[040519.EN.BIZ] Drewry Anticipates Box Ship Scrappings to Rise With IMO's New Sulphur Rule

DREWRY Shipping Consultants predicts demolition of containerships will account for two per cent of the global fleet of 22 million TEU and forecasts the scrapping of box ships will rise in the months ahead.

In the latest issue of its Container Insight Weekly, Drewry noted that the pool of obvious candidates for demolition is limited since the average age of the global containership fleet is 12 years, reported American Shipper.

Higher crude oil prices and the requirement by the International Maritime Organization that ships must use cleaner fuel or equip vessels with scrubbers to remove sulphur start from January 2020 and are incentives to scrap older ships.

"In our most recent Container Forecaster report, we pegged the annual scrapping forecast for this year at approximately 300,000 TEU, down from our previous estimate of 450,000 TEU," the London-based company was cited as saying. "With over eight months of the year remaining, the new forecast calls for a slight escalation in demolition activity as the IMO low-sulphur deadline nears".

Drewry said there is still an oversupply of capacity in the container shipping industry. Old ships tend to be less economical to operate, and as they approach the end of their useful life, shipping lines are less inclined to consider it worthwhile to invest in scrubbers.

Shipowners often plan to scrap vessels when they are 25 years old; however, Drewry noted only 5 per cent of the fleet is over 20 years old. The average age of ships being scrapped has dropped to 22, it said.

"Owners have thus far resisted a large-scale cull that would help to alleviate the container market's enduring overcapacity crisis," said Drewry. "Last year represented an eight-year low for containership demolitions when approximately 120,000 TEU was sold for scrap."

Drewry said containership operators are still "in the dark over the starting price of the more expensive low-sulphur fuel oil mandated for the start of next year" when an IMO regulation mandates the amount of sulphur in bunker fuel must be cut from 3.5 per cent to 0.5 per cent.

The US consulting firm AlixPartners estimates that "IMO 2020 regulations could cost the container shipping business as much as US$10 billion globally based on 2018 figures; that cost could increase significantly in 2020 based on fuel oil prices, shipping demand and a myriad of other factors such as limited supply of both scrubbers and low sulphur fuel, which could push fuel costs even higher".

Dewry said: "The rapidly increasing move towards fitting exhaust scrubbers could force charter rates down for some ships that are not fitted with the system, potentially swelling the number of demolition candidates."

Source : HKSG.