Survival of the fittest? The structure of offshore support vessel owners is changing

2017-06-15 09:00

The size of the offshore support vessel fleet has grown considerably in recent years. With this growth, new shipowners have entered the market, leading to a more dispersed distribution of the fleet. However, the current market downturn has resulted in reduced demand, putting considerable pressure on shipowners. Lower revenue levels are causing financial difficulties for shipowners, but this could also create a favorable environment for the re-consolidation of the offshore support vessel market.

The red and blue-black lines in the chart show the proportion of the total fleet owned by the top 50 and top 10% of shipowners (left-hand axis). The gray and blue lines show the average size of the fleets of the top 50 and 50-100 shipowners (right-hand axis). The chart shows the extent to which the largest shipowners influence the global offshore support vessel fleet.

Constant Change

Over the past few decades, the offshore support vessel fleet has experienced significant growth. Broadly speaking, this is due to the combined effects of rising oil prices and advancements in offshore technology. During most of this period, the offshore support vessel fleet was fairly concentrated. As shown, between 1991 and 2006, the top 50 shipowners controlled 60% of the fleet, while the top 10% controlled 70%.

However, from 2006 onwards, an increasing number of shipowners entered the market. The number of shipowners increased from 564 to 1,081. This also coincided with the growth of medium-sized shipowners' fleets: during this period, the average fleet size of medium-sized shipowners ranked 51st to 100th increased by 250%, with an average of 15 vessels per owner. This resulted in the top 50 shipowners losing 20% of their market share. At the same time, the decline in market share for the top 10% of shipowners was not as dramatic, as by early 2017, the top 10% included 108 shipowners.

Putting the Cart Before the Horse?

The changes in the offshore support vessel fleet also reflect the emergence of a large number of new entrants in the market. The increase in speculative orders, such as those from Asia using low-cost financing and inventory construction models, fueled fleet growth. This obviously led to subsequent oversupply. In addition, the strong market conditions at the time also stimulated new orders and gave rise to more medium-sized offshore support vessel owners. It is worth mentioning that the trend towards a more dispersed ownership of offshore support vessels is global, not just in Asia.

Survival of the Fittest?

Soon, the market shifted, and the offshore support vessel market entered a severe downturn. Oil and gas development work became extremely limited, meaning that many vessels in the market could not be put into operation. This left many companies, especially speculative shipowners, in financial distress. In January 2017, 66% of shipowners owned fewer than three vessels, and these companies were likely to have only one or two vessels in their fleet that could secure charters.

Furthermore, the market downturn has sparked interest in mergers and acquisitions, with larger companies potentially better positioned to withstand the market weakness and take advantage of the opportunity to acquire distressed assets. Larger-scale consolidation could mean that larger shipowners are better able to control market supply. Given these trends, the offshore support vessel market appears poised for consolidation. However, to restore the market situation to pre-2006 levels, where the top 50 shipowners held 65% of the fleet share, these shipowners would need to acquire a total of 1,015 vessels from the 77 shipowners behind them.

In summary, the offshore support vessel fleet has experienced significant growth, leading to a large influx of new entrants. However, the market subsequently turned, and the decline in demand has put enormous pressure on all shipowners, which may lead to more consolidation, but to reach pre-2006 levels, a significant shift in the shipowner structure is required.

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