Thursday, November 10, 2016

Global Container Freight Fleet Being Whittled Down by Scrappage

Ship Demolition Up as Overcapacity Persists and the Value of Active Vessels Drops
Shipping News Feature
WORLDWIDE – Latest research from international shipping association, the Baltic and International Maritime Council (BIMCO), shows that containership demolition has reached an all-time high for the year to date and may provide a positive note for the legions of box freight shipping lines which have witnessed problems, to a large extent of their own making. BIMCO’s Chief Shipping Analyst at BIMCO, Peter Sand commented:

“The demolition activity in the last three months’ surprised BIMCO positively and it exceeded our initial expectation based on the appalling 2015 demolition activity. The advance is a push in the right direction, as demolition activity is one of the essential measures needed to be taken to rebalance the container shipping industry.

“It is important that the demolition of excess capacity comes sooner rather than later, as there is still a huge delivery schedule hanging over the container shipping industry for the rest of this year and well into 2017-2018. However, the high demolition activity is currently softening the net supply growth rate of the container shipping capacity and will prevent a darker outlook for the years to come, if maintained.”

So far this year vessels capable of carrying 500,000 TEU have been scrapped, 4.2 times more than the scrapping activity for the same months in 2015. With the last 3 months accounting for more than 41 % of the total demolition in 2016, the activity is picking up and is primarily generated by Panamax container ships. The demolition of Panamax containerships in TEU accounts for 47 % of the total demolition in 2016, while TEU scrapped from Intermediate and feeder containerships account for 30% and 23% respectively.

BIMCO says the demolition of so many more Intermediate containerships than the previous year, when less than 10,000 TEU of that class was scrapped in December 2015 and no other vessels destroyed during the rest of that year, is a strong signal for the measures being now taken in the container shipping industry. The high level of scrappage comes in the aftermath of BIMCO reporting the lowest level of newbuilding contracts in 20 years. Container contracts, based on Compensated Gross Tonnage (CGT), were down 84% for the first eight months of 2016 compared to the same period in 2015. Sand continued:

“The events in 2016 have shown, that the tools to turn the container shipping industry around are being used and are working. The recommendations to consolidate fleets and demolish ships are being taken serious within the industry.”

In previous years we have seen fleets laid up and moored with skeleton crews for maintenance but it appears that vessel operators feel the current downturn is not so much a reduction in trade but the over eagerness to put more capacity on the water. Many of the older ships carrying cargo around the world now have scrap value over and above their potential working value and it would seem that many owners are now understanding that, without a sudden upsurge of global ocean traffic, the only answer to current overcapacity is to reduce the size of the world’s fleet by some margin.