Why are thousands of ships being destroyed?
It is really not looking very pretty for the shipping industry at the moment. Approximately 1’000 ships with the capability of transporting 52 million metric tonnes worth of cargo will this year be cut up and sold for scrap metal. Not because this is by any means a cost-effective use for the ship but because there is simply not enough demand to warrant keeping them. The decline has been quite staggering, this year there has been 293 ships ordered; between 2010 and 2015, the average amount of vessels ordered per annum was 1450.
The reason for the lack of demand is clear, last year the number of imports into China from Europe dropped by 14% and in the first quarter of 2016, the drop has been 7% compared to the same time last year. Exports to Europe have fallen as well. The average life span has dropped from 30 years to 15 years.
“If you go back five years ago, people saw growing demand at very high rates. There was a bit of an uptick in the number of ships that were brought on, particularly in 2012, 2013, and 2014,” Sean Monahan, a partner at the consulting firm AT Kearney who is an expert on shipping, told Business Insider.
“But generally demand has flattened, and in some cases a little bit declined … there are a lot more ships either being dry docked or being scrapped,” Monahan said.
Even Maersk, the world’s largest shipping company are anticipating that most of it’s business is fully expecting to see declines in its figures. “Currently we are challenged by market headwinds, as I started out talking about, in the form of low growth and excess capacity in both our industries and that has led to declining prices and declining revenue,” CEO Soren Skou said during the earnings call.
Due to the decline in steel pricing, ship owners are also getting less for their money when they are recycling ships, they can now only expect to get between 10% and 15% of a new ship.
Monahan said he sees this being an issue for the next two to three years, before demand bounces back to the point where more ships can be in use.
Source: Business Insider
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