USS fleet upgrade could go beyond new vessels

USS fleet upgrade could go beyond new vessels

ITBs may be modified for OPA '90, new business; AMO to benefit from long-term jobs

Fleet expansion and improvement by U.S. Shipping Partners (USS) may not be limited to the new double-hulled tankers and articulated tug-barges ordered from domestic shipyards.

USS Chairman and Chief Executive Officer Paul Gridley said in August that the company -- which has collective bargaining agreements with American Maritime Officers -- could retrofit its six integrated tug-barges with double hulls or modify the vessels to operate in chemical, grain or dry bulk markets.

The AMO-manned integrated tug-barges -- Baltimore, Groton, Jacksonville, Mobile, New York and Philadelphia -- already have double bottoms. Each has a capacity of 370,000 barrels.

Fitting the ITBs with double hulls would allow the vessels to continue operating in U.S. waters beyond 2015 under OPA '90, the Oil Pollution Act of 1990.

Gridley said a market exists for vessels converted from single-hull to double-hull configuration. "There are a significant number of customers who won't accept retrofitted tonnage," he said. "But there are a significant number of others who will."

Gridley's comments followed the company's announcement that it had ordered nine 49,000-deadweight-ton double-hulled petroleum product tankers for domestic service from General Dynamics NASSCO in San Diego.

"USS is committed to building and operating the largest, most technologically advanced deep-water fleet in the United States," Gridley said of the contract with General Dynamics NASSCO, which includes options for as many as five additional vessels of the same class.

"These new ships will allow us to add the needed capacity that the domestic energy market is demanding," he added. "Given the regulatory requirements to upgrade the fleet operating under the Jones Act, General Dynamics NASSCO is a tremendous partner to provide us with a superior product that meets these requirements in a timely fashion. These new ships will allow USS to expand our domestic shipping business while providing our customers with the high-quality reliable transport they require for their petroleum and chemical products."

Frederick J. Harris, president of General Dynamics NASSCO, said: "NASSCO is the leading builder of U.S. Navy auxiliary ships and has delivered more Jones Act ships than any other shipyard in the country today. This contract is the largest commercial shipbuilding contract in NASSCO's history and positions this shipyard to remain the premier builder of Jones Act ships." Enacted as Section 27 of the Merchant Marine Act of 1920, the Jones Act holds domestic deep-sea, Great Lakes and inland waters cargoes for merchant vessels owned, built, registered and crewed in the United States.

The tankers ordered by USS will be built from a design by DSEC, a subsidiary of Daewoo Shipbuilding and Marine Engineering of Seoul, South Korea. In March 2006, General Dynamics NASSCO and DSEC signed a technology transfer agreement under which DSEC is to provide detail designs and technical support services for vessel construction projects in the San Diego yard.

USS said the tankers would be time-chartered to U.S. energy companies for periods ranging from 3 to 10 years. "We are currently in discussions with several major oil and gas companies to charter the tankers under long-term charter contracts," the company said in a recent filing with the Securities and Exchange Commission. "Because of the decline in available tanker capacity in the U.S.-flag 'Jones Act' market, the major oil and gas companies' continued emphasis on chartering new high-quality tonnage and the shortage of shipyard capacity to build tankers in the United States, we believe that we will be able to negotiate favorable charter rates."

Delivery of the first of the nine new tankers is expected in the second quarter of 2009, with subsequent vessel deliveries at intervals of six to eight months.

U.S. Shipping Partners will also take delivery of three articulated tug-barges in the next three years, with additional ATB tonnage to follow.

With one ATB already under construction, USS in February 2006 signed with Manitowoc Marine Group for the construction of two barges, each with a cargo capacity of 156,000 barrels. The order included options for two additional barges, and these options were exercised in May 2006.

Also in February 2006, USS ordered two tugs from Eastern Shipbuilding Group. The tugs will be joined with the barges from Manitowoc to form the first ATB units.

The contract between USS and Eastern included options for four additional tugs.

"We expect the first two new ATB units to be completed in August 2008 and November 2008 and the second two new ATB units to be completed in August 2009 and, if not canceled, November 2009," USS said in its SEC filing.

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