Two other private equity firms are reportedly also considering selling barge companies.
The electric utility American Electric Power (AEP) said Monday it is exploring “strategic options” for its inland barge subsidiary.
The unit, AEP River Operations LLC, is one of the largest U.S. inland marine transportation companies, transporting coal and other dry and liquid bulk commodities, primarily on the Ohio and Illinois Rivers and the lower portion of the Mississippi River.
A spokesman for AEP said the two primary options are to either sell the business or continue to hold it.
The River Operations competitive business that is under review delivers bulk commodities including grain, coal, steel, ores and other products. That portion of the business has 58 towboats, 2,269 barges and 1,090 employees. It delivers about 45 million tons of products annually, including about 10 million tons of coal to AEP’s unregulated plants. The company noted in its most recent annual report that AEP River Operations also operates a current fleet of 40 ten thousand-barrel tank barges and may add an additional 40 ten thousand-barrel tank barges throughout the year.
“Almost all of our customers are non-affiliated third parties who obtain the transport of coal and dry bulk commodities for various uses,” AEP said in a statement. “We charge these customers market rates for the purpose of making a profit. Depending on market conditions and other factors, including barge availability, we permit AEP utility subsidiary affiliates to use certain of our equipment at rates that reflect our cost. Our affiliated utility customers procure the transport of coal for use as fuel in their respective generation plants.”
In addition to that for-profit commodity transportation operation, AEP has a captive barge business that is not under review for possible sale. It delivers coal to AEP’s regulated power plants. The captive business delivers about 21 million tons of coal annually and has 12 towboats, 509 barges and about 250 employees. It also includes a coal handling terminal as well as 4,990 railcars.
AEP, which said it is being assisted in the review by Morgan Stanley & Co., is reportedly not the only company reevaluating its investment in the barge industry.
Last November, the Financial Times said Platinum Equity, owner of the barge company American Commercial Lines and its Jeffboat shipyard, was “weighing a sale that is expected to value it at over $1 billion.”
Platinum had acquired ACL for about $777 million in 2010, but a spokesman had no comment on the Financial Times report.
According to its website, the Jeffersonville, Indiana-based ACL also has some 2,300 barges and 120 tow boats.
In January, Reuters reported that KRG Capital Partners and other owners of another barge company, Marquette Transportation Company, were “exploring a sale that could value it at more than $1 billion.”
KRG invested in Paducah, Kentucky-based Marquette in 2007. It has a fleet of more than 50 line haul vessels and more than 800 dry cargo barges. In 2007, it added a Gulf-Inland unit – formerly Eckstein Marine – and an offshore unit – formerly HLC Tugs.
Ken Eriksen, a senior vice president at Informa Economics, said it was possible private equity companies are evaluating selling their barge units because “they have had them for five or seven years and they see it has been a good run and now it is time to put them on the market,” and that companies may also be reacting to demand for coal.
Eriksen said last year the overall inland barge fleet expanded by 3.3 percent to 21,605 barges, including 18,092 dry cargo barges.
Informa has just published its its annual Barge Fleet Profile and Barge Commodity Profile. Eriksen noted that while the fleet of covered hopper barges, used to carry grain and soybeans, grew 11 percent, in part because of anticipation of record crops, there was a decline in open hopper barges that are used to carry less weather-sensitive commodities such as coal, sand and gravel.
Eriksen said some open hopper barges have been converted to covered hopper barges, though he noted this is not always economically feasible since the coaming, or sides, of open hopper barges may not be as high as those on covered hopper barges.
That is because some open barges used to carry coal, sand, stone or other heavy cargo tend to “weight out” and reach maximum draft faster than some covered barges that are built to carry lighter, larger cubic quantities of commodities such as grain and soybeans. Converting some open hoppers can be costly.
Data from Informa says covered barge movements rebounded in 2014, with tank barge movements increasing on the strength of rising US crude oil production.
Informa has devised a “barge pressure index” where higher pressure means tightening supply or higher demand. The index for tank barges is expected to decline for covered hoppers, improve for open hopper barges, and remain flat for tank barges.
AEP explores ‘strategic options’ for barge line
