Scrapping Seen as Helping Container Lines in 2014

Scrapping Seen as Helping Container Lines in 2014

Scrapping will help the container shipping industry in 2014 but not before liner losses likely mount this year, according to Bonnie Chan, a senior Asia shipping analyst at Macquarie Research.

Freight rates will be bearish in 2013, but scrapping will moderate excess supply and help buoy freight pricing next year, she said. "Although 2013 may be another loss-making year for many Asia shipping companies, we think it is time for long-term investors to start taking a contrarian view on the sector,” Chan said. “Over the past three quarters, there has been a massive pickup in scrapping and the scrapping age has been falling from 28-30 years to just 22 years in 2013. We believe the market underestimates the number of ships that could be scrapped over the next 12 to 18 months.”

For non-operating owners, scrapping an unemployed Panamax is an attractive option with current spot charter rates barely breaking even at $9,000 a day. By contrast, scrapping can generate immediate revenue of $8 million to $10 million.

“Even for Panamax ships less than 15 years old, we see limited room for deployment and expect an increase in idling as a consequence,” Chan said.

Panamax vessels are being displaced from major trade lanes by much larger vessels, but redeploying them on expanding intra-Asia lanes is difficult due to port restrictions and service frequency requirements. Many older Panamax ships also aren't fuel-efficient. 

“Even for the Asia-U.S. East Coast trade, carriers are re-routing their services through the Suez Canal from the Panama Canal, where they can deploy the 7,000- to 8,000 TEU ships instead of the 4,000- to 5,100-TEU Panamax ships,” Chan said.

See a comparison of the Suez and Panama Canals

As much as 25 percent of Panamax vessels that are 15 to 20 years old and more than 30 percent of all ships with capacities of less than 3,000 TEUs could be scrapped over the next 18 months, she predicted, with many more Panamax vessels less than 15 years old forecast to be idled.

“We believe the maxi-Panamax sub-class, which can use up to 20 to 25 percent more fuel than other Panamax sub-classes, is likely to be put into the idle pool as the widening of the Panama Canal approaches in 2015,” she added.

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