Southeast Asia oversupply: will laid-up OSVs leave the dock again?

Like all global offshore supply vessel (OSV) markets, southeast Asia is suffering from a severe oversupply of tonnage, and a leading shipbroker in the region questions whether more than half of the vessels in lay-up will ever leave the dock again.

Some 389 offshore support vessels – anchor handling tug supply vessels, platform supply vessels, crew boats and the like, were in lay-up and stacked in southeast Asia in November, M3 Marine Group Pte chief executive Mike Meade says in a recent interview. He says that while many of the vessels were 30 years old or more, by far the largest single bracket was in the age range of 10 to 14 years old.

Mr Meade notes that global OSV scrapping has picked up, but “you are talking about 200 ships in a fleet of 3,000, it’s still a trickle in the ocean.” While he is pleased to see the likes of Tidewater, Swire and Maersk scrapping vessels, others can’t because they are on their balance sheets. “If they scrap them, they will have to take a P&L hit. You can go to Batam and walk across the creek on the back of boats.” He says these are “big new expensive boats,” not older vessels. He adds, where once OSVs had expected service lives of 25 years, “now, we’re seeing vessels that are 10 years old and younger being scrapped, so I question whether those vessels in the 10- to 14-year-old bracket will actually ever go back to work.”

He noted when attending the Annual Offshore Support Journal Conference, Awards and Exhibition in 2019, there was a tone of optimism in the air, with a feeling the OSV industry had “turned the corner”. While he says there was much discussion about “too many boats in the market, utilisation started to pick up, and people had a smile on their face. But then Covid came along with the oil price shock. The world started to unwind itself again,” says Mr Meade. That “double whammy” had a real impact on utilisation and rates.

“Rates were never going to increase rapidly, but getting an uptick in utilisation was a real plus for the market,” says Mr Meade. With market sentiment souring because of Covid and the price of oil cratering, utilisation and rates dropped back off. “Even when utilisation was picking up, the rates weren’t profitable anyway,” he notes. As a result, “companies began disappearing left, right and centre.”

Residing in Singapore providing offshore ship broking, marine consultancy and asset valuation services, Mr Meade gave a snapshot of recent developments in the country that led to an oversupplied offshore supply vessel market. “There was an abundance of new publicly listed OSV players that emerged between the early 2000s and 2010s before the market “went off a cliff” in 2014, he says. These were the “likes of EMAS Offshore, Swiber, Pacific Radiance – I can reel them off – they have all gone bankrupt.”

Mr Meade says, “Part of the problem was the euphoria of making returns on investment of upwards of 40% on capital. Banks were falling all over themselves to lend money. China was building ships for as low as 1% down and you were being offered options. Normally, it is 5 or 10% down.” This led to massive overbuilding and oversupply. “We flooded the market and we killed ourselves, and we are still suffering from that,” he says. “And it’s broader than Asia. It’s the Norwegian effect. It’s the US Gulf effect. All the markets built too many ships.”

Data as of 1 March from UK-based VesselsValue indicates 342 OSVs, 65 offshore construction vessels (OCVs) and 18 mobile offshore drilling units (MODUs) are in lay-up in southeast Asia. The active OSV fleet stands at 942 (73%), 231 OCVs (78% utilisation) and 44 MODUs (71%).

Crew change challenges

Crew changes remain a significant humanitarian issue, but have also pushed expenses up for ship operators. Involved in the management of a dive support vessel that has a crew of 120 people, Mr Meade says “It’s a full-time job monitoring the crew, getting them Covid tested and moving them into quarantine in Poland, Ukraine, Philippines, or India, and then getting them to Malaysia. They’ve got to do another 14 days of quarantine before they go anywhere.” He notes that the ship must wait for crew to be “quarantined out”.

This has resulted in “increased opex, whereas our rates have not. Charter rates have remained low, utilisation is low. One of the biggest components of opex is manning. Normally as a rule of thumb it is about 60%. This has increased even more,” Mr Meade says.

Asian offshore wind market

While the offshore wind market presents opportunities, Mr Meade notes some real commercial challenges, notably the cost of building bespoke vessel types. “Windfarm installation vessels or wind turbine installation vessels can cost upwards of US$300M to US$400M apiece. Ones that were built just five years ago they now say are outmoded.” He also notes the high cost of constructing service operation vessels (SOVs) that range in price from US$20M to US$40M. “I just don’t know where it’s going,” he says.

Admittedly, he says, wind has taken off, and developed into a much bigger market than he envisioned.

“The Asian wind market in terms of future growth – a combination of Vietnam, South Korea, Japan, China and Taiwan – will be much bigger than the North Sea from a wind perspective. The key in that market is how do you make money?”

Much of these Asian markets, however, he observes will be looking to use “homegrown equipment and people” using cabotage laws to restrict the markets to maximise domestic economic impact and grow market knowledge.

POSH SSCV passes survey, load tests

PACC Offshore Services Holdings (POSH) reported in March its semi-submersible accommodation crane vessel CIMC Gretha successfully completed its annual survey, five-year FMEA proving trial and load test of offshore mast cranes in Singapore.

Commenting on the certification on social media, POSH says the “significant feat” was completed safely and ahead of schedule “thanks to the support of our POSH crew, owner representatives OC/CIMC, class surveyors ABS and MWS Aqualis, third-party service providers and contractors.”

Adds POSH, “After years of operating at a maximum capacity of 600 tonnes, our two Huisman offshore mast cranes (OMCs) are now certified to carry [their] full capacity of up to 1,800 tonnes. This notable milestone follows the rejuvenation of CIMC Gretha’s thrusters last year, which was one of the industry’s largest maintenance projects.”

Built in 2012, CIMC Gretha underwent the overhaul of its six massive 3,800-kW Thrustmaster TH5000ML azimuth thrusters in Curacao in 2020. The maintenance was complicated by lockdowns in Curacao due to Covid-19. Supported by owner representatives from Ocean Challenger and POSH crew on board the vessel, the work involved divers, technicians and engineers from CIMC Raffles, Stone Marine UK and Subsea Global Solutions Caribbean.

The DP3 semi-submersible accommodation crane vessel has a length overall of 138 m, beam of 81 m, deck space of 2,000 m2 and deck strength of 10 tonnes/m2. With its two Huisman OMC cranes – which have a tandem lift capacity of 3,600 tonnes, dynamic positioning class 3 capabilities and accommodation for 618 in single- and two-person cabins, CIMC Gretha is designed for decommissioning and heavy construction activities.