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Stronger day rates, utilization point to marine industry rebound

By Amy Thomas in Thought Leadership Posted May 1, 2019

marine equipment finance boatThe marine industry is exhibiting a few signs of a rebound in the form of stronger day rates and increasing utilization, giving operators a reason to hope a corner has been turned, according to a new article in WorkBoat magazine by Ronnie Evans, director of marine finance at Key Equipment Finance.

When the marine transportation industry enters into hard times, decreasing utilization and falling day rates are two early predictors of a downturn, Evans writes.

"Utilization and day rates are also among the first indications that things are looking up for the marine industry, and together with a few other indicators, they point to a rebound."
Ronnie Evans, director of marine finance, Key Equipment Finance

Pick-up in demand influences day rates

Day rates are the canary in the coal mine when it comes to the workboat industry because they are a direct reflection of demand. Day rates topped out around $8,200 per day for many barge operators before diving as low as $4,500 per day in 2014. For many operators, these numbers made it hard to cover operating costs. This creates a ripple effect, because as operators take on more debt to cover costs they become riskier to creditors.

However, as demand picks up, so too do day rates. For barge operators, rates have slowly crept back into the $5,500-$6,000 per day range, increasing as much as 25%, depending on the type of products that are being moved. Although the increase has been slow, day rates are moving in the right direction.

Stacked vessels moving back into service

Day rates and utilization are directly linked to each other, and both are strong indicators of the financial strength of workboat operators. Like day rates, operators are also enjoying a resurgence in utilization. Utilization bottomed out around 80% during the first half of 2017, but stronger pricing and increased activity in the crude space is driving the demand to move more cargo. Some operators are now seeing a need to put vessels that were stacked for the past couple of years back into service, which is another indication that demand is on the rise.

More banks interested in marine market

Historically, there haven’t been a lot of banks actively pursuing financing deals in the workboat sector. However, as the industry picks back up and credit scores improve, so too do banks’ interest in marine finance and lending to workboat operators, such as:

  • Tug boats
  • Great Lake freighters
  • Barges
  • Inland push boats
  • Supply boats
  • Dredges
  • Utility boats

We’re seeing more and more banks entering the market and have also seen several sale leasebacks on vessels recently.

While increasing utilization, day rates and financing interest are all early signs of a rebound, industry experts are on the lookout for additional indications of a full recovery.

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