[MarEx Interview] Rob Grune, Crowley Maritime

Munoz: Bring us up to date on the status of Crowley’s newbuild program and the strategy behind it.

Grune: Let me take a step back first. As you know, we’ve been working on our newbuild program for the past ten years. We’ve built 17 articulated tug barges (ATBs), and we’ve built two new MR tankers out of Aker Philadelphia Shipyard. We’re in the process of building four more MR product tankers, for a total of six, and will take delivery of the first one in the middle of 2015 and then one every four months thereafter. The vessels will be fully delivered by the middle of 2016 – so 17 ATBs and six oil tankers for a total of 23 U.S.-flagged Jones Act blue water product/crude carriers.

Munoz: What‘s the strategy behind the newbuildings? Are they strictly for clients’ needs or are there lapses when they could be on the spot market in the U.S.?

Grune: That’s a good question. Crowley’s strategy is to directly meet our customers’ needs. It’s always been our strategy to have a close relationship with our customers. We listen to what they have to say, we listen to what they need, and we respond accordingly.  For example, the 23 vessels that we operate and will operate in the future are chartered to six different companies. That’s it. The majority of our ATBs have been with the same customers since the day they were delivered, which is an indication that we have been successful in our strategy of meeting the customers’ long-term needs.

It is unlikely these vessels would enter the spot market. It doesn’t mean when they come off a charter they won’t be traded in the spot market, but our strategy has been to keep the vessels out on time charter. Most of our vessels when they do come off a charter are immediately renewed by the existing charterer. Our hope is that these vessels remain in service to their original customers for their entire lifespan. 

Munoz: Would you consider yourself the biggest player in the coastwise transportation of crude oil and petroleum products?

Grune: No, I wouldn’t. I would probably consider us number two. OSG has more capacity due to the fact that all of their vessels are tankers and they operate large ATBs. 

Munoz: Is there really a shortage of vessels in the coastal market? Why is that?

Grune: The answer is that there currently no are no available U.S.-flag vessels trading on the spot market today. However, there are at least five ocean-going tank vessels under construction that are not committed. There are not a lot of vessels sitting around looking for business primarily because of the shale oil phenomenon that took off in this country about two-and-a-half years ago. I’ve had many meetings with oil executives across the country, and nobody expected the shale oil phenomenon to take off like it has.

Now it’s not just shipping that’s short. All type of infrastructure is being built. Pipelines are being constructed and reversed to meet demand; railcars had to be built and water access to oil terminals constructed or expanded. This has had to happen quickly because the industry as a whole was caught off guard. 

That’s exactly what is happening in the U.S.-flag, Jones Act, blue-water industry. We are reacting to the need. Crowley is building new vessels. Seacor is building new vessels. Moran, Kirby, Bouchard are building new and the list goes on. American Petroleum Tankers just announced last week that it’s going to build a fifth in the series of vessels they’re building at NASSCO, and Aker Philadelphia Shipyard announced that it’s going to build two new tankers for a new shipping entity, Philly Tankers. The industry is responding to the demand.

I find it a bit disingenuous that some blame the U.S.-flagged coastal carriers for a lack of capacity. Just like the rest of the U.S. oil industry, the U.S. shipping industry is responding and responding in big way. Crowley will start to take delivery of our vessels in the middle of next year. As we speak, the U.S. maritime industry has 20 to 22 vessels under construction, responding to the nation’s need for more vessels.

Munoz: What is that going to do to the domestic labor market for maritime?

Grune: I think it’s fantastic. I would suggest you talk to some of the maritime union leaders because they are thrilled with the industry’s growth. On top of that, just three years ago there were rumors of a few U.S. East Coast refineries closing and the potential for one or more U.S. shipyards having to close. That did not happen, and many jobs were saved due to the new energy boom in the U.S. Good-paying shipyard jobs, seagoing jobs, refinery jobs have been retained, and new jobs are being created.

A little over three years ago several of the U.S. shipyards were aggressively out looking for additional commercial business. Now I believe it would be difficult to obtain a slot at any of the major yards for many years in the future. In addition, there are several new ATBs that are being built at some of the smaller yards, all providing good solid jobs. The list goes on and on. So now, here are all these shipyards that have U.S.-trained people building these vessels, and on top of that you have all the mariners who are going to crew those vessels, all of which is good for the industry and good for the country.

Crowley spends a lot of time recruiting at the maritime academies. When we go to the academies we find that the graduates are in demand and that they are all getting jobs. The unions are responding accordingly as well. The nation’s maritime unions have been actively training people to take on the jobs that will be available now and into the future. All of this is a great thing for the industry as a whole.

Munoz: How long can the boom continue?

Grune: Wow, I wish I knew. I think it will continue, but I do think there is going to be a limit. There are many factors that will affect the “boom.” We keep hearing about the exporting of U.S. crude oil. My personal feeling is that the country will want to maintain its energy independence and not export crude oil. However, if a lifting of the ban were to take place, I would expect that this would dampen the demand for U.S.-flag Jones Act tankers and thus slow down the growth we are currently experiencing.   

From a policy standpoint I believe that energy independence is a positive thing for this country. I also believe that if exports were to be permitted we would likely see an increased cost of gasoline at the pump. If that is true, then I do not see the lifting of the ban on exports happening anytime soon, at least not at a rapid pace. The reason I say that is because I think it’s hard for the consumer, who’s filling up his or her gas tank, to all of a sudden see gas prices going up while at the same time seeing crude oil that we produce here in the U.S. being exported.  

Munoz: What about LNG, which many see as the next big thing? Is there an opportunity there for Crowley?

Grune: Oh yes, absolutely. Actually, that’s an opportunity that we’re already working on. For example, we’re building two new container ships at Halter in Pascagoula, MS. Those vessels are going to be delivered in the middle of 2017 and they are going to be powered by LNG. The ships are going to be trading from Jacksonville, Florida down to Puerto Rico. If you were to ask me today how we were going to fuel those vessels with LNG in Jacksonville or San Juan, I couldn’t do it.   So what’s going to happen is someone’s going to build a liquefaction plant here in Jacksonville to supply that demand, or you’re going to have to import LNG to the port in order meet the requirement.

Opportunities like that for LNG are springing up all over, not just in Jacksonville but on the West Coast and down on the Gulf Coast. Crowley has started a separate business to explore these various opportunities and to be distributors of LNG. Starting this fall we’re going to sell LNG in the Caribbean, shipping containerized LNG via our liner service from the U.S. to Puerto Rico. This new business is a small-scale LNG distribution business. We’ve already announced that we have secured a contract with one customer in Puerto Rico, the local Coca-Cola distributor, and we are working with several other customers. Most of the customers we are speaking with are repowering their plants to run on LNG. This is a very critical supply chain business that we are engaging in because if you don’t show up with the LNG it impacts the plant and the production and distribution of products in Puerto Rico.  

We are also working on bulk LNG distribution. We have, as you know, in Seattle our in-house naval architecture company, Jensen Maritime that designs vessels. Jensen is in the process of talking to customers and designing Jones Act LNG coastal carriers and bunker barges.  Jensen is right in the middle of all of this new vessel design. It’s a good time for the U.S.-flag maritime industry in terms of LNG opportunities

Munoz: Any final words for our readers?

Grune: Yes, do me a favor and go on Dave Gardy’s site www.MaritimeTV.com. There’s a speech that was given by Congressman Duncan Hunter from San Diego. Congressman Hunter gave a terrific speech at this year’s Salute to Congress Dinner in Washington. He was the honoree.  He talks about the U.S. shipping industry and the benefits of the Jones Act to this country. I think he makes a lot of very strong points in his comments. As a country, I believe that we all want U.S. shipyards building our military and commercial vessels; we want U.S. citizens manning those vessels, and we want those vessels owned by U.S. corporations.   – MarEx