OSG barges to enter volatile Jones Act spot market

Overseas Shipholding Group (OSG) expects a number of its Jones Act vessels to transition into the spot market this year amid "uncertainty" in the US-flag shipping market, despite the company's preference for employing tonnage on longer term charters, the company's CEO Sam Norton said during a conference call yesterday.

The Jones Act is a long-standing piece of US legislation that requires domestic cargo movements between ports to be carried out on US-built, US-flagged, and US-crewed ships.

Six of OSG's ten ocean-going Jones Act-compliant barges will conclude time charters this year and have yet to be fixed for next-employment, said Norton, adding that less than 50pc of the revenue days have been covered for the company's ATB fleet.

"During periods of uncertainty in markets within which we operate, more of our vessels will be exposed to the more volatile and less predictable spot market", Norton said.

Rising newbuild tonnage supply in the Jones Act and weak demand for domestic US marine oil movements have resulted in a glut of available ships, which has in turn made longer term charters less attractive to oil companies and traders.

"More and more term Jones Act equipment is being dropped [by charterers]. There is no need to [time] charter when so much [tonnage] is available on the spot market", said a US-flag shipbroker, explaining the fading interest among charterers for longer term deals.

Despite OSG's stated preference for employing its vessels under time charters, Norton allowed that medium term charters may not be achievable.

The shift in market structure from time charters, of between one and three years, to spot fixtures, in which a vessel is chartered for only one voyage, has been more pronounced in the ATB segment, said the shipbroker.

Large ATB rates are at around $28,000/d and Medium Range (MR) rates are holding at around $45,000/d, said Norton. For comparison, MR rates reached $100,000/d in 2012.

Softer charter market conditions will have a significant impact this year on OSG's eight ATBs that are not involved in lightering business in the Delaware Bay, said Horton. But elevated demand for lightering activity in the US east coast amid increasing crude imports from west Africa into refineries there has prompted the long-term employment of two OSG-operated ATBs in the Delaware Bay, and will partially offset weakened demand along the more traditional Jones Act routes.

Demand for Jones Act ships has been pressured primarily by falling Eagle Ford production, which dipped 390,000 b/d year-on-year in December of 2016, according to OSG. This decline has prompted the conversion of a number of dirty Jones Act ships into clean service, putting pressure on overall Jones Act rates, said Norton.

"A consensus view is that supply [of ships] for the traditional trades of the Jones Act is probably in excess of what is needed", said Horton.

OSG operates nine Jones Act MRs, constituting 24pc of total market share for that segment, and eight ATBs, which is 17pc of the total ocean-going fleet. Additionally, three of OSG's MRs serve as shuttle tankers for crude oil from FPSO (floating production, storage and offloading) units in the Gulf of Mexico to refiners and storage located along the coast, and are the only Jones Act tankers employed for such movements.