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Offshore Support Journal

Cabotage unsustainable but you can cover costs scrapping OSVs

Wed 27 Sep 2017 by Edwin Lampert reporting from Singapore

Cabotage unsustainable but you can cover costs scrapping OSVs
Duncan Telfer (Swire): The project came out as break even

Conventional wisdom was turned on its head at this year’s Asian Offshore Support Journal Conference when delegates declared cabotage in southeast Asia a bad idea and commercially sustainable scrapping of OSVs was declared possible.

In an online poll, audience members voted by a margin of 2:1 that cabotage in southeast Asia is no longer a good idea. It was a result that surprised Swire Pacific Offshore commercial director, Duncan Telfer. “I thought it was encouraging and slightly surprisingly too,” he said after speaking in a session on day one which explored the southeast Asian market country-by-country. “Cabotage is not a good thing when it comes to competition,” he said emphasising Swire’s preference for joint ventures. “Encouraging local content is different from actual cabotage where you are restricting the number of players.”

Mr Telfer also shared that Swire had recently scrapped a couple of vessels and recovered all of the associated costs. “These were vessels over 30 years old and coming off long-term charters,” he explained. “They went direct to the recycling yards and the sale price covered the fuels and manning costs involved in delivering the ships to the yard.” The project came out as “break even”.

Reflecting on the market generally, he said that the last time the sector saw a normal market was 2014. “There will be a new normal market. It won't be a 2014 normal. 2018 will continue as 2017 has and we are hopeful that we will  see some recovery in 2019 and perhaps rates improving by 2020.” The assessment was based on nobody ordering or building ships between now and then. “40% of the tonnage that is in cold stack is over 20 years old... by 2020 I am sure those vessels will have exited the market and that will enable some recovery.”

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