Mumbai: The declining demand for charter ships and the steep fall in freight rates has come as good news at least for one industry—the ship-breaking one. In India, at least 650 ships are headed for scrapyards this year, nearly double that in 2008, according to estimates by shipbuilders and ship-breaking yards.
Already, 261 vessels have moved to ship-breaking yards and slots are running full, said two persons, one with a private shipbuilding firm and the other with a ship-breaking yard.
Revati Kasture, head of industry research at Credit Analysis and Research Ltd (CARE), says her firm expects 20-24 million gross tonnes (GT) of scrap from ships in 2009, representing 2.18-2.63% of the existing fleet size in India. In 2008, scrap from ships amounted to 8.9 million GT.
As freight rates sink lower, many shipping firms are casting away their aged fleets for new vessels. Typically, shipping companies send their vessels to scrapyards after 25 years of use.
“In most cases, the shipowners have not been able to recover even the operating cost of the vessel. Therefore, in addition to the old-aged fleet, a considerable proportion of relatively young fleet is also being scrapped by the shipowners in order to save them from unnecessary dry-docking charges that is required for the upkeep and maintenance of the vessels,” Kasture said.
“However, the replacement demand for these vessels would soon creep in once the global recessionary phase is over,” Kasture added.
A senior executive with the Gujarat Maritime Board (GMB), a state government body that runs non-major ports, said all the 120 slots at the country’s largest ship-breaking yard at Alang are booked for the rest of the year following a surge in the number of ships being scrapped. He didn’t want to be identified. Alang falls under the purview of GMB.
A CARE estimate says that following the rise in the number of ships being scrapped globally, 80 slots in the Alang ship-breaking yard are currently in operation, up from 30-35 slots a few months ago.
Commenting on CARE’s estimates, Rishi Agarwal, managing director of ABG Shipyard Ltd, the country’s largest private shipyard, said freight rates should increase after such large-scale scrapping of vessels.
“Earlier, shipping companies were trying to delay the scrapping of older vessels. But now it has become very expensive to manage older vessels,” said P.C. Kapoor, managing director, Bharati Shipyard Ltd, the second largest shipbuilder in the country.
“The slowdown has resulted in lesser cargo and excess capacity. Therefore, scrapping on this huge scale will help shipping companies to get better rates,” Kapoor added.
He estimates that at least 600 vessels could be scrapped this year.
“As the shipping industry cycle suggests, the trend in scrapping is inversely correlated to the fluctuations in freight rate of vessels. With the fall in the freight rate indices since Q4 CY2008 (the fourth quarter of calendar 2008), especially Baltic Dry Index, the scrapping volumes have been incredibly high,” said D.R. Dogra, deputy managing director, CARE.
The London-based Baltic Dry Index is a key measure of the health of global trade.
“During the period January-February 2009, a total of 3.3 million GT of vessels have been scrapped. Of this, a majority of scrapping has been witnessed in the dry bulk and the container ship vessels segment, representing 57.6% and 9.1% of the total scrapping, respectively,” Dogra added.
Freight rates for container and dry bulk ships have been declining since early 2008. The Baltic Dry Index also declined from 8,934 points in July to 743 points in December.
India’s 23 shipbuilding yards are building at least 250 ships worth a combined Rs25,000 crore, up from an order book of Rs816 crore in 2002. Their order books are expected to see Indian yards through until at least 2012-13.