Scrapping Bit

From Asiasis:
“The Clarkson Research Services expects 2011's total of capesize bulkers to be scrapped to reach 38 ships, which is a more than two times increase on last year's. A big number of capesizes, about 200 units, are expected to be delivered this year, but the pressure of oversupply can somewhat be alleviated because of the expected increase of scrapping. Meanwhile, newbuilding output has increased sharply since 2009 thanks to the large-scale orders placed during the period of newbuilding boom and especially the total deliveries of capesizes between 2008 and 2010 stood for 363 ships, which totally outweighs the total volume of demolished capesizes of 40 units during the same period.”

Deliveries 2008 – 2010 = 363 minus scrapped vessels 40 = 323 additional capes.
Expected 2011 deliveries 200 minus expected scrapped 38 = 162 additional capes
Total cape additions after scrapping 323 + 162 = 485 new fat ladies looking for work.

The question being how much will the forecasted scrapping of vessels relieve the overcapacity issue facing bulkers? The answer is that nobody knows. The crew over at Clarkson Research has stated that they expect 38 capes to hit the beach. Giving them credit for being more on the ball than many of their peers, we remind readers that they are not sure either. The number of capes that actually get demolished during 2011 will not be known until 2012. That number will not include the vessels positioned for scrapping. They will be waiting in line if the breaker beaches are full.

The breaker industry itself does not currently have the capacity to match the hundreds and hundreds of new and previously established yards that are cranking out vessels every day. The idea of building ships is considered a good thing by most nations, and we see shipyards dotting the globe. How many of those same shipbuilding nations want a leaking 30something year old rust bucket tore up on their beach by a bunch of guys with torches? You can use your fingers to count them.

The most direct relief to overcapacity will be a function of utilization. The vessels that are not able to find work will not be underway, and in short order they will amount to a layup. The duration of the vessels layup will be a indicator of the owners financial capacity as only solvent owners will be able to afford a proper layup. The less fortunate will be forced into positioning their vessels nearer the breaker nations, and eventually surrendering to the inevitable acetylene + oxygen mixture.

This will take some time to play out, but the industry will recover to its balance between supply of vessels and the demand for tonnage. The amount of ships required by the markets demand is the normal, and shipping always reverts to the norm.

Good Fortunes
Ski