Shipping is fundamentally about the balance between the supply of ships and the demand of markets and delivery and demolition numbers indicate fundamental oversupply in the coming years, the association noted.
“Through the first nine months of 2019, delivery activity has picked up substantially from last year, particularly in the crude oil tanker segment where deliveries are up 37% year-on-year. In the same period, there has been a 52% reduction in demolitions. When combining the two, the issue of troubling overcapacity is once again looming on the horizon,” Peter Sand, BIMCO’s Chief shipping analyst, said.
Deliveries have jumped in the crude oil tanker fleet. During the first nine months of the year, 23 million deadweight tonnes has been delivered, an increase of 37% in delivered tonnage year-on-year. Total tonnage of dry bulk deliveries has increased 28% y-o-y to a total of 29 million dwt.
Many shipowners opt for delivery in January, in order to nominally decrease the birth age of the ships, which partly explained the many deliveries in January 2019, where 12 very large crude carriers (VLCC) with a total of 3.7 million dwt were delivered.
“In total, 53 VLCCs, adding up to 16 million dwt, have been delivered through the first nine months of 2019. Alongside a slump in demolition activity, the total crude oil tanker fleet has grown at a staggering rate of 5.4% from January to September,” Sand added.
Total tonnage of bulkers, containerships and oil tankers delivered in 2019 has reached 68m DWT, which equates to a +20% accumulated y-o-y growth rate compared to the same period last year. In September, total fleet deliveries amounted to 6m DWT.
On the demolition side only 10 million dwt has been scrapped in 2019, a 52% decrease when compared to the same period last year. Even in light of relatively high demolition activity in recent years, the demolition numbers for 2019 are particularly low. In fact, this has been the lowest annual amount of scrapped tonnage since 2007, BIMCO cited data from Clarksons.
“In the first nine months of 2019, we have seen the lowest amount of tonnage being demolished in more than a decade, which sets the industry on a worrisome course towards even greater imbalance of supply and demand,” Sand noted.
Demolition activity grinded to an almost complete halt in September with only 300,000 dwt sent to the scrapyards.
In the fourth quarter of 2019, the commercial shipping markets have seen freight rates shooting through the roof, particularly within the crude oil tanker segment and to some extent, also within dry bulk shipping.
Recent attacks on the Saudi Arabian Abqaiq oil installations and the tightening of U.S. sanctions on Iran have caused average VLCC freight rates to reach to 307,888 USD per day on October 11, 2019. The freight rates have since declined, but remain very high.
The more profitable rates in some segments and opportunistic thinking in the lead-up to IMO 2020 are keeping more ships afloat for the time being, according to BIMCO.
Activity on the contracting side remained subdued throughout 2019 with all segments posting decreases compared to last year. Overall, contracting activity is down by 48% compared to the first nine months of last year, when measured in tonnage.
However, this should be viewed in the light of the heavy contracting activity in 2017-18, that will surely affect the markets in years to come.
“I think, shipowners might refrain from undertaking more newbuilding contracts as a result of the upcoming IMO 2020 Sulphur Cap, which is already a capital-intensive affair with regards to fleet retrofitting of SOX-scrubbers and higher expected bunker costs for owners opting for compliant fuels,” Sand said.
With trade wars, protectionism and slowing global growth that are expected to negatively affect the seaborne demand growth in the upcoming years, BIMCO urges owners to remain collectively committed in ensuring the balance of market fundamentals and not get lost in market hype and speculation.