Vessel Scrapping Reaching Record Levels This Year - Global Trade Magazine
  August 2nd, 2016 | Written by

Vessel Scrapping Reaching Record Levels This Year

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  • More containership capacity is being demolished this year than ever before.
  • Among vessel scrapping activity are old-design ships made redundant by the new Panama Canal.
  • Now is not a good time to own an old containership.

Drewry’s Container Forecaster found that, for the first time, 450,000 TEU of containership capacity is expected to be scrapped in just one year, as the containership sector recognizes that there are far too many ships chasing too little cargo.

Based on an average size of 3,000 TEU for ships that are being scrapped, this means that about 150 mainly old and medium-sized containerships will be pulled out of the market or out of temporary idle positions and sent to the scrapyard in 2016. In 2015, demolitions were less than half this level.

The surge in demolitions started in the fourth quarter of 2015, has continued since, and looks set to reach 450,000 TEU by the end of 2016, an even higher annual total than the 444,000 TEU scrapped in 2013.

Some younger vessels are also being scrapped, including three in the 6,500-TEU range which are 14 to 15 years old. Containerships are normally depreciated over 25 years, so scrapping a 15-year-old vessel implies a write-off of nearly 40 percent.

The opening of the new Panama Canal in June has created a surplus of old panamax ships of around 4,500 TEU. This size and design of ship—previously one of the workhorses of the containership industry—has essentially been made redundant. “More panamax vessels will surely head for the scrapyards of South Asia,” said the Drewry report, “as their owners or charterers replace them by newer and more efficient 8,000-TEU+ ships.”

Will all this scrapping activity make a difference in the global capacity surplus?

450,000 TEU accounts for around two percent of the current 20-million TEU available in the global fleet of containerships. “This will only make a dent into the overcapacity built during the 2010-2015 period,” said the Drewry report, “which saw 4.5 million TEU in capacity added to the industry globally at a time of slowing demand.”

Ship owners with older containerships on their books have a choice of three alternatives: chartering out ships at loss-making levels, paying for idling costs until a recovery occurs, or scrapping the vessels. “More will decide that scrapping is the least bad of the three options,” said Drewry. “Expect ship scrapyards to be busy for the remainder of the year.”

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