Shipping firms prefer scrapping to sailing

Lower freight rates and higher operating costs are forcing shipping companies globally to opt for scrapping vessels than sailing them.
According to a report by IDBI Capital based on their interaction with GE Shipping management, “Ship scrapping in the first seven months of 2012 stood at 28.2 million dead weight tonnage as compared to 32.1 million dead weight tonnage in the entire 2011.” Of this, 22 million dead weight tonnage of scrapping took place in the dry bulk space while the tanker scrapping was relatively less, said Mr. Chetan Kapoor, maritime analyst with IDBI Capital.
Dry bulk space has been facing the brunt of the excess tonnage issues which has been further exacerbated by the slowdown in the key driver of commodity imports – China. The Chinese economy is expected to grow at a slower rate in calendar year 2013 and 2014, the IDBI report said.
In the first seven months of 2012, 8.6 million DWT of tanker scrapping has taken place compared to 487.4 million DWT of existing fleet strength.
“We expect another 5-6 million DWT of scrapping in the next five months, which leads to a relatively modest fleet addition of 1.4%. This will still fall short of the demand supply balance requirement due to the already existing excess tonnage in the system,” Mr. Kapoor said.
Gross worldwide fleet addition scenario in the crude and product tanker segment is estimated to be around 4-6% each in calendar year 2012 and 2013. Against this the demand scenario remains nebulous.
“Tonne-mile demand outlook has been impacted due to slowdown in US and European crude imports. Gross fleet addition in the case of dry bulk segment is estimated to be 10% in 2012 and 6% in 2013 while the tone-mile demand is expected to increase by around 4% year-on-year,” he added.
It is expected that only by calendar year 2014 the vessel addition will slow to 2% of the existing fleet and some normalcy will return in charter rates, he noted.
In the offshore market, a differential market has developed in terms of new and old assets. Charter rates for old jack-ups of over 15 years are half of the newer ones and this premium is expected to further widen going ahead, the IDBI report observed.
In the jack-up rigs category, assets prices have corrected by around 20%, mirroring charter rates which have also corrected by 20% from their respective peaks.

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