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WIKI ANALYSIS
Seacor Holdings Inc. (NYSE: CKH) operates a fleet of helicopters, cargo barges, and offshore support vessels used to supply and support offshore oil rigs. The damage left by Hurricanes Katrina and Rita in 2005 left Seacor’s services in high demand, as oilfield services companies in the Gulf needed supplies and support crews transported to and from their rigs. Its aviation and offshore marine services segments also benefit from rising oil prices, which lead to increased investment in offshore oil and gas projects.
Competition in Seacor’s water transportation businesses is scarce, with the Jones Act requiring that all domestic seafaring vessels be owned, operated, and manned by U.S. citizens. Unfortunately for Seacor, the Jones Act also requires all domestically operated vessels to be built in the U.S., driving barge construction costs through the roof. On the plus side, Seacor’s inland river transportation segment replaced most of its aging barges before rising steel prices began to increase construction costs further, giving it a one-up over competitors.
Furthermore, over half of its revenue comes from wheat transportation contracts. Domestic wheat supply has been falling as many farmers switch to growing corn, for which demand has been rising quickly due to rising demand for ethanol, and because of poor weather. Seacor has been able to outmaneuver competitor American Commercial Lines and avoid the negative impact that the falling wheat supply would have on its barge utilization by shrinking its wheat transportation fleet.
Business & Financials
Business & Financial Metrics[1]
In 2009, Seacor earned a net income of $145.1 million on $1.71 billion in total revenues. This represents a 34.1% decrease in net income on a 3.3% increase in total revenues from 2008, when the company earned $218.5 million on $1.66 billion.
Business Segments[2]
- Offshore Marine Services (32.9% of total revenue): This segment employs 206 support vessels to assist offshore oil and gas exploration , development, and production. These vessels deliver personnel and cargo, handle anchors and other marine equipment, and support offshore construction and maintenance work.
- Aviation Services (13.7% of total revenue): This segment provides helicopter transportation services for offshore oil and gas exploration, development, and production, for hospitals, and for flight seeing tours in Alaska with its 80 small helicopters and 44 medium sized helicopters.
- Inland River Services (9.1% of total revenue): This segment transports products like petrochemicals, black oil products,iron ore, steel, coal, and ethanol along the U.S. inland river system.
- Marine Transportation Services (5.4% of total revenue): This segment transports petroleum products and chemicals along the U.S. coast.
- Environmental Services (8.5% of total revenue): This segment provides emergency preparedness consultations and emergency response services to oil, chemicals, industrial, and marine transportation companies both in the U.S. and abroad.
Trends and Forces
Natural Disasters Are A Boon To Seacor’s Business, If They Happen in The Right Place
Hurricanes Katrina and Rita, in 2005, struck 75% of the oil and gas platforms in the Gulf Coast.[3] The boost to Seacor’s offshore business far outweighs any damage caused to its aviation and transportation segments. Needing rapid repairs, energy companies in the area pushed the rates of Seacor’s offshore marine segment 50% higher. That year, the segment’s operating income also increased 136.7%.[4] Demand for Seacor’s environmental cleanup and aviation services also rapidly increased.
The Jones Act Prohibits Foreign Competition
The Jones Act mandates that all domestic cargo vessels be built, owned, operated and manned by U.S. citizens.[5] The Jones Act protects a large portion of Seacor’s offshore marine services, marine transportation services, and inland river services from competition, as 48% of Seacor’s revenue is generated in the U.S. [6] However, the Act also raises vessel construction costs, as there is a virtual duopoly in the barge manufacturing industry - Trinity Industries (TRN) and American Commercial Lines (ACLI) combined have 99% of the industry's market share.[7] Rising steel prices and poor competition coupled with many barges hitting retirement and needing replacement caused construction costs to increase significantly.
Competition
Helicopter Services Competition
Competition in this industry is based primarily on price and the availability of particular helicopter classes.
- BRISTOW GROUP (BRS) – Bristow Group operates the largest helicopter fleet. However, just 23% of its revenues are earned in the U.S. Its acquisitions strategy has focused on expanding its international fleet.[8]
- Rotorcraft Leasing Company LLC – Rotorcraft is the largest privately-held operator in the Gulf of Mexico. It’s medium and large helicopter fleets are significantly smaller than that of its competitors.
- PHI (PHII) – PHI owns the largest domestic helicopter fleet. While PHI has operated in 43 countries in the past, it now focuses on the U.S. domestic market.
Inland River Competition
Seacor’s inland river segment is a minor player in its industry, facing competition from many companies 2x-3x its size.
- Ingram Barge Co. – Ingram is the largest dry cargo barge operator in the U.S. river system. Although its dry cargo fleet is younger than the average, its liquid cargo fleet is in a replacement cycle and faces a delivery delay of over a year.
- American Commercial Lines (ACLI) – ACLI is the second largest operator in the dry cargo industry, but has been increasing its exposure to the more lucrative liquid transportation industry while reducing the size of its dry cargo fleet. ACLI owns its own barge manufacturing company, minimizing its ship replacement time and costs.
Seacor Inland River Services does not have the advantages of its large competitors, like fast ship availability and economies of scale of in purchasing ships and equipment.
Offshore Marine Services
Competition in this industry is based primarily on price and the availability of particular vessel types.
- Tidewater (TDW) – Tidewater owns the world’s largest fleet of offshore supply vessels. The company has focused on supplying deepwater and ultra-deepwater drillings.
- Trico Marine Services (TRMA) - Trico’s growth strategy focuses on expanding its international operations, while concurrently withdrawing from less profitable markets.
Some other, minor competitors are Hornbeck Offshore Services (HOS), Hercules Offshore (HERO), Superior Energy Services (SPN), Helix Energy Solutions Group (HLX), and GulfMark Offshore (GMRK).
Marine Transportation Competition
Seacor’s marine transportation segment faces competition from larger companies, like Frontline, Overseas Shipholding Group, General Maritime Corporation, but also one of more comparable size, Double Hull Tankers.
References
- ↑ CKH 2009 10-K pg. 88
- ↑ 2.0 2.1 CKH 2009 10-K pg. 43
- ↑ Oil and Gas Research: Past Hurricane Damage, disruptions less than expected
- ↑ CKH 2007 10-K, Item 7, Page 44
- ↑ Aker American Shipping: Jones Act Background
- ↑ CKH 2007 10-K, Item 7, Page 40
- ↑ American Commercial Lines Investor Presentation May 21, 2007
- ↑ BRS 2007 10-K, Item 1, Page 6
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