19 November 2016

Drewry: BWM Regs Likely to Accelerate Demolition of Younger Tanker Tonnage

Drewry Shipping Consultants Limited (Drewry) Wednesday said that tanker demolitions, spurred on by weak freight rates, will accelerate in coming years as a result of the International Maritime Organization's (IMO's) Ballast Water Management (BWM) Convention.

As Ship & Bunker has previously reported, the BWM Convention is set to enter into force on September 8, 2017.

"Some owners are expected to bring forward fourth special surveys, if they fall around the scheduled deadline, in order to delay retrofitting BWTS to the fifth special survey," said Drewry.

Drewry says that, while scrapping is likely to increase within the next two years as owners feel the effects of consistently low freight rates, with a relatively young fleet, demolitions will remain moderate until special surveys come due in mid-2018, forcing ship owners to either retrofit BWM systems or scrap their vessels.

The consultancy notes that the additional cost of retrofitting BWM systems, combined with the special survey, as well as lower freight rates, will likely drive many owners toward scraping younger vessels prior to the next survey due date.

"We do not expect all these vessels to be scrapped since many of them are on long-term charter at attractive rates, justifying the additional cost of retrofitting BWTS. As tanker rates will remain well above operating costs during the forecast period, many owners might opt to operate their vessels after incurring this additional cost in anticipation of a recovery in rates," said Rajesh Verma, Drewry’s lead analyst for tanker shipping.

"However, since the tanker market will be oversupplied, older vessels will find it difficult to get employment, which in turn will force many owners to scrap their tonnage just before their next survey is due."

An estimated 74 crude tankers, equivalent to 14 million DWT, as well as 114 product tankers, equivalent to 5.6 million DWT, are set for their fourth special survey to take place between mid-2018 and 2021, says Drewry, noting these vessels are mostly likely to fall victim to the new regulation.

As Ship & Bunker reported last year, some analysts believe that tanker rates could get a further boost as tonnage is taken out of service for special surveys or dry docking ahead of the BWM Convention's implementation.

Source: ship and bunker. 17 November 2016

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