Containership Scrapping: Sizing Up The Suspects…

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Last year saw a record level of boxship demolition, and this rapid pace of scrapping was sustained into early 2017 with a record monthly level of boxship recycling recorded in January and nearly 0.2m TEU scrapped so far this year. Boxship demolition in 2017 is currently projected to reach record levels, but there are a range of potential scenarios and it is hard to be precise on how scrapping will play out…

2016: Whodunit?

In 2016, a record 194 boxships of 0.65m TEU were demolished, and several key themes were evident. A key component of scrapping in 2016 was ‘old Panamax’ vessels, following the opening of the new locks at the Panama Canal in June 2016. Nearly half of capacity scrapped in 2016 was accounted for by ‘old Panamax’ units. Meanwhile, the duration of the charter market downturn and the collapse of the KG system has led to a rise in recycling of German owned ships; German charter owners accounted for c.50% of capacity scrapped in 2016, including both ‘old Panamax’ ships and other vessel sizes. Further, the average age of boxships scrapped fell in 2016 to 19 years.

Investigating Leads

Looking at these trends, and the boxship fleet at the start of March, a sizeable pool of demolition candidates appears to remain. At the start of March, there were still 61 ‘old Panamaxes’ deployed on the Asia-USEC route via the Panama Canal, while more than 100 ‘old Panamax’ units were without reported employment. Besides these units, the German charter owned boxship fleet older than 10 years totalled 1.4m TEU at the start of March, while the fleet of other boxships over 15 years old stood at 2.3m TEU. Taking into account historical size and age trends, as well as likely market trends in 2017, the ‘base case’ projection for demolition is 0.7m TEU in 2017, close to last year’s total. However, a considerable degree of uncertainty surrounds demolition projections. While there has been a slowdown at the time of writing, upside potential to the ‘base case’ scenario definitely exists.

The Plot Thickens

One such ‘stretch’ scenario could see all ‘old Panamaxes’ still deployed on the Asia-USEC via Panama route or currently ‘idle’ scrapped during 2017-18, totalling 0.9m TEU. If the proportion of the fleet of other German charter owned boxships over 10 years of age scrapped in each of 2017 and 2018 was similar to the proportion of the start 2016 fleet scrapped last year (0.5m TEU of candidates overall), and the same method was used to estimate scrapping of other boxships over 15 years old (c.0.4m TEU), with an additional allowance for a small number of ships to be recycled outside of these categories, boxship demolition in this scenario could reach around 1m TEU in both 2017 and 2018. This comes as no surprise given the run-rate in the year to date.

The Mystery Continues

So, regardless of the exact total, 2017 still looks likely to be another strong year for containership scrapping. However, demolition projections remain subject to significant uncertainty, particularly with recent changes in market conditions and the volatility in scrapping volumes. It is hard to be precise, but if a firm proportion of candidates are scrapped, potential clearly exists for a ‘stretch case’ scenario.

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Source: Clarksons

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