A record intake of newbuild containerships representing 1.7 million TEU in 2015 coincided with an unusually low scrapping total, serving to widen the supply and demand gap that is assisting the erosion of carrier profits. The amount of scrapping halved in 2015 with only about 195,000 TEU worth of capacity removed from the world’s container fleet, well down on the previous three years from 2012 to 2014 when the annual scrapping totals averaged nearly twice as much.

Last year, owners of older scrapping candidate ships preferred to extend their lifecycles because demolition prices were less attractive and because there was some renewed demand for Panamax ships, either for second-hand sale or time-charter as a consequence of a spurt of new regional services in the early months of the year in the intra-Asia trade and to cover the U.S. west coast port dispute.

However, as reported in Drewry’s latest Container Forecaster, the level of scrapping of container vessels escalated in the final months of last year as demand for panamax ships waned and charter rates dived. Demolition prices remain unattractively low but many owners, particularly of the non-operating kind; have decided that with charter rates falling they are better off recouping some residual value from their assets from the scrap market.

December was the peak month for scrapping last year when a rush of activity resulted in 15 vessels predominately owned by independents contributed about one-quarter of the year’s scrapping total. Available data for 2016 shows that another 19 ships, representing 58,000 TEU, were demolished in January and February. Of this year’s units to be sent to the ship graveyard, 12 were under 20 years of age and nine had capacities of at least 4,000 TEU, suggesting that more ships are coming onto the scrapping radar.

In Drewry’s opinion 2015 was something of an anomaly and with demolition prices starting to pick up, combined with the general need to weed out unwanted capacity, the consultancy expects the recent trend to reassert itself in 2016 and 2017 and for scrapping totals to be more like they were in the years between 2012 and 2014.

Scrapping alone does very little to redress the supply-demand imbalance, Drewry noted. Last year’s scrapping total was equivalent to just one percent of the container fleet, but it does increase carriers’ ability to cascade smaller east-west ships into north-south trades by clearing space for them.

Despite the low (but rising) demolition prices, Drewry concluded, “scrapping will intensify in 2016 as charter market demand for panamax ships will remain muted.”