Marine Solutions

Too Much OSV Supply: Perhaps for Years Yet

A recent conference about the offshore support vessel market made clear that the OSV fleet remains too large for the demand. This has been the case for years and it has left the daily rates at unsustainable lows. The conference also gave some hints as to what vessel owners caught in this situation might do about it.

The Annual Offshore Support Journal’s (OSJ) Conference, of which Caterpillar Marine was Platinum Sponsor, took place in London in early February.

Warm and Cold Stacks

Understanding the oversupply problem requires taking into consideration both cold stacked and warm stacked OSVs. To review: a warm stacked vessel is left at port, but continues in operating condition. It can readily be reactivated. Indeed, a warm stacked vessel continues to have a working crew. As some people like to say, the term “warm” can refer to the crew beds.

A cold stacked vessel, on the other hand, is one where the crew’s beds, as well as the engines and kitchens, go cold. If a vessel is cold stacked not because of its age or infirmities but for market reasons, and without any expectation of a scrapyard to come, then the engine must be filled with protective fluid, and the vessel as a whole protected from the elements. A cold stacked vessel protected in this way can be reactivated, but that entails costs between $1.5 and $2.5 million.

Further, the longer a stacked vessel stays idle, the less likely it is ever to make a return to the market.

Old Ladies’ and Fragmented Markets

In this context, it is tricky to do a economics textbook’s supply-and-demand discussion of the vessels available in relation to the demand for the services they provide, because the percentage of the cold stacked vessels that are truly still available to service demand is itself a judgment call. What is certain is that there exists considerable oversupply and that the law of supply and demand applies not just to the value of the vessels but to the value of the services they provide. Right now, there is a buyers’ market for the charting of OSVs.

Bart Long, Caterpillar’s Global Offshore Segment Manager says that the OSV sector has hit its bottom. Current conditions “are not expected to get worse” but the low day rates could remain for a period of 3 to 5 years. There will likely be no new anchor handling tug supply vessels built for, likewise, another 5 years.

Jeff Drake, managing director of consulting firm AlexPartners, says that there are “a lot of old ladies out there.” About 25% of the OSV fleet, or 900 vessels, is estimated to be of 15 years of age or more. Further, the market is quite fragmented, to a degree that makes addressing over-supply tricky.

In these circumstances, OSV owners are forced to think strategically. For example they may want to think about their engines, to improve their vessels, whether operating or stacked, and to make them more marketable. Caterpillar introduced the Multi-Engine Optimizer in 2017, which may help in this regard.

Control and Intelligence

The MEO is a control system that draws on engine performance data and control algorithms to direct a vessel’s power management system as to which engines to operate and at what load for each. This “dynamic asymmetric load allocation” in turn provides the lowest possible fuel consumption. Even in today’s constrained business climate for OSVs, those with the benefit of such a system are more valuable than those without.

A year before, in 2016, Caterpillar had introduced Cat Asset Intelligence, a service that combined remote monitoring with analysis, helping ship owners both improve their operations and cut the costs of operation.

On the first day of the conference, Dra Wiersema, product manager, presented on Caterpillar’s behalf, “Differentiating and Improving Marketability of Your Fleet.” His presentation used the recent movie “Infinity War” as an organizing principle -- the movie teamed up most of the heroes in the Marvel universe. Likewise, it seems that solving the economic difficulties posed for OSV fleet requires directing all possible resources at the problem.

Wiersema’s bottom line, after discussing MEO and CAI, was simple: that “differentiating and improving the marketability of your fleet through vessel efficiency is critical in today’s market.”