OSV market in Asia-Pacific – critical but stable

The sentiment for day rates in Asia-Pacific, is that they have stabilised since the first and second quarter of 2019 and are not likely to pick up significantly over the next few years. Competition to secure charters is expected to remain intense throughout the region, and indeed across the global market, as Offshore Supply Vessel (OSV) owners continue to focus on increasing fleet utilisation and will be aggressively chasing all term and spot contracts at cut-throat day rates. Currently, AHTS vessels working in Southeast Asia are picking up day rates of USD 0.70 to USD 0.95 per bhp, while PSVs of 3,000 dwt to 4,000 dwt are fixed at rates from between USD 6,500 and USD 10,000. Vessels required for spot or prompt charters such as urgent cargo runs can secure higher day rates.

Although the day rates are not as high as before, reductions in rates have stopped and the market remains calm for now - depending on the oil price globally. We are expecting day rates in a number of regions will increase in the coming year but at a slow pace, although an increase is welcome compared to the slides seen between 2016 and 2018 because of the oil crisis. However, delays on projects and contracts, cancellation of ongoing projects, cost pressure on OSV operators, and day rate renegotiations are still inevitable. OSV operators continue to face reduced profitability of vessels. Within this year, we could see the increasing availability of vessels for sale, further scrapping activities and continued cold-stacking, as well as newbuild cancellations as owners look to reduce operational cost to survive the current ordeal.

For the past couple of years, many newbuilds were reported complete but not delivered to owners especially to those fighting cash flow issues brought on by the financial crisis. We are now in a situation where many completed vessels which were not delivered and instead stacked could be in a poor condition due to a lack of inspection or maintenance. This could cause complications in the sale of these vessels and add further economic barriers to their entry to the OSV market. Market sources suggest that with a certain level of upkeep and maintenance though, these undelivered units sitting in the yards can join the market within a short period of notice following surveys and operational readiness tests.

With ongoing market issues across the globe, vessels owners are increasingly looking to market their vessels outside their home region. For newbuilds, mainly coming from Chinese shipbuilders, vessel owners are starting to move and market their vessels towards the North Sea and into the Middle East. This can be seen from AIS vessel movements as a number of recently delivered newbuild vessels from China have started to mobilise out from Southeast Asia, heading towards the North Sea. For Asian owners and managers this is seen as a good way to reduce the oversupply of newbuilds in the market caused by the past mistakes or over-ordering, and speculative builds during the golden age of oil and gas.

OSV owners, meanwhile, are starting to shift their vessels' work scopes, aiming not to be limited to the oil and gas sector. Support for wind farm projects is viewed as a source of potential activity. With an increasing number of market surveys and declared requirements, work supporting renewable energy projects is expected to increase in time and such projects will help improve vessel utilisation in the region - and worldwide too.

Over the past six months, we have started to see some positive movement in demand in the rig market. The recuperation of the rig market is expected to facilitate improvements to the OSV markets in the near future and increase activity in the Southeast Asia region. While many charterers are still reluctant in taking OSVs that have been laid up for a long period of time, there is still an oversupply of idle and cold-stacked vessels waiting to flood the market when it picks up in the next couple of years.

We are likely to see an increased demand for large high-quality tonnage vessels in the next couple of years as they can still be hired at a very low price. The market nowadays prefers to charter new and efficient vessels with a minimum of Dynamic Positioning (DP) 2 rather than vessels with DP 1. This preference could help the market to reduce vessel oversupply as older tonnage may be forced into leaving the market and sold for scrap. However, with the current rate of attrition, the market would still require several years to reduce the oversupply and bring a better balance. In the meantime, owners and managers are still faced with low day rates and poor utilisation and the challenges it brings in running their business and spectre of restructuring and refinancing continues to loom.

Nik Haziq Nik Alwi is the analyst covering the Offshore Supply Vessel market in Southeast Asia for Petrodata by IHS Markit.

Posted 22 August 2019.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.