The rising cost of labor in the Offshore Supply Vessels (OSV) industry

The labor market is tight throughout the United States, but it is especially tight for skilled mariners, necessary to crew up a Platform Supply Vessel (PSV) with up to 12 crew. One of the most common questions fielding these days from MarineBase subscribers is around the high cost of labor. The OSV owners predicted the current difficulties in the offshore labor market back in 2017, when PSV day-rates sunk below profitability. In many cases the OSV companies found themselves subsidizing the supply runs for the operators, day-rates for PSV 4,000 dwt fell to USD 7,000/day on the spot market. PSV 4,000 dwt dayrates had been as high as USD 35,000-40,000/day before in early 2014. Vessel owners were forced not only to reduce costs which translated into reduced wages and benefits, but also shortened labor shifts to keep more mariners working fewer hours. As a consequence a significant number of mariners were forced to search for jobs in non-oil and gas industries where wages were more attractive. However, during 2018 and 2019 many vessel owners started reporting that it was hard to find crewmen and experiencing a shortage of qualified mariners. By this point the stage was set for costs to rise, but vessel demand was very slow to return in the US Gulf. Quite a lot higher specification PSVs were leaving the US Gulf for long term work in the Guyana/Suriname Basin. The big shift in rising demand and rising costs originated in September 2021, following the landfall of Hurricane Ida in Port Fourchon at the end of August. Port Fourchon and the surrounding region of Louisiana, home to most of the US OSV companies, suffered a direct hit from a devastating hurricane which temporarily reduced the OSV availability in the US Gulf. Hurricane Ida also took a number of deepwater production platforms offline, which of course created immediate demand for offshore support vessels of all kinds. Big PSVs were fixing long term contracts at USD 30,000/day with spot charters in the range of USD 45,000-55,000/day. By October 2021, one of the big PSV companies was reporting a feeding frenzy for new personnel and that costs and day-rates were going up again. It was already getting harder for operators to get big PSVs before the storm; labor costs had been in a continual creep for the six months prior.

Size of PSV crews

The large 5,000 dwt PSVs can have crews of about 12 people when supporting a major operator. The small 1,000 dwt PSV usually have 6-man crews, but some of the 500 dwt PSV can get down to 4-5-man crews which can make them very cost effective in competitive markets. The officers are the hardest to find and most expensive. Over the last six months our Analysts have heard reports of Dynamic Positioning Officers earning up to USD 850/day and Captains getting USD 1,200/day. Crewmen are in short supply and skilled mariners (first mates, second mates, engineer, third mates, and dynamic positioning officers) are especially hard to find and coming at a high price. Offshore wind and other offshore ventures have been buying up older PSVs and reactivating them for work outside of the oil and gas industry. We have multiple industries seeking the same pool of US mariners for Jones Act work. SpaceX expanded its Falcon Landing Fleet significantly as the rocket launches get bigger and more frequent. Aquaculture and Ocean survey work have benefited from the low cost of dynamically positioned PSVs for maneuvering in sensitive areas.

Strong demand expected to continue

OSV demand surged since the second half of 2022 pushing day-rates higher. In the US Gulf day-rates for 4,000+ PSVs are at an all-time high of USD 45,000/day for long term contracts; spot market at USD 45,000-55,000/day. High supply chain costs have also hit the OSV industry very directly, causing expensive shipyard delays. The shipyards can't get the manpower they need for all the new work, and worse the needed parts arrive too late, leading to expensive delays. Even smaller vessels have been relatively expensive, as the underlying shortage is for manpower. Vessel owners have faced mounting costs to keep their existing crews from being poached by competitors ready to pay bonuses and high wages. Vessel owners have reported activating all the vessels they have crews for; and that dealing with normal crew attrition/retirement has been difficult and expensive. With the US Gulf as a major hub for offshore oil and gas capacity, the surrounding regions of the Americas have experienced a surge in demand for the biggest PSVs and Anchor Handling Supply vessel ( AHTS). Operators from different regions and even different industries (wind and space exploration) are now competing to secure access to the best offshore support vessels, and everyone is forced to pay more for the limited pool of services and labor. These conditions might set the stage for the next phase of new vessel construction. According to our forecasts, OSV demand in the US Gulf has another two-years before the market slackens. In Latin America the forecast suggests another solid 5 years (or more) of growth in OSV demand. The growth of offshore wind in the USA will create significantly more demand for US mariners over the next three years. We are still waiting to hear the first salvos in the battle for the next wave of newbuild supply vessels. Which OSV company will start building the next generation of PSVs?

This comprehensive report contains vital analysis from our regional experts, and is a must read for anyone involved in the OSV sector. If you want to read the full report, please visit Petrodata™ MarineBase.

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.