American Commercial Lines/Jeffboat Comments on Barge Industry Fundamentals ($CNRD)

I mentioned in one of my Conrad Industries writeups that it seemed like Contad was making a big bet on strengthening business and order trends. They are very cautious yet they are spending $15mm on expansion this year, and the most they've spent in one year since 2007 is $5.9 million in 2008.

I found some very revealing comments on industry fundamentals in this filing by American Commercial Lines, a company (now private) which owns barge builder Jeffboat,

"We believe, based on data reported by River Transport News (published by Criton), that Jeffboat and one other competitor together comprise the significant majority of barge manufacturing capacity in the U.S. We also believe that the new dry barge builds required to replace retiring barges may strain the capacity of barge manufacturing during the next five years.

[They make barges for their own use as a shipping provider.] We currently have no additional 2012 capacity for external barges as we continue to revitalize the transportation segment fleet.

Over the long term, we remain cautiously optimistic that there will be a tightening of capacity and increased demand in the dry barge market, which we believe will improve the market’s pricing dynamics. We expect to see continuing strong liquid demand and to increase the Company’s liquid capacity driven by strength in the petroleum market. Favorable oil price spreads between less mature crude oil sources, such as the Western Canadian crude and Eagle Ford shale regions, and the WTI and Brent crude markets will support pricing and demand dynamics that will be favorable to our business, particularly for dedicated service contracts. We also believe that demand for liquids transportation services may be increased by activities such as the reopening of certain gulf ethylene cracker plants and the production of natural gas liquids at much higher quantities than in 2011.

Yes, the growth in petroleum liquids transportation over water is very bullish for barges. One nice thing for barge manufacturing is that the barges for different types of goods (hopper for dry bulk, tank for liquids, etc) aren't very substitutable for one another.