Marine industry feeling effects of economic contraction

Mar 26, 2009 12:00 AM

Capt. Noel Shaw at the helm of a 2,400-hp pushboat. Shaw, who runs a company that places towing masters in short-notice jobs, has seen a slowing in some maritime sectors, but he says the demand for skilled mariners remains strong. (Leo Toupes)
Capt. Noel Shaw is not accustomed to resting during the holiday season. As a licensed professional mariner, Shaw is used to nonstop year-round work piloting tugboats and offshore oil vessels or delivering yachts.

In December 2008, however, Shaw spent two weeks enjoying the holidays at home. To him, that's a sure sign that the industry is slowing.

Shaw, 50, runs Coastal Pilots Inc., placing himself and four other towing masters on short-notice jobs serving a broad range of industries. The captain, who is based in Savannah, Ga., said the 2008-09 economic crisis is hurting energy, containership and yacht-trading clients.

Oil companies paying as much as $750 a day for pilots in 2008 have reduced the pay rate to $500 a day, Shaw said.

One client "has been tying up boats and putting a cap on wages," Shaw said. "The trip work is drying up, and there's no guarantee that you're going to be able to get the money that you're used to, contract-wise."

The yacht industry "has been dead," Shaw said. "A lot of people don't have the money, that's for sure. If people can't pay for their houses, do you think they're buying a yacht?"

The credit crisis and recession have made it more challenging for mariners to find all the work they want. While some domestic maritime sectors remain buoyant, economically sensitive tourist vessels, container lines, certain fuel shippers and construction-related dry-bulk carriers are at risk.

Financial strains and shrinking demand have caused vessels to be tied up throughout U.S. waters. Hawaii Superferry officials decided not to add a second vessel to their inter-island service. Three overnight river cruise operators announced they won't sail in 2009. Jones Act tanker operator U.S. Shipping Partners LP said it defaulted on $333 million in debt and may be sold.

Eventually, most maritime businesses may join the slowdown, said Paul Tregurtha, chairman and chief executive of Moran Towing Corp., which operates in 16 ports.

"In the current situation and looking forward, no one will be unscathed," Tregurtha said. "Some companies will be hit less than others. Those who are in spot business without contracts are going to feel it — and also those who are in bulk products for construction."

As usual, licensed professional mariners enter this economic crisis in a position of strength. Skilled officers have been in short supply. Commodities like grain and coal still need to move. Certain safety-related and local trends can override a broad economic slowdown.

Shaw can attest to this. While his yacht-moving business has plunged, tug employers have taken up much of the slack. Coastal Pilots saw its towing vessel business triple last year.

Shaw attributes the surge to Coast Guard license spot-checks resulting from the July 2008 collision and fuel spill involving towboat Mel Oliver at New Orleans. The Coast Guard said only an apprentice mate was operating Mel Oliver.

"There is a shortage of properly licensed people out there, and after the fiasco over in the Mississippi River, the companies are reluctant to put steersmen in charge," Shaw said. His tugboat work "has been going gang-busters."

Trends in the all-important petroleum industry are mixed. Some big offshore projects for 2009-10 are already in motion and will definitely need service vessels. Because the price of crude swung from $147 to $34 a barrel, other projects may be cancelled or delayed.

The U.S. oil industry is ceasing a four-year run of sharply higher capital investment in domestic and offshore exploration and production, according to a Barclays Capital survey of 245 companies in December 2008. In what Barclays calls an "abrupt reversal," its analysts now forecast a 26 percent decline in domestic investment to $79 billion in 2009.

"Budgets are being cut in response to the significant decline in commodity prices, constrained cash flow and the tight credit markets," the report said. "The sharpest decline in spending is expected to be in the United States. ... Given the severe nature of this correction, companies of all sizes are reacting with significant budget reductions."

Barclays added: "The inland barge market is also getting more difficult. Utilization has declined, with several additional barges now stacked."

Shaw is a firsthand witness. "There's barges refusing to go to dock, just sitting in fleets, running heaters, waiting for the price to go up," he said.

In January, the Baker Hughes Rig Count showed that the number of offshore North America rigs averaged 64 for all of 2008. That's down from 73 in 2007 and over 100 in 2003-04. New drill ships and semi-submersibles are headed to deepwater in 2009, said H. Gene Shiels, a Baker Hughes spokesman.

"We've seen in shallow areas of the Gulf, the activity is pretty weak," Shiels said. "The deepwater activity is probably going to continue. As it relates to the supply-boat industry, that's probably positive."

Container volume at U.S. ports fell 7.1 percent in December 2008, compared with December 2007, because of weak consumer spending, the National Retail Federation said.

Shaw and Tregurtha said tugboat ship-assist work hadn't slowed as of January. Previously scheduled liner services still called at ports, albeit with fewer boxes aboard. Because large global containership operators, including Maersk Line, plan to reduce capacity, it's inevitable that domestic ship-assist demand will decline.

"When these containers services get to the point that they don't have enough cargo and they start tying ships up ... you won't see the tugs moving as much," Shaw said.

Moran, based in New Canaan, Conn., serves a variety of industries — docking, dry bulk, petroleum and liquefied natural gas, dredge tending, offshore, environmental, emergency — and is booked under long-term contracts. Tregurtha said it's the type of diverse company that can withstand a recession.

"We have planned for a year that will be more challenging than other years," Tregurtha said. "We'll see growth taper off — and maybe a slight slowdown."

For Olson Marine Inc. in Ketchikan, Alaska, a mix of local and global trends is impacting business planning. Log, aggregate and mine-equipment towing has turned weak. Still, Olson's three 2,500-hp tugs and five barges are fully contracted for 2009 because of two government-funded infrastructure projects nearby: an airport expansion and a power-line installation. Both will be finished by 2010.

"We know there is going to be less dollars of federal money coming in because of what's going on," said the company's president, Capt. Rick Olson. "We've got to be prepared for a slowdown. Everyone's a little nervous."

Olson said he is shopping for one larger tug and "buying different pieces of equipment to do different things, and I bring in crew who can do different jobs and are diversified."

Although construction-materials demand has declined, Tregurtha and Olson said U.S. President Barack Obama's economics stimulus plan to boost spending on infrastructure could make that a growth industry again.

"Any type of infrastructure (spending) that happens will definitely benefit everyone in the marine world," Olson said.

Balancing the industry's strengths and weaknesses, operators continue to forecast robust demand for trained mariners.

"I think licensed people are not going to have problems finding a job," Tregurtha said.

Shaw said it will take more effort than usual to find work in 2009, but he's confident there's still enough.

"Normally I pick up the phone and they say jump on the plane, but this week they didn't say jump on the plane," Shaw said in January. "So I called my A-list guy, and he didn't have anything for me. So I'm calling my •B' and •C' guys. ... They always need competent crew. If you're diverse and you're smart, there's always money to be made out there."

Dom Yanchunas

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