Containership demolitions forecast to rise

But because so many containerships are relatively new, the pool of candidates for scrapping is limited.

Drewry Shipping Consultants is predicting a rise in the scrapping of containerships in coming months.
In the most recent issue of its Container Insight Weekly, Drewry says the relative youth of the global containership fleet — the average age is 12 years —means the pool of obvious candidates for demolition is limited

Drewry is forecasting demolition will account for less than 2 percent of the current fleet of 22 million TEUs.

Higher crude oil prices and the requirement by the International Maritime Organization that next year ships must use cleaner fuel or equip vessels with scrubbers to remove sulfur are incentives to scrap older ships.

“In our most recent Container Forecaster report, we pegged the annual scrapping forecast for this year at approximately 300,000 TEU, down from our previous estimate of 450,000 TEU,” said the London-based company. “With over eight months of the year remaining, the new forecast calls for a slight escalation in demolition activity as the IMO low-sulfur deadline nears.”

Drewry said there is still an oversupply of capacity in the container shipping industry. Old ships tend to be less economical to operate, and as they approach the end of their useful life, carriers are less likely to think it worthwhile to invest in scrubbers.

Shipowners often plan to scrap vessels when they are about 25 years old; however, Drewry noted only about 5 percent of the fleet is over 20 years old. The average age of ships being scrapped has fallen to 22, it said.

“Owners have thus far resisted a large-scale cull that would help to alleviate the container market’s enduring overcapacity crisis,” said Drewry. “Last year represented an eight-year low for containership demolitions when approximately 120,000 TEU was sold for scrap.”

Oil prices have risen dramatically in the past four months. The price of Brent crude has risen from $50.47 a barrel on Christmas Eve to above $74 late last week before falling in the last couple of days to below $72.

Drewry said containership operators are still “in the dark over the starting price of the more expensive low-sulfur fuel oil mandated for the start of next year” when an IMO regulation mandates the amount of sulfur in bunker fuel must be slashed from 3.5 percent to 0.5 percent. (Even stricter limits in some areas, such as much of the coastline of the U.S. and Canada, will remain in place.)

The U.S. consulting firm AlixPartners estimates that “IMO 2020 regulations could cost the container shipping business as much as $10 billion globally based on 2018 figures; that cost could increase significantly in 2020 based on fuel oil prices, shipping demand and a myriad of other factors such as limited supply of both scrubbers and low-sulfur fuel, which could push fuel costs even higher.”

Drewry said, “The rapidly increasing move towards fitting exhaust scrubbers could force charter rates down for some ships that are not fitted with the system, potentially swelling the number of demolition candidates.”