According to a LoadStar article written by Mike Wackett, demolition markets in the Indian subcontinent have now largely reopened and are preparing for a new wave of containerships for scrapping.
Decline in Scrapping Rates
According to London-based shipbroker Braemar ACM, just 14 have been demolished so far this year, compared with 58 ships by the same time in 2019.
However, due to the pandemic, there have been reports of up to 20 ships having been sold for scrap in the interim and now await the cutting tools.
- Scrapping rates have slumped by around 25% since January, with current price ranges from breakers in India, Pakistan and Bangladesh said to be around $300-$330 per LDT.
- Indeed, non-operating containership owner Costamare reportedly sold the 1997-built post-panamax Kokura on 26 May to Indian breakers for $10.9m, the latter price.
- At 7,403 teu, the Kokura will be the largest containership ever to be scrapped, but with the idle tonnage fleet growing fast and set to breach 3m teu, this unwanted record is likely to be shortlived.
Off-hiring
Moreover, in their quest to match supply with a significant slump in demand, ocean carriers are in the process of off-hiring as much chartered tonnage as possible, resulting in a substantial spike in containership lay-ups.
And with little chance of a recovery in global demand this year, boxship owners with returned vessels will have few options other than to consider demolition.
One broker source told The Loadstar this week the containership sale and purchase market was “dead” – other than for distressed owners and opportunist buyers.
“Nobody’s selling unless they really have to, and offers that do come in are barely above demolition rates, even for younger ships,” he said.
“The other problem for owners is that the slump in daily hire rates will eventually filter through into the asset values of their ships and potentially put them in breach of their mortgage covenants with lenders,” he added.
The Vicious Circle
One industry analyst described containership owners as being caught in a “vicious circle”.
“Once vessels are off-hired they have very little chance of a new fixture, especially for older ships, so they might decide to consider the demolition option, but if they can actually find a buyer, they will be facing a price shock.
“I’ve heard recently of prices as low as $200 per LDT being offered by Turkish breakers, and at that rate they might not even clear their debt,” he said. “And with the world not exactly clamouring for steel at the moment, scrap prices could go further south.”
Containership owners that enjoy long fixed-rate charter party contracts with ocean carriers can rest easier. But even though they are technically insulated by the duration of the agreement, they will hope that the liner crisis does not bring another Hanjin Shipping bankruptcy that in 2016 left the shipowners with millions of dollars of unpaid contracted revenue.
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Source: The LoadStar
