Freight: 30m dwt of scrapping needed

With newbuilds arriving faster than owners are able to scrap their old carriers, the growing oversupply in the dry bulk shipping market is clear. Higher levels of ship scrapping will be needed to balance the market.

Shipbroker Alibra Shipping noted in its latest weekly report that Capesize spot rates seemed to correspond with scrapping activity, with rates increasing in the first seven months of the year, peaking early August and declining from September onwards. It said “owners sold many Capes for demolition during the first half of the year, but stopped scrapping as rates rebounded – which ultimately killed the market again. Since 2016 began, some 64 Capesize bulk carriers have been sold for demolition, compared to 66 during the same period last year.” However, despite 64 Capesize carriers being sold for demolition since year start, 104 new carriers (20.1mdwt) have been delivered. Alibra added that this delivery of new tonnage amounts to a net fleet growth of 2.6 per cent since 1 January 2016.

Alibra’s report also looked at how the removal of vessels from the trading fleet affected Capesize freight rates, using MarineTraffic.com’s draft software to estimate that 37 Capesize bulk carriers (6.6m dwt) were laid up in 2016, as of 5 June. The shipbroker noted that “this number is equivalent to 2.4 per cent of the 1521 Capesizes currently on the water. Most interestingly, MarineTraffic has found the number of laid up Capesizes identified by its software roughly tracks the trend shown by the Baltic Dry Index (BDI) week-by-week. The highest level of Capesize lay-ups was shown during the week commencing 18 April (week 16) this year. The BDI hit an eight-month high of 715 points just a few days later, on 27 April.”

To offset the volume of tonnage awaiting delivery, an estimated 30m dwt in Capesize tonnage will need to be scrapped during 2016 and 2017. According to Alibra this would mean the average age of a cape sold for demolition would drop from 21 years to 18 years.