Supply Boat Market Report - September 2018

Following is a breakdown of available supply and tug supply vessels we currently have as shipbrokers officially listed for sale worldwide. Not included are those available on a private and confidential basis.

Of 13,325 vessels and 3,745 barges tracked by Marcon as of mid-September 2018, 3,063 are supply and tug supply boats, with 279 officially on the market for sale. 75.39% of foreign and 79.55% of U.S. flag supply / tug supply boats Marcon has officially listed for sale directly from Owners. As of September, Marcon's Sales Price to Asking Price ratio is 76.88%, an increase from the 64.82% we reported in our last market report, February 2018, but lower than 2017's 81.49% and 2016's 91.70%. For 69% of our closed and collected sales to date this year, no asking price was given as seller was outright soliciting offers; the asking price was well above market levels and the seller ended up entertaining offers in order to move the vessels out of its stable, in which case we do not include in our ratio to avoid distortions; or owners were about to scrap vessels when inquiries came in with offer levels above scrap. 73.5% of our sales so far this year have been US seller to US buyer with one foreign to foreign and five US to foreign sales. The foreign buyers were in Canada, the Caribbean and Latin America. We have seen a slight uptick in the number of listings where the seller allows us to advertise a price, but unfortunately, we are seeing these prices at the high end of what the market is bearing for vessels of their age and condition or at just above scrap levels in order to get the vessel sold.

Market Overview

Offshore service vessels, including AHTSs and PSVs, have been selling, but only at bargain prices compared to their 2014 highs. Demand for 1980s built vessels is practically nil, with the exception of narrow regional markets where these vessels may continue to serve a purpose. 1990s built units are not doing much better, but vessels built in the late 1990s are attracting some buyers with prices around 25% of peak levels. Vessels built after 2000 and before 2008 fall somewhere in between, selling at around 25% to 33% of their 2014 highs. AHTSs and PSVs built within the last 10 years still garner demand, but in the 33% to 50% of previous price highs or replacement cost. Even at these "bargain" prices, operators are having a tough time obtaining adequate day rates and utilization to justify buying. Some purchases of newer vessels have been mostly strategic, hoping for a market turnaround, with no near-term work in hand. Some foreign shipyards are offering newbuildings, ready to go, at less than half of original pricing. Given all the vessels laid-up or underutilized, it will take time to reduce the excess capacity. When the market does improve, competition from lower priced vessels acquired during the downturn will plague those fleets with high book values and companies reorganized in bankruptcy will provide tough competition. On the bright side, the number of listings of offshore vessels available for sale has been declining. Prices of a few select vessels have increased, but trying to predict when the offshore market will see a steady comeback still remains elusive. Sea-Web reports 591 PSVs and AHTSs broken up, to be broken up or scuttled. 448 offshore support vessels of other types are also meeting this fate.

Tug supply boats officially on the market for sale in total is 134, 23 fewer than both one year ago, August 2017, and five years ago, August 2013. Composition in the last year has changed with the biggest shifts being five more 7-8,000HP, but nine fewer 5-6,000HP, seven fewer 3-4,000HP, and six fewer each 4-5,000HP and 10-12,000HP AHTSs offered. In today's market many additional vessels, probably equal to or greater than the number "officially" listed can be developed on a private & confidential basis - just a phone call or e-mail away. The good news for potential serious buyers, the few out there, is that vessels now offered for sale generally average several years newer than those five years ago. August 2013, the average age of all AHTSs for sale was 24 years old. Today, the average age is 15 years old. While previous market reports saw number of vessels officially for sale increase due to continued scrapping of older tonnage or owners laying-up and looking to dispose of select idle / under-utilized tonnage or non-core assets, recently we began to see a decline in vessel availability specifically due to owners putting vessels back to work on contracts. At the time of this report, 68 tug supply boats officially for sale were either built within the last 10 years or are newbuilding re-sales. Only 20.15% of tug supply boats are 25 years of age. Counter-balancing today's "old ladies" is one newbuilding 6,000BHP AHTS resale scheduled for delivery in 2018. One year ago, 19.75% of AHTSs for sale were built before 1993, fairly comparable to today’s 20.15%, while five years ago 64.33% of the tug supply boats were built prior to 1988.

Over the past year, we have seen a continuation of all sizes of PSVs coming officially on and off the market with a net decrease of one PSV listed for sale. The greatest changes are seven more 190'-200' with an average year built of 2002 vs 1999, six fewer 180'-190' (1990 vs 1986), down five each 200'-220' (1999 vs 2000) and over 240’ (2005 vs 2007), and four more each under 150' (1987 vs 1986) and 150'-160' (1997 vs 1997) PSVs presently on the market. Like the anchor handling tug supply boats, PSVs now being offered are generally newer than those offered back in August 2013 with the average age of all available for sale dropping from 25 years of age to 20 years old now. As of the time of this latest report, Marcon International officially has available 33 supply boats built within the last ten years, which includes two 190.2', 3,600BHP newbuilding re-sales scheduled for delivery in 2018 in the Far East. 41 PSVs, or 28.28%, are 25 years of age or older, with the oldest PSV listed built in 1964 - compared to one year ago when 41 PSVs (28.47%) were older than 25 years with the same oldest 1964-built PSV. Five years ago, the oldest PSV on the market for sale had been built in 1969, but 72 PSVs (64.86%) were older than 25 years. As with the AHTSs discussed above, many PSV owners have found themselves still in the same situation of too many boats and too little work, but again we have been told of some vessels going back to work on contracts.

In addition to those for sale, Marcon has 98 straight supply and tug supply vessels listed for charter worldwide, 32 less than one year ago, but there are many more in todays market idle and hungry for employment.

The dominant location for second-hand tonnage on the market September 2018 is the U.S. with 35.1% (up from 29.6% one year ago and 20.5% five years ago) followed by Southeast Asia with 19.4% (down from 24.9% one year ago and 16.4% five years ago), Far East with 11.8% (up from 11.3% last year but down from 14.2% in 2013) and the Mid-East with 9.7% (up slightly from 9.6% last year while down from 13.1% five years ago). Where location is unknown is 2.9%. The rest of the globe makes up the final 24.0% of locations.

CAT is the principal main engine suppliers to this sector powering 90 of the supply & tug supply vessels listed for sale, followed by Cummins in 38, EMDs in 29 and GMs in 12 vessels. MAK and Niigata lead the foreign manufacturers with 18 each, then Wartsila with 16, 13 with Bergen, Yanmar in 11 and 29 units powered by various other manufacturers. The biggest shift in engines over five years ago is that CAT powers 32.3% now vs 19.5% in 2013.

Despite an improvement in oil prices during 2018, the game changing US shale market continues to drive any new investment to shore side exploitation and production. This will continue to be a major factor in restricting investment offshore running forward for several years yet. Oil majors are still not putting money into major offshore developments, which continues to remain heavily oversupplied with offshore supply vessels, against the slack demand of operating rigs drilling world-wide. Fleet utilization levels for most major players remain under 50%, and record numbers of otherwise suitable vessels remain laid up and stacked world-wide. This continuous supply of oil from the US shale production and other non-offshore sources, and the overhanging excess supply of tonnage in the OSV market will continue to impinge any marked improvement in the offshore service market, despite the expected continuing improvement of oil prices as we move into 2019. This will likely continue to press OSV firms into further consolidation, sale and scrapping of tonnage, and in some cases bankruptcy filings for most of all but the strongest market players.

Continuing low demand for PSVs has led the market to look for creative ways of dealing with the over-supply. While different market segments have been hurt to varying degrees, the overall contraction in demand for anchor-handlers and PSVs remains high. Even the recently-improving oil price has done little to immediately alleviate the problem of excess offshore tonnage, much of it in cold lay-up or still docked at the shipyard where it was built. This problem has stimulated some creative minds to evaluate options that can give these assets a new lease of life, in particular proposing conversions of PSVs to enable them to operate in new markets and niches very different from their original purpose. In addition to being newly-built, these vessels are usually of high quality construction, equipped with dynamic positioning (DP) systems and controlled by operators employing well-trained crews used to working at close quarters in challenging weather conditions. A PSV conversion not only means that owners have the potential to cover the financing costs associated with the vessel's construction, but also creates new business opportunities that might generate stable returns in the long term. There are a number of applications that immediately lend themselves to offshore vessel conversion, centered around flexible supply of fuel and power. In all cases, they reflect a need to supply 'green' energy, often using LNG or low sulphur diesel. (Article by Tor-Ivar Guttulsrød, of ABS Europe, with full article in the September/October issue of International Tug & OSV.)

Commercial Marine Brokers since 1981

Supply Boat - September 2018 Market Report.pdf