[160816.EN.BIZ] Ship Scrapping Hits 52 Million Tonnes, Fast Nearing 2012 Record Of 60 Million

SHIP scrapping this year stands at 52 million tonnes and is fast approaching the world record set in 2012 of 60 million tonnes, reports the Wall Street Journal.

The global economic slowdown is putting shipping through its most difficult period since the 2008 financial crisis and bigger and younger ships are being scrapped.

Companies including Maersk, Hapag-Lloyd and Cosco have 30 per cent more capacity on the water than cargo causing them to fiercely compete for increased market share, by agreeing to ruinous rates to fill their ships.

In the five years through 2015, owners ordered an average of 1,450 ships annually. This year orders through July fell to 293 vessels, or 11.6 million tonnes, according to UK marine data provider Vessels Value.

"It will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand," said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors.

Asia-Europe rates have been at an average of US$575 per TEU this year, compared with $620 last year and $1,165 in 2014. Anything below $1,400 is unsustainable, said the WSJ report.

"What's changing is that younger ships are being scrapped, but recycling won't solve overcapacity on its own," said Maersk CEO Soren Skou. "Only market growth can do this."

Mr Skou said his company hasn't scrapped many vessels this year - only about one per cent of its capacity - but it expects to recycle more ships over the next three to five years.

Hapag-Lloyd scrapped 16 ships last year, or 60,000 TEU, roughly 6.2 per cent of its total capacity.

Europe and China's slowing economies is a major cause of trouble in the container trade, Chinese imports from the European Union fell nearly 14 per cent and Chinese exports to Europe were down three per cent.

With 100 Asia-to-Europe sailings cancelled last year, 10 per cent of the traffic that moves 98 per cent of the world's manufactured goods was lost.

Recycling a ship once generated 25 per cent of the cost of a new vessel but with the plunge in steel prices that figure has been whittled down to 10 to 15 per cent.

Two years ago, in India, Pakistan and Bangladesh were paying about $460 a ton of steel. Last year it was $300 and it is now roughly $250, shipowners say.

Officials at the India's Alang Beach scrap yards, where most of the work is done, prices are likely to stay low as China is flooding the market with cheap steel.

Source : HKSG.