Daniel Del Rio, Country Manager, Westshore do Brazil
Daniel del Rio, Partner at Westshore do Brazil highlights his company’s efforts to bring further transparency to ship brokerage in Brazil. He describes the challenges of working in a market so dominated by one operator, yet also offers insight into the opportunities this might have in the future.
Westshore in Brazil started in 2009 as your second country of operation, with an office opening in 2010. What was your initial mandate, what were your and the companies objectives, and how successful have you been in achieving them?
Well, the Brazilian OSV market was booming around 2006. At that time, the market was very different, almost immature. Access to information was poor, particularly for foreigners; provision of data was lamentable; and Brazil, in terms of the OSV market, was different and exotic—particularly with regard to the likes of Norway. For this reason, one of the first targets of Brazil was to make the brokers market a professional market, operating in a proficient way. A key step was the creation of our website, detailing costs and information such as specifications of ships, and data about shipping deals. This was entirely novel in the Brazilian market, and we are here to add value to our services, which should not only be seen as ‘fixing’ vessels, but also to give guidance on regulation, challenges, taxes and as to the suitability of vessels for specific purposes.
Specialization in a complete service was the aim of the game. This was a niche that was clearly open—Brazil needed further professionalism and clarity of information. We have added a great deal of consultancy services to the brokerage market. Brazil is a market based on long-term contracts—Petrobras is a four plus four years’ contract—and it is important that contracts are followed up on the charter’s behalf until the end of the contract. Brazil is not an easy country in which to operate, there are challenges in obtaining crew, challenges with the authorities, with working with Petrobras, and our clients perceive Westshore as a broker with a different profile. This is a key success of our new, dynamic angle.
There were many barriers to establishing Westshore do Brazil in 2010. At that point, there were many within Westshore in Norway, for example, who were concerned that the market here was already overcrowded. That proved not to be the case; the opportunities here in Brazil were simply too large to miss.
Westshore do Brazil is also completely staffed by Brazilians, which is an advantage because it allows our staff to work within the Brazilian business culture, which is unique, and requires a distinct manner to operate effectively within it.
What is the lack of consistent direction doing to the OSV/PSV market in Brazil?
Few owners are used to spot prices and may wish to have their vessels located elsewhere instead of being locked into waiting for work with Petrobras for up to a year before any contract is signed. This bureaucracy does not encourage new players to enter the Brazilian market. In the last quarter of 2013 there were some tenders arising from Petrobras, but there is still a lack of clarity about how many vessels might be contracted. One thing can be said, that claims of 500 OSVs by 2017 can be forgotten. It is not possible to project levels of demand at the moment. Part of this is because of Petrobras’ manner of operation—in the North Sea multi-purpose vessels are used and anchor handlers can be used for supply purposes, for example. With Petrobras, ships are assigned a specific purpose—for example, solely for anchor handling, or for carrying cement, and will service several offshore platforms. For this reason it is not possible to easily calculate the numbers of vessels required.
One thing that is clear is that anchor-handling vessels are key to Petrobras’ strategy at the moment, including both traditional anchor handlers and more modern torpedo anchor handlers. Currently, it seems like the Brazilian giant is struggling to get the capacity of ships it wants for this purpose. There was a renowned new building program, by the name of Prorefam, which aimed to charter 146 vessels for Petrobras. However, following the latest rounds, six and seven, which aimed to charter around 50 anchor handlers, they only managed to hire around four; and a deficit of more than 40 anchor handlers is troubling. With regard to oil spill response vessels, Petrobras is more than adequately equipped, and with PSVs they wish to acquire another 20 vessels, but this should be readily attained.
Part of the difficulty in obtaining anchor handlers in Brazil is the cost, which is punishingly high. Despite this, at the moment we consider that there is some oversupply in the PSV market—there is a disparity in market provision for various services.
Another influence that Petrobras is having on the market is caused by their preferential treatment and selection of a limited group of suppliers. Petrobras is not concerned about having a wide variety of suppliers; they are focusing on those suppliers that have a longer presence in Brazil and the manner in which Petrobras is issuing its contracts is restricting incomers from entering the market. This was in response to a limited number of foreign contracts failing to produce a vessel for Petrobras. In my opinion, this reaction however is short sighted.
Do you consider that Brazilian shipyards are able to deliver to the standards required?
There is a huge bottleneck in Brazil in local ship construction. Around five years ago, when Prorefam started, there were many proposals for shipyards from foreign investors. These have not materialized. Today, the same shipyards are trying to deliver Brazil’s fleet capacity as five years ago. For this reason, building in Brazil is entirely uncompetitive and highly expensive. Regulations on flags too, restrict foreign vessels from working here, which means that Brazilian shipyards have no incentive to increase their efficiency.
On the other side of the game, Petrobras is unwilling to pay the charter the owners need to justify such high expenditure. They push a great deal with regard to prices, and will not pay high day rates. Prorefam does not help this situation as it solely helps Petrobras, not the wider industry. Petrobras faces no risk on building the ship—this is all incurred by the shipyard. If the ship is not delivered on time, then Petrobras can issue fines, and so the burden is all at the owners’ level.
This transference of risk impacts operators. Just over a decade ago, working with Petrobras was very easy, the rules were clear. Petrobras’ staff was all schooled in the marine industry, so there was a connection between them and the operators. However, since then Petrobras has had to replace these staff as they retired or moved on, and did so with staff who were younger, or less experienced. This is not particularly the fault of Petrobras, as marine skills are lacking in Brazil. These staff did not have the full understanding of the marine industry and were often far less flexible than previous ‘generations’ of Petrobras staff. This was quite a shock for the market to the extent some players have been entirely put off working within the Brazilian market.
What is the immediate effect of the flagging regulations on the Brazilian market?
The market is always hoping that if Brazilian industry is unable to deliver all these vessels, then foreign vessels will be able to take up the slack. I think that the rules concerning flagging vessels in Brazil represent a further brake on offshore development, for example, if one looks at the industry from a long-term perspective, the protection provided by these rules to Brazilian operators simply removes the imperative on ship owners and shipyards to reduce costs. In this way, Brazilian regulation fails Brazilian industry; Brazil should have the ambition to be internationally competitive.
The market for offshore support vessels can be cyclical, with peaks and troughs in demand. Which sectors are more resilient to these market cycles, and do you think premium services can overcome this market turbulence?
For anchor handling vessels there is, and will continue to be a strong demand, particularly when one considers the number of FPSOs that will arrive before 2020. Anchor handlers will experience strong and consistent demand for their services for the foreseeable future. Indeed, the reality that the Brazilian market must accept is that no business will come to Brazil, or work for Petrobras for any reason other than for the money. The Brazilian offshore sector competes with other regions for tonnage, and this will reduce the amount of anchor handlers for the Brazilian arena unless the appropriate price is paid.
Libra is operated by Petrobras, but the consortium also includes Shell, Total, CNOOC and the CNPC. Do you see the IOCs changing the Brazilian market in any meaningful way towards one where market forces take precedence?
Westshore was very happy with the results of the 11th bidding round. I think that 2014 and 2015, however, will be principally marked by the advances taken by surveying companies. It was also heartening to see the return of BG as an operator in a meaningful way, which is healthy for the market.
In Brazil, currently the spot market is very immature, and the establishment of a fully functioning spot market is one manner in which Westshore would like progress to be made. The IOCs will not rely on a spot market, which exists in a rather ‘chicken and egg’ context at the moment; the limited form it exists in is at the moment insufficient to attract companies to offer spot market contracts.
Brazil’s infant spot market too, varies from other regions. In the North Sea, spot contracts amount from a few days to a month; anything longer is a term contract. In Brazil, however, the first IOCs arrived only after 1997 and started drilling campaigns in 1997. They would offer contracts for 60-90 days. The market, unused to contracts shorter than the lengthy ones Petrobras offers, referred to these contracts as spot contracts.
Now, there has been some progress towards flexible contracting—for one cargo run, or a week-long contract, for example. There are however, still many barriers to foreign vessels operating in the spot market. Visas, regulations, obtaining crew—these all impede easy, quick access for foreign vessels. Brazilian ship owners too, still seem unaccustomed to the prospect of a spot market. If a ship lies idle for one week, it is likely the owners will start looking for longer-term contracts.
Where do you see Westshore do Brazil in five years’ time?
We will try to adapt to changing circumstances as they arise in Brazil, but more than that will continue to be proactive and dynamic in our actions. We are setting up an operation in Singapore that will feed the Brazilian market. The next generation of vessels that will arrive in Brazil will come from the Far East, as that is where the most competitive tonnage is located. In China, in particular, working practices have improved greatly and they have learned quickly how to build competitively priced, durable ships. For this reason, we see the Singapore office as a source of tonnage with the Brazilian market.
This aligns with the fact that Petrobras is seeking its suppliers to have tonnage operating from Brazil. I expect Westshore will be in a leading market position, working closely with Petrobras who today represent 75 percent of our revenue, but also more with the IOCs as they further integrate themselves into the Brazilian market.
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