DEMAND for Panamax vessels of more than 3,000 TEU, with a beam of less than 32.3 metres - the canal's current maximum - collapsed in 2013, prompting charter rates to become severely depressed and demolition to surge.
When the expanded Panama Canal opens in 2015 to accommodate 13,000-TEU vessels, the employment prospects of these vessels is expected to become even more dismal and it is difficult to see where Panamaxes can be deployed competitively, reports Clarksons.
At the start of 2014 there were 899 ships of this size in the global containership fleet, accounting for 3.76 million TEU, or 22 per cent of global capacity. However, since 262 such vessels were ordered in 2006-08, further Panamax contracting has been negligible.
During 2013 some 50 Panamaxes were laid up, most of which was charter owned tonnage. This pool of idle capacity weighed heavily on the charter market with benchmark time-charter rates averaging US$8,696 per day, falling to $7,500 a day by year end.
At these levels owners in general struggle to cover costs. As weak rates persist, scrapping becomes an ever more appealing option.
Sixty-six Panamaxes of a combined 240,000 TEU were sold for demolition last year, accounting for 55 per cent of total scrapped capacity. As a result, the Panamax fleet shrunk by 4.3 per cent over the course of the year.
The average age of Panamax demolitions in 2013 was 20.6 years, down from 23.0 in 2012. In addition, 21 Panamaxes were scrapped at 18 years or younger, compared to just three in 2012.
When the Panama Canal's third set of locks opens ships of more than 8,000 TEU + are expected to quickly replace Panamaxes on the Asia-US east coast routes, while some higher volume North-South routes (especially those involving Latin America) are already utilising significantly larger vessels.
Demand for cascaded Panamaxes on the intra-Asia routes is also expected to be limited owing to port constraints, along with operational difficulties in balancing longer port turnarounds with the need for rapid service frequency.
But with global container trade growth projected to hit six per cent this year, the growth of container capacity supply - projected to rise by 4.8 per cent in 2014 - is likely to struggle to keep pace.
Consequently, in the short-term some Panamaxes will be required to carry cargo, even if their route deployment is sub-optimal. And yet, in the longer term, Panamax box ship, once the workhorses of the global container trade, clearly seem bound for obsolescence.
Source : HKSG.