The long-term megatrends on which the Boskalis business model and Corporate Business Plan are based remain unchanged. These are global population growth and increasing prosperity. Together these trends are the driving force behind structural growth in global trade and growing demand for natural resources and energy. Moreover, global warming continues to create opportunities for Boskalis around the world, such as coastal defense and riverbank protection and the need to reclaim new land. Boskalis is very aware of the fact that the timing and momentum with which these trends and opportunities translate into projects varies widely from region to region. In a number of regions and markets where Boskalis is active these trends are developing less favorably, making the outlook uncertain for both the short and the medium term.
Massive supply overhang
In the past 18 months the oil price has fallen by around 75% from over USD 115 per barrel to under USD 30 per barrel at the beginning of 2016. Prices of numerous commodities, such as iron, copper and nickel, have also declined substantially, dropping by around 50% (see figure 1). The cause for this is referred to as the ‘massive supply overhang’ and is a consequence of the fact that many players in these markets invested heavily at the top of the market (until mid-2014), when demand for oil and raw materials was strong and prices were high. This led to a sharp rise in supply in 2015. At the same time there was a substantial drop in demand, partly because the Chinese economy moved onto a much lower growth path. The global economy needs to adjust to this new reality. Many investments in the oil and gas industry have now been scaled or slowed down. This sector is also affected by the lifting of (most of) the international sanctions against Iran, boosting supply to the market even further. The abundant supply at what have become very low oil prices translates into budgetary problems for many countries that are dependent on oil production, often resulting in even more oil being brought on the market. This vicious circle, in which OPEC previously played a major role, will need to be broken if global supply and demand balance is to be restored.
Another consequence of this massive supply overhang has been that many countries have in recent years significantly expanded their port infrastructure in order to accommodate the expected increase in trade flows. As a result many of these export ports now have sufficient capacity to meet any rise in demand for commodities in the near future while growth expectations are low. Moreover, the slowdown in global trade also impacts on the volume of seaborne trade in general and the consequential demand for port-related services and the need for port expansion.
The market conditions described above make short-term developments less predictable. This translates into reluctance to invest in major new port and offshore-related projects. Despite this the global megatrends on which our strategy is based remain unchanged. Global population growth is fueling sustained structural demand for our land reclamation and infra activities. Climate change is forcing governments on several continents to take steps to protect their population against flooding and rising sea levels. This will result in growing demand for integrated and sustainable solutions for complete maritime infrastructures. Moreover, one of the positive developments for Boskalis arising from the extremely low oil price is that many old oil and gas rigs are now being taken out of service and decommissioned.
The following underlying trends also remain favorable for Boskalis: (i) demand for larger and deeper ports with associated infra-structure to accommodate larger oceangoing and other vessels with deeper drafts, despite current expectations for the slower growth in seaborne trade, (ii) demand for energy and the associated increase in offshore exploration and production, also in vulnerable regions, which in turn increases the need for sustainable solutions, and (iii) the greater focus on climate-related issues partly as a result of the Paris Agreement (COP21), which creates opportunities such as new offshore wind farm projects and potentially greater demand for coastal defense and riverbank protection projects.
Boskalis continues to focus its activities and services (see figure 2) on markets that demonstrate structural growth in the longer term.
The key activities are:
The key market segments are:
Energy (oil, gas, wind and decommissioning)
Climate change-related (coastal defense and riverbank protection)