American Shipping Co (AMSC) has pointed to strong headwinds in the Jones Act tanker market but said its quarterly results remain cushioned by long-term bareboat charters.
Refinery throughout and fuel consumption in the US has remained below normal levels with the coronavirus pandemic showing no sign of abating, hurting domestic shipping demand.
“The current impact of the Covid-19 pandemic has significantly reduced demand for crude oil and clean products in the US market in the near term,” AMSC said in a quarterly report on Friday.
“Although economic activity has recovered substantially from the low point in the second quarter, consumption of clean products is still lagging.”
The Oslo-listed product tanker owner said several Jones Act tankers have been offered for relets for the past few months, with the weak demand picture in the US.
“As most MR Jones Act tankers have time charter contracts for 2020 and beyond, the drop in utilisation has so far mainly affected oil majors and refiners as opposed to ship owners and operators,” AMSC said.
AMSC warned that both spot and time charter rates are facing downwards pressure in the near term.
“As existing time charter contracts expire, the number of idle vessels is expected to increase,” the company added.
Protection from charters
AMSC has fixed all 10 vessels to Overseas Shipholding Group (OSG) on bareboat charters. Of those, five are secured until December 2022 and four until December 2023, while a shuttle tanker is chartered through to June 2025.
The contracts have protected the company from the current downturn, with its third-quarter operating income coming at $12.9m — little changed from $13m in the same period of 2019.
But AMSC recorded a net loss of $4.5m between July and September, hit by bond refinancing, write-off of lending fees and a non-cash income tax expense.
In July, the company refinanced its $220m unsecured bond by issuing a new bond to raise $200m at a lower coupon rate.
“The strong interest in our refinancing from banks and bondholders is a reflection of our stable business model, despite Covid-19 related financial market volatility,” AMSC chief executive Pal Lothe Magnussen said.
The company recorded a net loss of $1.8m for the first nine months of 2020, versus a net profit of $4.5m in the same period of 2019. Operating revenues marginally increased to $66m from $65.7m.
Looking forward, the market focus is expected to be on whether US oil demand will recover before AMSC starts to negotiate its contract renewal with OSG.
“Whilst the market likely is concerned over contract renewals…we are confident,” said Fearnley Securities, adding that there was “limited surprise” from AMSC’s latest quarterly results.
“The supply-demand balance in the Jones Act market coupled with the contract pricing and structure will see Overseas Shipholding renew over the coming 12 months,” the Norwegian investment bank said in a note.
AMSC said the long-term fundamentals in the Jones Act tanker market remain stable due to a lack of newbuilding orders.
“The Jones Act tanker fleet will continue to shrink as older tonnage is facing expensive dry-docks and special surveys and will likely be phased out,” the company added.
