As offshore-focused businesses weather the unprecedented industry downturn, many companies servicing the sector are looking for ways to more efficiently manage costs in order to survive.
Since the oil price started to contract in June 2014, radical cost reductions across all upstream businesses began in earnest as capital expenditures were slashed by 40 percent in the period up to 2016 (PWC). Almost half a million employees were made redundant or released from contracts around the world.
This doesn't account for industries indirectly associated with, but reliant on, oil and gas – HR, IT, logistics, construction…
A number of high profile marine companies have liquidated over recent weeks, highlighting a worrying trend in which offshore service companies are forced to reduce overheads in order to survive as lower levels of drilling activity and vessel utilization continue. Redundancies have occurred across the board – redundancies that are not only devastating for affected workers, but also costly for their employers. In particular, seafarers can often be entitled to redundancy pay far beyond that of shore-based staff.
We are seeing gradual signs of recovery within the industry; however, if the past two and a half years are any measure, this isn't going to entail a smooth upward curve back to the glory days of 2013 – more likely, the price of oil will continue occupying a position in the $50 - $60 range for the foreseeable future; consequently, oil-related business are having to assume an operational cost base that reflects the new normal.
For companies that survive the downturn, there will be operational challenges to meet as the market returns – and one thing is for sure, the market will return.
One of those challenges will be recruitment and deciding how to scale up operations once the upturn begins in earnest since, inevitably, the recovery journey is likely to be somewhat unpredictable, leaving management teams to consider the best route to market. Executive teams will be reluctant to increase fixed costs until absolute confidence returns due to the risk of false starts in the market, and even at the point of confidence, it is near impossible to predict where market prices will be when considering operating models.
One option is to consider the flexibility that outsourcing brings. Mark Brown, CEO at Offshore Crew Management company WRS, says: “A crew management partner is increasingly becoming a solution of choice for a wide range of companies both large and small. The flexibility to scale a workforce up and down to meet demand not only delivers a competitive advantage to our clients but has actually formed an essential part of their strategy as the industry seeks to better manage costs.
"Is it now time for maritime companies to consider how they can utilize a more flexible workforce? By engaging with a crewing agency, our clients are outsourcing their logistics, mobility and even entire HR function to allow them to operate using a workforce that can adapt easily to vessel utilization requirements.
"The tangible benefit of outsourcing lies in its cost efficiencies without the need to compromise on quality; a trusted MLC registered supplier, with a track record of success, can be a powerful ally to offshore service companies as the market enters a new chapter. Innovation and new methods of operating have long been fundamental to survival in the offshore world, today's market is just another chapter in that evolution."
Mark Brown, CEO of Worldwide Recruitment Solutions Ltd (WRS).
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.
This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.