OSV chief executives urge more scrapping to balance market

Chief executives at some of the largest global offshore companies said they are going through major transformations in debt restructuring, cash flow provision and fleet numbers. But, more is required.

They discussed the need to tackle a huge vessel supply-demand imbalance and lack of profitability in operations at Riviera Maritime Media’s Annual Offshore Support Journal Conference, held in London on 5-6 February.

Tidewater president and chief executive Quintin Kneen said the only way to tackle vessel oversupply challenges was to sell laid-up ships for environmentally sound demolition.

“I do believe we are past the worst of the downturn,” he said. “But, to truly revitalise we need to continue to scrap, and we will.”

Tidewater has around 60 vessels still in layup and is paying around US$13M annually to keep this idle fleet operational-ready. “We want to reduce this overhead,” said Mr Kneen.

After mergers and debt reconstruction, Tidewater has a healthier balance sheet and fleet of around 210 vessels, brought down from more than 270 after its merger with GulfMark Offshore in November 2018 through scrapping.

It is estimated there are around 900-1,000 OSVs in lay-up globally or unfinished in shipyards worldwide, and many will remain out of action for at least another five years, according to market analysts during the two-day OSJ conference.

Mr Kneen said “There are tremendous numbers of vessels in long layup that will never return,” he told delegates.

“There are vessels over 20 years old that have been in layup since 2015 and these will not come back to work. Many of those older than 15 years will never come back,” said Mr Kneen.

Tidewater reduced its fleet by 34 vessels in 2019. This followed 35 vessels exiting the fleet in 2018, 39 in 2017 and eight in 2016.

“There will be a rush in vessels going to breaker yards,” said Mr Kneen. “But, there are not enough yards to break the laid up global fleet.”

He thinks there are incentives for companies to review their fleets and maintain vessels that would be ready to return from layup. “Or sell them [for recycling] before everyone else does.”

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During the OSJ conference, held in association with Caterpillar, Bourbon Offshore chief executive Gaël Bodénès agreed with Mr Kneen.

“It is about controlling costs and not keeping vessels stacked,” Mr Bodénès said. “We need scrapping to get to a critical size of the fleet” and to rebalance the market. “If we keep going as we are, there could be no industry in next five to six years,” said Mr Bodénès.

Bourbon is restructuring and introducing digitalisation to improve operations. “We are trying to transform the company,” said Mr Bodénès. “We are connecting our fleet to transfer offshore functions to shore and introducing digitalisation.”

Seacor Marine Holdings president and chief executive John Gellert explained why many owners had not sent laid-up vessels for demolition.

“The value from scrapping is very low and it is costly to sail them to where you can scrap,” he said. “It is an industry-wide challenge and we do not want to take the risk.”

He said investing in digital technology and software would be a better use of cash to optimise operations. “We will need to work more intelligently to reduce manning onshore and on board,” Mr Gellert explained.

“We need to get data to support business and think about where we are going in the future,” he continued, adding that intelligence would make OSV operating less labour intensive and more efficient.

GC Rieber Shipping chief commercial officer Christoffer Knudsen said owners should engage more with energy companies to remind them of the importance of services and not just vessels. “We need to sell our capabilities and not just the ships,” he said. “We sell them enablers and service solutions. We need to look at selling the time savings, lower emissions and show them the value,” said Mr Knudsen. “We need to be willing to adapt and consider going into offshore windfarm support.”