News / Time to scrap younger containerships to help rebalance supply and demand

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Drewry has urged containership owners planning to scrap older vessels this year to “get a move on”.

The number of vessels scrapped last year fell to an eight-year low, adding to the overcapacity issues blighting the liner industry and the maritime consultant said: “It would certainly help the supply-demand balance if more at the top end of the age range were to be demolished.”

Noting that 85% of the current global cellular fleet is less than 15 years old and only 5% over 20, Drewry suggests demolition should be a considered for the teenagers of the container fleet in addition to the “low-hanging fruit” of older vessels.

It said: “Containerships typically depreciate over 25 years, so to really make a dent in the fleet total, owners are going to have to swallow some additional write-offs by looking at younger vessels for scrapping.”

According to the latest report from London shipbroker Braemar ACM, the number of containerships recycled so far this year has reached 48 – the same number demolished in the whole of last year.

However, with the idle containership fleet currently reduced to fewer than 100 vessels, depleted by strong demand from ocean carriers for the launch of new services and to cover ships booked to undergo exhaust scrubber installations, fresh scrapping candidates are, ironically, in short supply.

Moreover, the spike in daily hire rates in most boxship sectors in the past few months will filter through to increased asset values, which have for some time been on a par with their scrap values.

For example, the owner of the 2008-built 3,534 teu panamax Northern Decision, recently fixed by MSC for a 12-month charter at $8,500 a day, has seen its value increase on a par with the gain on the previous rate of $6,000 per day. According to vesselsvalue.com, the working Northern Decision is now valued at $9.26m versus its scrap value of $6.72m.

It was anticipated that the looming IMO low-sulphur regulations, coming into force on 1 January next year, would accelerate the scrapping of the older, so-called ‘dirty’, containerships, given the quest for fuel-efficient or scrubber-fitted tonnage.

Charterers will look to secure the most fuel consumption-competitive ships for their fleets, given a predicted $200 per tonne premium on the maximum 0.5% low-sulphur fuel oil (LSFO), which could make the difference between profit and loss for a voyage.

As an alternative to burning LSFO, ocean carriers such as MSC, Evergreen and HMM, have agreed extra hire charges for long-term charters of scrubber-fitted ships that could see them enjoy a significant cost advantage over competitors unable to bunker with cheaper heavy fuel oil (HFO).

However, it would be uneconomic for containership owners of older tonnage to consider fitting scrubber systems to their vessels, given the ballpark cost of $5m per unit being quoted by yards that still have installation capacity.

Thus, when the current charter demand spike weakens, perhaps after the peak season, the scrapping of older tonnage, that is likely to have become almost unfixable under the new low-sulphur regulations, could be back on the agenda of owners.