More containerships are expected to be demolished ahead of IMO 2020 implementation date, but progress has been slow thus far, shipping consultancy Drewry said.
Last week’s news that the US will cease granting waivers for the import of sanctioned Iranian oil will contribute to carriers’ rising operating expense in the short-term, but it is the lack of visibility into the extra fuel costs associated with IMO 2020 that is making it harder to plan much further ahead.
Drewry said it has long expected that IMO 2020 will trigger much greater scrapping of containerships as many older and less fuel-efficient ships will be rendered uneconomic. The rapidly increasing move towards fitting exhaust scrubbers could force charter rates down for some ships that are not fitted with the system, potentially swelling the number of demolition candidates.
“However, owners have thus far resisted a large scale cull that would help to alleviate the container market’s enduring over-capacity crisis.”
Last year represented an eight-year low for container ship demolitions when some 120,000 TEU was sold for scrap, a sum that would have been far lower were it not for a surge in the fourth quarter of 2018 when over half the annual total was removed from the active fleet.
“The good news, from a perspective of balancing the market, is that the late-year rise in scrapping activity has carried over into 2019.”
The number of confirmed demolitions year-to-date was fast approaching the annual tally of 2018 at around 90,000 TEU. Drewry’s annual scrapping forecast for this year now stands at around 300,000 TEU, down from our previous estimate of 450,000 TEU.
“Despite this much need reduction, our demolition forecast will only account for less than 2% of the current fleet of 22 million TEU.”
The average age of containerships that have been deleted so far this year is a smidge under 22 years. But as the containership fleet replenishes with newbuilds and the age profile gets younger, currently averaging 12 years, the pool of obvious scrapping options is receding.
About 85% of the fleet is less than 15 years old and is therefore highly unlikely to be sent to the demolition yards. Some 10% resides in the 15 to 20 age range, of which just over 100,000 TEU have either been retrofitted with an exhaust scrubber or are pending the system to be installed.
That leaves about 5% of the fleet over 20 years old. Excluding the very few ships in that bracket that are fitted with or pending scrubbers that means there is currently around 1.15 million TEU in low hanging fruit available to be scrapped, Drewry said, adding that “owners should get a move on”.