Global ship demolition activity rose by 16 percent in the first nine months of 2016 in comparison to the same period of 2015, showcasing shipping industry action to counter the imbalance between supply and demand in the market, according to BIMCO.
However, diminishing demolition activity from March through July was bad for the recovery of the market. But could the recent increase in August and September be seen as a mild sign of hope?
From a broader perspective, a total of 36.2 million DWT was demolished in the first nine months of 2016, with most of it taking place in the first four months of 2016. This is equal to 21.8 million DWT or nearly twice as much as in the following five months of 2016.
However, comparing the period May - September 2016 in the same period as last year, the growth of demolition activity adds up to 2.9 million DWT or 26 percent. Therefore, the decrease in scrapping from the fourth till the ninth month of 2016 can be accounted for by cyclical demolishing activity.
“The poor global economic situation, as well as the depressing outlook for most of the seaborne shipping sector caused by excess supply of capacity, needs to be countered by a drastic increase in demolishing activity in order to lower merchant fleet growth,” said BIMCO’s Chief Shipping Analyst Peter Sand.
Regional demolition activity
Throughout 2014, 33.9 million DWT was demolished; China accounted for 26 percent and became the major ship breaking location. In 2015, demolition increased in comparison to the previous year by 5.8 million DWT, 15 percent. Bangladesh scrapping yards recycled 35 percent of the total in 2015.
In the first nine months of 2016, the market-share of Bangladesh diminished to 32 percent. However, it still maintained leading position as the single biggest scrapping location.
Comparing the period between January through September 2016 to the total previous year’s amount in DWT is a record in the making, 94 percent is already scrapped in the yards.
Continuous increase in average demolished ship size in DWT
In reference to the available data from the beginning of January 2014 through September 2016, the average demolished ship size in DWT increased on a year-on-year basis by 32 percent in 2015 and additionally 13 percent in 2016.
“The trend for the demolition of bigger ships can be explained by weak global demand, especially for containerships in 2016, which is not growing at the pace needed to match excess containership capacity,” Sand said.
“Another factor is the expansion of the Panama Canal, which takes the uniqueness away from the panamax ship segment.”
Pakistan has demolished, on average, the largest ships in DWT in the period between 2014 until present day. In the current year, Pakistan’s scrapping yards have on average ships with 79,077 DWT on their docks, in comparison to the global average of 47,845 DWT per ship.
Substantial differences between demolition by ship segments and demolition location
The dry bulk segment accounted for, from the beginning of January 2014 through September 2016, 72.9m DWT or 66 percent of the total demolition. Bangladesh demolition yards, took 35 percent alone of the total bulk demolishing activity. Throughout the years, in consecutive order, 16.4 million DWT, 30.6 million DWT and 25.8 million DWT of the dry bulk shipping segment was scrapped.
Crude oil tankers accounted for 8.6 million DWT or 8 percent of the total demolition in the entire reference period, especially in the year 2014 where 73 percent of the crude oil tanker total was scrapped. Pakistan alone demolished the majority of this particular segment with 49 percent.
As a minor segment, product tankers accounted for only 3.2 million DWT or 3 percent of the total demolition in the entire period. In 2014, 46 percent of the total for this segment was demolished, the majority in India with more than 50 percent.
Containership demolition accounted for 14.2 million DWT or 13 percent of the total demolition in two years and nine months starting from January 2014. Most notably, India demolished, in the whole period, 8.3 million DWT or 58 percent of the total. The majority of India’s container ship demolition occurred in the year 2014 with 3.8 million DWT or 46 percent. In the first nine months of 2016, 6.1 million DWT or 43 percent has already been demolished, therefore marking the current year a record breaker.
All other ship segments accounted for 10.7 million DWT or 10 percent in the period from January 2014 through September 2016. Bangladesh and India demolished, in total, 5.4 million DWT or 51 percent. In 2016, India has already demolished 1.1m DWT or 35 percent and is the single biggest location.
In the two year and nine-month period from January 2014, India demolished by far the most with 721 ships. However, the percentage of Indian shipowners demolishing in Indian ship demolition yards was only 8 percent, while Chinese shipowners scrapped 82 percent in local demolition yards.
Sand added, “The high ratio of Chinese shipowners demolishing at local shipbreaking yards can be explained by the government-run rebate program. It provides additional subsidies to Chinese shipowners who choose to recycle their ships in Chinese yards.”
Source: maritime professional. 27 October 2016