Cargo Vessels and Cruise Ships Line Up for Scrapping

Cargo ships and cruise liners are being scrapped in growing numbers as operators hit by the fallout from the coronavirus pandemic look to turn their unemployed vessels into cash in the recycling market.

Car-carrying vessels and iron-ore haulers lead the burgeoning fleet heading for demolition. Cruise ships, still idled by the restrictions imposed at the start of the pandemic, are joining the lineup at ship-breaking yards, where the vessels are pulled apart for their steel.

The ship operators are trying to repair balance sheets that were battered by the global industrial downturn earlier this year, when factory shutdowns—starting in China and spreading throughout large parts of the world—brought a swath of shipping activity to a halt.

Vehicle sales crashed last spring along with the commodities market as China, the biggest raw-materials importer, closed down to fight the illness. Continuing bans on cruises has left dozens of luxury liners idle as storage costs have mounted.

Manufacturing activity around the world has recovered this fall and automotive sales have rebounded. But global vehicle sales are still expected to fall below last year’s 75-million tally to around 62 million this year, according to data provider Statista.

Shipowners say the damage to their finances from the earlier shutdowns remains.

“Last spring was a very difficult period for car movers,” said Emanuele Grimaldi, a co-owner of Italy’s Grimaldi Group SpA, which operates a fleet of car carriers and heavy equipment movers. “I returned six chartered ships back to their owners and scrapped two of our own.”

Overall ship demolitions through October stood at 557, compared with 889 in all of 2019, according to U.K.-based maritime data provider VesselsValue. This year’s figure is far below the 1,996 vessels recycled in 2012, when a huge overhang of shipping capacity was taken out following the 2008 financial crisis. Scrap sites were closed for three months this year, however, and ships began heading to the demolition process known as breaking as the yards reopened.

“In the second quarter, you had too many ships chasing too little cargo,” said Anil Sharma, the chief executive of U.S and Dubai-based Global Marketing Systems, which buys more than half of all ships heading for recycling yards. “Although the new-ship order book is pretty balanced, demand for shipping services fell off a cliff during the period.”

Rising prices for steel in scrap markets this fall have also shifted economic calculations for some ship operators.

“India is offering around $370 per ton of steel, up around 30% from the second quarter, but cruise shipowners are getting clobbered, with offers as low as $100 per ton, because of high demand,” Mr. Sharma said. “The ships are docked in Greece waiting for a slot [at a yard] in Turkey that can take months.”

Vessel operators can typically get about 20% of the original purchase price for a 25-year old ship by selling it to recycling companies. With lending markets tight, owners see the scrap market as a potential source of cash for a shipping industry that will need to invest billions in coming years to develop a new generation of environmentally friendly ships.

VesselsValue says 22 ore carriers have been sold for scrapping this year compared with a dozen last year and two in 2018. Ten cruise ships were sent to recycling this year after nine were demolished over the previous two years combined. Car carrier demolitions stood at 28 this year, matching a 2016 high in records dating to 2012.

Shipping executives said those three ship types represented roughly half the overall recycled tonnage this year. Several container ships were also contracted to be scrapped, but were pulled back as demand to move goods surged starting in late summer thanks to rebounding manufacturing and consumer economies.
Source: Wall Street Journal