By Ronnie Evans
Ronnie Evans is director of marine finance at Key Equipment Finance. He has more than 20 years of experience in the finance industry. He can be reached at [email protected]There’s been a lot of talk about the impact of lower oil prices. People in all industries, especially those directly involved in offshore oil and gas, are preparing for the short- and long-term effects it will have on their businesses.
Although many are concerned about the sharp and rapid decline in oil prices and its long-term effect, things may not be as bleak as they seem, especially for marine transportation companies.
Inland and coastal transportation companies may be feeling some rate pressure as oil contracts come up for renewal, but oil prices have fallen so quickly that this segment of the industry probably hasn’t seen much of an impact yet. Demand for moving product from refineries and petrochemical companies is actually on the upswing, which could help offset some of the lost crude oil movements. Another bright spot is that we are not seeing the dramatic backlash that has hit land-based drilling, especially when it comes to layoffs and canceled orders.
Marine companies that service the offshore energy industry will feel the strongest impact from lower oil prices, as major oil companies look to defer or postpone some projects.
When it comes to credit and financing, banks are lending — and they’re still lending to marine transportation companies. But until oil prices bounce back, the key to overcoming credit concerns is diversification. As banks take a closer look at risk, they will look at each financing transaction with greater scrutiny. This means transportation companies that carry a wider variety of product for a diverse portfolio of customers across various geographic regions will be best positioned to secure financing.
When it comes to equipment finance, banks have always taken a close look at the value of the collateral, but as long as the utilization of marine vessels remains high, so too will the value of those vessels.
When it comes to helping marine transportation companies navigate financing options, all banks are not created equal. There are several unique variables and nuances to marine finance, and during times of uncertainty it’s important to work with those who have experienced and responded to market fluctuations in the past.
Without a crystal ball it’s impossible to predict how long oil prices will be depressed or how low they will go, but those in the industry have been here before. We know that oil prices are cyclical and we know how to ride the wave.