The maritime connectivity market after COVID-19

The cruise sector was severely impacted by the pandemic, causing the number of active VSAT terminals to decline

Like many other markets, the maritime sector suffered a general slowdown in activity during March 2020 and the early stages of the COVID-19 outbreak. Once this first wave had passed, the various segments that make up the maritime market reacted differently to a new environment shaped by travel restrictions and other measures.

On the connectivity side, the market dealt with these changes in a variety of ways depending on the segment.

The restrictive measures taken by many countries certainly limited the possibility to install new satellite communication terminals, and reduced activity also led some end-users to put their connectivity subscription on hold, thereby increasing the number of dormant terminals (i.e., terminals that are installed but not active).

The lockdowns enacted in many countries have boosted online retail sales activity. Consequently, the overall level of activity in the merchant shipping market did not reduce by much due to the pandemic. Indeed, after four months below $800 between February and May, the Baltic Dry Index increased sharply to remain above $1,100 for the last seven months of 2020.

Nevertheless, the living conditions onboard ships, especially during stopovers in ports, changed markedly compared to the situation before the pandemic. Social life became more complicated and maintaining a social link with friends and family became more important than ever. As a result, the satellite communications market for merchant shipping actually saw an increase in consumption in support of crew welfare.

Merchant shipping represents the largest maritime connectivity market, with more than 225,000 active terminals at Year-End 2020, including 16,000 active VSATs. The limited number of new terminal installations during the year and an increasing need for bandwidth allowed service providers to apply upgrades on price plans throughout this segment in 2020.

Another ‘winner’ in 2020 was the fishing market. As a supplier of a vital resource, this market did not suffer significantly from lockdowns and other restrictions. However, unlike other maritime segments, fishing is not a major consumer of bandwidth and mostly relies on MSS technology rather than VSAT. Consequently, this market experienced sustained growth in the number of MSS broadband terminals installed, which reached 4,500 units at Year-End 2020.

This segment, with lower ARPU (average revenue per user), still offers growth potential for MSS operators. Nevertheless, as VSAT becomes more affordable, we would expect to see some long-term customers of MSS shifting towards VSAT.

In contrast to fishing and merchant shipping, the cruise segment suffered heavily from restrictions within the international tourism market. The major cruise lines almost completely halted their activity from March 2020, leading to a decrease in active VSATs by almost 80% at Year-End 2020 compared to a year earlier.

Indeed, when the ships were docked in port, crew usually relied on terrestrial cellular networks to communicate rather than vessel systems. At the time of writing in May 2021, few cruise lines have resumed activity, but many are hoping for a return to at least partial operation before summer 2021.

As this segment is usually the biggest consumer of bandwidth per vessel, the connectivity revenue loss was significant and impacted the bottom lines of service providers that were heavily exposed to this market. When cruise activity returns we would anticipate a modernisation of the fleet, leading to a rapid adoption of new technologies. At that time, the cruise market could again reach service revenue levels like those experienced prior to the crisis.

Travel restrictions also impacted the leisure vessel market, but in a more moderate way. Yachts could still sail in their local waters, and during summer 2020 lockdowns were eased in several countries. Once aboard, passengers in this market tended to consume the same amount of bandwidth as before.

Overall, 2020 led to a decrease in VSAT connectivity service revenues of around 20% for the leisure market. But this market segment should recover quite rapidly once travel restrictions are lifted.

In addition to the COVID crisis, the Offshore Oil & Gas segment experienced its own separate issues due to an oil price war and constrained production. The Brent plunged 62% in Q1 2020 before starting to increase slightly again in April as OPEC and its partners struck a deal to cut global petroleum output by a tenth.

However, a $40 per barrel price and low demand continued to affect offshore companies until November 2020. As a result, the total number of active terminals decreased by 7% Year-On-Year to less than 25,000 units in 2020.

Forecast of evolution of VSAT service revenue growth rate, 2019 v 2021. Source: Prospects for Maritime Satellite Communications (2021)

A number of restructuring moves took place among maritime satellite connectivity stakeholders in 2020, altering the shape of the market somewhat. For instance, Speedcast, a leading service provider to the cruise market and with a strong presence in the Offshore Oil & Gas segment underwent Chapter 11 proceedings, although many of the reasons behind this move pre-date the COVID-19 outbreak.

A variety of acquisitions were also announced towards the end of 2020. Among them were the acquisition of ITC Global by Marlink, concluded in May 2021, which will strengthen the position of Marlink in the maritime connectivity market.

Another acquisition that has been publicly announced is Viasat’s purchase of RigNet. The strategy here is slightly different as Viasat is currently not very active in the maritime connectivity market. Therefore, it is expected that this deal could help Viasat to enter the Offshore Oil & Gas market through external growth while supporting the satellite operator’s vertical integration strategy.

These different reorganisation and acquisition deals could create further opportunities for consolidation of the maritime satellite communications market in the near to mid-term.

Another factor that could impact the value chain structure of the market is the rise of connectivity services based on NGSO (non-geostationary) constellations. Like Speedcast, OneWeb went through Chapter 11 proceedings in 2020 and emerged under new ownership, suffering a one-year delay in its launch schedule. However, its technology and expected type of service remain mostly unchanged relative to its initial plans.

Telesat also confirmed in early 2021 that its project to build a 298-satellite constellation in partnership with Thales Alenia Space will go ahead, with the aim of providing global service in 2024.

Additionally, SpaceX and its Starlink constellation announced in March 2021 that the company will target mobility markets, including maritime, pending approval from the FCC. However, the Starlink announcement did not mention any timeline, most likely due to the fact that terminals are yet to be developed.

As the plans of these NGSO operators come to fruition their new services can be expected to spark changes in the current makeup of the market, potentially capturing half of the capacity leased for maritime connectivity by 2030.

In conclusion, the connectivity market for maritime has suffered a shakeup following the COVID-19 outbreak, with various consequences in different segments. The coming years should see further reorganisation across the value chain and stabilisation of growth in the market with the modernisation of the fleet, especially as worldwide restrictions ease and as new satellite connectivity technologies come available.

Editor’s note: The conclusions in this article are based on the findings reported by Euroconsult in its recent publications ‘Prospects for Maritime Satellite Communications’ and ‘Prospects for In-Flight Entertainment and Connectivity’.

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Xavier Lansel is a Senior Consultant at Euroconsult, based in Paris, France. He is part of Euroconsult’s consulting team for satellite communication markets where he contributes to business analysis, market forecasts and business plan assessments. In addition, he is the editor of Euroconsult’s research reports on satellite connectivity for the maritime and aero markets.

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