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Riding High

The workboat market is having a banner year, and it should get even better.

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Published Nov 19, 2023 11:23 PM by Jack O'Connell

(Article originally published in Sept/Oct 2023 edition.)

The annual Workboat Show in New Orleans is just around the corner, and we couldn’t be more excited. Oyster po’boys, hush puppies, fried catfish, beignets and strong coffee, martinis and dinner at the Rib Room, nightly parties and the sounds of jazz – the whole NOLA vibe. Hard to beat. And the crowds? Big and animated, befitting an industry enjoying one of its best years in recent memory.

So let’s take a look at what’s behind all the excitement and make some outlandish predictions about what lies ahead. Hey, no reason why we can’t have some fun while we’re pontificating. And let’s start with the bellwether company that pretty much started it all nearly 70 years ago – Tidewater.

High Tide

It’s been a remarkable six years for Tidewater since it emerged from bankruptcy in 2017. Relieved of its debt load and under the inspired leadership of former Board Chairman Larry Rigdon and current President & CEO Quintin Kneen, the company negotiated a series of three brilliant acquisitions – first Gulfmark Offshore in 2018, then Swire Pacific last year and, earlier this year, Solstad Offshore.

The acquisitions were so good that the financial website Seeking Alpha called them “heists,” and that they were. More than 100 high-value vessels in total, most with contracts, at bargain prices, bolstering Tidewater’s already world-class fleet and giving it global coverage.

“We announced the completion of the Solstad vessel acquisition on July 5, shortly after the end of the second quarter,” stated CEO Kneen during the company’s second quarter earnings call. “We believe this fleet will prove to be an accretive addition to the Tidewater fleet and will generate meaningful value for our shareholders over the coming years as the offshore up cycle continues.”

Tidewater’s revenues grew smartly year over year and quarter over quarter, as did net income. Vessel gross margin is approaching 50 percent, thanks to higher day rates, which shows just how much money this business can make in flush times. “The momentum in day rates is being driven by a global supply shortage of large and small offshore vessels,” Kneen explained.

The future looks even brighter as a result of rising oil prices, Big Oil’s renewed emphasis on offshore drilling and higher capital spending plans.

“Expected long-term increases in offshore capital spending, the increasingly constructive tone of conversations with our customers in terms of vessel contract duration and future start dates for projects, coupled with the existing and expected future constraints in vessel supply, point to as compelling of a long-term market backdrop for our business as we have ever seen,” concluded Kneen.

Well, that’s really saying something! “As compelling of a long-term market backdrop for our business as we have ever seen.” Kneen’s been around for a while and certainly knows whereof he speaks. The company’s stock (NYSE: TDW) has responded accordingly, doubling since January and up from a low of about 11 two years ago to roughly 70 today.

Sadly, Tidewater’s one of the few public companies remaining in the offshore space. The only other one I can think of is Seacor Marine (Nasdaq: SMHI), which is much smaller and has a market cap barely one-tenth the size of Tidewater’s ($360 million versus $3.5 billion). Too small, really, to be public. But hey, the stock is up nearly 50 percent this year, trading around 13 – not as good as Tidewater, but I’ll take 50 percent any day – and should keep going up as the offshore market gains further momentum. A rising tide lifts all boats.

“I am pleased with the Company’s second quarter results as the cyclical recovery continued with another consecutive quarter of improved average day rates and utilization,” noted CEO John Gellert. “More importantly, the second quarter produced meaningful cash flows from operations through a strong conversion rate with the highest DVP the Company has generated since 2014.”

Since 2014? Wow. “DVP” is Seacor’s term for “direct vessel profit,” defined as vessel revenues minus vessel expenses and not including such things as corporate overhead and financing costs. 

“The increase in DVP was primarily due to higher day rates and utilization as well as lower operating expenses,” he continued. “This quarterly improvement was driven by our international business segments, most notably Africa and Europe, which have been virtually sold out during the quarter, and the Middle East. We also continued to make progress in Latin America, despite slightly lower utilization due to scheduled drydockings.”

Once upon a time there were a whole bunch of publicly traded workboat companies, most of which should never have gone public in the first place. Remember Trico Marine? Hvide Marine and its successor, Seabulk Offshore (where I once worked)? How about Harvey Gulf, GulfMark, Hornbeck Offshore, Bourbon, Solstad, Farstad – all of which were public at one time and are now either owned by private equity or part of a bigger company, having gone through a bankruptcy or near-death experience in the process.

“If you can’t beat ‘em, join ‘em,” and that’s been the story in workboats. Consolidation is the route to survival – a lesson Tidewater’s Kneen learned early on. Before the merger with Tidewater in 2018, Kneen – then the head of publicly traded GulfMark – was a strong advocate of consolidation. Well, he got his wish and today runs the biggest daddy of them all.

Inland Waterways

Offshore’s not the only workboat sector enjoying its moment in the sun. Tug and barge operators are basking, too, with exports of coal and grains leading the way and higher oil prices (now inching toward $100/barrel) benefiting tank barge operators.  

Having recently returned from a riverboat tour of the Mississippi and Ohio rivers (more on that in a future edition), I was impressed by the amount of barge traffic we saw. States like West Virginia still get most of their energy from coal, and there were plenty of coal barge tows on the Ohio, whose banks are lined with coal-fired power plants. The Mississippi features more varied cargoes, much of it grain and petrochemicals along with construction materials for new infrastructure projects.

Like the offshore sector, this is a fragmented market with only one major public company – Kirby (NYSE: KEX). All the rest are private, although some are pretty big and could easily go public if they wanted: American Commercial Barge Line, Ingram Barge and Canal Barge, to name a few. But they’re smart enough not to, perhaps learning from the experience of their offshore brethren.

And the names, the wonderful names and colorful stack logos! Evansville Towing, Marquette Transportation, Campbell Transportation, Bisso, Marathon, Blessey, Plaquemine, Central Gulf – they paint a picture of America and its people and places.

Workboat magazine did a fine cover feature on the barge sector in its August issue titled “Bottom Line.” Penned by Washington correspondent Pamela Glass, she points to a number of factors contributing to the surge, notably the end of Covid, a rebound in domestic demand, strong overseas demand for coal and agricultural products, a limited supply of vessels since no one is building new due to the high cost of steel and other raw materials, and “increased federal investment to modernize and repair obsolete locks and dams along the inland rivers.”

On the tank barge side, Houston-based Kirby, which also operates a distribution and services business, reported strong second quarter earnings.

“Both of our segments continued to perform well during the quarter and produced higher revenue and operating income sequentially and year-over-year,” stated President & CEO David Grzebinski. “In marine transportation, pricing on spot and term contracts continued to benefit from strong demand and limited availability of barges. Favorable weather conditions and increased operating efficiency helped improve margins for both inland and coastal. Distribution and services delivered improved margins and business remains stable at a high level. Overall, we had solid results and we generated strong free cash flow which helped support an increase in our share repurchases to $34 million for the quarter.”

As for the remainder of the year, the outlook is bullish.

“We exited the quarter with continued strength in our businesses,” Grzebinski continued. “Pricing in the marine market continues to improve and demand is strong. In distribution and services, despite persistent supply chain constraints and delays, demand for our products and services continues to grow, and we continue to receive new orders in manufacturing. Overall, we expect our businesses to deliver improved financial results in the coming quarters. While all of this is encouraging, we are mindful of challenges related to a slowing global economy and additional economic headwinds due to higher interest rates. Also, labor constraints and inflationary pressures continue contributing to rising costs across our businesses, although some of this is starting to moderate. Even with these uncertainties, we remain very positive and expect to drive strong cash flow from operations.”

Investors remain keen on Kirby and its stock is up nearly 40 percent since January, trading in the low to mid 80s. According to most experts, it’s got more room to run.

The Sounds of Jazz

So that’s it for now. It’s been a good year and it’s gonna get even better. The stage is set for  New Orleans in late November. See you then. It should be a great show.

Jack O'Connell is the magazine's senior editor. 

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.