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Stacked OSVs stifle Gulf yards; market hot for US boxships

Nov 1, 2017 11:53 AM
Harvey America, the fifth dual-fuel offshore supply vessel from Gulf Coast Shipyard Group, awaits installation of its upper wheelhouse module in Gulfport, Miss., in early September. Delivery of the 302-foot OSV to Harvey Gulf International Marine is expected in the first two months of 2018.

Brian Gauvin photo

Harvey America, the fifth dual-fuel offshore supply vessel from Gulf Coast Shipyard Group, awaits installation of its upper wheelhouse module in Gulfport, Miss., in early September. Delivery of the 302-foot OSV to Harvey Gulf International Marine is expected in the first two months of 2018.

The past year was not kind to many sectors of the foreign shipbuilding industry, and in many respects North American shipyards followed suit as the continued slump in oil prices pushed orders for offshore supply vessels to the brink. For builders catering to operators outside that realm — and especially for yards able to diversify their portfolios — the picture was far brighter.

Along the Gulf of Mexico, the number of OSVs laid up due to inactivity reflected a sobering reality for the region’s shipbuilders. According to London-based VesselsValue, 40 percent of the fleet was idle as of Aug. 1. That number included 44 percent of the fleet’s platform supply vessels and 50 percent of its fast supply vessels. With nearly 400 boats stacked — many of them recent additions — prospects for new orders have nearly faded to black.

A period of consolidation and bankruptcy is likely to follow among those playing the waiting game for oil to rebound. As offshore operators cut back and streamline their books to survive, the domino effect will threaten Gulf Coast yards that have been skirting the edge during the past three years of market stagnation. For those with a vessel or two still in the pipeline, delivery delays could be a blessing that enables them to hold on to their skilled employees for a while longer. But if oil will bounce back — and when — is still anybody’s guess.

The 610-foot Liberty heads out for sea trials in February in San Diego, Calif. The tanker is the third LNG-ready ship delivered by General Dynamics NASSCO to SEA-Vista, part of an eight-ship ECO-class program that also involved American Petroleum Tankers.

Courtesy General Dynamics NASSCO

Gulf shipbuilders that have diversified their operations, however, are in a much stronger position. A solid book of orders from Hornblower’s NYC Ferry service has buoyed Horizon Shipbuilding and Metal Shark, which has also expanded its production of patrol boats. Gulf Island Fabrication added a research boat for Oregon State University to its project list, which includes eight Z-Tech tugs, and Eastern Shipbuilding is getting in on the action in the ferry sector, landing an order in March for three 4,500-passenger vessels for Staten Island. The Florida shipyard, long a leader in diversification, works in steel and aluminum on a wide range of boats and now has a big government ticket in its back pocket: the U.S. Coast Guard’s lucrative contract for offshore patrol cutters.

The Jones Act factor
For shipyards still relying on offshore oil and gas interests, there was hope at the beginning of the year that they also might get a lift from Washington — specifically from U.S. Customs and Border Protection regarding foreign-flagged vessels working in the Gulf and other U.S. waters.

In January, CBP proposed revising nearly 30 Jones Act rulings about what constitutes “vessel equipment” used in pipe and cable laying, well stimulation, subsea construction and other operations. The rulings included a 2009 decision that subsea assemblies known as “Christmas trees” are considered “vessel equipment” when transported by a vessel specializing in equipment installation, not “merchandise” that requires them to be carried on a Jones Act vessel. CBP’s proposal, made in the last days of the Obama administration, would have eliminated exemptions allowing foreign vessels and crews to do that work.

Critics claim the Jones Act “loopholes” have been taking jobs away from American mariners and shipyards, and they dismissed arguments by oil exploration companies that the U.S.-flagged fleet doesn’t have the capability to do what needs to be done. “The offshore service industry is ready, willing and capable of completing this work, having recently invested $2 billion in U.S. shipyards on vessels tailored to safely complete it,” said Aaron Smith, president of the Offshore Marine Service Association.

El Coqui, an LNG-powered con-ro being built by VT Halter Marine for Crowley Maritime Corp., is launched in March at the shipyard in Pascagoula, Miss. The ship is slated for delivery in late 2017.

Courtesy Crowley Maritime Corp.

But after reviewing more than 3,000 public comments, CBP in May decided to keep the exemptions in place, citing the “substantive” feedback and further research on the issue. Matthew Paxton, president of the Shipbuilders Council of America, said the decision was a frustrating setback and a missed opportunity to give many U.S. shipyards “a shot in the arm.”

“For shipyards that are in this area, building and repairing workboats and dynamic positioning assets, it was an opportunity to confirm a lot of the investment that has been made by a lot of Jones Act operators,” Paxton told American Ship Review. “There was a lot of investment by those companies in U.S. shipyards with the belief that ultimately CBP, either in the Obama administration or this administration, was going to get this right (and determine) that these letter rulings were made not following the rule of law, and that the investment was going to be rewarded and future investment would come after that. What’s frustrating is there was a golden moment to really confirm that and it didn’t happen.”

Paxton said the shipbuilders council and other trade groups would continue to make the case to the Trump administration and Congress to revoke the exemptions. The chances of success, however, will likely be tempered by the president’s “America First” energy plan, which doesn’t bode well for regulatory changes favoring the Jones Act.

“I think it has a chilling effect on that market, because are people going to invest where you’re competing against folks who don’t have (to comply with) the laws or requirements or regulations faced by fully U.S.-flagged Jones Act operators?” Paxton said. “This is a glaring example of where the law is not being implemented properly.”

A shipbuilder at Seaspan’s Vancouver Shipyards, works on Sir John Franklin, the first of three offshore fisheries science vessels for the Canadian Coast Guard. Seaspan is Canada’s provider of non-combat ships under the $40 billion National Shipbuilding Strategy; Irving Shipbuilding of Nova Scotia is providing combat vessels.

Courtesy Seaspan

The state of tankers
With the United States now exporting liquefied natural gas (LNG) and crude oil, Jones Act supporters have been pushing anew to mandate that some of those cargoes travel on U.S.-flagged, U.S.-crewed ships.

Earlier this year, longtime Jones Act proponent Rep. John Garamendi, D-Calif., introduced the Energizing American Maritime Act (H.R. 1240), which would require that up to 30 percent of energy exports be carried on U.S.-flagged vessels. A related bill introduced in December would mandate that a percentage of energy exports be carried on U.S.-flagged vessels built in American shipyards. As of mid-September, the U.S. House had not taken action to advance the legislation.

While the lawmaking process played out on Capitol Hill, construction of Jones Act tankers continued at two of the nation’s largest shipyards.

In July, Philly Shipyard delivered the 600-foot American Liberty, the third of four 50,000-dwt, LNG-conversion-ready ships that the yard is building for American Petroleum Tankers. In June, General Dynamics NASSCO delivered Palmetto State to APT. The 610-foot tanker is the final vessel in an eight-ship program for the operator and SEA-Vista. Like the Philly ships, NASSCO’s ECO-class tankers are 50,000 dwt and LNG-ready.

Keppel AmFELS of Texas will design and build a pair of LNG-powered containerships for Pasha Hawaii under terms of an agreement signed in August. The operator says the 2,525-TEU newbuilds will run on LNG from their initial service date.

Courtesy Pasha Hawaii

Cleaner, greener containerships
American shipbuilders also were busy last year on the LNG containership front, with dual-fuel propulsion taking center stage at NASSCO, Philly Shipyard, VT Halter Marine and Keppel AmFELS. The world’s first LNG-powered containership, the 764-foot Isla Bella, was built by NASSCO for TOTE Maritime in 2015 and was American Ship Review’s Ship of the Year. Sister ship Perla del Caribe followed in 2016 for the U.S.-to-Puerto Rico trade.

The San Diego shipyard added to its dual-fuel portfolio in late August last year when it signed a deal with Matson to build two LNG-convertible containerships with roll-on, roll-off capability. The 870-foot Lurline and Matsonia will serve the mainland-to-Hawaii trade and have the capacity for 3,500 TEU. The Kanaloa-class ships are scheduled for delivery in 2019 and mid-2020.

Matson also has dual-fuel containerships on the books at Philly Shipyard: a pair of 850-foot Aloha-class vessels that will be able to handle 3,600 TEU, making them the largest-capacity boxships ever built in the United States — at least temporarily. Deliveries are planned for the third quarter of 2018 and the first quarter of 2019.

Eastern Shipbuilding Group launches Magdalen, a 356-foot trailing suction hopper dredger, in March in Panama City, Fla. The U.S.-flagged vessel, built for Weeks Marine based on a design by Royal IHC of the Netherlands, has a pair of 5,682-hp GE main engines and a hopper capacity of 8,550 cubic yards.

Courtesy Eastern Shipbuilding Group

A decision announced by TOTE in August to enter the Hawaii trade will add more boxship business to Philly’s books. Under the terms of a letter of intent, the operator will order two 3,700-TEU vessels with LNG capability, with an option to order two more. The first newbuilds will enter service in early 2020 and 2021.

Not to be left out, islands operator Pasha Hawaii is tapping Keppel AmFELS of Brownsville, Texas, to build a pair of 2,525-TEU dual-fuel ships. The 774-foot newbuilds will operate fully on LNG from their first day in service, according to Pasha, and they’ll be among the most hydrodynamically efficient hulls in the world due to the use of computational fluid dynamics. Both ships are slated for delivery in 2020.

In the Puerto Rico trade, Crowley is making a push into LNG propulsion with a pair of con-ros being built by VT Halter Marine in Pascagoula, Miss. The Commitment-class ships, El Coqui and Taino, will have the capacity for 2,400 TEU and nearly 400 vehicles. The delivery of El Coqui is expected in late 2017, with Taino following in 2018.

“It’s a true example of U.S. shipyard ingenuity,” Paxton said about the adoption of LNG technology. “We delivered the first LNG-powered containership and now because of the eco requirements, there will always be a need to have cleaner fuels. … The contracts that are taking place now are all good-news stories for vessel construction and the ability of U.S. shipyards to deliver.”

Once a containership, Asterix is being converted for duty in the Royal Canadian Navy by Quebec’s Davie Shipyard. The 599-foot vessel, which will be the RCN’s largest ship when completed, is scheduled to go into service in late 2017 as an auxiliary replenishment oiler. It also will provide fleet medical support and disaster relief.

Courtesy Chantier Davie Canada

The news from the north
Across the border in Canada, the long-delayed National Shipbuilding Strategy (NSS) began to bear fruit in 2017 as the first major newbuilds in the program got closer to hitting the water.

In July, the last mega-blocks that will compose HMCS Harry DeWolf, the lead vessel in a new class of Arctic and offshore patrol ships (AOPS), were moved outside for joining and outfitting at Irving Shipbuilding’s yard in Halifax, Nova Scotia. Delivery to the Royal Canadian Navy is expected in 2018. The keel for the second ship in the series, HMCS Margaret Brooke, was laid in late May.

Irving was awarded a $2.3 billion contract in 2015 to build six AOPS. The 340-foot ships will be capable of operating in ice up to 3.5 feet thick and have a top speed of 17 knots.

In British Columbia, Seaspan was progressing on Sir John Franklin, the first of three 208-foot offshore fisheries science vessels being built for the Canadian Coast Guard under the NSS. Franklin is slated to be launched in December, with the two sister ships following in April and November 2018. The OFSVs were designed by RALion, a joint venture of Vancouver-based Robert Allan Ltd. and Alion Science and Technology of McLean, Va., and Ottawa, Ontario.

Harvest, a 508-foot tank barge delivered in July by Vigor, is the first U.S.-flagged liquid gas carrier built in more than 35 years. Shown on the Willamette River in Portland, Ore., the articulated tug-barge unit can carry 22,000 tons of ammonia chilled to minus 27 degrees Fahrenheit. Harvest supplies The Mosaic Company and is operated by a Savage Companies subsidiary.

Courtesy Vigor

In February, Seaspan was awarded a $230 million contract to design two joint support ships for the Royal Canadian Navy. Construction of the vessels under the NSS is expected to begin next year. The shipyard is also scheduled to build an offshore oceanographic science vessel, a polar icebreaker and up to 10 other vessels for Ottawa.

One of the most innovative projects in North America continued at Davie Shipyard in Levis, Quebec, where a former containership is being converted into a naval supply vessel. The 599-foot Asterix — evolving from Cynthia in 2010 and later renamed — will be the largest ship in the Royal Canadian Navy upon scheduled delivery later this year.

The Resolve-class vessel will serve as an auxiliary oiler and also will support humanitarian and disaster relief. The conversion has been privately financed by Davie and the ship will be leased to Canada. Federal Fleet Services, a Davie sister company, will operate Asterix with merchant mariners and Royal Canadian Navy personnel.

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