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Oil doldrums keep lid on OSV demand, but torches stay hot in other markets

Nov 4, 2016 03:57 PM
Harvey Blue-Sea, a multipurpose support vessel (MPSV) built for Harvey Gulf International Marine, is launched in May at Eastern Shipbuilding in Panama City, Fla.

Brian Gauvin photo

Harvey Blue-Sea, a multipurpose support vessel (MPSV) built for Harvey Gulf International Marine, is launched in May at Eastern Shipbuilding in Panama City, Fla.

For American shipbuilders, 2016 will go down as a year of haves and have-nots, a reality tied directly to global oil markets. The boom that went bust in 2014 has shown few signs of returning, at least not soon, and shipyards banking on a cyclical upturn continue to play a nervous waiting game.

The anxiety can be felt all along the Gulf of Mexico, where a growing number of offshore supply vessels and crew boats have been idled in ports that were bursting with activity two years ago. Existing contracts for newbuilds are running their course with few prospects in the pipeline, and when oil does come back, overcapacity will surely rear its head among yards building for the offshore fields.

“We saw this in the 1980s as well,” Matthew Paxton, president of the Shipbuilders Council of America, told American Ship Review in early September. “This is going to be a longer duration where the price of oil is depressed. With the amount of boats being stacked, that makes for difficult times, both on the ship repair side and the newbuild side.”

Philly Shipyard delivered the 600-foot tanker Louisiana to Crowley Maritime in April.

Courtesy Crowley Maritime Corp.

Away from the Gulf, the picture is decidedly brighter for U.S. shipbuilding. From General Dynamics NASSCO in San Diego to All American Marine in Washington to Gladding-Hearn in Massachusetts, dozens of companies kept busy in 2016, producing vessels ranging from custom patrol boats to Jones Act tankers. Gulf Coast builders with a knack for diversity got in on the action as well: Eastern Shipbuilding has long cast a wide net, and Metal Shark and Horizon Shipbuilding were tapped this year to build 19 boats for Hornblower’s Citywide Ferry Service in New York City.

Upcoming work at NASSCO includes a variety of projects squarely in the wheelhouse of the large-vessel specialist. The order book features four more ECO tankers for SEA-Vista and American Petroleum Tankers; the second expeditionary sea base (ESB) for the U.S. Navy, USNS Hershel “Woody” Williams; and a $511 million contract to build two roll-on/roll-off containerships for Matson and the Jones Act trade.

“We processed 60,000 tons of steel through our yard in 2015, which is the most we’ve ever done,” said Parker Larson, director of commercial programs at NASSCO, during a tour of the yard in May. “This year, sort of on the back end of that, we’re delivering six vessels, which is the most we’ve ever done.”

Harvey Gulf OSVs are stacked last summer at Gulf Coast Shipyard Group in Gulfport, Miss.

Brian Gauvin photo

At a meeting of the Passenger Vessel Association last November in Portland, Maine, Joe Hudspeth, vice president of business development at All American Marine, described a “wild wild West” for shipbuilders in the region.

“Things are really booming on the West Coast,” said Hudspeth, whose yard is well known for aluminum ferries but also currently has contracts for a 500-passenger tour boat and a survey vessel for the U.S. Army Corps of Engineers. “I think boatbuilding is back right now. I know there has been a downturn in the Gulf with oil prices, but that’s not the case out West. Shipyards are very, very busy.”

Peter Duclos, president of Gladding-Hearn, put an East Coast spin on Hudspeth’s assessment. The Massachusetts yard kept delivering pilot boats in 2016 and has an order book that includes six ferries and three excursion boats.

A worker at VT Halter Marine helps guide the main engine into place in March on El Coqui, the first of two LNG-powered con-ros the yard is building for Crowley Maritime.

Courtesy Crowley Maritime Corp.

“We’re as busy as we’ve ever been in history,” Duclos told ASR. “I can’t tell you why. All we can do is do our best to satisfy our customers’ requirements.”

Showing strength in numbers
Last November, the U.S. Maritime Administration (MarAd) released its latest report quantifying the contributions of American shipbuilders to the nation’s economy. Although the report does not reflect the recent downturn in the Gulf, the numbers document the fundamental strength of the industry:

• In 2013, the U.S. private shipbuilding and repairing industry directly provided 110,390 jobs, $9.2 billion in labor income and $10.7 billion in gross domestic product (GDP) to the economy.

Perla del Caribe transits the San Diego waterfront during sea trials in January. The LNG-powered containership was the second delivered to TOTE Maritime in the past year by General Dynamics NASSCO.

Courtesy General Dynamics NASSCO

• Including direct and indirect impacts, economic activity associated with the industry totaled 399,420 jobs, $25.1 billion in labor income and $37.3 billion in GDP.

• There are currently 124 shipyards in the nation, spread across 26 states, that are classified as active shipbuilders. In addition, there are more than 200 yards that repair ships or are capable of building ships that are not actively engaged in shipbuilding.

• Despite an increase in foreign competition, exports by U.S. shipbuilders have strengthened in recent years, rising to $1.2 billion in 2014 (representing 4.6 percent of industry revenues). As a result, the U.S. shipbuilding industry has run a trade surplus in six out of the past nine years and a cumulative trade surplus of $1.5 billion during this period.

Dakota Creek Industries delivered the fish tender Coastal Standard to Coastal Transportation in February. 

Courtesy Coastal Transportation Inc.

While the number of deliveries by U.S. shipbuilders has fallen in recent years — the total was 1,067 vessels in 2014, down from 1,147 in 2013 — the number of new construction contracts has increased, according to MarAd. More than 80 percent of vessels delivered in the past five years have been inland tank and deck barges, with inland tank barges, tugboats and towboats showing the greatest increase.

“In 2013, U.S. shipyards announced 114 new construction contracts for self-propelled vessels and oceangoing barges, most of which will be delivered in 2015 and beyond,” the report states. “Given the significant lag in construction of many types of vessels, employment in the U.S. shipbuilding and repairing industry has continued to grow while deliveries have declined.”

Diversity still the key
Tempering the positive numbers is the realization that with the stacking of vessels in the Gulf, layoffs will surely multiply in operations and shipbuilding if oil markets don’t rebound soon. That puts a premium on the need — more than ever — for shipyards to diversify their production. The problem is that for those that have waited, closure or consolidation may be the next step.

Eastern is building the 194-foot factory trawler Araho for O’Hara Corp.

Brian Gauvin photo

Paxton said that hasn’t been the case so far with members of his trade group, highlighting the fact that some embraced diversification well before the latest storm.

“Being diversified has allowed them to weather some of these difficult times and also continue to grow in markets in which they otherwise wouldn’t have the opportunity if oil and gas was going bonkers,” he said. “It is difficult when a crisis is upon you to say ‘I’m going to start doing something different’ or play in several markets. Some of our members were already (diversifying) and will continue to do that and work through this. It’s not as if there isn’t any work going on. There is work, as you know. We’re not seeing yards closing.”

One of the markets that Paxton sees as promising for U.S. shipbuilders is commercial fishing, especially in the North Pacific. A number of yards reached into the sector during the past year, with Eastern launching the factory trawler Araho for O’Hara Corp., the first U.S.-flagged freezer processor built in 25 years, and Dakota Creek Industries delivering the fish tender Coastal Standard to Coastal Transportation of Seattle.

“That is a market that is begging for recapitalization,” Paxton said. “There’s vessel construction that’s going on and there’s much more to come, and that’s not just a market for the Northwest. Eastern is building for that market and that’s a market that Marinette in the Great Lakes has built for in the past, as have other builders. So if that starts to really get going, I think that’s a segment that could be a bright spot in the long term. And we’re going to have to recapitalize the Ready Reserve Fleet. That too is a market that begs for a solution.”

Louis Sanchez, a shipbuilder at Breaux Brothers in Loreauville, La., grinds welds on a fast supply vessel being built for C&G Boats. Work for the offshore sector fell off substantially in 2016.

Brian Gauvin photo

Finding talent — and keeping it
Putting the pieces together to successfully diversify goes well beyond landing contracts. It requires delivering quality vessels on time and on budget, which requires talent in the trenches. Keeping highly skilled workers can be a struggle for shipyards in good times or bad, and with the U.S. maritime industry amid a generational shift, the challenge is growing by the day.

For Gulf shipyards being punished by the oil slump, the employment outlook wouldn’t appear to be an issue. The main concern right now is idling workers, not losing them to competition. But when the slump ends — and most veterans in the offshore sector believe it is a question of when, not if — getting back up to speed might not be that easy for those forced to lay off employees.

“The shipyard industry is one of the unique industries where if you let some folks go, they’re highly employable,” Paxton said. “They can go and be an electrician, they can go and work in the construction trade. We struggle when these downtimes come in certain segments. Those men and women might find other work in the shipyard industry, or they might get employed in another segment (of the economy). Then they’ve gone away. And when you ramp back up, you just don’t ring the bell and have those guys come back.”

The ebb and flow of workers can affect operations at shipyards far from bayou country. That’s the case at Gladding-Hearn, which has employed shipbuilders for more than 60 years on the west bank of the Taunton River in Somerset, Mass.

Amid a global oversupply of containerships, Quebec’s Davie Shipyard is converting one into a supply vessel for the Royal Canadian Navy. The 599-foot Asterix will become a Resolve-class auxiliary oiler that also will support humanitarian and disaster relief efforts.

Courtesy Chantier Davie Canada

“We don’t rely on the oil price (for business) like Gulf yards. We’re not in that market,” Duclos said. “So the only impact that has on us is potentially affecting the availability of skilled labor if the Gulf gets hot, because we draw people from the Gulf. We have people here now from the South through some supply companies.”

The bottom line, he said, is that “good people are still hard to come by. And the really, really good ones are the ones that never get laid off.”

Paxton said the solution involves maintaining a stable and strong shipyard industrial base that will attract newcomers, and investing in the training necessary to keep U.S. shipbuilders at the head of the class worldwide — Gulf Coast, East Coast, West Coast and inland.

“We need to bring in and continue to bring in great shipbuilders,” he said. “We have great apprenticeship programs, but we continue to struggle with building our next work force. That’s a challenge that remains and will continue to remain.”

Staff writer Casey Conley contributed to this report.

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