A number of bulk carriers have been scrapped so far this year than in all of 2014 as the commodity market slumps down. Twenty-nine capesize vessels with an average age of 21.4 years have been turned into scrap through Friday last week. The pace such vessel scrapping is much higher when compared to the previous years when it was totally 93 in 2015 and just 25 in 2014.
Why did this happen?
- The erratic fall in the baltic dry index, a measure of what shipowners earn from transporting commodities.
- The drop in the prices of iron ore and coal due to the economic slowdown.
- The Chinese economy slowed to 6.9 percent last year, the weakest pace in 25 years.
- China’s overseas purchases of thermal and metallurgical coal has been declining each year since hitting a peak in 2013, according to estimates from Morgan Stanley.
What are the effects?
- The economic slump prompted D/S Norden A/S of Denmark to write down the value of its dry cargo fleet by US$180 million in January.
- Scorpio Bulkers Inc sold all of its Capesize vessels.
- Bulk carriers are laid up at sheltered bays.
- Shipping companies are bleeding to overcome its losses.
A vessel built is expected to live for at least 25 years, but the average demolition age of capesize vessels was 24 in 2014 and 21 last year. “In 2007, we saw no ships in the capesize segment being demolished, so everything that could sail was out making money. It’s now become a war of attrition to see who will come out on top when markets move into positive territory,” said Peter Sand, chief analyst at shipping association BIMCO.
Companies have opted for laying up its ships in sheltered bays. International Shipcare, a provider of lay-up services in Brunei Bay off the coast of Malaysia says that its 135 slots of designated area for the anchoring of vessels from bulk carriers to rigs has filled.
Source: Bloomberg
