Spot tankers with Jones Act voyage options fail amid Colonial Pipeline restart

Foreign-flagged ships previously booked for voyages from the US Gulf Coast to the US Atlantic Coast began to fail on subjects the morning of May 13 following the late May 12 announcement of Colonial Pipeline's restart, with charterers no longer seeking Jones Act waivers from the government, shipping sources said.

The US issued just one Jones Act waiver for a shipper to move a combined cargo of gasoline and jet fuel from the USGC to the USAC, the Department of Homeland Security said May 13. Foreign-flagged spot shipowners expected no further interest for inter-US voyages within the spot market.

Spot tanker sources could not confirm what charterer was granted the waiver, although brokers thought it was likely an oil major or an entity with a large refining capacity.

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One tanker booked the morning of May 12 with an option for a "Jones Act run'" from the USGC to the USAC was reported to have failed on subjects the morning of May 13. GE Warren had placed the MR Agioi Fanendes on subjects at a rate of lump sum $900,000. Shipowners said the rate for the USGC-USAC voyage was slightly lower than other spot rates talked May 12, with USGC-USAC prices reported above lump sum $1 million for a foreign-flagged ship.

Rates for Jones Act ships tend to range well above the international-flagged market, because of requirements that state the ship must be US-built, US-crewed, and majority US-owned when transporting goods between US ports.

Time-charter-equivalent earnings for a Jones Act Medium Range tanker on the USGC-New York route stood around $50,000/day May 12, according to a Jones Act shipbroker. Foreign-flagged tankers, by comparison, reported earnings in the high $30,000/d range on short-haul spot voyages.

The USGC-Caribbean route, last traded at lump sum $900,000, is a five-day voyage traveling at 13 knots based on load at Houston and discharge at Pozos Colorados, Colombia. Travel time at 13 knots from Houston to New York is six days.

Bunker costs for the inter-US voyage would likely be higher than an export route, because of the higher price of marine gasoil required in the North American Emission Control Areas that extends up to 200 miles from the US coastline.

Pipeline's return to stifle spot export demand?

With Colonial Pipeline commencing restart the evening of May 12 and expected fully online by midday May 13, shipping sources in the spot tanker market said freight rates for MR tankers loading on the USGC for export voyages could fall going into the weekend as charterers seek to move extra barrels up to the gasoline-short markets in PADD 1 on the pipeline.

Freight levels for USGC export routes peaked at 12-month highs May 11 as charterers sought outlets for barrels stranded on the USGC amid the Colonial Pipeline shutdown. The 38,000 mt USGC-UK/Continent route was assessed May 11 at Worldscale165 or $28.50/mt, the highest rate since May 6, 2020, when the route settled at $32.04/mt. Overall sentiment weakened somewhat mid-week, however, as owners looked to lock in favorable earnings on long-haul voyages, and the 38,000 mt USGC-UK/Continent route settled May 12 at w140, or $24.18/mt.

The push for exports the week of May 10 and the subsequent spike in rates provided shipowners a reprieve from a market kept weak by low global petroleum product demand. For most of the first quarter, shipowners reported daily earnings barely above breakeven levels for most USGC-loading routes, even dipping into negative earning territory.