Tug construction rebounding, but hold the champagneJul 1, 2019 03:08 PM
Razor-thin margins and fierce competition extend 'buyer's market'
Washburn & Doughty continued work this spring on Capt. Robb, the second of two diesel-electric hybrid tugboats for Harbor Docking & Towing of Lake Charles, La. Ralph is the lead tug in the series.
These have been some lean years for a lot of American shipbuilders. But yards that kept the lights on, and their workforce intact, are benefiting from an apparent rebound in new tugboat and towboat construction.
There are several factors influencing the uptick, perhaps none as significant as the approaching deadline for all tugboats to meet Coast Guard Subchapter M standards. Ahead of the July 20, 2022, deadline, operators are laying up or scrapping older tonnage, and in many cases they’re building new vessels to replace them.
Market conditions are also forcing bigger operators to respond. Neo-Panamax ships are routinely calling on East Coast ports, and more powerful tugboats are needed to safely escort and assist them. The same trend is happening on the Gulf Coast, which has seen ever-larger supertankers exporting U.S. oil. The U.S. Navy also has begun updating its own fleet of ship-handling tugs and workboats.
These positive signs notwithstanding, the market is far from booming. Mid-sized and large shipyards are scooping up ever-larger chunks of the available work. Pricing has been affected by metal tariffs and EPA Tier 4 engine mandates, putting increasingly more pressure on shipyard margins.
Even so, some shipyard operators are feeling more optimistic these days than at this time a year or two ago.
Western Towboat crews built the company’s new ship-assist tugboat at its Seattle yard. The vessel, Mariner, was scheduled to launch around June 1.
“The tugboat market is hard to predict,” said Johnny Conrad, CEO and chairman of Conrad Shipyard. “The overall health of the market seems to be gaining ground. We are seeing an uptick in the new tugboat construction discussions.”
He added, “If only I had a crystal ball.”
Subchapter M cometh
Whether tugboat operators like it or not, the countdown is on for full compliance with Subchapter M. As of July 22, 2019, U.S. tug operators must obtain certificates of inspection (COI) for a quarter of their fleets, which will show the vessels meet the new standards. By July 22, 2020, half of their fleets must have one.
Operators must have a COI for three-quarters of their fleets a year later, and all vessels are required to have them by July 19, 2022. All newly built tugs, and any undergoing major conversions, also must get COIs before going to work.
These standards are creating a dilemma for some tugboat operators running older tonnage. The upgrades needed to earn a COI in many cases will exceed what owners are willing to spend on older boats. Depending on operational needs, that could require building new tugs.
Moran Towing’s Judy Moran escorted the 13,000-TEU Cosco Pride into berth at a Norfolk-area terminal this spring.
Great Lakes Towing Co., for instance, has retired a half-dozen tugboats over the past year or so as it ramps up construction on its Great Lakes class of 2,000-hp harbor tugs. The company plans to build at least five new tugs, which will replace 10 older single-screw vessels.
“It’s really hard, but you have to move on,” said Joe Starck, president and CEO of Cleveland-based Great Lakes Towing. “We have tried a lot of things to extend the life of the fleet.”
Kirby Corp. is another company that has made a point to replace older tonnage. The Houston company is building three 2,680-hp vessels at Main Iron Works and built a similar vessel at the Kirby-owned San Jac Marine shipyard near Houston. The towboats are among the first built to Subchapter M standards.
Other operators are following suit, in part to upgrade their fleets and in part because they don’t have a choice when it comes to Subchapter M compliance.
“Emissions and safety initiatives and also Subchapter M will continue to drive newbuilds,” said Chris Allard, CEO of Metal Shark. The company builds and repairs steel vessels at the former Horizon Shipbuilding yard in Bayou La Batre, Ala. Three 120-foot towboats are currently under construction there for Florida Marine Transporters.
Moran built the powerful Judy Moran to handle neo-Panamax containerships and other large vessels.
Allard believes the medium- to long-term effects of Subchapter M won’t be known for some time, but he expects to see “regulations and emissions requirements force technological change in a sector that has historically been slow-moving in terms of technological advancement.”
Brandon Durar, president of deck equipment maker JonRie InterTech of Manahawkin, N.J., agrees. Subchapter M, he said, will retire a lot of old tugs.
Bigger ships require more powerful tugs
It’s been more than three years since the Obama administration lifted the ban on U.S. oil exports. The move spurred a rush to develop terminals and portside infrastructure to accommodate the massive ships capable of holding 2 million barrels of oil. More than $1 billion in new investment has been proposed for the Texas cities of Corpus Christi, Freeport and Ingleside, among others. Several Gulf ports have already had calls from very large crude carriers (VLCCs).
Gulf Coast operators Bay-Houston Towing and Suderman & Young Towing responded by ordering five new Robert Allan Ltd. ship-assist tugs from Gulf Island Shipyards. Bay-Houston President Philip Kuebler said the arrival of VLCCs requires more powerful tugs. The lead vessel, Mark E. Kuebler, has more than 80 metric tons of bollard pull and enhanced escort capabilities.
Similar trends are happening on the East Coast, where the biggest ports have seen a steady rotation of neo-Panamax containerships that can hold around 13,000 TEU. The Port of Virginia in Norfolk, for instance, has recorded a 3.9 percent increase in container volume despite an 11 percent drop in ship calls during the first five months of 2019.
Capt. Jim McAllister will undergo final outfitting this summer at Eastern Shipbuilding. The 6,772-hp ship-assist and escort tug is the fourth in a four-boat series for McAllister Towing.
McAllister Towing and Moran Towing, both of which handle neo-Panamax ships in Hampton Roads, have assigned 6,772-hp workhorse tugs to the region. These new tugs regularly perform tethered escorts to help slow down and turn ships longer than 1,200 feet. As one captain noted, the new vessels bring much-needed horsepower to Virginia.
It remains to be seen, however, whether shipping volumes will warrant further orders for beefy ship-assist and escort tugs once current projects wind down.
Industry demanding more ASD tugboats
One way to gauge demand for a type of tugboat is to look at the secondary market, and right now there are basically no ASD tugboats for sale anywhere in the U.S. That suggests robust demand that should lead to new construction.
“The ASD tugs have proven to generally maintain their value,” said Bob Beegle, president of ship broker Marcon International. “We still have buyers out there looking, but most owners who have this class of boat have them working regularly and are not interested in offering.”
Over the past six months, Moran Towing has ordered two 86-foot ASD tugs from Washburn & Doughty, although the contract could jump to 10 boats overall. Foss Maritime has ordered a new series of four 90-ton bollard pull ASD tugboats from Nichols Brothers Boat Builders. Foss initially planned to build a series of Damen-designed tugs at its Rainier, Ore., shipyard before changing direction. The move resulted in the closure of the Rainier yard.
Smaller operators also are expanding their ASD fleets one or two vessels at a time. Bisso Offshore, a New Orleans-based subsidiary of E.N. Bisso & Son, has two 5,100-hp Robert Allan Ltd. tugboats on order from Eastern Shipbuilding. Western Towboat is nearly finished with construction on a third-generation Westrac ship-assist tug in Seattle. Gulf Island is building an icebreaking ASD tug for the Saint Lawrence Seaway Development Corp.
St. Johns Ship Building modified Vane Brothers’ final two Elizabeth Anne-class model-bow tugs into ATBs. Jacksonville is based in New York while Charleston is scheduled for delivery in summer 2019.
“Construction has been going on fairly steadily (on ASD tugs) and this is almost the only type of tug being built in the U.S. — and probably the major type being built worldwide versus conventional tugs,” Beegle said. “I expect this to continue.”
Competition is fierce for this and other new construction in the U.S. and around the world. Mike Fitzpatrick, president and CEO of Robert Allan Ltd. in Vancouver, B.C., said prices worldwide are at an all-time low. In some cases, prices for new ASD tugs are down 20 percent compared to six or seven years ago.
“We hadn’t really seen that translate to the U.S. market until last year. Some owners we work with recently negotiated prices at least 10 percent less than they were quoted for the same tugs a few years ago.”
How long shipyards can survive on razor-thin margins is anyone’s guess. Fitzpatrick considers it unsustainable as it is. That means prices likely won’t drop any further.
“It is definitely a buyer’s market. The tug market is one of the few workboat segments that is actually building anything,” he said. “Almost nothing is being newbuilt for the offshore oil market, and so a lot more yards are competing for the tugboat business.”