Houston traders wary of winter ship delays

OREANDA-NEWS. November 17, 2015. The onset of the winter sea fog season and rapidly growing vessel traffic on the Houston Ship Channel has many traders concerned about an increase in delays.

Sea fog is more likely to form on the Houston Ship Channel from late November to February, hindering visibility and vessel movements on the narrow waterway. During this time its not unusual for the second largest US port by tonnage to be closed for hours by fog.

Some market participants fear those delays could grow worse, however, as increased traffic from booming chemical and refined products businesses are coupled with growing LPG exports from newly expanded terminals.

Enterprise Products Partners, which operates the largest LPG export terminal on the waterway, is adding another 7mn bl per month of export capacity by the end of 2015, bringing the total capacity of the facility to 16mn bl per month, or approximately 1.3mn tons of propane. That's roughly 29 VLGCs at the terminal per month.

Channel closures because of weather related delays can cause a ripple effect, delaying loadings and traffic down the chain. Shippers eager to avoid possible cancellations or demurrage from loading delays often make sure vessels arrive two or three days early.

Since demurrage is very expensive, "we see more correspondence about bringing vessels in early rather than risking missing the two-day loading window," according to one LPG broker.

A study released by the State of Texas in September said the Houston Ship Channel was already seeing significant delays for petrochemical tankers because of growth and limits on the infrastructure along the relatively narrow waterway. According to the study, of the 19,000 vessel movements the Ship Channel's ship pilots logged last year almost 1,400 of them were "nonproductive moves," when a vessel is moved simply to get out of the way of other traffic and not to load or unload.

Nonproductive moves are not unique to Houston, and this number has remained steady over the past several years in Houston. But it is expected to grow significantly over the next few years since the Houston Ship Channel is a long waterway without areas for deep drafting vessels to pull over and wait. This means many vessels have to go back out to sea to anchor and wait for another terminal accept them.

The waterway includes a total of 223 ship berths, 179 barge berths and nine fleeting areas, according to Steve Nerheim, director of the Vessel Traffic Service Houston/Galveston. The channel sees 60-70 ship movements per day.

There were approximately 160,000 transits in 2014, higher than the prior year and up 11pc over the past 15 years, according to the US Coast Guard's Vessel Traffic Service for Houston/Galveston, which is the latest available. Of that amount, barge or towing vessel movements averaged 358 per day in 2014, accounting for 80pc of total volume.

In 2014 fog closed the channel for approximately 375 hours, according to Coast Guard data. Already during the first week of November, the waterway was closed for half a day and for a couple of mornings as pilots waited for fog to clear so vessels could safely navigate. In November 2014 fog closed the channel for two days.

After a closing vessels loaded and ready to sail usually get priority to move, a key factor as exports increasingly account for a larger portion of channel traffic. A port coordination team, made up of about 20 key constituencies along the channel, meet via conference call to coordinate restart efforts and indicate their priorities for which vessels are allowed to continue movements first, Nerheim said.

The constituencies tend to cooperate with one another, and no formal priority is given for any particular cargo, Nerheim said, although cruise ships, which averaged only one transit per day last year, tend to take priority in many cases.

"On a regular day everybody's treated equally," he said. Following a prolonged closure, "there is not a conscious, written, deliberated process to take crude or any other type vessel movement as a priority. That said, we're not saying it doesn't happen. If you have a refiner running low or a containment issue, then that would probably receive a higher sort when the pilots start taking their orders."