A slump in demand for offshore long-distance towage and the coronavirus pandemic have decimated the value of oceangoing tugs, preventing fleet renewal and newbuild orders
Falling demand and 2020’s crash in energy prices have severely dented the value of the global oceangoing tug fleet. These are some of the largest tugs in the worldwide fleet, deployed for towing diverse cargo around the world’s ocean, including offshore drilling rigs, production units and barges carrying heavy plant, renewables equipment and project cargo.
Demand for these tugs and their value are significantly dependent on the offshore energy sector, future offshore field developments and requirements for coastal civil engineering projects.
For the worldwide fleet of oceangoing tugs, rated 1,000 bhp to 25,000 bhp, or 15-250 tonnes of bollard pull, their overall value has shrunk from US$958M at the end of 2019 to US$737M at the end of 2020, according to VesselsValue.
This US$222M (23%) drop in value is despite little change in the global number of vessels, 632 in December 2020 compared with 635 at the end of 2019. Since then, the coronavirus pandemic has had a huge impact on market drivers and valuations.
“As we entered 2020, many within the offshore industry had a sense of optimism - how quickly this was extinguished,” says VesselsValue head of offshore Rob Day. “Covid-19 in the space of three months decimated the offshore industry and sent it spiralling into a once-in-a-generation double downturn.”
This led to considerable budget cuts for exploration and production spending, which filtered down to the mobile offshore drilling unit sector. “Many owners have seen cancelled contracts, early terminations or rigs idled,” says Mr Day.
“As a result, everyone else further down the supply chain has been negatively affected. An already fragile market has been put under even more pressure and any hope of recovery or a return to normal (whatever this is now considered) is predicted by industry leaders to be around 2022 or 2023.”
Valuations for extra-large oceangoing tugs, of which there are just 13, has fallen by a fifth in just one year, from US$49M at the end of 2019 to US$40M in December 2020.
Likewise, the combined value of large oceangoing tugs has dropped by around a quarter from US$208M in December 2019 to US$155M at the end of 2020, with the addition of only one vessel in that period for a fleet of 57 tugs.
Valuations of medium-sized oceangoing tugs have fared no better. The fleet of 102 tugs was valued at US$197M at the end of 2020, down from US$266M at the same point in 2019, when there were 105 tugs.
The biggest drop in valuations affected the small-sized oceangoing tugs, where there are 460 vessels in the fleet. Their value was US$345M at the end of 2020, compared with US$435M in December 2019. This fleet has shrunk by just one vessel to 460 tugs.
“A large proportion of this has been driven by the decreased market sentiment within the oceangoing tug market over the last two years and has been compounded by the Covid-19 effect on offshore values earlier this year,” says Mr Day.
Valuation reduction is part of a long-term trend that started in 2014 when oil prices crashed from US$147/barrel to below US$50/barrel.
“Since the 2014/2015 offshore recession the market has been retracting across all sectors (including oceangoing tugs) and in general there are too many boats chasing too little work,” says Mr Day.
“Demand dried up due to the aggressive fall in oil price and the simultaneous shrinking of the overall industry,” he continues. Falling demand and oversupply in the sector has stemmed newbuilding ordering of oceangoing tugs, although it has impacted harbour towage less.
After a large rise in fleet numbers up to 2019 (635 oceangoing tugs versus 578 vessels in 2017), there has been stability in the fleet. There were 632 tugs in this class at the end of 2020.
“Oversupply was a product of zealous speculative newbuilding programmes carried out during boom years,” says Mr Day. “The supply and demand scales have therefore been (for a long time) pushed in the wrong direction.”
There has been very little scrapping of older oceangoing tugs and virtually no new deliveries in 2020. The global fleet will remain stable for several years ahead as there are just five oceangoing tugs on order, valued at US$19M.
Of the 632 tugs in the fleet, 125 (20%) are less than 10 years old. But their value of US$332M is 45% of the total fleet. Another 126 tugs (20%) were built between 2006-2010 with value of US$214M (29%). This is in comparison to the 49 oceangoing tugs built in 2000-2005 with a combined value of US$61M. Another 72 tugs are 20-30 years old, 83 are 30-40 years old and 130 over 40 years old.
No newbuilding appetite
When considering the age profile of the oceangoing tug fleet, it could be considered time to renew with newbuildings. However, there is lack of owner appetite for ordering from shipyards in this category.
“The current market is in no position to support newbuildings, especially not speculative newbuildings,” says Mr Day. He says there is a plentiful stockpile of incomplete anchor handling tug newbuildings in shipyards worldwide to select from.
“Any interested, or mad enough, party looking for a newbuild oceangoing tug would have a wealth of choice from these yards,” says Mr Day. “All would include shorter turnaround time and a significant discount compared to newbuild. Why build new when you can buy one of those?”
There is also a lack of finance for privately funded newbuilding ordering as financiers have been heavily impacted by downturns, cost impairments and incomplete projects.
“In the unlikely situation there was a need for newbuild tonnage, very few banks would be willing to provide finance unless it was backed by a long-term charter with an extremely strong counter party,” says Mr Day.
“Most banks who invested heavily during the boom years were burnt heavily and are still suffering now,” he continues. “Those types of scars take a long time to heal and it will take time for the attitude to offshore lending to change.”
This could help explain why there are so many oceangoing tugs of more than 30 years old, but there are other reasons for not scrapping ageing vessels. As these are workhorses of the maritime industry, they can continue working for many years after their assumed useful life and can be marketed well into their 40s.
“Most of the older tonnage have no mortgage and/or associated debt,” explains Mr Day, “and can therefore be more competitive on price compared to a modern unit that has high levels of debt to cover.” These vessels were not built during the market peak and have long active service lives.
“This allows them to still obtain work, and in a market where every cent counts, they can be an attractive option,” says Mr Day.
Another influence preventing decommissioning of these tugs is the low prices they tend to achieve. “Like many offshore vessels, scrapping oceangoing tugs is not a hugely profitable exercise,” says Mr Day. “It is not always cost effective for owners. In some cases, it can actually cost the owner money.”
This is dependent on location and scrapping convention rules. “The extremely low steel content and cost involved often means vessels are left in long-term layup or just never removed until they physically give up, at whatever age that may be,” says Mr Day.
Another factor is that some vessels are owned by small companies. “Smaller ‘mom and pop’ owners are less likely to send their few money-making vessels to the scrap yard, when they can continue to provide some form of income,” Mr Day continues.
“Similarly, if the smaller operators have laid-up vessels, they often prefer to stack them in the hope the market will return to profitable levels and they can be reactivated, than send them to the breaker’s yards. As with most things in life, it all comes down to dollars.”
Top oceangoing tug owners
US offshore vessel owner Edison Chouest owns the largest fleet of oceangoing tugs with 34 vessels with a combined value of US$97M, according to VesselsValue. Its value has slumped considerably in just three years. At the beginning of January 2018, the fleet value stood at US$258M, representing a drop of around US$160M. Mr Day says this was driven by decreased market sentiment within the sector, compounded by the Covid-19 effect on offshore values in 2020.
Edison Chouest has bucked the market trend and ordered offshore support tugs, these being against firm business with an energy super-major. It will build at least two azimuth stern drive (ASD) tugs with 120 tonnes of bollard pull and hybrid propulsion at its own shipyard in Louisiana, US.
These 50-m tugs will be built to a Damen ASD Tug 5016 design with 16-m beam, FiFi1 class fire-fighting system and oil spill recovery equipment. They will support ExxonMobil’s offshore terminals in Guyana. These tugs are designed to provide escort, hold-back, hose-handling and maintenance duties offshore.
Chinese interests operate the most oceangoing tugs with 68 operating in the nation, of which 20 are owned by the government, 12 by Beihai Rescue Bureau and 10 by Nanhai Rescue Bureau.
The Russian Government owns 18 oceangoing tugs.
ALP Maritime Services owns most of the extra-large oceangoing tugs. It operates a fleet of 10 ultra-powerful, DP2-class towing and anchor-handling vessels. These are designed for long-distance tows with offshore facilities and for salvage operations.
During the end of December and beginning of January 2021, ALP Defender towed disabled 13,100-TEU container ship Maersk Elba into Algeciras, Spain, where the ship was repaired.
ALP’s fleet includes the most powerful, ALP Striker, with 309 tonnes of bollard pull. Three other Future-class Ulstein SX127 anchor handling and salvage tugs – ALP Defender, ALP Sweeper and ALP Keeper – have bollard pulls of more than 300 tonnes.
In 2020, ALP celebrated five years with no lost-time incidents on three of its vessels - ALP Guard, ALP Winger and ALP Ace.
Fragmented global fleet distribution
Of the total fleet of 632 oceangoing tugs, 460 are classed by VesselsValue as small tugs (73% of the total fleet), with a combined value of US$345M (47%). Another 102 (16%) are medium-sized, with total value of US$197M (27%). There are 57 (9%) large oceangoing tugs, with combined value of US$155M (21%) and just 13 extra-large vessels with the highest bollard pulls, valued at US$40M.
It is tough to distinguish the geographical distribution of the global fleet as oceangoing tugs tend to operate worldwide. VesselsValue estimates 125 of the tugs operate out of southeast Asia, 90 in Europe, 53 in the Middle East, 34 in the Baltic region, plus 60 in North America and another 34 in the Gulf of Mexico. However, it also thinks 227 oceangoing tugs operate in the rest of the world.