Shipping rates

Back in 2013-14, a run-up in demand for Jones Act tankers and large articulated tug barges –– and a spike in time charter rates — spurred orders for a flotilla of new vessels. By the time the new tankers and ATBs were built and launched, however, demand for them had fallen off. That decline was mostly due to the mid-decade slump in U.S. crude oil production and, with the lifting of the ban on most U.S. crude exports, the drop in crude shipments from one U.S. port to another. Term charter rates plummeted and ship owners stopped ordering new tankers and large ATBs. Now, for the first time in more than five years, there are barely enough Jones Act vessels to go around, and charter rates are on the rise. Today, we discuss recent trends and how they’re impacting crude oil and refined products transportation costs.

Term charter rates for medium-range Jones Act tankers have fallen by two-thirds since they peaked at $120,000/day in mid-2014, to only $38,000/day done in September 2016, which is good news for producers but a punch in the stomach for ship owners. A sharp rise in the number of vessels being added to the Jones Act fleet has surely contributed to the charter-rate collapse. Less obvious are the degrees to which the rate drop may have been influenced by the decline in superlight Eagle Ford crude oil production, or by the lifting of the ban on U.S. crude oil exports. Today, we examine the evidence.