The Gulf Coast and inland waterways have been hit hard by
Covid-19 and the falloff in oil demand as a result of the economic decline.
Boats lie idle, and many Gulf Coast shipyards find themselves focusing on maintenance,
repair and conversion work – when they can find it – with fewer newbuilds in
the pipeline.
Companies are hunkering down, conserving cash and extending
the periods between recommended drydockings – absent the need for emergency
repair work. Many vessels are just changed out and tied up with needed repairs
and maintenance put off until the economy recovers, hopefully in 2021.
Survival Strategies
Succeeding in such a marketplace takes discipline and
patience. Strategies vary from divesting assets to investing in new
opportunities. It all depends on your cash flow and philosophy. Companies with
solid assets and good liquidity are swooping in, scooping up underpriced assets
and waiting until the market returns. Others, the ones without available cash
and marketable assets, are forced to retrench and proclaim gloom and doom, at
least for now.
“Knowing where you are and where you’re going offers a
roadmap to success,” says Richard Bludworth, CEO and Owner of Bludworth Marine
in Galveston, Texas. “We follow it on a daily basis. The tools we use to manage
a successfully include keeping a keen eye on the bottom line, careful cash flow
management, regulatory compliance, and recognizing both opportunities and
threats and dealing with them accordingly.”
Bludworth walks the talk. A few years ago he leased acreage
in Orange, Texas – on the border between Texas and Louisiana – for a new
shipyard. The location was ideal for servicing both Louisiana barges and the
MARAD fleet just west in Beaumont, Texas, and providing tank cleaning,
blasting, painting and maintenance work for a variety of vessels in either
direction.
By strategically choosing a location on the Sabine River, he
positioned himself adjacent to Crowley’s future fleet, preventing another
marine repair company from taking the coveted space and, along with it,
valuable work contracts. “We do a lot of maintenance work on the Crowley barges
that are fleeted here,” says Richard Allen, General Manager of the Orange
shipyard. “If a customer needs a barge, we clean it, outfit it and get it into
service.”
Bludworth actually started his company with mobile repairs
because of the cost and overhead of water frontage. Today, he’s often praised
by customers for his willingness to go the extra mile to service a vessel on
location, away from the shipyard. In these hard times, going the extra mile is
more important than ever.
Up and down the supply chain, demand has slowed. “Equipment
is tied up and not doing anything,” he says. “Chemical plants are slow. The
drilling industry can’t get much worse. Less than one quarter of rigs are
working versus five years ago. We’ll never see that market as it was 20 or so
years ago.”
No Silver Bullet
While focusing on the safety of his employees, President Pat
Stant of New Orleans-based McDonough Marine is being as flexible, patient and
cost-conscious as possible. He thinks the first quarter will be a tell-tale
sign.
“It will be a very different 2021,” he says. “There’s no
silver bullet for the impact of Covid, the falloff in oil and gas activity, the
slowdown in international trade and all the rest. It’s a bleak picture, all
right. We just have to hang tight and wait for the recovery in offshore
drilling and production.”
McDonough Marine focuses on the oil and gas, heavy haul and
marine construction sectors. It operates an extensive fleet of over 600 barges
and tugs and has been in business for more than 70 years.
Noting that a large portion of its business is dependent on
the oil and gas industry, Stant says the tank barge market in particular has
had rough sailing with the lack of revenue interrupting cash flow and normal
operations and leading to overdue loan payments and bank credit issues for some
companies.
Over the last 10 years, the U.S. has become the largest oil
and gas producer in the world, largely due to hydraulic fracturing or fracking.
There are several big jobs every couple of years supporting the offshore
industry, but generally it’s running at 40 to 60 percent of capacity at best.
“Offshore barges that support oil and gas platforms, that
market has slowed as well,” Stant says, adding that extended drydocking periods
for repair, maintenance and blasting have also had an impact.
“The schedules are stretched. “At some point they’ll have to
pay the piper as the result of neglected and deferred maintenance.”
He says the oil and gas business will eventually come back:
“I believe our markets will return. In tugs and barges, with very few publicly
traded companies and mainly privately held, family businesses, it makes for a
small, close-knit community of those who work together and compete vigorously.
There may well be more buyouts and acquisitions before all is said and done.”
Equipment Manufacturers
The experience of manufacturers and suppliers involved in
the commercial marine industry on the Gulf Coast is similar to that of the
shipyards and tug-and-barge operators with schedules for repairs and tune-ups
being pushed out indefinitely and even postponed entirely, says Trace Laborde,
President of New Orleans-based Laborde Products.
“On the engine side, we see the same service and maintenance
issues as in other aspects of vessel operation,” he says. “Our goal is to
maintain all equipment that must keep running.”
Laborde Products provides heavy-duty engines, equipment,
service and support to customers in the marine, industrial and oilfield
markets. As a marine and industrial engine distributor, its operations cover
approximately one-third of the U.S. as well as the entire U.S. Gulf Coast. It
also packages diesel-powered generators, pumps, pressure washers and other
custom diesel-powered equipment.
While the oil business is a major focus for Laborde, the
inland river market offers much-needed diversity with its varied mix of
construction, agricultural and petrochemical products. “We’ve changed our
business model a little,” he says, emphasizing that while the new construction
market has pulled back some it hasn’t really fallen off from a shipyard
standpoint.
“The yard is still busy building boats,” he explains,
referencing contracts going back to 2018. “However, the transition from Tier 3
to Tier 4 emissions standards has slowed considerably from previous levels.”
A cautious pragmatist, Laborde predicts that when the
economy does recover there’ll be lots of pent-up demand and construction work
waiting to get into shipyards. “Let’s work out financing and extended terms to
keep you working for when you pick back up,” he advises customers. “Keep your
head down and stay focused because there’s always something else around the
next bend.”
New Normal
The West Coast is much less dependent on the oil and gas
business and thus is faring somewhat better. With a versatile and powerful
fleet of tugs, barges and specialty vessels, Seattle-based Foss Maritime, for
example, is able to provide a variety of harbor and ocean-towing services to
customers along the West Coast, Alaska, Hawaii and the Gulf Coast.
COO Will Roberts sees signs of recovery but not full
recovery: “Our core business is harbor towage, and it’s still there. But it’s
not fully back. In the meantime, you have to be smart with the money. If you’re
a well-capitalized company like we are, there are opportunities and good deals
to be had.”
Customer relations during the pandemic has been a real
challenge. “I’m disappointed not to have Workboat,” he says, referring to the
annual Workboat Show in New Orleans the week after Thanksgiving. “We’re an
essential service, and we can meet safely.”
He describes customers and vendors meeting outdoors, wearing
masks and social distancing – significant safety strategies recently employed
successfully in another arm of the marine industry, yachting. During the Fort
Lauderdale International Boat Show, the world’s largest pleasure craft event,
there was a notably smaller show than usual due to travel restrictions and
sheltering in place, but nonetheless attended by serious buyers and yacht
brokers all making deals on the docks.