US barge business going strong

KIRBY GETS A GRIP

INLAND SHIPPING • KIRBY CORP’S FIRST QUARTER FIGURES TELL US A LOT ABOUT THE EFFECTS THE COVID-19 CRISIS AND OIL PRICE COLLAPSE ARE HAVING ON THE US OIL PATCH

INLAND AND COASTWISE transport of petroleum and petrochemicals are crucial to the effectiveness of the US oil sector. As that sector has been impacted both by the Covid-19 pandemic and by the sudden collapse in oil prices, those involved in the tank barge sector have faced immediate and drastic challenges. Those challenges are ongoing but, as operators report on their first quarter, there are signs that it has not all been bad.

For instance, David Grzebinski, president/ CEO of Kirby Corporation, the largest operator of inland and coastwise oil and chemical barges, observes some upside. “Kirby started the year with improving market conditions in our marine businesses and stable conditions in distribution and services,” he says. “Most of the first quarter was solid, but as the Covid-19 crisis deepened and energy prices collapsed, business activity levels declined in distribution and services.

“In the first quarter in marine transportation, despite poor seasonal operating conditions, our inland marine business had strong activity with elevated demand, high barge utilisation levels, and increased pricing for both spot and term contracts. Similarly, tight market conditions in coastal resulted in good barge utilization and improved spot and term contract pricing,” Grzebinski says. “Since the onset of the Covid-19 pandemic, marine activity has remained relatively strong with many customers using incremental barges to ready their supply chains, store products, and relocate inventories. However, with many refineries and some chemical plants curtailing production in response to lower consumer

KIRBY CORP IS STILL SEEING STRONG DEMAND demand, our barge utilisation levels started to decline in mid-April.”

Kirby’s Distribution & Services division was more immediately impacted by the oil price collapse, with Grzebinski observing that the segment “experienced sequentially improved levels of activity in the early part of the quarter, with higher volumes of oil and gas related transmission sales and service, as well as some construction of new pressure pumping equipment. However, these encouraging trends reversed in March as oil prices rapidly declined and our major oilfield customers announced significant reductions to their 2020 activity and capital spending plans.”

VOLATILITY EXPECTED For the first quarter, Kirby’s marine transportation activities generated revenues of $403.3m, up 9.6 per cent year-on-year, with operating income rising from $35.4m to $50.7m. In the inland market, while average barge utilisation was in the low to mid-90 per cent range over the quarter, activities were hampered by unfavourable operating conditions: poor weather, including fog and wind along the Gulf coast and flooding on the Mississippi River, as well as lock closures on key waterways. Spot rates improved, as did term contract rates on renewals.

In the coastal market, barge utilisation rates were in the low to mid-80 per cent range during the quarter, with spot and term contract rates up by between 10 and 15 per cent compared to first quarter 2019.

Despite this bright start to the year, Kirby is taking a cautious approach to the year as a whole. Grzebinski explains: “Our businesses are dealing with very volatile market conditions. During this time, we are managing this situation day-by-day with an intense focus on the health and safety of our employees, seamless operations, and uninterrupted customer service. Additionally, we are aggressively reducing costs, lowering capital spending, and focusing on cash flow.”

Grzebinski does, though, expect 2020 to be a “solid year” for Kirby’s marine business, despite the obvious challenges: “Although we anticipate a decline in volumes and barge utilisation, we believe as in past cycles that our marine customer contracts and the variable nature of our cost structure will help to minimise the impact on our operating margins.” kirbycorp.com