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Demolition is the key for dry bulk shipping's recovery says shipbroker

Saturday, 03 November 2012 | 00:00
With the number of new building deliveries so far in 2012 already having surpassed the total of 2011, it's more than clear that the dry bulk sector needs more than record demolition activity in order to compensate for the additional tonnage. In other words, older vessels will have to exit the world's fleet in a faster rate, otherwise they will end up competing with their newer counterparts for the same cargoes. According to a recent report  from shipbroker Intermodal, more than 1,000 dry bulk carriers have already been delivered since the start of 2012, with over 85 million tons of deadweight capacity and there's two more months until the end of 2012.
According to Intermodal's Theodore Ntalakos, "demolition remains the only alternative for vintage tonnage especially for the bigger vessels. More than 25m tons dwt of dry tonnage have seen the way to the scrapyards, making 2012 another record year in demolition. If we look at demolition versus new deliveries, almost 400 dry bulk carriers have been scrapped representing around 40% of new deliveries. In terms of deadweight, since the new ships are always bigger, demolition is about 30% of the new building deliveries. Although the numbers are more favorable compared to 2011, in 2012 we have seen economies slowing down or even contracting which no doubt has affected global seaborne trade" he said.
We added that "looking at the ratio (demolition/new deliveries) x100 in terms of dwt and in each sub-sector of the dry fleet we can explain and highlight some findings:
Vessels up to 20,000dwt – Demolition is almost 74% of the tonnage or 93% in terms of dwt indicating that this is a sector where the fleet has remained stable.
• Handysize – the ratio is 55% hinting both the small orderbook as well as the overaged fleet.
• Handymax/Supramax – the ratio is 22%, showing the limited scraping compared to the very large Supramax orderbook. This number is up from 11% in 2011, which shows that despite the high utilization of this segment, the fleet needs to grow at a slower pace.
• Panamax – the ratio is 33%, up from 24% in 2011. The lousy rates sent more ships for demo this year, 6.3m tons went for demolition and 19m tons dwt were delivered.
• Capesize – another poor year for Capesizes explains the fact that scrapings represent almost 40% of new deliveries" he mentioned.
Concluding his argument, Mr. Ntalakos noted that "it feels like demolition activity this year was more of a necessity, not only because the market has remained depressed, but mainly because the future of the older vessels does not look that bright. No doubt the pressure of the orderbook remains enormous and will continue to strangle the market and when world demand subsides, the demolition alone cannot bring the rates back up. As we reach towards the end of 2012, more vessels are coming and surely more demo activity is expected".
Meanwhile, in terms of dry bulk supply, BIMCO noted in a mid-October report that "while our projections for the fleet growth in percentage have remained somewhat steady most of the year, the flows in and out have been much stronger than foreseen at the start of the year. The hectic delivery pace has surpassed the astonishing level of 10 million DWT a month several times, whilst demolition activity has breached the 3 million DWT a month level numerous times too".
The report also examined what can be deduced from this? "Probably that many shipyards are suffering under an intense lack of cash-flow. Whereas the payment structure of the contracts previously were mostly equally distributed or front-heavy from signing to delivery, the contracts that have been made more recently are likely to be back-end loaded, releasing the biggest chunk of the money to the yards closer to the completion and delivery of the ship. This could be one of many explanations that may eventually cause widespread bankruptcies amongst smaller and privately-held yards in the main shipbuilding nations. The active fleet has grown by 8.8% since the turn of the year, as 964 new ships have now been delivered into a fleet that already stood at 8,901 dry bulk carriers at the start of the year. Fortunately, the pressure of 80 million DWT of brand new capacity being poured into the market has been eased to some extent by 375 over aged vessels being demolished. Ship owners continuously apply the demolition tool generously in order to improve the bad market conditions by cutting down on the supply side. Demolition activity in India, Bangladesh and Pakistan in particular is strong, with lots of dry bulk tonnage sold for breaking. Following the drop in demolition prices from the top in April prices have now moved sideways at a new lower level that has stuck around for some months now. 25 million DWT has now been demolished during 2012 with more to come, assuming that ship owners continue to be tempted by the recycling price level" it concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
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