New Panama Canal & a New Headache

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The Story:

An expanded Panama Canal opened in June to ships three times bigger than those previously called Panamax are causing a real headache to the classic Panamax ship owners.  Container ships less than a decade old are potentially on the block for scrap value as a widening of the Panama Canal earlier this year plays havoc with a market already under strain from a crash in freight rates.

What Happened:

Many shipping firms are now weighing whether smaller ships are obsolete, as options to find new opportunities narrow and costs outweigh fees earned from operations.  Further to it, tanking freight rates, new environmental regulations requiring new installations and retrofitting may contribute to more young vessels getting scrapped.

Gimme Some Background:

The makeover for the more than century-old shortcut between the Atlantic and Pacific oceans has already been giving the Suez Canal a run for the U.S. East Coast – Asia’s shipping route of choice.  The development has sent the value of container ships down on-year, with news rocking the industry of a 7-year-old container ship under negotiation for sale that was valued just above scrap value at $5.87 million, after its value fell 62 percent this year alone, according to VesselsValue.

Nuts & Bolts:

  1. In 2011, the average age of container ships scrapped was 19 years old.
  2. There have been 151 container ships scrapped this year to date, double the number in 2015 and more than the 134 scrapped in 2014.
  3. There were 164 such ships scrapped in 2013.

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Source: CNBC