Ships scrapped prematurely as demand plummets
As new shipping capacity equal to half the world's current capacity comes online, old ships are being scrapped prematurely by 10 to 16 years, market insiders said.
While the average period after which ships are scrapped is 25 to 30 years, ships are now being scrapped after as low as 14 years of service.
Companies that register scrap ship sellers and buyers have reported an unprecedented increase in volumes. Tradekey.com, a company that specialises in scrap sea sale, saw the number of its registered users rise to three million in the second half of 2009. Tradekey.com maintains a directory of importers, distributors, agents, wholesale buyers and resellers related to scrap ships.
"The shipping industry is in absolutely bad shape. Because of the new shipping capacity that has come up in the second-half of 2009 old ships that were supposed to be scrapped at the end of 25 years are now being scrapped at the end of 14 years [of service]," said Mohammad Souri, Chairman and Managing Director of National Iranian Tanker Company (NITC).
"This is happening because freight volumes are down as compared to what was prevalent during the boom of 2008. And then new ships have come to the waters so shippers are using newer ships and discarding older ones," Mansoor Y A Ghafoor, President of National Association of Freight Logistics (NAFL), told Emirates Business.
A Clyde & Company official said the recent plummet in demand for ships has given enough opportunities to shippers to scrap their fleet of single hull oil tankers. "The trend of scrapping ships early and the directives of International Maritime Organisation (IMO) seem to be working together. New ships can be ordered at cheaper prices. And old tankers are being scrapped," the official said.
The trend of early scrapping of ships has primarily arisen because of a strong new capacity coming online in 2009. President and CEO of United Arab Shipping Company Jorn Hinge recently said a new capacity of ships half the current capacity is in the order books of ship yards across the world.
The trend is peculiar to the shipping industry where a new ship takes a minimum of two years to be completed on being ordered. Some of the major shipping companies in the world had ordered new ships changing almost their entire fleet when the markets were booming two years earlier.
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