Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Resistance to scrap surplus OSVs will prolong offshore industry woes

Resistance to scrap surplus OSVs will prolong offshore industry woes
The scrapping of idling offshore vessels in order to clear the surplus capacity is unlikely to happen, given the low scrap value of the ships and resistance by the asset stakeholders to take a loss, according to Swire Pacific Offshore (SPO).

Ron Mathison, managing director of SPO, noted that even if stakeholders wish to exit the OSV business due to the present recession, the low scrap value has erected a barrier to exit.

Apart from the flat scrap value due to lower steel content for resale, the depreciated value of the elderly vessels, which are the potential candidates for scrap, has added on to the reluctance of owners, banks and other stakeholders to dispose of and take a negative impact on their earnings.

“These are the resistance in the industry and that is why we are not seeing much scrapping. Unlike the airline industry, it is much easier to park a plane in the desert when utilisation is low, so there is more flexibility in terms of managing the asset,” explained Mathison, who spent 24 years with Cathay Pacific Airways before joining SPO in 2015.

The large number of underutilised OSVs will continue to get stacked up, be it cold- or warm-stacking, as against heading to the demolition yard, he told Seatrade Maritime News at the sidelines of the Sea Asia Offshore Marine Forum held this week in Singapore.

Offshore players have publicly spoken out on the need to demolish idled and elderly OSVs in order to bring the supply-heavy market back to balance. There are unduly concerns that if the laid-up ships are not recycled, their return when the market eventually picks up would again throw the supply-demand off balance.

However the laid-up OSVs may not all necessarily return to the market in the same form, Mathison pointed out.

“The offshore vessel operator market is so broad and diverse that they [OSVs] could reappear in the salvage or tug capacity as opposed to, say, a fully-fledged anchor handler or a platform supply vessel. We are already seeing some vessels being picked up on the cheap by other types of operators such as salvage.

“But clearly the big issue is how is the industry going to manage through this overcapacity because even if the oil price recovers, it is going to take several years for the overcapacity to work its way through,” he said.