21/03/2017

Maritime Outlook Report 2017

The Maritime Outlook Report 2017 indicates that offshore segments can expect the crisis to continue through 2017, while the short sea and deep sea segments will face the same tight margins that have characterised the industry since the financial crisis.

“Shipping is a global industry, and as such we are directly influenced by global trends and international developments,” says Norwegian Shipowners’ Association CEO Sturla Henriksen. “The current situation is extremely challenging for many of our members, but we must not lose sight of the many opportunities that lie ahead.”

Markets took a dramatic turn for the worse for shipowners from 2015 to 2016, with a drop in revenue of 16 per cent, to NOK 234 billion. Revenue was considerably weaker than shipowners expected going into 2016, when they predicted a drop of only 3 per cent.

Shipowners are far more pessimistic this year, expecting a further drop in revenue in 2017 of 10 per cent. If this prognosis proves accurate, total turnover for shipowners will be NOK 210 billion in 2017.

Short sea and deep sea shipowners together reported revenue of more than NOK 117 billion in 2016. These two segments combined now have higher revenue than the offshore segments, for the first time since 2008.

Income for offshore service shipowners is estimated to have fallen by 21 per cent in 2016. Prognoses indicate that they will experience a further decline in income of 11 per cent in 2017.

Offshore contractors saw a decline in income of 28 per cent in 2016, and companies expect a further decline of 43 per cent in 2017. If these predictions prove correct, offshore contractors will have seen their income reduced by more than half in just two years.

More income from abroad

Norway, including the Norwegian Continental Shelf, is the overall single most important market for Norwegian shipowners. Seen collectively, however, foreign markets are still more important for Norwegian shipowners.

“70 per cent of shipowners’ income stems from foreign markets,” says Henriksen. “Given this, we are naturally concerned by the current rise of protectionism in the world, not least in Norway.”

Little change in layups

The number of ships and rigs in layup has grown steadily since the autumn of 2014. As of February 2017, 158 ships and 25 mobile offshore units belonging to Norwegian Shipowners’ Association members were in layup. This is an increase of 57 ships and nine rigs compared to the same time in 2016. The Maritime Outlook Report for 2017 indicates prolonged tight markets, and no significant changes in layups for 2017.

“The situation is dire for offshore service and offshore contractor companies. Of a total of 550 ships, more than one-fourth are now in layup, as are nearly half of our members’ mobile offshore units,” Henriksen reports.

Employment

Member statistics show that 8300 employees in shipowning companies were either laid off or terminated in 2016, compared to 7300 in 2015. Of these, 15 per cent were laid off, and 85 per cent terminated. The cuts are fairly evenly distributed between seafarers, mobile rig crew and staff, and onshore employees.

“Local communities, owners, seafarers and suppliers along Norway’s coastline are all uneasy about the future. They know better than most, though, that life on the sea is one of ups and downs. Now it is critical that we maintain our core competencies, and continue to build on the strengths that have made Norway a leading shipping nation,” Henriksen emphasises.

There are significant discrepancies in shipowning companies’ expectations for 2017. Offshore service and contractor companies are far more pessimistic than short sea and deep sea shipowners.

Access to capital

Shipowners’ access to capital has been gradually weakened since the price of oil began to fall in 2014. Five out of ten shipowning companies surveyed view access to capital as tight or very tight in today’s market. This is essentially unchanged from 2016, with a slightly higher percentage of companies experiencing access to capital as good.

“Companies are doing whatever they can to survive,” Henriksen says. “Many are concentrating on refinancing. Some are looking to adjacent markets, while others are selling older ships in order to be ready when markets recover. We are also seeing consolidation and structural changes, in both ownership and organisation.”

More ships flagging home

The Norwegian-controlled fleet was valued at USD 51 billion in 2016, a decline of USD 65 billion from 2015, or 21 per cent. At the same time, changes in trade area limitations have led to more shipowners flagging home more ships from foreign registers.

“This is proof that active maritime policies work,” Henriksen maintains. “A significant number of ships sailing under the Norwegian flag is a welcome development, and it is vital if Norway is to maintain its position as a leading international shipping nation.”

Maritime competence

Six out of ten member companies maintain training positions, making up nearly 2100 positions in all, up from 1860 at the same time last year. The number of training positions is expected to remain stable in 2017.

“The competence and experience of Norwegian seafarers is critical for innovation and development in the maritime cluster, and it is important for companies to maintain training positions and continue to introduce young people to the opportunities in shipping,” Sturla Henriksen concludes.

FACTS:

The Norwegian maritime industry had a value creation of NOK 175 billion in 2015, employing 100,000 people. This was a significant decrease from 2014, when value creation reached a record high of NOK 190 billion.

This decrease is due primarily to an offshore market significantly weakened by falling oil prices and a decline in activity.

The Maritime Outlook Report for 2017

The report includes results from a survey conducted among members of the Norwegian Shipowners’ Association from 23 January to 7 February 2017, and presents statistics from the Norwegian Shipowners’ Association and value creation analysis from Menon Economics. The response rate for the survey was 72 per cent.

Segments:

■Deep sea shipping – tankers, dry bulk, LNG, chemical, containers, cargo and car carriers in intercontinental trade

■Short sea shipping – the same segments as for deep sea, conducting regional freight trade in Europe, and including passenger ships trafficking European routes

■Offshore service – platform supply vessels, anchor handling vessels, construction vessels, seismic and other offshore-related specialised vessels, and subsea support vessels

■Offshore contractors – mobile rigs, drill ships, lodging, and floating production, storage and offloading units (FPSO)