Shipping sinks into ‘crisis’ mode

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As hard times spread through oil and offshore companies, Norway’s large shipping industry is suffering, too. Dramatic ripple effects were recently revealed by the Norwegian Shipowners’ Association, with nearly 12,000 workers at sea and on land hit by cutbacks tied to relatively low oil prices.

Norway's large fleet of rigs and vessels serving offshore oil fields has been hit hard by the oil price dive. Nearly half the fleet is not in lay-up. PHOTO: Rederiforbundet/Havila

Norway’s large fleet of rigs and vessels serving offshore oil fields has been hit especially hard by the oil price dive. Nearly half the fleet is now in lay-up. PHOTO: Rederiforbundet/Havila

More and more ships, especially those serving offshore oil rigs and oil field development, are being put into layup. There’s also less oil being transported, so tankers can be left idle while overall economic slowdown can reduce consumption and transport for everything from car-carriers to dry cargo vessels.

“It’s a very demanding situation that will be even more demanding in the months ahead,” Sturla Henriksen, chief executive of the Norwegian Shipowners’ Association (Rederiforbundet), told newspaper Dagens Næringsliv (DN). He also had a lot to tell Prime Minister Erna Solberg during a recent meeting when he laid out the grim facts of the shipping business at present.

“As we get closer to the summer months, half of all (Norway’s) oil rigs and every sixth offshore supply ship will be without work,” Henriksen. “One of every five employees at Norwegian shipowning companies will be laid off or put on furlough (unpaid leave).”

Sturla Henriksen and members of the Shipowners' Association he heads are calling the shipping downturn "dramatic." PHOTO: Rederiforbundet

Sturla Henriksen and members of the Shipowners’ Association he heads are calling the shipping downturn “dramatic.” PHOTO: Rederiforbundet

Henriksen stressed that the entire maritime sector was affected, including shipyards and equipment suppliers nationwide. The offshore sector is suffering the most, with 6,842 employees already furloughed or laid off. Another 3,800 seafarers and oil rig workers face the same fate this year.

The sharp cutbacks in oil industry investment, from exploration to field development and production, have simply left many supply ships, rigs and shipyards without orders or contracts. There’s not enough work to keep all the vessels busy that earlier were shuttling back and forth to offshore oil fields.

Companies that own and operate drilling rigs and the accommodation platforms where offshore oil workers live stood for half of all the layoffs last year. That’s expected to rise to 60 percent his year, as more and more contracts on the rigs expire with no prospects for renewal. Their owners have little choice but to let all their workers go and send the rigs into lay-up.

Operating revenues in the industry are believed to have fallen by NOK 25 billion in the past two years. Just over 100 vessels owned by members members of Henriksen’s organization are in lay-up, with another 10 soon to join them.

“There are some segments (in the shipping business) showing slight growth, but there are few bright spots,” Henriksen said. “Both offshore and dry cargo are hit hard.” Nor does he see prospects for recovery any time soon. Like Statoil executives planning more cutbacks despite a recent rise in oil prices, Henriksen said his members are bracing for rough seas over the next few years.

“We do expect the oil price to rise eventually, because it’s difficult to see how energy needs can be covered at today’s level,” Henriksen said. “But so much structural over-capacity was built up (during the boom years) that it will take time before oil prices will rise high enough that our member companies will see higher rates (for charters of their vessels and rigs).”

Mergers, bankruptcies loom
Shipowners are doing what they can to cut costs, by reducing staff, and putting ships and rigs in layup. Loan agreements are also being renegotiated, but Henriksen warned that not all the companies will be able to meet their obligations. More bankruptcies loom, or companies will merge. Henriksen’s organization itself is also cutting staff, to in turn cut costs for its members.

Norway’s maritime sector has long been one of the country’s largest and most important businesses, employing around 110,000 people and holding assets worth around NOK 190 billion. Ships and rigs in the merchant fleet controlled by Norwegian owners currently number around 1,700 worth NOK 612 billion, but that value is falling in line with oil prices.

At a meeting last week of some of Norway’s biggest shipping and offshore players, including Fred Olsen and Kristian Siem, more calls went out for mergers. “The downturn is deep and lengthy,” Siem told DN. “There are no quick solutions for the industry. We have to adjust to a bad market for several more years. But there is a future in offshore. We have to see how the industry can make the best out of a bad situation.”

He sees potential for consolidation in a highly fragmented industry. There’s strength in numbers and costs can be cut through economies of scale: “In times of need we have to be willing to think differently.”

More ripple effects
DN has also reported how the maritime downturn is affecting large companies like classification and certification firm DNV GL, which itself was formed through a merger of Det Norske Veritas and Germanischer Lloyd three years ago. It’s now resorting to personnel cuts even after 1,000 people resigned last year. Some employees, including 120 in Norway, have been put on four-day work weeks, amounting to a 20 percent reduction in pay. The downturn in the oil and offshore branch also means less work for DNV GL.

“We’re clearly feeling this, not least in Norway and Great Britain, where the oil and gas dominance is considerable,” Finance Director Thomas Vogth-Eriksen told DN. The company nonetheless recently reported an 8.2 percent increase in operating revenues and a 1.7 percent increase in pre-tax profits, not least because of the weaker Norwegian krone while much of DNV GL’s business is conducted in the stronger US dollar, British pound and euro. Berglund