Amid a record year for containership demolitions in 2016, which helped suppress total fleet growth close to the rate for demand, shipping consultancy Drewry said that the scrapping candidates will get younger and bigger until the market recovers.
Greater scrapping is a sign of the underlying weakness in the container market, and for its benefits to be fully realised much more will need to be carried out, Drewry said.
So far this year there have been three record cases of ships being scrapped just before they reach their 10-year birthday, which before accounting for cash paid by the demolition yard for the reclaimed steel, implies a write-off of nearly 60% as containerships are normally depreciated over 25 years.
As of November 7, a total of 151 ships have been sold for demolition in 2016 with an average age of 19 years, significantly lower than the average of 23 years recorded in each of the previous four years.
“It seems that more owners, particularly of the non-operating kind, are deciding that scrapping is the least bad option available; over chartering out ships at historically low, and loss-making, levels or paying for idling costs until a hoped-for shipping market recovery happens,” Drewry said.
As well as being younger, the size of scrapped vessels is also rising sharply with the 2016 current average being 3,500 TEU, up from just over 2,000 TEU in recent years.
2016 is already a record year for containership scrapping with over 520,000 TEU pulled from the water by early November. At the current rate the end-year 2016 scrapping sum will be in the region of 615,000 TEU, which would represent a 38% increase on the previous annual high of 444,000 TEU set in 2013.
Unfortunately for owners, Drewry is not anticipating that demand will get much above 3% over the next two years, as much more new tonnage is scheduled to arrive over the next two years than in 2016, so owners will need to scrap even harder if they want to see supply growth fall into line.
With nearly 3.2 million teu of new ship capacity scheduled for delivery – split roughly equally – in 2017 and 2018, to perfectly match supply growth with our demand forecasts will require that around 1 million teu will have to be scrapped in consecutive years. To achieve this, owners will have to look for ever younger and bigger ships to send to the demolition yards.