Consigning ‘Teenagers’ to the Scrap Yards May Help Solve Chronic Boxship Overcapacity

The Loadstar
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January 12, 2016

By Mike Wackett

(The Loadstar) – According to shipbroker Braemar ACM, as at the beginning of this week six container vessels, equating to 14,000 teu, had been sold for demolition, just ahead of the number of cellular ships that were scrapped at the same time of 2015.

Ninety-three container vessels were scrapped last year, removing 213,000 teu of old, uneconomic tonnage from the world’s cellular fleet – but this represented only half the deletions of the two previous years.

More than 214 containerships, totaling 1.72m teu, hit the water last year, expanding the global fleet by 8.5% and, after deducting those scrapped, bringing it close to the 20m teu mark. Moreover, Asian shipyards have bulging orderbooks, including no less than 60 18,000-22,000 teu ultra-large boxships.

This aggressive ordering over the past few years by carriers has been the root cause of chronic overcapacity issues on many tradelanes, notwithstanding the cyclical slowdown in trades that can temporarily throw supply / demand out of kilter.

And you do not have to be a brilliant mathematician to work out that the industry needs to significantly increase the number of ships that it consigns to the scrapyards.

The average age of containerships scrapped last year was 23; but it is the ‘teenagers’ that need to be removed from fleets if the container liner industry is to overcome the current overcapacity crisis and potential looming disasters.

However, the main obstacle preventing more of the current 1.4m teu of idled container tonnage from upping anchor and sailing on their final destinations to the breakers’ yards of the Indian sub-continent is the slump in global steel prices.

Whereas, in 2014, owners were obtaining up to $500 per ldt for scrapping ships, this figure had dropped to below $300 by the end of last year. Markets around the world continue to be impacted by the flood of cheap steel billets from China, the domestic surplus a consequence of its slowing economy.

Reports that India and Pakistan would impose import taxes on Chinese steel now seem to have been misjudged, thus scrap market rates are unlikely to improve anytime soon.

And with trading starting 2015 in the doldrums, with employment likely to remain very weak in the charter market, owners of surplus containerships will need to set their scrapping sights lower this year.

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