Archives for posts with tag: Containerships

As snooker players know, it’s hard to keep a good break going. In today’s conditions, the shipping industry needs supply-side re-positioning to help the markets back to improved health, and increased recycling in recent years has been a clear part of this. However, there’s still some way to go to better times, so it’s worth taking a look at how today’s ‘big break’ might leave the future potential scrapping profile.

The Big Break!

Since the start of 2009, a total of 206.6m GT of shipping capacity has been sold for recycling, compared to an aggregate of 63.1m GT in the previous seven years. This total includes 94.7m GT of bulkcarrier tonnage and 29.1m GT of containerships, helping to address oversupply in the volume shipping markets. But given such a prolific run of demolition activity, what does the future potential scrapping profile look like? Well, there are many measures that can be used to investigate this, including the metric featured in the graph. If the average age of scrapping is taken as a useful indicator of the current state of conditions facing owners in each market, then calculating the amount of tonnage remaining in the fleet at today’s average age of scrapping or higher might tell us something interesting, especially if ongoing market conditions persist.

What’s Left On The Table?

In the tanker sector, which up until fairly recently was backed by stronger market conditions, the average age of scrapping in the year to date remains relatively high, at 25 years for crude tankers and 27 for product tankers (bear in mind that not many tankers have been sold for scrap recently, and the average age may fall). Given that a lot of older single hulled tanker tonnage was phased out in the 2000s, the amount of tonnage above the average age today is limited. In the bulker and containership sectors, both under severe market pressure for some time now, the statistics are a little more revealing. Despite heavy recycling in recent times, the share of tonnage above the current average age of scrapping is 8% for Capesizes and 6% for Panamaxes. For boxships sub-3,000 TEU the figure is 10% and for those 3-6,000 TEU 12%. Of course if the average age of scrapping falls, then the picture changes again. In the 3-6,000 TEU boxship sector, the youngest ship sold for scrap this year was just 10 years old; around 50% of tonnage today is that age or older.

Cue More Demo?

What does this tell us overall? Well, using the sector breakdown shown in the graph, the statistics tell us that around 75m GT in the fleet is above the current average age of scrapping, 6% of the world fleet. At 2016’s rate of demolition, that’s another 2.4 years’ worth. And given the age profile of the world fleet, after another 2 years an additional 21m GT will have crossed the current average age mark and after 5 years another 77m GT.

Break Not Over?

So, what chance does the industry have of keeping the demolition pressure on? Well, obviously freight and scrap market conditions and regulatory influences will have a big say. However, it looks like, in today’s terms at least, the industry might be in a good position to keep the break going. Have a nice day.

SIW1242 Graph of the Week

2015 was clearly a very challenging year for the shipping markets. With earnings rock bottom in many sectors, investors shifted into a lower gear with respect to the placement of new vessel orders last year. But whilst for many this might be seen as a step in the right direction in terms of rebalancing supply and demand, for the world’s shipbuilders it might feel like a most abrupt adjustment.SIW1206

Contracting Contracts

Overall contracting of new vessels in 2015 dropped by 40% to 1,306 units from 2,162 in 2014, with estimated newbuild investment falling from $113bn to $69bn. In the largely difficult market conditions investors eschewed newbuild opportunities, and the overall newbuilding price index fell by 5% over the year. The number of tanker orders increased by 14% to 424 and containership ordering increased to 224 units, but these positives were outweighed by the rapid slowdown in orders in the most challenged sectors. Orders for (ship-shaped) offshore units fell by 73% to just 127 last year and bulkcarrier ordering, so often a shipbuilding mainstay in the past, dropped by 68% to 250. To put this in a wider context 1,243 bulker orders were placed in 2013.

Broken China?

Korean builders maintained their volume of orders in dwt terms with 32.5m dwt booked, backed by significant tanker ordering and the tail of the surge in ‘mega’ boxship orders, and Japanese yards even expanded their order intake by 3% to 28.9m dwt. The drop in order volume was felt the hardest in China, where yards saw a 46% fall to 29.2m dwt, as the demand for new bulkers evaporated.

One Hand On The Brake

The drop in ordering left the orderbook down by 7% on its start year level at the end of 2015. But output from the world’s shipbuilders increased last year for the first time since 2011. Deliveries were up by 6% to 96.2m dwt, with output edging up in the major volume sectors, as many of the units ordered back around 2013 were completed. However ‘non-delivery’ of the start year orderbook schedule also increased (to 35% in dwt terms), with a ‘brakes on’ approach from many owners with units scheduled to enter the fleet.

 Not Hard Enough Yet?

Few of these trends could be construed as good news for the world’s shipbuilders, many beleaguered by financial problems. Yet the brakes haven’t really been put on hard enough to help market conditions. Overall demolition did increase by 15% to 38.6m dwt, but scrap prices have remained depressed due to a surplus of Chinese steel around the world. World fleet capacity growth slowed marginally to 3.3% in 2015, with European owners holding their own, and the number of units changing hands on the S&P market (1,334) remaining steady. But against seaborne trade growth of 2.0% this wasn’t enough to stem surplus capacity in the markets in general.

Where’s The Accelerator?

Into 2016 things still look tricky. Owners are facing up to the reality of the tough market conditions, and for them the supply side brakes may not yet have been applied robustly enough. But it has been plenty firm enough for builders, leaving demand for new units thin on the ground, and the trend could continue. Niche requirements and the need to replace older tonnage with new, more ‘eco-friendly’ units in some parts of the fleet might help, but like so many in the industry, the world’s shipbuilders find themselves hoping that somebody, somewhere finds the accelerator. Have a nice day.