While the shipping industry struggles through a historic downturn, ship scrapping business is seeing accelerating demand, reports WSJ.
The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis.
With the capacity running some 30% ahead of shipping demand, orders for new vessels have fallen to a record low this year and companies can’t get rid of ships fast enough.
In the five years to last year, owners ordered an average of 1450 ships annually. This year orders to last month fell to 293 vessels, according to British marine data provider Vessels Value.
About 1000 ships that have the combined capacity to haul 52 million tonnes of cargo will be dragged on to beaches, cut into pieces and sold for scrap metal this year. That is second only to the record amount of capacity of 61 million so-called dead weight tonnes that were scrapped and recycled in 2012.
A deeper sign of the downturn is that carriers are dumping ever-younger ships: vessels typically face recycling at about 30 years, but the average age of ships now getting scrapped is about 15 years.
Drewry’s Container Forecaster found that, for the first time, 450,000 TEU of containership capacity is expected to be scrapped in just one year, as the containership sector recognizes that there are far too many ships chasing too little cargo.
A record number of around 150 container vessels are expected to be scrapped in 2016 but it will not be enough for an industry battling over capacity, low demand and falling rates, Drewry said.
The world's largest container shipping company, Maersk Line
, a unit in conglomerate A.P. Moller-Maersk
, said in February it would scrap more vessels and therefore begin to use four shipyards along India's Alang beaches to handle it.
In the past, recycling a ship has typically generated about one-quarter of the price of a new vessel of the same type and size. But owners say a drop in the price of steel has cut the rate of return to an average of 10-15 per cent of the price of a new ship.
South Asian scrapyards recycle about 75 per cent of dumped ships every year. The remainder goes to China and Turkey