Ship owners are turning to scrap market to cover expenses

Research analyst, Vassilis Logothetis looks at the latest dry bulk market situation and how ship owners are handling it in this week's Intermodal report

For some time now the dry bulk market has been severely affected by China’s slowing GDP growth rate that occurs in the background of increased supply of dry bulk tonnage.

Daily rates for Capes are now well below $10,000 from over $200,000 in 2008 while the BCI index reached its historic low at 311 points during January 2015.

Hence, it comes as no surprise that numerous ship owners consider the demolition market as a possible solution to dispose of old large sized vessels that fail to cover their operating expenses at market’s current levels.

But to conclude a perfect storm the steel market, that is the main driving force behind prices offered by cash buyers and recycling yards for the acquisition of vintage tonnage for demolition, is currently under strong pressure as well. The latter stems from increased exports of cheap Chinese steel that is not absorbed domestically and has flooded the Indian sub-continent. Moreover, prices offered by recycling yards are also negatively affected by the large volume of bulkers that are available to be sold for scrap.

The aforementioned situation has resulted in prices offered nowadays for wet tonnage to range from 210 to 390, depending on the destination, and for dry tonnage from 210 to 370. Just a year ago prices ranged from 310 to 500 for the dry tonnage and 325 to 510 for the wet, a difference of more than 100 dollars per ltd.

Nevertheless, the situation in the dry bulk market for the Capes is so difficult that we have seen a large number of vessels finding their way to recycling yards even at these low price levels.  In May alone, 15 Capes have been sold for scrap while the same number of Capesize vessels went for scrap during the entire first five months of last year. This is something that generally characterizes the market as demo activity across all segments is higher to the one observed last year.

At this point in time and given the situation in the dry bulk market one should expect the increased trend of vintage bulkers heading for demolition to continue up to the point where the freight market reaches a more viable equilibrium regarding supply and demand of tonnage. Bearing in mind the large volume of the dry sector orderbook this will definitely take some time and at the same time it will come as no surprise if current demo price levels slide further. Nonetheless, and despite any additional price softening that could be due, the demo market is expected to continue witnessing healthy activity, as long as the situation in the dry bulk market remains tricky.

Source: Read MT. 03 June 2015

http://readmt.com/analysis/article/2015/06/03/ship-owners-turning-to-scrap-market-to-cover-expenses/

Captain John’s removed from waterfront, will be taken to scrap yard:

The derelict boat that once housed Captain John’s floating restaurant has been towed away from the city's waterfront and is now making its final voyage across Lake Ontario.

The M/V Jadran, which was sold to the Marine Recycling Corporation earlier this month, was pulled from its slip at the foot of Yonge Street at around 10:30 a.m. by two large tow boats and taken through the Eastern Gap near Ward's Island.

The vessel is now on its way to a Port Colborne scrap yard, where it will be recycled.

Former owner John Letnik, who first brought the Jadran to Toronto from Yugoslavia, is aboard the ship for its final journey.

“I feel honoured that I was invited on her shortest voyage. I also made the longest voyage from Yugoslavia to Toronto with her,” Letnik told CP24. “There are lots of good memories. Especially, way back in the 70s and 80s I had everybody on board. Brian Mulroney, Bob Hope, the Village People were here. Christening, weddings, bar mitzvahs, whatever the occasion was.”

The complicated operation to remove Captain John’s marks an end of an era of sorts, as the one-time ferry had been tied up on Toronto’s waterfront since 1975 after being purchased by Letnik and repurposed as a floating restaurant.

The restaurant, however, fell on harder times in recent years and has been closed since the city shut off the water supply to the boat in 2012 due to $750,000 in back taxes owed by Letnik.

The removal of the ship today came after several false starts, including the court-ordered auction of the M/V Jadran last July. That deal was eventually scrapped after the buyer was unable to remove the ship from its slip by a court-set deadline.

The financial terms of the deal with Marine Recycling Corporation have not been released.

Discussing the scrapping of the ship with CP24 on Thursday morning, the founder of the company estimated that it could take about a month before Captain John’s is no longer.

“After a sampling and testing program, where we check for heavy metals, paints and PCP’s, the asbestos will abated from the ship first – probably a nine or 10 day process – and then the dismantling process starts,” Wayne Elliott told CP24 on Thursday morning. “Probably the top two decks will come off first and then the engines. We will then tow the ship down to our south slip and it will be gone in 10 days or so from that point.”

Source:  CP 24. 28 May 2015

http://www.cp24.com/news/captain-john-s-removed-from-waterfront-will-be-taken-to-scrap-yard-1.2394870

Vitter, Cassidy, Graves Introduce Legislation to Improve Ship Recycling, Create Jobs:

(Washington, D.C.) – U.S. Senators David Vitter (R-La.) and Bill Cassidy (R-La.) today introduced the Ships to Be Recycled in the States (STORIS) Act, legislation to reform the domestic marine recycling industry. Their legislation would improve the domestic ship recycling industry and promote transparency by requiring reports from Maritime Administration (MARAD) and an audit by the Government Accountability Office. Congressman Garret Graves (R-La.) is introducing the companion legislation in the U.S. House of Representatives.

“The Maritime Administration receives millions of dollars in federal funding, but they’ve never reported how the sales money is spent or how the agency awards contracts,” Vitter said. “Ship recycling is an important part of our domestic maritime industry, and these reforms would improve federal contracting, cut government waste, and help create jobs in Louisiana.”

“Louisiana directly benefits from the Maritime Administration—hundreds work in ship recycling facilities and many state museums receive maritime grants,” said Cassidy. “There have been concerns that the agency receives millions in federal funding but lacks transparency. The STORIS Act will strengthen oversight over the agency and help create more jobs for Louisiana workers.”

“Americans expect the federal government to operate in their best interest,” said Graves. “We have found multiple instances where the U.S. Maritime Administration has failed to maximize the return on investment on the sale of retired federal vessels by not accepting the highest bid on a number of contracts and not fulfilling its obligation to reinvest these funds in our merchant mariner workforce. This bill will prevent MARAD from leaving millions of dollars on the table in regard to ship recycling contracts and require that we have the workforce we need to increase global trade and exports from Louisiana.”

Current law requires all excess government vessels to be sold to domestic marine recyclers to be dismantled. A portion of funding from the sales goes toward the Vessel Operations Revolving Fund, federal and state maritime academies, and the maritime heritage grant program. The STORIS Act would make sure that the required funding goes to federal and state maritime academies and to heritage grants funding to the Department of Interior. It would also require MARAD to issue an annual report on how its money is spent and publicize its ship recycling agreements.

Additionally, the STORIS Act creates jobs by ensuring that all vessels can be dismantled in the United States in compliance with U.S. environmental and safety laws, and are not exported where those safety rules do not apply.

The STORIS Act is named in recognition of the former Coast Guard Cutter STORIS, which was dismantled in Mexico in 2013 in violation of the current law.

Source:  U.S. Senator David Vitter. 4 June 2015

http://www.vitter.senate.gov/newsroom/press/vitter-cassidy-graves-introduce-legislation-to-improve-ship-recycling-create-jobs

Legislation Targets US Ship Recycling Reform:

Legislation to reform the U.S. domestic marine recycling industry, the Ships to Be Recycled in the States (STORIS) Act, was introduced today by U.S. Senators David Vitter (R-La.) and Bill Cassidy (R-La.). Congressman Garret Graves (R-La.) will introduce the companion legislation in the U.S. House of Representatives.

The legislation aims to improve the domestic ship recycling industry and promote transparency by requiring reports from Maritime Administration (MARAD) and an audit by the Government Accountability Office.

“The Maritime Administration receives millions of dollars in federal funding, but they’ve never reported how the sales money is spent or how the agency awards contracts,” Vitter said. “Ship recycling is an important part of our domestic maritime industry, and these reforms would improve federal contracting, cut government waste, and help create jobs in Louisiana.”

“Louisiana directly benefits from the Maritime Administration—hundreds work in ship recycling facilities and many state museums receive maritime grants,” said Cassidy. “There have been concerns that the agency receives millions in federal funding but lacks transparency. The STORIS Act will strengthen oversight over the agency and help create more jobs for Louisiana workers.”

“Americans expect the federal government to operate in their best interest,” said Graves. “We have found multiple instances where the U.S. Maritime Administration has failed to maximize the return on investment on the sale of retired federal vessels by not accepting the highest bid on a number of contracts and not fulfilling its obligation to reinvest these funds in our merchant mariner workforce. This bill will prevent MARAD from leaving millions of dollars on the table in regard to ship recycling contracts and require that we have the workforce we need to increase global trade and exports from Louisiana.”

Current law requires all excess government vessels to be sold to domestic marine recyclers to be dismantled. A portion of funding from the sales goes toward the Vessel Operations Revolving Fund, federal and state maritime academies and the maritime heritage grant program. The STORIS Act would make sure that the required funding goes to federal and state maritime academies and to heritage grants funding to the Department of Interior. It would also require MARAD to issue an annual report on how its money is spent and publicize its ship recycling agreements.

Additionally, the STORIS Act creates jobs by ensuring that all vessels can be dismantled in the United States in compliance with U.S. environmental and safety laws, and are not exported where those safety rules do not apply.

The STORIS Act is named in recognition of the former Coast Guard Cutter STORIS, which was dismantled in Mexico in 2013 in violation of the current law.

Source:  maritime professional. 4 June 2015

http://www.maritimeprofessional.com/news/legislation-targets-ship-recycling-reform-272420

U.S. Senators Introduce Ship Recycling Legislation:

U.S. Senators David Vitter (R-La.) and Bill Cassidy (R-La.) introduced the Ships to Be Recycled in the States (STORIS) Act, legislation to reform the domestic marine recycling industry on Thursday.

Their legislation aims to improve the domestic ship recycling industry and promote transparency by requiring reports from Maritime Administration (MARAD) and an audit by the Government Accountability Office. Congressman Garret Graves (R-La.) is introducing the companion legislation in the U.S. House of Representatives.

“The Maritime Administration receives millions of dollars in federal funding, but they’ve never reported how the sales money is spent or how the agency awards contracts,” Vitter said. “Ship recycling is an important part of our domestic maritime industry, and these reforms would improve federal contracting, cut government waste, and help create jobs in Louisiana.”

“Louisiana directly benefits from the Maritime Administration—hundreds work in ship recycling facilities and many state museums receive maritime grants,” said Cassidy. “There have been concerns that the agency receives millions in federal funding but lacks transparency. The STORIS Act will strengthen oversight over the agency and help create more jobs for Louisiana workers.”

“Americans expect the federal government to operate in their best interest,” said Graves. “We have found multiple instances where the U.S. Maritime Administration has failed to maximize the return on investment on the sale of retired federal vessels by not accepting the highest bid on a number of contracts and not fulfilling its obligation to reinvest these funds in our merchant mariner workforce. This bill will prevent MARAD from leaving millions of dollars on the table in regard to ship recycling contracts and require that we have the workforce we need to increase global trade and exports from Louisiana.”

Current law requires all excess government vessels to be sold to domestic marine recyclers to be dismantled. A portion of funding from the sales goes toward the Vessel Operations Revolving Fund, federal and state maritime academies, and the maritime heritage grant program. The STORIS Act would make sure that the required funding goes to federal and state maritime academies and to heritage grants funding to the Department of Interior. It would also require MARAD to issue an annual report on how its money is spent and publicize its ship recycling agreements.

Additionally, the STORIS Act creates jobs by ensuring that all vessels can be dismantled in the United States in compliance with U.S. environmental and safety laws, and are not exported where those safety rules do not apply.

The STORIS Act is named in recognition of the former Coast Guard Cutter Storis, which was dismantled in Mexico in 2013 in violation of the current law.

Source: maritime-executive. 5 June 2015

http://maritime-executive.com/article/us-senators-introduce-ship-recycling-legislation