Between the lines: Shipping often forgotten

WITH a general election fast approaching, attention continues to be placed on the future of North Sea oil and gas, but with little debate so far on the potential impact for shipping.

Ed Watt. Picture: Contributed

More than ever, both the business community and public debate in mainstream media are concerned at a sector in flux.

An oil and gas sector report published by the Bank of Scotland has caught attention by, on one view, painting a positive picture while on the ground people are being made redundant in their hundreds and dozens of offshore vessels are lying idle. In the depths of 2009, collapse in global demand led to container ships being laid up in sea lochs in the West of Scotland – now both international and indigenous ship owners servicing the North Sea may face a similar predicament.

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The bank’s report found that most oil and gas companies, of more than one hundred businesses interviewed, expect growth in 2015, something which may seem counterintuitive and cold comfort to companies and families affected by the most recent lay-offs and others facing ongoing uncertainty.

In fact, the bank’s report suggests opportunity rather than any immediate bounty and is careful to present a broader outlook rather than a Northeast perspective. One can read too much into surveys and their statistics but as a barometer their findings are an education.

A similar market report but with a more global remit was also published in recent weeks by DNV GL. In common with the Bank of Scotland research, the emphasis is on cost control, lessons to be learned from the past, the need this time to retain talent and also to promote efficiency propositions for their own sake rather than as a short-term reaction to unpleasant reading from the commodity markets. These conclusions are also reached in analysis published by the major accounting practices.

Where the DNV and bank reports diverge is that of the larger group of DNV respondents, roughly half expected to reduce staffing numbers in the year ahead. Again, this difference may be better understood by a reminder not to compare UK data with a world-wide perspective, similar to the obvious disconnect between the national and the local where turmoil is most keenly felt. For companies providing offshore supply vessels, the result is that the oversupply of available tonnage has sent spot market rates below operating costs.

What seems likely is that cost cutting, involving job losses and a contraction in demand for offshore vessels, will continue in the coming months by the oil majors and affect in turn their contractors including ship operators. Meanwhile, shipping companies might consider relocating vessels to other markets, a lay-up programme or disposal of older vessels for which demand had already waned.

At a recent Business Insider “Deals and Dealmakers” breakfast in Aberdeen, it was hinted that advisers were crying crocodile tears while anticipating consolidation and deal flow from such market conditions. It is fair to say that oil and gas sector insolvencies have begun and that fire sale trade is traditionally brisk. In the 2014 Man Booker prize winner, Richard Flanagan describes an executioner who could not stop himself appraising the necks of everyone he met. Professionals of any kind, whether lawyers or accountants perhaps can’t help themselves, like a dentist can’t disregard the content of a smile. Rather, like the bank’s expressed outlook, the advisory community may see opportunity and uncertainty in equal measure rather than any cause for celebration.

While the oil and gas sector is facing significant challenges in 2015 there will also be opportunities for those companies looking to emerge stronger in the months ahead. On the shipping side of the industry, newly built high-spec vessels tied up for want of employment are the last imaginable preference, but one expects that in their lifetime they shall earn their keep. The astute and the confident can build growth in their assets and specialist headcount in a sector with some skills shortages, both at bargain prices.

Ed Watt is head of shipping at HBJ Gateley.