Hunkering Down

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.

“Go toward that new normal,” advises Roberts. 

Lisa Overing is Creative Director at Megayacht Media in Fort Lauderdale.