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Demolition: Time to Take The Bitter Pill

Demolition: Time to Take The Bitter Pill
Low freight rates should be the best incentive for owners to take the bitter pill and scrap some of the outdated tonnage in order to bring the necessary ease to the heavily oversupplied market, according to BIMCO’s Chief Analyst Peter Sand.

Freight rates have experienced a solid rebound from the 2016-lows, with rates for all trade routes being above last year’s equivalents when they hit the floor.

However, the increase is still too low to profit from as numbers are still below the industry average, Sand pointed out.

The short-lived rebound in charter rates has been attributed to the regrouping of major carrier alliances. Although, the benefits of the new network structures constantly being introduced by the carriers will take a while to realize.

The three alliances control 77% of global containership capacity and as much as 96% of all east-west trades. Still, it should be kept in mind that 57 % of all TEU-demand is generated by non-east-west trades, which have been particularly impacted by cascading.

Nevertheless, BIMCO expects the rates to drop somewhat again.

“Get rid of the ships that are no longer economically viable, few as they may be, and avoid getting back to the shipyards any time soon,” Sand insisted.

Touching upon the possible effect of the upcoming entrance into force of the Ballast Water Management Convention (BWMC) and the 2020 Global Sulphur Cap, Sand said the claim that a lot of ships may be demolished amid high retrofitting costs to make them compliant with the new regulations is basically “wishful thinking”.

Namely, as disclosed, there is a high level of preparedness of companies engaged in container shipping for the upcoming BWMC and they are ready to install whatever is needed to comply with the new regulations.

“It would be a mistake to believe that this is the silver lining that will save the industry prompting large scale of demolition, and we do not expect huge buildup of demolition on the back of the Ballast Water Convention or the 2020 Global Sulphur Cap,” he added.

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