News / With scrapping rates on the up, containership owners weigh anchors in lay-up

© Joe Myerscough

The containership demolition market has started this year as it ended the last – with an abundance of candidates looking to take advantage of robust scrapping rates.

According to the latest report from shipbroker Braemar ACM, 35 container vessels, equating to 119,500 teu, have been scrapped in 2017 already; there were just nine, 27,000 teu, by the same time last year.

2016 was a record for containership demolition. Braemar estimates 658,000 teu scrapped, although previous reports have suggested that the figure was nearer to 700,000 teu.

The Indian government’s decision in November to ban the use of the country’s most widely used banknotes in a crackdown on corruption could have had some impact on what is a cash-based industry, causing delays to transactions.

Last year also saw the youngest containership ever to be sent to a breakers’ yard for demolition. The seven-year-old, 2009-built, 4,250 teu classic panamax India Rickmers arrived at a ship-breaking yard at Alang, India on 31 December.

It was reportedly sold at $305/LDT (light displacement tonnage), but there is some evidence of a firming of rates recently, which will encourage owners of redundant container tonnage to look at the scrapping option.

Indeed, Braemar reports that the 4,500 teu Al Enterprise, built in 2003, was sold last week in Davao (Philippines) for $336/LDT, with sufficient bunkers to reach the Indian subcontinent.

And 2016 was a disastrous year for the charter market, especially for the panamax sector of 4,000-5,100 teu, with ship values plunging some 60% over the year as a consequence of extremely weak demand.

By the end of December, hire rates for panamax ships that could find charters were down to some $4,000 a day – a figure below vessel operating levels, even before finance costs are taken into account.

Notwithstanding the 52 panamax ships scrapped in 2016, according to Alphaliner, 88 more were idled as at 31 December, with 37 of these in long-term lay-up in Asia, eyeing scrapping as seemingly the only viable option.

Meanwhile, Alphaliner reports, flexible charters now “reign supreme” with time periods of one-to-six months and two-to-12 months becoming the norm in many containership sectors.

As a consequence, ocean carriers are phasing-out many of their long-term fixed-rate charters and returning these ships to owners, as and when newbuilds are delivered, and or picking up replacement ships at much cheaper rates on more flexible terms.

While the market remains over-tonnaged, the non-operating owners of containerships are at a greater risk than carriers, which are in a more flexible position than hitherto to adjust supply to demand.