An ageing bulk carrier fleet

In recent years the world fleet of bulk carriers has become noticeably older, with the average age increasing by about a third, amid very low scrapping. This ‘maturing’ vessel longevity trend may continue in the near future, although further ahead tightening emissions regulations could encourage more recycling, leading to restrained ageing.

Over a decade ago, when newbuilding deliveries were exceptionally high, the bulk carrier fleet’s average age diminished from around 15 years. A decline to an average of under 9 years was followed, during the subsequent period, by a lengthening to over 11 years today. The scale of this increase has been broadly similar among the main statistical size groups – handysize, handymax, panamax, and capesize and larger.

Several influences have shaped the ageing trend. Some of these reflect the normal process of freight market adjustment to cyclical patterns and the evolving balance between demand for, and supply of tonnage together with the market’s changing expectations for the future trend. But a new factor affecting bulk carrier owners’ attitudes to asset transactions – environmental aspects affecting both ship propulsion and global commodity movements – has intervened, becoming much more prominent as a pervasive driver.

The ageing trend unfolds

During the period leading up to, and in the immediate aftermath of, the world financial crisis and ensuing global economic recession – 2007 to 2009 – the average age of bulk carriers stabilised at close to 15.2 years. A sharp reduction followed to 9.5 years in 2013, as shown in the chart below, based on Clarksons Research data. This change within just a few years to a much younger fleet reflected a newbuilding deliveries surge in the 2010 to 2013 period, causing the world bulk carrier fleet’s deadweight tonnes capacity to grow by over a half in that short period, adding numerous new vessels.

In 2014 and 2015 further reductions to an average age of 8.6 years were seen. Since then a steadily ageing fleet has been recorded. An average 0.5 years was added annually, raising the average by 2.9 years from 2016 to 2022, to the current average of 11.5 years. Over this recent period lower newbuilding deliveries occurred, and another contributory factor was the very low and sometimes minimal volumes of scrapping, ensuring that greater volumes of older tonnage remained in the fleet.

Looking at the main size groups individually, similar patterns of average age increasing by about three years during the 2016 to 2022 period have been recorded. The oldest age group is handysize (10-39,999 deadweight tonnes) bulk carriers which typically have longer lifespans than bigger ships. In this group average age increased from 10.1 years in 2016 to 12.8 in 2022. In the handymax (40-69,999 dwt) group, including supramax and ultramax vessels, over the same period, the increase was from 8.0 to 11.2 years.

Panamax (70-99,999 dwt) bulk carriers, including kamsarmaxes, averaged 8.3 years of age in 2016, rising to 11.3 in 2022. The size group known for statistical purposes as capesize (100,000 dwt and over), including newcastlemaxes and also a sub-category of much larger ore carriers exceeding 200,000 dwt and up to 400,000 dwt, saw an average age increase from 7.2 years to 9.6 years during this period.

What has contributed to recent ageing?

One reason for the bulk carrier fleet’s ageing in the past few years could be enhanced quality aspects improving sustainability of the physical and mechanical condition of many vessels. Better original build standards, coupled with more rigorous maintenance may have contributed to enabling numerous vessels to have longer lives. But changes seem to have been mostly incremental improvements that do not provide a complete explanation for the recent trend.

A more influential contributory factor is the interplay of vessel demand and supply changes affecting the bulk carrier market balance and, in turn, determining freight rates and secondhand prices. These aspects, together with the expectations of market players about how the future market will evolve, both in the immediate future and longer term (‘market sentiment’), are usually what results in a range of adjustments. Most conspicuously, such adjustments include changes in volumes of newbuilding orders and scrapping.

In the past few years however there have been signs, at least during specific periods, that owners’ collective response to changes in the freight market and its outlook were much less vigorous than seen in past episodes. Newbuilding orders were relatively restrained when sometimes a strengthening of the freight rates trend might have implied (based on historical patterns observed in similar circumstances) a much greater enthusiasm for arranging new additions to the fleet. Equally, when prolonged periods of low freight market conditions occurred, a greater response might have seemed predictable, resulting in far higher levels of scrapping.

How can this emerging pattern be explained? It seems clear that the impact of environmental influences and regulations – becoming more prominent in recent years – has both discouraged ordering and deterred scrapping.

Uncertainty about which lower- or zero-carbon fuels and technology to adopt, to comply with current and future international maritime regulations mandating reduced carbon emissions, is acting to suppress investment in newbuildings. Adding to this conundrum are signs that a major part of global dry bulk commodity trade may cease growing and eventually show a downwards trend, partly reflecting the ultimate decline of fossil fuels trade flows. Amid these perceptions owners’ preference for retaining much existing tonnage, and extending lifespans for longer than previously might have been envisaged, is a rational outcome.

Facilitated by low scrapping

A trend contributing to the ageing bulk carrier fleet in recent years was low or minimal annual recycling volumes. In the five years from 2018 to 2022 these were exceptionally low as a proportion of the existing fleet, and well below levels which may have seemed more aligned with market conditions and earnings.

Over the entire decade 2013 to 2022 annual bulk carrier sales for demolition averaged 15.2m dwt, about 1.9% of the fleet measured at the start of each year. Assuming an average 25-years ship lifespan, around 4% of the fleet’s capacity would need replacing each year. But in the most recent five years from 2018 to 2022 the figures were even lower, averaging 7.5m dwt annually, 1% of the existing world fleet. In four of the past five years demolition sales have been in a 4-8m dwt range, amounting to just over half of one percent of the fleet in each year.

A comparison of the past five years with the previous five emphasises how recycling diminished. In the 2013 to 2017 period a total of 114.4m dwt was sold for demolition. During the next five years from 2018 to 2022 the volume fell to 37.3m dwt, a two-thirds reduction.

The trend is shown by the chart below. Higher scrapping activity in the years from 2011 to 2017 reflected subdued freight markets influenced by relatively high newbuilding delivery volumes and consequent surplus capacity prevailing. This pattern of relatively high recycling was part of the bulk carrier market’s normal self-correcting mechanism in response to unfolding events, one element of which usually is variations in scrapping volumes.

Although international ship scrap prices affect the volume of bulk carriers sold for demolition, the role of these prices typically is secondary. When prices are towards the ends of the range – either very high or very low – the impact may be greater. But whether high or low scrap prices are an incentive or deterrent to an owner’s scrapping decision probably also depends heavily on freight market influences and the effects of these on prices in the secondhand vessel market. As seen over the past two years, relatively high scrap prices have not always been sufficient to attract more tonnage for demolition if ships are experiencing high freight rates and optimism about the future market is a prevailing attitude.

Age potential for recycling

The bulk carrier fleet’s age profile provides indications of potential for future scrapping, but the timing of demolition sales in the near future or longer term is less clear. Older vessels are normally considered to be candidates for recycling, because of typical deterioration in a ship’s physical and mechanical condition over a lengthy period. Compulsory surveys for class approval and associated costs to remedy defects become increasingly expensive as a ship ages. When profitability diminishes because of insufficient charter earnings, scrapping becomes more likely, especially if there are limited expectations of higher future freight rates.

Scrapping potential seems largest in the 20 years and over age category, especially among bulk carriers approaching or exceeding 25 years. In the world fleet as a whole, the percentage of 20+ age vessels currently is relatively small at just under 8%. But the deadweight tonnage of these is substantial, especially when compared with recent annual scrapping volumes.

At the end of 2022, bulk carriers totalling 76.4 million deadweight tonnes were 20+ years old, according to Clarksons Research data, equivalent to 7.9% of the entire fleet. There are notable variations among the main size groups. The lowest proportion is in the Capesize and larger 100,000 dwt and over group, where only a minimal 6.4m dwt or 0.2% is 20+ years. In the other size groups this age of vessels is within a 10-14% range – 22.9m dwt (10.1%) in the Handymax 40-69,999 dwt group, 31.3m dwt (12.7%) in the Panamax 60-99,999 dwt group, and 15.8m dwt (13.7%) in the Handysize 10-39,999 dwt group.

In some sub-categories there are particularly high proportions of 20+ years old bulk carriers. Within the 40-49,999 dwt part of the Handymax group that was a more popular size choice before larger Supramaxes became dominant, 14.6m dwt (318 ships) or 49.3% of the fleet is aged 20+ years. Similarly in the traditional 70-79,999 dwt Panamax size group where popularity receded when Kamsarmaxes became preferable for many owners, 26.6m dwt (359 ships) or 31.1% are aged 20+ years.

By contrast, in several other categories the 20+ years old fleet is either minuscule or entirely absent. The currently popular Ultramax geared bulk carriers in the 60-69,999 dwt range were built within the past decade. Kamsarmax vessels in the 80-89,999 dwt range were mostly built within the past fifteen years. Construction of mammoth ore carriers of 250,000 dwt and over including Guaibamax 325,000 dwt and Valemax 400,000 dwt sizes also was mainly a feature of the past fifteen years. None of these size ranges yet contains obvious candidates for significant recycling in the next few years.

These observations confirm that recycling potential, based on vessel age, seems most evident among bulk carriers of up to 100,000 dwt. Demolition decisions will also reflect freight market trends in the individual size categories, which may differ from the general market trend. An example is Capesize and large bulk carriers of over 100,000 dwt. The volume of available spot cargoes for these vessels in the iron ore trades, where this tonnage is heavily employed, may be restricted with consequent effects on freight rates, and could promote scrapping in the below 20 years old category if prolonged especially low rates are experienced.

Added recycling impetus

Restraints on the upwards trend in, or reduction of, the average age of bulk carriers over the next few years could be assisted by greatly increased scrapping. How likely is this to happen? One of the traditional main determining influences, a subdued freight market and limited expectations for recovery, may assist. The cumulative effect of depressed scrapping in recent years may also assist by providing an expanding volume of demolition candidates among older, less efficient vessels that are becoming uneconomic.

Some estimates of scrapping in 2023 as a whole suggest an increase to perhaps a 10-15m dwt range, a multiple of two or three times the small annual volumes seen in each of the past two years. At first glance this estimate may seem an exaggerated change. However, even a figure as high as 20m dwt is not especially high based on historical comparisons with annual amounts in specific years during the past decade, when 30-31m dwt was seen annually in 2015 and 2016.

Currently there are no convincing signs suggesting that momentum towards such growth is starting to gain traction. Nevertheless, amid substantial bulk carrier newbuilding deliveries and a possibility of limited growth in dry bulk commodity trade, the freight market may remain fairly subdued through 2023. If so, at least some additional scrapping could result. Then the question of how much arises, answers to which typically are largely speculative even if that methodology is not admitted or, if based on detailed calculations to provide a more substantive prediction, still mainly based on conjectural assumptions.

Other influences including secondhand vessel prices – discouraging recycling sales if elevated enough – and actual scrap prices offered by demolition yards, will partly determine the outcome. But recent, current and immediate future freight market circumstances and accompanying levels of market confidence are likely to prove highly influential.

While advancing age, with its implications (usually deterioration) for a ship’s condition, coupled with possible inability to obtain consistently adequate earnings, are the most obvious sign of potential for scrapping, another influence has modified this relationship. A further tightening of international maritime regulations designed to reduce carbon emissions was introduced at the beginning of 2023. Many observers expect a range of effects. Among these, additional scrapping of older bulk carriers becoming uneconomic is likely, when there is a failure to satisfy the new rules without incurring large extra costs for compliance.

The new phase of IMO regulations just implemented includes the EEXI (Energy Efficiency Existing Ship Index) now applied to almost the entire world fleet of merchant ships. This standard probably will entail technical modifications in many vessels, or may result in installation of engine power limitation devices, resulting in slower average speeds. A second measure, the CII (Carbon Intensity Indicator) assesses operational energy efficiency. Gradings based on CII performance during this year will be specified in 2024 and the outcome of this process is widely expected to prompt more older vessels being recycled.

As a consequence of this combination of several influences, an impetus towards more bulk carrier recycling seems to be evolving or approaching. Assuming that it emerges as a distinctive and sustained pattern over the next couple of years, it could assist in moderating or stopping the current trend of rising average vessel age.
Source: Article by Richard Scott FICS, managing director, Bulk Shipping Analysis and visiting lecturer, London universities for Hellenic Shipping News Worldwide (www.hellenicshippingnews.com)