2000
2003
2006
2009
2012
2015
Barge Transportation (left-hand axis)
Pipeline Transportation (right-hand axis)
4
Source: International Energy Agency.
S ource: RBN Energy, “Flirtin’ With Disaster - The Coming Oversupply of Jones Act Tankers and
ATBs,” June 19, 2016.
5
18 Brown Brothers Harriman | C O M M O D I T Y M A R K E T S U P D A T E
Source: MarineLink.com, “US Workboat Market: Domestic Drivers,” June 30, 2016.
46 CFR Subchapter M Timeline
JUNE 2016
Subchapter M is published.
JULY 2016
Subchapter regulations are effective, but several requirements are delayed
for two years or after a vessel is issued a certificate of inspection (COI).
JULY 2017
Vessels built on or after this date are considered “new vessels,” and a COI
is required before entering service.
JULY 2019
Twenty-five percent of a company’s fleet must have a valid COI, except for
companies with only one existing towing vehicle.
The towing vessel’s owner or managing operator must implement a health
and safety plan.
JULY 2020
Fifty percent of a company’s fleet must have a valid COI.
Companies with only one existing towing vessel must obtain a COI.
JULY 2021
Seventy-five percent of a company’s fleet must have a valid COI.
JULY 2022
One hundred percent of a company’s fleet must have a valid COI.
YEAR 7 to YEAR 11
Five years after the issuance of an initial COI, existing vessels must comply
with enhanced requirements.
JULY 2027
Subchapter M implementation is expected to be complete.
Source: U.S. Coast Guard and the Federal Register.
Issue 2 2016 19
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