It’s not much fun being a merchant ship. You slog across the oceans with cargo, year after year, in all kinds of weather. Then just when you really feel you are developing a bit of proper expertise, suddenly they say you’re too old and must be scrapped to make way for some shiny new lump of steel fabricated in China. Where’s the stakeholder loyalty in that?
Solving the Industry’s Problem
This may sound extreme, but for many “players” in today’s shipping market, scrapping old ships is the best hope for escaping from dreary market prospects. Currently the shipyards are locked into delivering around 90m dwt of ships a year, around 5% of the already overweight merchant fleet. With plenty of spare capacity in the system, and trade growing at around 4% per annum, a quick and easy way out is heavy demolition of those geriatric old ladies.
Unfortunately for proponents of this comfortable solution, the merchant fleet is one of the most modern on record. In a decent market most ships trade for 25-30 years, and very few are scrapped before 20 years. But if this is the criteria, there’s not much to go at, with just 6% of the total bulker, tanker and containership fleet aged over 20 years (see chart). Bulkers have the highest proportion, with 8% of the fleet in terms of dwt aged over 20 years. For tankers, it’s only 4% and containerships 3%. So for the pro-scrapping lobby, this makes life difficult.
But luckily, there’s a second line of attack. With sky high bunker costs and environmental regulations escalating, surely the middle age ships will become obsolete, making charterers reluctant to take them. Getting rid of the 28% of the fleet in the 10-20 year age group would solve the overcapacity problem at a stroke. But are these under-age ships really unsuitable? Maybe not always.
In fact, many of these older ships are not so different from their modern counterparts. Of course the older ships don’t have electronic engines, but this is not a deal breaker and the market pays decent prices for them – $20m for a 10-year-old Supramax, compared with $31.5m for a new Ultramax resale. And even at 15 years old Handymax ships fetch $13m.
Much of the “new” fuel economy technology can be retrofitted to existing vessels and many owners are doing exactly that. Mewis ducts; hull coatings; engine modifications; lube oil management systems; and improved on-board management of fuel consumption can all make a massive difference.
So there you have it. Maybe a rush to the demolition yards is not the only solution to the supply overhang. A better way to exploit the highly skewed age profile of the tanker, bulkcarrier and containership fleets is to focus on their strengths. By careful retrofitting, many dirty, inefficient ships might be transformed into cost effective semi-ecoships which owners could make money from and which the IMO could be proud of. Have a nice day.