Carriers scrap ships ahead of IMO 2020

Black barge sailing past port

November 29, 2018 - Shipping lines sold roughly half of this year's containerships for scrap in the last 30 days, after a slow year for container ships headed for scrap. 

Just 52 ships (94,000 TEUs) were sold for scrap in 2018, according to The Loadstar, and 23 of those decisions were made in the past month. This time last year, 141 ships (398,500 TEUs) had been sent to the scrapyard. 

The uptick in the last 30 days is likely due to the coming shifts in International Maritime Organization (IMO) sulfur emissions standards, set to go into effect in 2020, which have carriers analyzing which vessels are worth an upgrade or a serious fuel cost increase, and which aren't worth the effort.

This year carriers saw a rebound in charter rates for smaller vessels causing some to hold onto previously idled vessels, but the upcoming IMO changes have carriers adjusting both their fleets and their fees already, even though the rule change is more than a year off. 

The compliance options are to switch to a more expensive fuel source ($250 more per ton to be precise) with lower sulfur content, or install scrubbers on ships to clean the exhaust.

But as The Loadstar reported, the price tag on scrubbers is nearly equal to the cost of these smaller 4,000 TEU vessels to begin with, creating a strong incentive toward scrap. 

More scrapping is expected next year as carriers continue to grapple with this coming sea change for the industry.

The question remains whether fleet adjustments will spur the need for further rate hikes — on top of fees already announced to finance the low sulfur transition. 

Source: Supply Chain Dive