Oil prices may have rebounded off 12-year lows in recent weeks, but the bloodbath across the industry is far from over.
Big guns Keppel Offshore & Marine (Keppel O&M) and Sembcorp Marine, the world's leaders in rig-building, have racked up sizeable declines in earnings and provisions amid the downturn. Smaller companies, which make up 98 per cent of the industry in Singapore, have not been spared the collateral damage either.
Berlitz Offshore & Marine Group, which charters vessels for offshore construction activities and offers ship-management services, is feeling the squeeze from all sides. The privately-owned outfit saw charter rates drop by as much as half in the past year, while utilisation of its 12-vessel fleet has fallen from above 90 per cent to 70 per cent, said chief executive Chan Kern Miang.
"There are fewer jobs out on the market today than the number of vessels available," Mr Chan told The Straits Times. "Even if there's a customer, it takes very much longer to close a deal because they are constantly comparing prices and asking for more things, like a longer payment tenure."
Competition has also intensified considerably, said Mr Chan. "Everyone is just fighting to hold on to a share of the market."
OIL TROUBLES SPILL OVER TO SMEs
The combination of a slowing global economy, an over-supply of crude oil and a price war between oil-producing countries has proved to be toxic for oil prices and the industry.
Global benchmark Brent nosedived from US$115 a barrel in June 2014 to just US$29 in January this year - an "unsustainable" level on all fronts, according to analysts, although it has since recovered to about US$40.
The unfolding corruption scandal in Brazil surrounding state oil company Petrobras and its rig-building firm Sete Brasil, whose network of suppliers includes players here, has only added to the crisis.
Home-grown marine engineering firm Megaway Engineering & Trading, which builds equipment and tools for oil drilling companies, is still awaiting a $1.5 million payment from a customer affected by the problems in Brazil. The equipment was completed eight months ago and is now just "sitting around" the factory premises, said managing director Ho Shee Lim.
"I can't go after our customer because he didn't get paid. And this specific equipment has been designed for a particular use in a particular vessel; it's not something we can just sell off the shelf. There's really not much we can do, except wait for investigations in Brazil to end. Then, maybe we will get the go-ahead."
Like Berlitz, the company has been knocked by a dearth of new orders, with revenue shrinking nearly 60 per cent in the past year, and Mr Ho expects to see demand stretched thinner this year.
"All our clients (mostly Singapore-based and South-east Asian oil drillers) have stopped or put aside plans for exploration and production. They are cutting expenses everywhere they can, even right down to maintenance work," he noted.
The Ministry of Trade and Industry's (MTI) latest economic survey showed that output for offshore and marine engineering companies sank 25 per cent in the fourth quarter last year, compared with a 4.6 per cent decline in the same period a year ago.
The segment, which accounts for more than half the transport engineering cluster under the broader manufacturing sector, is estimated to have contributed 1.5 per cent, or $5.49 billion, to the country's economy in 2015. This is well down from the 2.1 per cent, or $7.15 billion, in the year before.
OFFSHORE AND MARINE SECTOR IN 2015*
Contribution to gross domestic product: 1.5% or $5.49 billion
Growth: Shrank 25% in the fourth quarter
Employment: 76,180, down from 85,561 in 2014
Key players: Keppel Offshore & Marine, Sembcorp Marine, Rolls-Royce Marine
HEIGHTENED SME WOES
With demand choking off, competition among offshore and marine firms has become stiffer.
"Even the bigger listed companies are venturing into geographical areas they didn't go to previously," noted Mr Chan, referring to markets within the Middle East region. "But that also happens to be where we smaller players operate."
To cope with the competition, Berlitz is meeting client demands with various perks, even if it means pushing up offshore operating expenses - already a chunky 70 per cent of the firm's overall costs. "Our customers are also cutting costs, so they tend to ask for more. They want us to provide free Internet, television with subscription to local channels, free food and beverage," said Mr Chan. "If we don't give them what they want, other people will."
Ship repair and engineering firm OceanMaster Engineering similarly sees increased competition as a challenge, but managing director Lee Ee Win believes that it will also translate into an "automatic clean-up of the industry".
"A lot of companies came in previously when the market was booming and they offered very low prices just to get a bite of the pie," he noted. "But those who compete on price can't compete forever. "
A more pressing problem for the company is manpower, which has "always been an issue", said Mr Lee.
"How can we carry out repairs if we don't have technicians or specialists with the hands-on skills to do the troubleshooting?"
Mr Lee believes that industry-specific help in easing manpower policies, especially the foreign worker quota and levy, can play a big part in helping offshore and marine SMEs tide over the storm.
PULLING THROUGH TOUGH TIMES
The downturn has inevitably claimed casualties in the workforce, with as many as 500 Singaporeans and permanent residents losing their jobs last year, said Mr Tommy Goh, president of the Shipbuilding & Marine Engineering Employees' Union (SMEEU).
At the same time, contract workers, such as those from India and Bangladesh, have been axed "by the thousands" in the past two years.
"As a whole, the number of workers laid off has been high and it's ongoing," said Mr Goh.
Keppel Corporation has cut its global headcount by 6,000 and its Singapore sub-contract workforce by 7,900, while SembMarine has trimmed its staff strength by 3,000 to 4,000 staff. Both groups have said this was driven mainly by natural attrition.
But more job losses are likely on the horizon, with major players such as BW Offshore and Modec and Chicago Bridge & Iron said to be axing hundreds of jobs here, said a recent Business Times report.
That said, Mr Goh said that SMEEU, which oversees about 15,000 unionised workers here, is helping workers secure reasonable retrenchment benefits, as well as new job placements. "Companies have been forthcoming in working together with the unions," he said.
"We don't trace the number of retrenched workers who got new jobs through our help, but we do know many of them were able to find another job within a few months, although some likely took a pay cut or are working on contract terms, instead of on a full-time basis."
Smaller firms are avoiding retrenching employees if possible. Marine design firm SeaTech Solutions sees the opportunity to beef up its workforce. "It's always been difficult to attract local talent here as we compete with the Singapore shipyards, which are able to offer fatter bonuses," said director and founder Govinder Chopra.
"But in today's climate, there are more people readily available. Every day we receive a lot of applications, which means we can get hold of a better pool of people to ready ourselves for the upturn."