No Escape for Panamax Owners as Ship Redundancies Mount

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panamax

There is no light at the end of the Panamax shipping sector tunnel.  Another 100 ships need to be added to the 50 already sold for scrap since the expanded Panama Canal locks opened, if there is to be any hope of rebalancing supply and demand.

This is the bleak outlook for the Panamax sector outlined by industry analyst Alphaliner, which said since the opening of the new locks on June 26, 120 classic Panamax ships (with capacities between 4,000 and 5,300 20-foot-equivalent units) have been pulled out of the Asia-US all-water trade.

The analyst said a further 30 to 40 classic Panamaxes will be removed from the trade over the next couple of months, with total redundancies of vessels in the Panamax size range expected to reach 150 to 160 units by the end of the first quarter of 2017.

Alphaliner said non-operating owners are bearing the brunt of the redundancies, as carriers keep redelivering charter vessels at an unprecedented pace.  As a result, these units from non-operating owners form the bulk of the 4,000-TEU to 5,300-TEU vessel idle pool.  So far 96 of their ships are unemployed, 30 of which are anchored at long term lay-up spots in Asia.

“In the light of this situation, another 100 classic Panamaxes would need to be scrapped in the coming months to rebalance supply and demand, and reduce the total pool — including active and idle ships — to less than 470 units, compared to 670 units four years ago,” the analyst wrote in its weekly newsletter.

“Only such a drastic reduction could elevate rates from their current all-time lows of $4,200 to $4,500 per day, with positive side effects on the 2,700- to 3,800-TEU size bracket as well.”

The hard decisions that need to be taken by Panamax shipowners include scrapping 10-year-old ships on the eve of their second Classification Special Survey.  Many cash-strapped owners can’t afford the survey-related costs, and the vessels are instead being laid up, sold for scrap, or sold to bargain buyers at distressed prices, Alphaliner said.  Some owners might also be tempted to wait for a hike in scrap prices, which currently hover at only $300 per ton, compared with more than $500 in 2008 and 2011.

Alphaliner said the structure of the classic Panamax fleet currently led to a paradoxical situation: while non-operating owners controlled a fleet of many relatively young Panamax ships without employment, carriers retain most of the units that would make the best candidates for scrap, i.e. aging maxi-Panamax ships of more than 273 meters (896 feet) in length.

“As an illustration, 68 of the 78 maxi-Panamaxes aged 14 years and over are either owned or long-term chartered by carriers, whereas only 10 such vessels are traded by non-operating owners on the liquid market.  Of the 23 handy Panamaxes (258 meters to 272 meters) aged 14 years and over, only 10 are controlled by carriers,” the analyst said.

A possible solution for carriers reluctant to scrap older maxi-Panamaxes, Alphaliner suggested, would be to “swap” them against younger and more economic Panamaxes, purchased at competitive prices from the non-operating owners in what could be termed “buy & scrap” schemes.

But the analyst concluded: “For the moment though, this suggestion is bound to hit a wall as carriers benefit from the ultra cheap charter rates that the ship overhang causes.  Shipping lines are, therefore, in no hurry to enter into any such schemes.”

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Source: JOC