Old Ships, Not Enough New Tricks?

Maritime Activity Reports, Inc.

January 31, 2017

Graph: Clarkson Research

Graph: Clarkson Research

 As widely expected, the opening of the new, expanded locks at the Panama Canal in June 2016 has considerably impacted the ‘old Panamax’ containership sector, says a report by Clarkson Research Services.

The displacement of these narrow beam vessels, resulting from the upsizing of services through the canal, has driven a change in deployment patterns in this sector and also contributed to a record level of containership demolition.
The new locks at the Panama Canal allow 16.7m TEU of current fleet capacity to transit, compared to just 7.2m TEU which is able to transit the old locks. 
Following the opening of the new locks in June 2016, service upsizing in pursuit of gains through economies of scale on the Asia-USEC route has led to a slump in demand for ‘old Panamaxes’, which have generally been replaced by ‘neo-Panamax’ ships of around 8-11,000 TEU. 
The number of ‘old Panamax’ ships deployed on the Asia-US route via the Panama Canal dropped from 156 ships at the start of June 2016 to 63 ships at the start of January 2017.
Some ‘cascading’ of these vessels has occurred in this time, although insufficient box volume growth on North-South trades and port infrastructure constraints, particularly on intra-regional routes, have limited redeployment opportunities. 
Between June 2016 and January 2017, deployment of ‘old Panamaxes’ on intra-regional trades rose 10%, although on North-South routes, deployment in this sector fell 5%. This lack of redeployment opportunities has left a surplus of ‘old Panamax’ capacity, with around 100 units standing idle today.
Alongside a market backdrop of significant overcapacity and a challenging freight market, the opening of the new locks at the Panama Canal has led to a historically depressed ‘old Panamax’ charter market. 
In December, the one year charter rate for a 4,400 TEU vessel stood at $4,150/day, down 31% y-o-y. Meanwhile, the guideline secondhand value for a similar ten year old ship fell 54% y-o-y to $5.5m in December, down to scrap value levels. 
With demand side fundamentals insufficient to provide additional redeployment opportunities, supply side mechanisms have come to the fore.
Record boxship demolition took place in 2016, standing at 195 ships of 0.66m TEU, and in TEU terms, 46% of boxship scrapping in 2016 was accounted for by ‘old Panamax’ ships, totalling 72 ships of 0.30m TEU. This was more than a threefold increase in ‘old Panamax’ recycling relative to 2015. 
With a lack of interest in new capacity in this sector for many years, the total ‘old Panamax’ fleet shrank by 6% to 775 ships between June 2016 and January 2017; the charter owned ‘old Panamax’ fleet fell by 9%.
So, the ‘old Panamax’ fleet has been heavily impacted by a lack of additional redeployment opportunities since the new locks at the Panama Canal opened. This has led to a depressed charter market and elevated scrapping levels. Without adequate growth in redeployment opportunities, a let-up in the pressure on the remaining vessels in the ‘old Panamax’ sector does not seem likely.
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