Archives for posts with tag: scrapping

Vessel recycling experienced a positive start to 2018, and by the end of Q1 was noticeably up year-on-year, in annualised terms. However, since then, the pace of scrapping has slowed. Partly, this is a result of improved sentiment during Q2, for instance in the dry bulk, gas, and offshore charter markets. But scrapping slowed over the summer, and now further issues have reared their head.

For the full version of this article, please go to Shipping Intelligence Network.

The car carrier sector has been yet another part of the shipping industry to have faced challenging conditions this year. The focus has largely been on demand side difficulties, with growth in global seaborne car trade appearing to have gone into reverse gear. It has been a rather bumpy ride, and today’s car carrier market indicators still seem to be flashing up plenty of warning signals.

Going Slow

Growth in global seaborne car trade has struggled to return to the robust levels seen prior to the global economic downturn, when car trade was one of the faster growing parts of seaborne trade. Given the strong link between economic growth, consumer demand and car sales, the car carrier sector has been highly exposed to sluggish world economic performance in recent years, and global seaborne car trade has still not yet returned to its 2008 peak of 21.3m cars, with average growth of just 1.4% p.a. in 2013-15. This year has seen further pressure on seaborne volumes, with car trade projected to have dropped 4% to 19.8m cars.

The key driver of this fall has been considerably lower imports into developing economies following the commodity price downturn. Car sales in these countries have dropped sharply, and seaborne car imports into the Middle East, Africa and South America are set to drop by more than 10% this year. While imports into North America and Europe, still the two largest markets for imported vehicles, have grown moderately (by 2% and 4% respectively), this has not been enough to offset declines elsewhere. Other factors have also dented volumes, with expansion of car output closer to demand centres leading to a disconnect between global car sales, which have continued to expand, and seaborne trade volumes.

Warning Lights

Largely as a result of the downturn in demand, car carrier market conditions have deteriorated further this year. Most car carriers still operate under long-term agreements, but guideline charter rates have fallen back to subdued levels, with the one year rate for a 6,500 ceu PCTC falling to $16,000/day in recent weeks, down 30% from the start of the year. Vessel idling has risen, utilisation of active capacity is under pressure, and waiting time between fixtures has increased, whilst a trend towards shorter-term and spot fixtures has also been apparent.

Making The Turn

In response to these pressures, owners have stepped up supply-side action. Scrapping has increased, and is projected to reach 0.2m car equivalent capacity this year, over four times the 2015 level and the highest since 2009, with fleet capacity projected to have declined by 0.3% in full year 2016. Meanwhile, only two ships have been ordered this year, after 42 contracts were placed in 2015.

Route Planning

Yet the road ahead still seems far from clear for the car carrier sector, with demand seeming unlikely to shift up a few gears in the short-term. In our annual Car Carrier Trade & Transport report, we look at the latest trends in detail. This year’s report is now available on the Shipping Intelligence Network. Have a nice day.

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Strong demolition has been a prominent feature of the shipping industry this year, as challenging market conditions continue to drive a significant supply-side response in a number of sectors. Across the total shipping fleet, demolition could reach one of the highest levels on record in full year 2016, but which markets in particular have taken the biggest hits?

Revving Up

2016 has been an extremely difficult year for the shipping markets, with conditions in most sectors under pressure. Reflecting this, demolition has remained at elevated levels, and in January to November, 841 vessels of 41.3m dwt were scrapped. Demolition so far this year has already exceeded last year’s total of 38.9m dwt, and whilst scrapping volumes have picked up in most sectors, some markets have played a more important role in this year’s tally than others.

Bulker Beat

Amidst continued depressed earnings, bulkcarriers have accounted for the lion’s share of tonnage scrapped this year. Bulker scrapping set a new record in 1H 2016, and while demolition has slowed in recent months, 385 bulkers of 27.7m dwt have been scrapped in the year to date. Bulker demolition has been historically firm since 2011, but the pace of scrapping in most bulker sectors this year has still exceeded the 2011-15 average, with Capesize and Panamax recycling this year around 1.4 times this level.

Boxship Bumps

Meanwhile, containership demolition has also made headlines this year, with increasingly young vessels being recycled. In dwt terms, boxship scrapping has totalled 7.9m dwt so far in 2016, but recycling volumes are already over triple that of full year 2015, with scrapping on track to reach a record 0.7m TEU this year. The pace of demolition of ‘old Panamaxes’ has been running at more than twice the five year average, whilst scrapping has accelerated firmly in the 3,000+ ‘wide beam’ sectors, with 6,000+ TEU boxships also scrapped for the first time.

Big Hits On The Bodywork?

By contrast, despite the softening in crude and product tanker market conditions this year, tanker scrapping has remained relatively subdued, at less than half of the five year average. However, while gas carrier scrapping remains limited in numerical terms, with just 18 ships recycled so far this year, LPG carrier demolition is on track to reach around double the five year average after earnings fell swiftly to bottom of the cycle levels. Meanwhile, car carrier scrapping has soared to 27 units of 0.14m ceu. This is already the second highest level on record, and on an annualised basis is four times above the 2011-15 average.

So, while total demolition this year is still falling short of 2012’s record 58.4m dwt, 2016 looks set to see yet another year of very firm recycling, eight years after the onset of the downturn. In some sectors, this strong scrapping is providing a helpful brake on fleet expansion. Furthermore, with bruising market conditions having clearly taken their toll, many owners are likely to be looking to the demolition market for a little while yet.

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In the initial aftermath of the world economic downturn, global vessel demolition hit 33m dwt in 2009, followed by 28m dwt in 2010 and 43m dwt in 2011. In 2012, sales for scrap peaked at 58m dwt, and then totalled 47m dwt in 2013. At such elevated levels, compared to the annual average of 18m dwt in the 2000s, it’s worth considering how high a total might be maintained in the years ahead.

Downturn Upturn

In the first 8 months of 2014, robust levels of demolition have continued, with total sales for scrap amounting to 23.5m dwt, including 10.0m dwt of bulkers and 6.4m dwt of tankers. As the graph shows, the average age of vessels sold for scrap in the year to date stands at 27.5 years, having fallen from around 30 years in the period 2009-11 when the weak earnings environment took hold and encouraged the clear out of old ‘surplus’ tonnage.

However, with many of the units demolished coming from the larger, volume sectors where scrapping ages have generally been younger (the average age of demolition of VLCCs and Capesizes this year has been 21.0 and 24.1 years respectively), the average age of dwt capacity demolished has been lower than the average by ship number, standing at 24.7 this year.

High Profile?

Weak market conditions have ensured that owners have continued to scrap older tonnage, but, with markets by nature cyclical, to what extent could the elevated level of demolition continue in the future? Well, whilst it provides no guarantee of scrapping levels, the age profile of the fleet remains a useful indicator. In reality, market conditions, costs and timings of special surveys, and steel scrap market conditions help determine owners’ decisions, and in today’s environment fuel efficiency and regulatory concerns also play a key role. Nevertheless, the profile of fleet capacity hitting ‘average’ scrapping age gives a hint as to the direction of future demolition levels.

Help From The Aged

The graph shows historical scrapping and capacity set to reach 25 years old each year. There’s also a long ‘tail’ of capacity older than 25 years (103m dwt built pre-1989), and the graph includes a share each year. This adds up to an indicator of ‘scrap candidate capacity’. In 2017, when today’s 22 year old capacity hits 25, it reaches 23m dwt and by 2020 it is up to 35m dwt. Not all sectors have the same age profile, and many ships have a longer life than 25 years, but no doubt some younger tonnage will be scrapped too. What is clear is that more capacity was delivered in the mid-to-late 1990s than in the early 1990s and late 1980s, and this will drive scrapping at some point.

On The Level?

So, the big slump led to elevated levels of scrapping that the flattish deliveries of the 1980s and 1990s initially suggested it would be hard to maintain. However, scrapping has rolled on robustly, and the fleet’s age profile suggests that, in a few years, it may be easier to reach similar levels. Market conditions will mean that actual volumes move in cycles, but particularly with fuel and regulatory agendas to the fore, accelerated levels of demolition might become more common.

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