Where do petroleum manufacturers go when the refined petroleum products have reached the end of the line by pipelines, motor carriers and railroads? Armando Diana learns that K-Sea transportation is a key player in providing the ‘last mile’ transportation of refined petroleum products along the distribution chain.
Petroleum products are responsible for making vehicles move from point A to point B and K-Sea Transportation Partners L.P. is responsible for transporting the petroleum products to their final destinations. Headquartered in East Brunswick, N.J., K-Sea Transportation is a leading provider of marine transportation, distribution and logistics services in the United States. With locations in New York, Philadelphia, Norfolk, Seattle and Honolulu, K-Sea operates a fleet of 74 tank barges and 66 tugboats that serves a wide range of customers, including major oil companies, oil traders and refiners. With an approximate capacity of 4.4 million barrels, K-Sea operates one of the largest coastwise tank barge fleet in the United States.
In its fiscal year that ended on June 30, 2008 the publicly traded company transported approximately 160 million barrels of refined petroleum products for such customers as BP, Chevron, Conoco Philips, ExxonMobil and Rio Energy. More impressively, the top five largest customers in 2007 have been doing business with K-Sea Transportation for an approximate average of 17 years. Gregg Haslinsky, Vice President of Sales and Marketing notes that longevity is a tribute to the company’s focus on the customers’ needs by adhering to high standards of performance, reliability and safety.
IN THE BEGINNING
What began as a maritime company called Eklof Marine with a primary focus on local barging transportation has grown into one of the nation’s largest petroleum transportation fleets through organic growth and acquisition. Eklof Marine was a family-owned company with deep roots in the maritime community of New York Harbor. One of its core businesses was transporting fuel oil, called “bunkers” to ships calling on ports in New York Harbor. K-Sea Transportation is still the primary transporter in the New York Harbor bunker market today.
In April 1999, Tim Casey, the current President and CEO of the company, led a management buyout and the name and ownership of Eklof Marine was changed to K-Sea Transportation LLC. In December of the same year, the company purchased the northeast fleet of Maritrans Operating Partners. The acquisition doubled the carrying capacity of the company, along with adding valuable horsepower – in the way of tugs – to support the growing barge fleet. “The buyout and of course the added equipment made an immediate impact to the northeast barging market,” Haslinsky says.
Since 1999, K-Sea Transportation has embarked on an aggressive growth strategy. The company reorganized in 2004 as a publicly traded master limited partnership, which gave K-Sea Transportation the ability to obtain access to capital at favorable rates. That, in turn, helped fund the new barge construction program that propelled KSea Transportation’s organic growth. Through a contract with Bollinger Shipyard in Louisiana, K-Sea commissioned four new double hull barges; two 100,000-barrel and two 80,000-barrel units. The concept was to create equipment able to carry multiple grades of cargo, with physical dimensions that would permit docking at the standard barge berths in the Northeast market.
Throughout the years, K-Sea’s ability to recognize and stay ahead of the market a trend has kept it docked atop the industry. Earlier in the decade, K-Sea embarked on a re-powering program for several of its tugs. This program basically took the older engines out of existing tug boats and replaced them with more fuel-efficient, low-emission engines. With the recent dramatic rise in diesel fuel costs , having boats driven by fuel-efficient engines gives K-Sea Transportation a cost-efficient edge on its competitors that Haslinsky says is passed onto customers. In addition, the majority
of K-Sea’s new construction barges become part of integrated tug barge units, or “ITBs,” meaning the tug and barge are mechanically linked together with the tug pushing from a notching system in the stern of the barge. This differs from the traditional towline system that most people are familiar with. Greater efficiencies are gained such as speed, fuel consumption and less weather sensitivity; in addition, the ATB configuration provides enhanced safety. With the exception of a few very specific markets all of K-Sea’s new construction projects incorporate the ITB design.
The Oil Pollution Act of 1990 or OPA 90 outlines and defines financial responsibilities for oil spills, among other things. It also requires the phase-out of all single hull vessels transporting petroleum and petroleum products in United States waters at on or before January 1, 2015. The industry as a whole responded favorably to the legislation. Approximately 76 percent of K-Sea’s fleet is already double hulled and eight additional double hull units are currently under construction. K-Sea is well-positioned to meet the
2015 phaseout deadline.
Finally, all K-Sea’s tank vessels except two operate under the U.S. flag, and all but three are qualified to transport cargo between U.S. ports under the Jones Act, the federal statutes that restrict foreign owners from operating in the U.S. maritime transportation industry. According to Haslinsky, the company’s strategy is to expand the business and increase distributable cash flow to investors, which is accomplished organically through the new building projects and also through strategic acquisitions. To that end, on Aug. 14, 2007, K-Sea acquired all of the equity interests in Hawaii-based Smith Maritime, Ltd., and Seattle-based Sirius Maritime, LLC. Prior to the acquisition, Smith and Sirius provided marine transportation and logistics services to major oil companies, oil traders and refiners in Hawaii and along the West Coast of the United States, and these services now continue under the K-Sea flag.. On a combined basis, the petroleum transportation operations of these companies include 11
petroleum tank barges and 14 tugboats, aggregating 777,000 barrels of capacity, of which 669,000 barrels, or 86 percent, are doublehulled. These acquired tank barges represent a 22 percent increase in the barrel-carrying capacity of the K-Sea fleet.
Haslinsky says K-Sea has always viewed its services as an extension of the pipeline infrastructure in the United States. In short, where capacity can’t be met or where pipelines aren’t available, KSea’s waterborne transportation services come into play. According to a 2006 study by the Association of Pipelines approximately 29.9 percent of all domestic refined petroleum products were transported by waterborne transportation in 2004. And it doesn’t stop there. K-Sea currently has an aggressive order book still being completed by various shipyards in the US Gulf, West Coast and in the Great Lakes. Almost all of the new construction projects are ITB equipped with the exception of a few specific markets and can handle a wide range of services and products. The company made the decision to add the connection system to these units due to the positive feedback received from the customers, crew and the efficiencies experienced on the first series of barges. The ITB design was primarily viewed by the industry as a larger unit application. However after studying the concept and applying it to the company’s smaller barge operation Haslinsky says the invest- ment also benefits this segment. Haslinsky points to the higher number of dockings, sailings, and voyage length the smaller barges do because of their operating area in New York Harbor. He says with the application of the connection system K-Sea was able to cut the time in half during those maneuvers. There are only a few tank barge operators that operate on both coasts, and even fewer that have operations in Hawaii and the Great Lakes, which further distinguishes K-Sea from the competition. The company has also not shied away from some of the more labor intensive work. For
example K-Sea is committed to serving the Alaska market and will continue to operate and build new equipment for this challenging trading environment. K-Sea also offers harbor support services such as delivery of lubricants, diesel fuel, potable water and stores to the maritime community. With the wide range of services coupled with the geographic footprint K-Sea can be all things to its customers in the petroleum transportation and maritime sectors.
K-Sea’s objective is to attract and maintain customers by adhering to high standards of performance, reliability and safety. Looking to the future K-Sea’s management plans to continue its growth strategy by consistently surveying the marketplace to identify the right opportunities for further expansion, both in the types of services and products offered and in geographic scope.
Further, Haslinsky says the company intends to maximize fleet utilization and improve productivity which can be accomplished through the interchangeability of the tank vessels. K-Sea’s large and versatile fleet gives the company the flexibility to allocate the right vessel for the right cargo assignment on a timely basis.
Refined petroleum products are transported by pipelines, water carriers, motor carriers and railroads. K-Sea Transportation is the answer to continue the transportation of refined petroleum products along the distribution chain.