Demolition is a key determinant of the size of the global fleet. Typically, vessel recycling volumes are low when the shipping markets are strong and vice versa. Over the last decade firmer levels of demolition have been encouraged to address overcapacity across the shipping segments and scrap volumes have been historically high. This, along with lower newbuild activity, has helped curb fleet growth.
The Demolition Game
In 1H 2017, 11.0m GT was recycled globally. On an annualised basis this is equivalent to 2% of the start year fleet in GT terms but represented a decline of 25% year-on-year. Global demolition volumes have been historically strong since the onset of the financial crisis and subsequent drop in vessel earnings, with an average of 26.9m GT recycled annually between 2009 and 2016. The average age of ships demolished has steadily declined over this period, from 33 years in 2008 to 26 years in 2016. Alongside lower levels of newbuild ordering and shipyard deliveries, higher scrap volumes have slowed fleet growth to 3% in 2016 compared to a CAGR of 6% between 2005 and 2016. Looking forward, demolition activity is projected to remain at elevated levels as owners face up to greater regulatory requirements related to ballast water and vessel emissions (including the 2020 global sulphur cap).
Depends On Your Type…
Bulkcarriers accounted for 45% of tonnage recycled between 2009 and 2016; however, a record level of bulker demolition in Q1 2016 was followed by some improvement in sector conditions and this saw bulker demolition volumes fall 63% year-on-year in 1H 2017 to 4.5m GT. A record 0.65m TEU (7.5m GT) of boxship tonnage was scrapped in 2016 with vessels below 10 years old recycled as owners disposed of ships of ‘old Panamax’ design. This activity has continued, though at a slower pace, with 3.1m GT of containerships recycled in 1H 2017. Meanwhile, weaker earnings in the tanker sector has seen tanker demolition pick up in the year so far after two historically low years. Tanker recycling volumes in 1H 2017 already match those of full year 2016 with 1.2m GT reported demolished.
…And Who You Are
Greek, Chinese and German owners account for 35% of tonnage recycled in the year to date and 40% of global demolition since the start of 2005 in GT terms. This reflects their large fleets though other prominent owner countries such as Japan seemingly prefer to dispose of older ships on the secondhand market. Greek and Chinese owners have been active in renewing their fleets and account for 46% of bulker tonnage scrapped since the start of 2009. Meanwhile German owners have been divesting out of the containership sector and account for 36% of boxship capacity recycled since the start of 2013 in GT terms.
So, despite a slight slowdown, global demolition activity remains relatively strong in the year to date. Leading owner countries continue to be active, and while bulker scrapping has slowed, recycling volumes in other sectors are firm. With impending environmental regulation expected to support further recycling, demolition looks likely to continue to help limit fleet growth into the future.