The global economic landscape is shifting, driven by major investments in offshore wind energy. As nations push for cleaner energy sources, offshore wind developments have surged, absorbing vast amounts of capital. This shift in investment priorities has led to a temporary deferral of capital expenditure from traditional dredging equipment, creating a significant market imbalance.
A Structural Shift in Dredging Economics
At in2Dredging, we have observed a structural increase in dredging markups. This trend deviates from the dredging industry’s typical risk premium when compared to standard construction projects. The primary cause? A shortage of dredging equipment. As contractors prioritise offshore wind investment, fewer dredging vessels remain available for conventional dredging projects. This scarcity has led to higher project costs and increased risk aversion among dredging contractors.
Day Rate Contracts: A Practical Alternative
For clients seeking lump sum pricing, a key takeaway is the need for comprehensive site condition data. Equally important is a clear, concise scope of works to enable accurate pricing and effective risk assessment. Given the current shortage of equipment, contractors are reluctant to commit to fixed-price contracts. They are requiring thorough risk assessments, with the client absorbing all the risk. If critical site data is unavailable, day rate contracts should be considered as an alternative to lump sum agreements. This approach helps maintain project viability while enabling more flexible and balanced risk allocation between client and contractor.
While day rate contracts offer a way forward, they require meticulous contractor oversight. Close monitoring of dredging progress and efficiency is essential to mitigate productivity risks and ensure cost-effective execution. To support this, in2Dredging has developed Equipment Performance Review (EPR). This software solution allows clients to assess daily productivity and efficiency within minutes based on indisputable data. This facilitates a rational, transparent relationship between contractor and client, ensuring successful and cost-effective project execution.
Navigating the Changing Landscape
As offshore wind continues to shape investment patterns, in2Dredging remains committed to providing insights and smart solutions to help navigate these changes effectively. Understanding these economic drivers is key to optimising project execution in today’s evolving dredging market.
