Higher refinery production and the Covid recovery have improved utilisation for inland and marine transport
US coastal and inland marine transport markets are set to improve in H2 2022, driven by rising demand for liquid and bulk cargoes and rising production levels.
Owners of tugboats, towboats, push boats and barges are expecting an uplift in demand, rising utilisation, tightening asset availability and increasing charter rates.
Kirby Corp is expecting continued improvement in markets, demand and rates for its marine and inland transport assets. It has already seen an improvement in operations this year following a tough Q1 2022, which was partially down to Omicron Covid-19 issues.
The New York-listed group has reported enhanced operations and raised shareholder expectations for the rest of 2022.
Kirby president and chief executive David Grzebinski says Kirby is in a strong position and so are market fundamentals.
“Refinery utilisation is back to pre-pandemic levels, our barge utilisation is strong in both inland and coastal, and rates are increasing,” he says. “Overall, we see momentum continuing to build, and we expect our businesses to deliver improved financial results in the coming quarters.”
However, there are negative trends that could slow growth in inland and marine operations.
“We are mindful that ongoing challenges related to Covid-19, high commodity prices impacting demand, and additional economic headwinds are possible,” Mr Grzebinski says.
“Labour constraints and inflationary pressures are also contributing to rapidly rising costs across our businesses.”
In marine transport, recovering vessel and barge rates are lagging behind rising operational costs in Q2 2022, which is bringing pressure on company margins.
Kirby expects modestly improved demand throughout 2022 and tug-barge utilisation to rise to over 90%. Rates are also expected to slowly improve, but meaningful gains will be challenged by underutilised barge capacity across the industry.
The company’s revenues and operating margins are expected to be impacted by planned shipyard maintenance and ballast water treatment installations on vessels, impacting operating margins in coastal transport.
For inland transport, favourable market conditions have contributed to rising tug and barge utilisation to over 90% since mid-March. This improvement is expected to continue in Q2 and H2 2022, driven by high refinery and petrochemical plant production levels, and minimal new barge construction across the industry.
Kirby expects continued improvements in the spot market, which represents around 35% of its inland revenues. Term contracts are also expected to continue to rise, to reflect improved market conditions for 2022. Any rises in operating margins will be constrained by material and fuel inflation.
Mr Grzebinski says Kirby will focus on capping costs and using cash flow to reduce debt. “We will continue to take a disciplined approach to capital allocation. We will regularly evaluate our capital allocation programme to ensure we have the right levels of capital to fund our projects.”
Kirby expects 2022 capital spending to range from US$170M-US$190M, with just US$5M ready for constructing new inland towboats. Another US$145M-US$155M is allocated for marine maintenance capital, improvements to existing inland and coastal marine equipment and improving facilities. The balance of US$20M-US$30M relates to new expenditure in the distribution and services division and corporate IT projects.
