The freight market remains the most significant factor behind the decision to scrap a ship or continue trading. During 2016, BIMCO forecasts that dry bulk shipping capacity of 40 million DWT will be sold for demolition, making 2016 the busiest year on record for shipbreaking.
For the coming months: January-April, BIMCO expects transported volumes to diminish as they traditionally do from the fourth quarter to the first. This increases a fundamental imbalance as the delivery of new ships in recent years has followed the opposite pattern. That is more new ships are being delivered early in a new year rather than late in the year just about to end, achieving the newest ‘year of built’ for the record.
As we move into the second quarter the downward pressure should ease somewhat. BIMCO remains worried about the sustainability of freight rates in 2016. The demand side seems unable to buoy profits as both Chinese and Indian growth cools off and the rest of the world is still importing smaller volumes than before the financial crisis of 2008.
A new record of shipbreaking volumes in 2016 could limit fleet growth to just 10 million DWT, meaning an increase in transported volumes of around 60 million t is required to balance out the inflow. As little as this may seem, growing from a base of 4700 million t – it can prove to be a high bar to jump before the industry starts eating into the significant oversupply of ships.
Adapted from press release by Joseph Green