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The Prince and the Pauper

In Mark Twain’s “The Prince and the Pauper,” two boys switch clothes, which sets in motion a case of mistaken identities. The prince, Edward Tudor, is forced to live as a pauper, while Tom Canty assumes the prince’s life of wealth and prestige.

A different exchange of identities that is affecting barge lines is currently going on within the U.S. economy. Economic sectors such as real estate and finance that had been regarded as rich and glamorous are now much less prestigious and not nearly as wealthy. Less glamorous sectors such as energy and commodities have become richer, in some cases attracting political attention for their large profits.

If you look at some of the worst performing stocks during the current economic cycle, some financial sector issues have lost 80 percent of their value. Conversely, many energy stocks have risen in value by a similar amount, with one of the best performances turned in by coal-related issues.

It is hard, however, to assess the financial performance of the barge industry since few pure barge plays (American Commercial Lines and Kirby Corp., for example) are publicly traded. Publicly traded railroads with similar markets and similar commodities such as coal and grain have done very well, posting record traffic and profits.

It’s safe to say that barge lines are doing well since many are closely tied to energy- and agriculture-related commodities. The sustained weakness of the dollar and the prospects for sustained inflation have helped boost commodity prices. Commodities once thought to have little upside in value relative to other sectors have now become the darlings of Wall Street,

Barge lines are an extension of these commodity markets. When the commodities are booming, the barge lines are booming as well. Pushing 1,500 tons of cargo in barges that move 5 mph on a series of slack water pools isn’t a glamorous business. But in today’s markets the commodity sectors offer tangible growth and security.

Kevin Horn is a senior manager with GEC Inc., Delaplane, Va.

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The importance of deckhands

By Joel Milton

Deckhands: You can’t live with them, and you can’t live without them. Truer words have never been spoken. For the better part of two decades, deckhand positions on Northeast tugs were relegated to “unskilled” labor status. While some still hold this view, this is beginning to change.

Wages for tug deckhands in New York Harbor have improved greatly in the last few years, particularly for those who hold an able seaman (AB) certificate. The hope is that it’s at least partially due to the industry finally accepting that you get what you pay for, and that skilled deckhands are worth every penny. When you’ve only got two people on watch and you must land a barge in a tight berth, transit a very narrow bridge or perform crucial assist work, you can’t afford to have some loser on the other end of the radio or down on deck handling the lines.

One botched landing can result in a huge bill for dock damages, and possibly result in a spill. Since it’s impossible to see everything from the wheelhouse, we often have no choice but to rely on deckhands to be our eyes and ears. At times the entire success of a move depends on the quick and sound judgment of an experienced deckhand. If the circumstances dictate that you must rely on a bad deckhand, it’s easy to crash and burn. Anyone who’s been in this business for a long time knows the story.

In the short term it may have been attractive financially for the industry to treat the deckhand slot as solely a stepping stone to better paying positions. But the long-term result has been a talent drain from which we’re only now beginning to recover.

There needs to be a place for professional, career ABs to make a good living, with a wage that reflects their value to the operation. Forcing your best deckhands to advance as the only means to receive better pay can backfire. Accident rates and personal injuries will inevitably be higher. So it’s pay them now or we’ll all pay for it later.

Joel Milton works on towing vessels. He can be reached at joelmilton@yahoo.com

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Index loses 5.5 percent in July

Stocks that make up the WorkBoat Composite Index had another rough month in July, dropping 95 points or 5.5 percent. This follows June’s loss of almost 9 percent. For the month, losers topped winners by a 7-2 ratio.

Energy shares dropped sharply in July as oil prices fell and gasoline supplies increased. The Philadelphia Oil Service Index was down over 13 percent for the month. Hercules Offshore, Global Industries and Trico Marine Services all lost 30 percent or more during July. Other oil service issues posting double-digit percentage losses for the month included Cal Dive, Ensco, Helix Energy, Hornbeck Offshore and Superior Energy.

Superior lost 14 percent despite second-quarter earnings that topped analysts’ estimates. Superior posted earnings of $1.02 a share, topping the $1 consensus estimate. Hornbeck lost 21 percent, or $11.93 a share, in July. A softening of demand in its tug-barge segment and high petroleum inventories hurt the OSV and tug-barge operator.

 — David Krapf

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Change the Passenger Vessel Services Act?

The Passenger Vessel Services Act (PVSA) of 1886 prevents foreign-flag cruise ships from transporting passengers directly between U.S. ports. The law was intended to reserve this business to U.S.-flagged passenger vessels, just as the Jones Act restricted domestic cargo service to U.S.-flag ships. The intent of both laws was to boost the U.S. shipbuilding industry, provide a market during peacetime to ensure ships were available for wartime use, and to maintain a ready reserve of mariners.

Times have changed and the fleet of U.S.-built, U.S.-flag large deep-draft vessels has shrunk dramatically. The only large U.S.-flag cruise ships that have been in service recently were NCL America’s three foreign-built and foreign-owned passenger vessels. The vessels were operated by a U.S. subsidiary after Congress permitted the re-flagging of the ships into U.S. registry. But business has not been good on NCL’s Pacific itineraries, and two of the ships are being reassigned to Europe.

For U.S.-flag ships, it’s tough to compete with foreign-flag vessels’ lower labor costs and also lower costs at yards that build and repair foreign cruise ships. Taxes are also lower for foreign cruise vessels.

Coastal and inland cities around the world have encouraged the development of cruise ship tourism to bolster their local economies, as destination ports or as home ports where cruise ships purchase many of their consumables and passengers spend time and money before and after cruises.

To get around Passenger Vessel Services Act and break into the U.S. cruise market, foreign designers and shipyards from the United Kingdom, New Zealand and Australia are licensing out their advanced passenger vessel designs to U.S. shipyards or setting up U.S. subsidiaries to partially capitalize on their technology, even if they can’t sell new ships built at their overseas yards for U.S. domestic operation.

In this case, the U.S. benefits from the introduction of new designs and innovative construction methods for new generations of low-wake, high-speed vessels for the U.S. small passenger vessel market and as prototypes for military transportation and combat vessels.

As a result, we have charted a new course in satisfying the original goals of PVSA by encouraging domestic shipbuilding and developing new vessels for military use.

Bernie Jacobson is a management consultant specializing in passenger vessels.He can be reached at 617-247-4110 or at IBJAssociates@aol.com.

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Day rates keep climbing

By Jerry Greenberg

Utilization and day rates for nearly all offshore service vessels increased in July, with large supply vessels posting the biggest gain.

Average day rates for supply vessels over 200' increased about $1,500 during July. The highest average day rate reported for large supply vessels during July was $28,000. Supply vessels under 200' saw average day rates increase $350. Utilization increased slightly for both large and small supply vessels.

Utilization for large supply vessels stood at 98 percent at the end of July, up from 97 percent in June. Small supply vessel utilization increased 1 percent, averaging 95 percent in July.

Small crewboats (under 125') saw rates rise slightly, with utilization increasing 2 percent to 88 percent. Large crewboats faired better due to the extremely busy deepwater and ultradeepwater market. Rates for crewboats over 125' jumped $360 per day in July with utilization increasing 2 percent.

In its fiscal first-quarter earnings report released in August, Tidewater Inc. said that utilization of its deepwater vessels fell to 94.9 percent during the quarter ended June 30, from 97.5 percent in the prior quarter, while average rates for its deepwater vessels increased to $25,514 from $23,904. Tidewater noted during its conference call with analysts that it is moving two deepwater vessels to international markets for a 20 percent higher fixed day rate for three years.

Tidewater also said that it is accelerating its newbuild program both domestically and internationally, with 59 vessels currently under construction compared to 49 under construction and on order the previous quarter. The cost of the 59 vessels is $1.2 billion, and Tidewater has authorized to continue spending up to $1 billion annually on its new construction program, according to Lehman Brothers analyst James Crandell.

Vessels under construction currently include 28 supply vessels, 26 of which are for the domestic market.

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Safety doesn’t have to cost a bundle

By Gene McKeever

How does a marine business owner or vessel operator establish a culture of safety? By being knowledgeable and fundamentally sound when it comes to safety. There is nothing cutting edge about establishing a culture of safety at your workplace. It takes communication, repetition and dedication. Sure, cost is part of the equation, but it’s not as much as you’d think.

Many boatyards and vessel owners believe that any time an insurance agent comes out for a visit it will cost them money. Though this might be true on occasion, I try to set up these kinds of meetings with a specific purpose and agenda. This keeps the focus on the client’s needs. As a client, you should also set a similar agenda. This helps push the money issue aside.

What could be on your agenda? Most vessel crews need safety training. Ask your insurer to send out their loss control expert to help set up a safety program and to bring sample safety manuals and station bills for posting on your vessel. Many insurance companies offer safety reminders that can easily be stapled to paychecks. This can help establish a culture of safety.

Have members of your crew help you with deck inspections to look at areas they know need work.

Sometimes, the solution is as simple as a couple of coats of paint. How do you keep the deck working area of a crane safe? It’s not easy, but I’ve found that simply painting the deck in that area a highly contrasting color and adding cautionary wording helps a lot. Pad eyes are another problem. A bold contrasting circle painted around them helps. Steps in the deck can also be highlighted by a contrasting stripe.

Ladderways are another specific problem. Crewmembers seem to want to go down ladderways facing forward, a dangerous situation. Signage that says “go down backwards” helps.

Safety reminders are simple and cost nothing. They get the point across that you, the employer or vessel owner, want to keep your employees safe. It’s also a morale builder since it sends the message that you care about them.
                 
Gene McKeever is a marine insurance agent with Allen Agency, Camden, Maine. He can be contacted at 800-439-4311 or gmckeever@allenagency.com.

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Exxon Valdez award slashed

By Daniel J. Hoerner

Nearly 20 years after the Exxon Valdez spilled some 11 million gallons of oil, the litigation lingers on as the courts continue to try to determine what the punitive damages should be.

This June, the U.S. Supreme Court provided some closure with a give-and-take ruling that sustained, but reduced, the punitive damage award against Exxon for the worst oil spill in U.S. history.

Although Exxon already paid some $3.4 billion in out-of-court settlements, criminal penalties, cleanup costs, and other expenses, the company initially faced $507.5 million in compensatory damages plus a staggering $5 billion in punitive damages. The original $5 billion was cut in half by the 9th Circuit Court of Appeals in 2006, but Exxon pressed on to the U.S. Supreme Court, hoping to have the punitive damages thrown out. In issuing its ruling, the Supreme Court prescribed new limits on punitive damages under maritime law.

While Exxon conceded that it was not statutorily protected from being answerable to the plaintiffs for compensatory damages, the company argued that any award of punitive damages was pre-empted by the Clean Water Act, under which it had already been sanctioned. The Supreme Court disagreed. The Act, the court said, said nothing about treating punitive damages any differently from compensatory damages.

But Exxon did score an important partial victory when the Supreme Court ruled that the punitive damage award would have to be reduced considerably in accordance with new, rather limited parameters on how punitive damages can be quantified in maritime cases. The Supreme Court dictated that punitive damages should not exceed the compensatory award. Justice Souter, who authored the court’s opinion, justified this judicially created formula as a means of providing a “reasonably predictable” penalty and correcting a defective approach that failed to offer reasonable limitations in the calculation of such awards.

The historic decision now defines the upper limits for punitive damage awards in maritime cases, and many legal scholars predict that the new approach will spill over into general common law as well. The case has now been sent back to the 9th Circuit to adjust the punitive damages.

Daniel J. Hoerner is a New Orleans-based maritime attorney at Mouledoux, Bland, Legrand & Brackett LLC. He can be reached at 504-595-3000 or dhoerner@mblb.com.

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