IHS says that vessel owners need to scrap NOW!

So do you think vessel owners will start sending all <15 year old boats to the breakers any time soon? I am heavily doubting it…


[B]As many as 1000 offshore vessels - or around one-third of the global fleet - would need to be removed over the next few years to rebalance the heavily oversupplied market and owners’ response to the scrapping dilemma will determine their own fate, according to an analyst.

[/B]This means the annual rate of scrapping has to rise from the present level of around 25 vessels to 200 units to achieve a recovery in utilisation and dayrates by 2020, IHS Markit analyst Erik Simonsen said.
He believes players are at present not acting rationally by laying up vessels in anticipation of a market upturn due to the high costs of stacking and the deterioration in condition of laid-up units over a prolonged period.

Under present market conditions, utilisation is forecast to remain below 60% by 2020 as delivery of newbuilds is set to further swell the fleet while demand is expected to drop annually by 10% until 2017 before rising again in 2018, with a recovery in dayrates not seen until around 2025.
Many owners - with the exception of the likes of [B]

Maersk[/B] Supply Service - have been reluctant to scrap vessels and instead have been cold-stacking them in hopes that an oil price rebound will trigger a rise in demand from operators.
However, Simonsen said: “Stacking a vessel is like praying and really is just throwing good money after bad. Owners need to do their calculations and realise this does not make commercial sense.”

He pointed to the fact it can cost an owner around $300,000 a year to keep a vessel stacked and, given the expected timing of a market recovery, this could mean a lay-up of five years or more.
“Most experts believe that two years is the maximum duration for lay-up of a vessel before its condition starts to deteriorate so beyond that it simply does not make economic sense as the unit will then be in such a poor condition, making reactivation difficult and costly,” Simonsen told Upstream on the sidelines of the Pareto Oil & Offshore conference in Oslo.

“Therefore, cold-stacking a vessel is like paying an option premium in hopes that the future will be great and is really just a huge waste of money. The players have to be rational but it does not seem to us that they are acting that way.”

“Stacked vessels will delay recovery in market balance, utilisation and dayrates as most of them can re-enter the market within six months if the market starts to improve,” he added.
“Scrapping is the best option if the future value of a vessel is expected to be lower than accumulated stacking costs during the stacking period.”

According to the IHS analysis, vessels built after 2000 but cold-stacked for multiple years will not return to the market and 50% of vessels under construction will not be delivered in the foreseeable future.

Simonsen believes it is now time for owners to “swallow the nasty medicine” by taking a proactive role to scrap vessels and that it should be mostly pre-2000-built vessels destined for the scrapheap, given operators will prefer newer tonnage when the market recovers.
This means effectively the fate of the market rests in the hands of the owners themselves as they are able to affect the supply of anchor-handlers and platform supply vessels - the main categories covered by the analysis.

“Contractors and financial institutions may hope for higher demand growth than presented in the IHS forecast, but IHS believes the supply side is the key. The inspiring factor is that contractors and bankers in total can affect the actual future fleet size and the destiny of the industry,” according to Simonsen.

He believes the highly fragmented industry - with a total of 419 players controlling the global fleet of around 3000 vessels - is “over-ripe for consolidation… but this will not solve the overcapacity problem”.

Consolidation could though generate more scrapping of vessels as it would result in stronger and more resourceful players, with a stronger focus on quality in line with operator requirements, who are better able to take decisions to rationalise their fleets, Simonsen added.

The problem is that the Offshore fleet is relatively small vessels in LWT and thus does not fetch much as scrap.

The idea of a 15 year age limit has been implemented in Malaysia, but that is more to protect local Owners then to keep the charter rates up.

I don’t see this happening in the GoM though.

For PSVs there are possibilities to convert for other use, but the market is limited. The possible functions such vessel can be converted to is still limited to niche segments in the small vessel market. Fishery is one.
Old AHTS has a limited possibility for alternative use as they are overpowered for most other purposes. The long range towing market is already saturated.

Russia is trying to do something to renew their aging fleet: http://fairplay.ihs.com/safety-regulation/article/4288081/russia-to-phase-out-unsafe-old-commercial-fleet-by-2025?utm_source=Eloqua&utm_medium=email&utm_campaign=CL_FDN%20200617%20_PC9157_e-production_E-1425_FP_0620_0438