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Barge operator Kirby says robust demand to continue, as it orders more vessels

After a harsh winter caused significant delays in shipments, leading US barge operator Kirby Corp. expects "healthy levels of demand [and] favorable pricing trends" going forward, largely on the back of booming North American oil production, Executive Chairman Joe Pyne said.

The company said late Wednesday it will exercise an option to buy a second 185,000-barrel coastal articulated tank barge and 10,000-horsepower tugboat unit, as well as order two additional ATBs "as a result of consistently strong coastal tank barge demand, utilization and increasing pricing."

In all, Kirby plans to spend about $135 million in 2014 on the construction of 66 inland tank barges and one inland towboat that will add about 830,000 barrels of new capacity, and $80 million towards the construction of the two 185,000-barrel ATBs.

The company earned a record $1.09/share in the quarter, compared with $1/share the same period a year ago.

"Every new barge that comes out of the shipyard is put to use," new CEO David Grzebinski said on a conference call to discuss the company's Q1 earnings.

He said utilization of the company's barges, in both the inland marine and coastal marine segments, ran about 90-95% in the quarter, a trend he expects to continue.

He added that Kirby is on the lookout for potential acquisitions to grow its fleet, although with demand for barge transportation so high right now, many possible targets are too richly priced.

"The market's pretty good right now. Demand's high and it looks like it's going to be that way for a while," Grzebinski said. "The price expectations for sellers, they're more likely to not meet our return hurdles if we pay the full price they're asking. But you never know. A lot of our potential acquisitions have unique situations. We're in the time where we believe it's time to build capacity."

Company officials said they had seen no impact to their operations from recent larger-than-expected drawdowns from Cushing, Oklahoma, and the resulting glut on the Gulf Coast.

Heavy ice conditions on the Illinois, upper Mississippi and upper Ohio rivers, along with winter frontal systems that brought heavy winds and fog to the Gulf Coast, caused a 41% year-on-year increase in delay days, Kirby said.

Meanwhile, the US Coast Guard continues to investigate the cause of the March 22 collision between a Kirby barge and a ship, which spilled about 170,000 gallons of oil into the Houston Ship Channel, shutting it down for days.

Kirby has alleged in court documents filed last month that the ship, the Liberian-flagged Sea Galaxy Marine, was speeding, while Sea Galaxy has denied responsibility for the collision.

Pyne said Thursday that the cleanup of the spilled crude "is essentially complete" and that the US Coast Guard has indicated no timeline for the completion of its investigation.

He said Kirby has reserved $100 million for claims associated with the incident and that the company carries $1 billion in insurance for pollution and liability exposures.
Source: Platts