Archives for posts with tag: Panamaxes

In recent years, in generally difficult market conditions, it has been no surprise that many sectors have seen a significant removal of surplus tonnage. This has been particularly notable in the bulkcarrier and containership sectors, and in the case of the Capesizes and the ‘Old Panamax’ boxships, it has been a bit like the famous race between the tortoise and the hare but with even more changes in leadership…

At The Start

Back in 2012, Capesize demolition was on the up with the market having softened substantially in 2011 on the back of elevated levels of deliveries. Meanwhile, ‘Old Panamax’ containership demolition (let’s simply call them Panamaxes here) was also on the rise with earnings under pressure. Across full year 2012, 4.7% of the start year Capesize fleet was sold for scrap (11.7m dwt) and 2.6% of the Panamax boxship fleet (0.10m TEU). In both cases this was working from the base of a fairly young fleet, with an average age at start 2012 of 8.2 years for the Capes and 8.9 years for the Panamax boxships.

The cumulative volume, as a share of start 2012 capacity, of Capesize demolition remained ahead of Panamax boxship scrapping until Sep-13, by which time 7.3% of the start 2012 Panamax boxship fleet had been demolished compared to 7.2% of the Capesize fleet. In 2013 the Cape market improved with increased iron ore trade growth whilst the boxship charter market remained in the doldrums. In 2013, Cape scrapping equated to 3.2% of the start 2012 fleet (7.9m dwt); the figure for Panamax boxships was 6.0% (0.24m TEU). The fast starter had been caught by the slow burner.

Hare Today…

But by 2015, Cape scrapping was surging once more, regaining the lead from the Panamax boxships. By May-15 the cumulative share of the start 2012 fleet scrapped in the Capesize sector was 13.7% compared to 13.4% for the Panamax boxships. Iron ore trade growth slowed dramatically in 2015, whilst the Panamaxes appeared to be enjoying a resurgence with improved earnings in the first half of the year ensuing from fresh intra-regional trading opportunities.

…Gone Tomorrow

But the result of the race was still not yet clear. Today the Panamaxes are back in front again, thanks to record levels of boxship scrapping in 2016, including 71 Panamaxes (0.30m TEU) on the back of falling earnings, ongoing financial distress and the threat of obsolescence from the new locks in Panama. Despite a huge run of Capesize scrapping in Q1 2016 (7.5m dwt), the cumulative figure today for Capes stands at 22.3% of start 2012 capacity, compared to 25.4% for Panamax boxships, remarkably similar levels.


Where’s The Line?

So, today the old Panamax boxships are back in the lead, but who knows how the great race will end? Capesize recycling has slowed with improved markets, but Panamax boxships have seen some upside too, even if the future looks very uncertain. Hopefully they’ll both get there in the end but no-one really knows where the finish actually is. That’s one thing even the tortoise and the hare didn’t have to contend with. Have a nice day.

SIW1271

“When the going gets tough, the tough get going” – at least that’s what Billy Ocean’s number one hit told us in 1986. Well, there’s no escaping that the dry bulk markets are in a tough place at the moment. Owners have responded by selling more, and younger, vessels for demolition, but just how tough have they been so far, and how tough might they get?

…The Tough Get Going

The first 3 months of 2016 are shaping up to be the biggest quarter on record for bulkcarrier demolition. In the first 9 weeks of the year, 120 bulkcarriers of 10.1m dwt have been reported sold, a pace that, if continued, will see the current record of 10.9m dwt set in Q2 2015 surpassed. Such high levels of demolition clearly reflect the depressed state of the bulkcarrier market in 2016 so far. This week’s graph highlights previous occasions when low freight rates have led bulkcarrier owners to get tough with older vessels.

When The Going Gets Rough…

The first period of sustained high demolition was in the mid-1980s, with activity peaking at 12.3m dwt in 1986 – equivalent to 6.2% of the total start-year fleet. In the same year average scrapping ages plummeted to 18.8 years – that was tough! The second major phase of demolition occurred through the second half of the 1990s and into the first half of the 2000s. Peak demolition levels were similar to those seen in the mid-1980s, with 12.3m dwt leaving the fleet in 1998. But fleet growth in the intervening period meant that this accounted for just 4.6% of the fleet at the start of the year. Average scrapping ages dipped slightly, but remained above 25 years.

So how tough are things now? In terms of tonnage leaving the fleet, the current phase is by far the most extensive. 2012 was the biggest year on record for bulker demolition with 33.4m dwt heading to the breakers. However, rapid fleet expansion over the past decade means that this accounted for 5.4% of the start-year fleet, slightly below the level seen when Billy Ocean was having hit records 30 years ago. The first half of 2015 and the start of 2016 have been very active periods, but these high volumes will need to be maintained in order for the annual demolition-to-fleet ratio highlighted in the graph to return to the levels of the mid-1980s.

…The Tough Get Rough

How much tougher can owners get? The average scrapping age for bulkcarriers has fallen from 33 years in 2007 to 24 years so far this year, and market conditions are such that vessels built in the 2000s are now candidates for recycling (a total of 10 such Capesizes and Panamaxes have been sold since the start of last year). So it’s clear that owners are getting tougher, even if there might still be some way to go.

There are still 57.8 dwt of bulkcarriers in the fleet aged 20 years or over, including 108 Capesizes and 166 Panamaxes. So despite a predominantly young age profile (see SIW 1209), there are plenty of potential demolition candidates in the fleet. The dry bulk market has bounced back from tough times in the past. For those prepared to “tough it out”, further demolition could help the market return to better times. Have a nice day!

SIW1212

Analysts are busy updating their models for the new US budget year. If the big picture for tankers and bulkcarriers is what interests you, it’s not enormously complicated. Everyone uses roughly the same information, and data for running supply-demand balances is readily available. Of course it’s a complex world, but one conclusion is recurrent – overall, there’s still plenty of surplus shipping capacity.

Same Surplus, Different Rates

The fundamentals have not changed much over the summer. Comparing ‘raw’ supply and demand figures, both the tanker and bulker sectors appear to have a surplus of around 25%. These are the same numbers that have been cropping up for a while. But earnings statistics tell a different story. Over the last year tanker earnings averaged $29,000/day (VLCCs $50,000, Suezmaxes $43,000 and Aframaxes $35,000). But bulkers only managed $8,000/day (Capesizes $11,000, Panamaxes $8,000 and Supramaxes about $7,600). If both markets have 20-30% surplus capacity, what’s going on?

Could the statistics be wrong? It’s possible but it’s hard to see how. In tankers, for example, 2015 seaborne oil imports are only 6% higher than in 2008 but the tanker fleet is 33% bigger. These statistics are fairly easily verified. Bulk trade is up 38% since 2008, but the fleet has grown 93%. There may be some extra tonne-miles, but not enough to change the conclusion that both markets are carrying a lot of surplus ships.

A Slow Moving Mystery

Another possibility is our old friend ‘slow steaming’. Maybe tanker owners are getting smarter. The tanker fleet trading at 15 knots carries around 25-30% more cargo than at 11-12 knots. Supply-demand calculations are usually based on a ‘design’ speed, say 15 knots. So if the fleet trades at 11 knots, the ‘surplus’ disappears because the fleet is strung out around the world, with no surplus ships at the loading zones. Freight negotiations are based on prompt ships, so it’s the backlog that does the damage. If ships speed up, surplus capacity is released to undermine the boom. But if owners do not speed up, and are sufficiently aggressive, they can benefit from the supply curve kink until someone breaks ranks, and create market spikes.

Cargo Helps

Bulkers operate in a more complex market, with different charterers. Capesizes trading at around 11.5 knots have squeezed out a few short spikes in recent years, but the smaller ships haven’t. A market moving from demand growth to apparent stagnation does not help either. Owners have a better chance of pushing rates up when cargo volumes are rising.

Does It Matter?

So there you have it. Tankers are doing well today, but are they now a better investment? The red line on the graph shows the trend in the difference in earnings over 25 years. Tankers on average earned about $7,300/day more with a slight trend in bulkers’ favour. But what the graph really demonstrates is that it basically averages out in the end. Like poker, it’s not about the hand, it’s about the players. Have a nice day.