Did you hear about the three old guys out walking? The first one says, “Windy, isn't it?” The second says, “No, it's Thursday!” The third says, “So am I. Let's get a beer.” But misunderstandings like this happen all the time in business, especially when different languages involved. And the demolition market (or perhaps "recycling" would be more correct) creates plenty of opportunities to misunderstand what is really going on.
Old Ships Get Scrapped:
As we move into recession, the normal reaction is to look for a big increase in demolition. In fact this is exactly what has happened over the last couple of years. Demolition doubled from 9.5 m.GT in 2008 to 25.3 m.GT in 2009; slipped back to 18 m. GT in 2010 and in 2011 is back running at 25 m.GT a year. A big increase which will make a useful dent in the 90 m.GT plus deliveries projected in 2011. But with an orderbook of 270 m.GT, representing about 28% of the world fleet, the question is how much of this will be offset by even higher demolition in future.
The Age Effect:
The age profile in the Graph of the Week is the starting point for answering this question. It shows the gross tonnage of tankers, bulkers and containerships of each age in service and on order. Steel ships are generally scrapped between 23 and 30 years of age. In 2010 the average scrap age for tankers was 26 years, and for bulkers was 31 years. Demolition volume is driven by surveys, earnings and cash. The 5th special survey at 25 years often calls for heavy repairs which in a weak market are not really worth undertaking. Or the cash may not be available. So the ship is scrapped.
Not Much Old Tonnage:
Today the tonnage in the 23-29 year age band is pretty small, only 8% of the fleet, about 11 m.GT per year. One reason why there are few old ships is that single hull tankers were phased out at 25 years in 2010 – the result is clear in the graph. The other is that deliveries in the 1980s were very low, averaging only 15.5 m.GT per year between 1981 and 1987 (i.e. 24 to 30 years ago). In fact the 25 m.GT demolition in 2009 and again in 2011 represents a clear out of very old tonnage left from the 1970s. A brief inspection of the age profile of ships being demolished confirms that this is the case. The latest statistics include many 1970s handy bulkers, although the occasional 1990s built ship creeps in too (for example the Cape Gulf 144,000 dwt Capesize bulk carrier built in 1990 which was recently sold for scrap).
No Magic Solutions:
So there you have it. World shipbuilding is keen to deliver towards 100 m.GT this year, but the demolition profile built into the fleet demographics suggests that recycling could average out at 12 m.GT per year, once the backlog from the 1970s has been cleared. When secondhand prices fall towards scrap, higher scrapping draws in ships under 20 years old. Capesize bulker prices are already edging in that direction – who’s next? Have a nice day.
Source: Clarkson.Net. By Dr Martin Stopford. 05 August 2011