Ship scrapping set to surge over next two years

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Liz McCarthy - Thursday 19 February 2009

 

Workers at Alang shipbreaking yard in India

THE world’s largest cash buyer says more than 1,000 ships will be scrapped this year as record numbers of bulk carriers, containerships and car carriers flood breakers’ yards across the Indian subcontinent. 
“The next two years will probably be the busiest period we’ve ever seen,” GMS president Anil Sharma told delegates at a London ship recycling conference. 
Additional business will go to China, Turkey and elsewhere in Europe, as new entrants fight traditional demolition countries of India, Bangladesh and Pakistan for ships to scrap. 
The forecast is three times the number of ships scrapped in 2008, and follows a fourth quarter collapse in freight rates which has seen owners rush to offload ageing or unemployed tonnage. 
GMS, which buys around a third of all ships to be scrapped, has sold one ship a day to yards for the last three months, and the pace has not slackened, Dr Sharma said. “I can see [the recycling industry] doing 1,000 ships this year,” he said. 
Bulk carriers were the first ship type to “flood” yards, but Dr Sharma said that tankers, containers and car carriers would be next. 
“I see hundreds of ships in lay-up everywhere, so I can see 1,000 is not a very big number, it could grow.” 
The global containership fleet faces serious oversupply, with at least 10% of the global fleet in lay-up amid a serious downturn in global trade that has also seen demand for car carriers plummet. 
Ship breaking yards in Pakistan currently “resembled car parks”, Dr Sharma said. 
“One yard had three layers of ships piled on top of each other,” delegates at the Lloyd’s List Ship Recycling conference in London were told. 
Scrapping levels had hit historic lows over the last four years, closing yards across the Indian subcontinent. These had now been reactivated. 
“It’s good for everyone. It’s good for the workers and it’s good for the economy,” Dr Sharma said. 
There was pressure on capacity in India’s 200 yards, where government restrictions prevented yards from scrapping more than two vessels at a time. 
Ship recycling times were also decreasing with a handysize bulk carrier now broken up in around 40 days, compared to the average of 60 days. Containerships, which take six months to scrap, are set to compound capacity issues. 
The ship breaking boom “would not last forever” but the global newbuilding orderbook was so large, demolition would remain at these levels for at least two years. “We are looking at 2009-2011,” said Mr Sharma. “There are a lot of dry cargo newbuildings coming in. We need to flush out the old ships and let the new ones come in.” 
He said the Indian subcontinent would lose market share to other entrants during the booming conditions, dropping from 90% of all ships scrapped, to 75%. 
There are currently 200 yards in India, 50 in Bangladesh, 25 in Pakistan, and as many as 25 yards in China and Turkey. 
Dr Sharma said that the sudden drop in vessel values, following the financial crisis, had also created difficulties for his business. 
“What happened was far beyond any worst case scenarios - the whole market collapsed,” he said. “I couldn’t understand how to price these vessels. I certainly made losses.”