Drewry: Bad Time to Own Old Boxships

  • Business & Finance

More containership capacity is being demolished than ever before, including old-design ships made redundant by the new Panama Canal; however, the trend will not make a significant impact on the current capacity surplus unless owners also refrain from ordering many new vessels, according to shipping consultancy Drewry.

Drewry’s Container Forecaster published in June found that, for the first time, 450,000 TEU of containership capacity is expected to be scrapped in just one year, as the containership sector recognises that there are far too many ships chasing too little cargo.

Based on an average size of 3,000 TEU for ships which are being scrapped, this means that about 150 mainly old and medium-sized containerships will be pulled out of the market or out of temporary idle positions and sent to the scrapyard in 2016, according to Drewry.

In 2015, demolitions were less than half this level. The surge in demolitions started in the last quarter of 2015, has continued since and looks set to reach 450,000 TEU by the end of 2016, an even higher annual total than the 444,000 TEU scrapped in 2013.

In the first three months of 2016 alone, some 14 Panamax ships were scrapped and many of these are German owned and previously leased out on the charter market. These owners have felt the force of the charter rate downturn more than most others, Drewry says.

Younger vessels are also being scrapped. These included the 15-year-old, 6,479 TEU DS Kingdom, owned by DS Schiffahrts. Two other young ships, the 2002-built, 6,350 TEU  MOL Precision and MOL Promise, were also scrapped.

Containerships are normally depreciated over 25 years, so scrapping a 15-year-old vessel implies a write-off of nearly 40%, according to Drewry.

Furthermore, the opening of the new Panama Canal in June has created a surplus of old Panamax ships of around 4,500 TEU. This size and design of ship – previously one of the workhorses of the containership industry – has essentially been made redundant. More Panamax vessels will surely head for the scrapyards of South Asia, as their owners or charterers replace them by newer and more efficient 8,000 TEU+ ships.

Removing 450,000 TEU of capacity this year, however, accounts for just 2% of the current 20-million-TEU-strong global fleet of containerships, Drewry says. This will only make a dent into the over-capacity built during the 2010-15 period, which saw 4.5 million TEU in capacity added to the industry globally at a time of slowing demand.

For charter owners with older containerships on their books, the choice is between chartering out ships at historically low, and loss-making levels, or paying for idling costs until a hoped-for shipping market recovery happens, or scrapping the vessels. More will decide that scrapping is the least bad of the three options, Drewry suggests, adding that ship scrapyards are to be busy for the remainder of the year.

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