Plenty more OSV bankruptcies predicted

Plenty more OSV bankruptcies predicted

With the OSV sector still oversupplied by some 1,550 vessels, 34 out of 38 OSV operators studied by consultancy AlixPartners face going bankrupt in the next 12 months.

“Companies counting on a return to stability in the OSV sector are in for a rude awakening; industry must act quickly to reduce costs and debt levels to survive,” the study stated in its introduction.

Despite the rise in oil prices, AlixPartners maintained that companies hoping for a dramatic rebound in OSV vessel demand are playing a “dangerous waiting game”, as their existing financial resources are likely not enough to sustain them through the current environment.

According to the AlixPartners analysis, 34 of 38 companies had Altman-Z scores of less than 1.8, indicating a high likelihood of bankruptcy in the next 12 months. The Z-score, first created by a professor in New York in 1968, uses multiple corporate income and balance sheet values to measure the financial health of a company.

“It is abundantly clear that OSV operators need to face the music on the current state of the market and the real probability that we won’t be heading back to sustainable industry dynamics without a structural change to the sector,” said Jeff Drake, managing director at AlixPartners. “Companies need to be disciplined about capacity management and do everything they can to reduce costs and increase operational efficiency.”

The two factors that drive revenue for OSV companies remain offshore rig utilisation and day rates. The number of active offshore rigs is 33% lower than 2014 levels, declining to 474 in July 2018 from 706 in 2014. OSV day rates are 40% lower than in 2014.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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1 Comment

  1. Henry
    September 25, 2018 at 5:52 pm

    “Companies need to be disciplined about capacity management and do everything they can to to reduce costs and increase operational efficiency”.

    Priceless insight. I wonder why no one thought of this 4 years ago.