Dry bulk fleet

Age profile of the dry bulk fleet: How can demolition bring a market recovery?

The main reason of today’s poor dry bulk market is the fleet oversupply as compared with the seaborne trading activity which in some cases (e.g. coal trade) also slows down. In order for the market to be recovered, the current growth of the trading activity must be higher than the fleet growth. Though, the trading activity cannot be controlled by the market participants. Furthermore, the economic environment looks quite discouraging for the coming years and in view of China’s slowdown, the prospects are not positive in this field. What shipowners can do from their side is (a) decrease their newbuilding orders and (b) increase the demolition activity by scrapping the older vessels instead of selling them in the secondhand market. But what is the age profile of the current fleet? What is the average age that the vessels are scrapped and what are the future prospects?

The OpenSea team usually sees many vessels of age older than 20 years old, registering their opening position in our marketplace. These vessels may be asking for lower freight rates which pull the market rates down and create a loss-loss situation for all the shipowners who, subsequently, see their profits to remain at low levels. Apparently, there are lots of vessels trading worldwide which can leave the market within the next years especially if the scrap prices remain descent and the freight rates low. Since the demolition activity is highly related with the performance of the freight market, it is generally increased during poor market periods. This subsequently may lead younger vessels to scrap since their scrap value is not less than their value in the secondhand market. Therefore, the average age of demolition in 2006 and 2007 was even higher than 30 years while it has come down to about 25 years in 2015 and about 23 years in 2016 (year to date). The following table includes a summary of the average age of demolition for each dry bulk sector between 2006 and 2016.

Average age of demolition

Average age of demolition

It is obvious that during the last 10 years, the average age of demolition has been decreased with more than 20% from around 30 years old in 2006 to about 20 years old in 2016, except of the handysizes that the relevant decrease is much less and the average demolition age remains close to 30 years old. The younger average demolition age reflects the younger age profile of the fleet along with the worse market conditions which may press shipowners scrap their younger vessels as well. But how many vessels are older than 20 years old today?

The below table describes the age profile of each sector of the dry bulk fleet (in dwt capacity).

Age Profile of dry bulk fleet (% dwt)

Age profile of dry bulk fleet dwt

The handysize sector is the one with the oldest age profile since 12% of the handysize tonnage is older than 20 years old and another 9% is older than 15 years. On the other hand, these bulkers experience also the highest average age of demolition at close to 30 years. Supramax, Panamax and Capesize seem to share similar characteristics with about 12%-17% being older than 15 years old while the rest 83%-88% of the fleet is younger than 15 years old. As far as we can see, the age profile of the fleet is rather young with most of the tonnage being even younger than 10 years old. In total, about 7% of the world fleet (with deadweight larger than 10,000 dwt) is currently older than 20 years old while another 7% has an age of between 15 and 19 years. Due to the shipbuilding boom of the 2006-2010 and the heavy orderbook, the vessels with an age of up to 9 years old represent almost the 3/4 of the current world fleet. The fact that the age of the world fleet becomes younger restricts the expected demolition activity as a tool for market correction.

Another recent trend in the dry bulk profile is the fact that the dry bulk fleet does not only become younger but also bigger in size. The new vessels are larger in deadweight and thus we see that the smaller-sized vessels of each sector are older, while the larger ones are much younger in age. In this respect, 24% of the handysizes with a dwt of up to 29,999 mt have an age of higher than 20 years, while less than 5% of the handies with a dwt of larger than 30,000 mt have an age of higher than 20 years and more than 80% of them are even younger than 10 years old. The situation is similar in the other 3 sectors of the dry bulk industry. In the panamax sector, 84% of the vessels of up to 70,000 dwt are older than 20 years old, while only 6% of the larger panamaxes are such old. The below table analyzes the age profile of each sector by size of vessels.

Age profile of dry bulk fleet (% per size)

Age profile of dry bulk fleet per size

Taking into account the recent downturn of the average age of demolition and the current younger age profile of the world fleet, there are not a lot of the vessels with an age of older than 20 years old which could potentially be scrapped by the end of 2018. But how much demolition is required in order for the market to be recovered? To get a clearer picture, we can further examine two other indicators: The expected growth of the seaborne trade along with the expected newbuilding deliveries as % of the current fleet.

The dry bulk trade ended the 2015 without any growth (mainly due to the slowdown of the coal market) while the year 2016 is expected to end with a very small growth of 1%. According to current data, the growth of world trade during 2017 and 2018 is expected to be slightly higher at about 2% and 3% respectively. Therefore, in order to have a market recovery, the fleet growth should not be higher than this.

The current orderbook, while smaller than the previous years, is still heavy with more than 1,000 vessels (or about 100 million dwt) waiting to be delivered until 2019, a volume which is approximately 13% of the world tonnage capacity (as of end September 2016). The delivery schedule of the orderbook may delay and some orders may be cancelled, however according to the available data, it seems that during the last quarter of 2016 is expected to be delivered about 37 million dwt which is the 4.6% of the current fleet, during 2017 another 38 million dwt which is the 4.8% of the current active fleet while during 2018 and 2019 the new deliveries are expected to be about 25.5 million or 3.2% of the current world fleet. These data do not take into account the new orders which may be placed after October 2016 and may increase the deliveries mainly by 2019 and onwards.

If we consider that the seaborne trade will follow the current expectations and Shipowners will not cancel any of their current orders, will not place any order for delivery by the end of 2018 and newbuilding deliveries will not be delayed, we come to a conclusion that more than 6.6% of the current fleet should be scrapped by the end of 2018 in order for the oversupply effect to be managed. If we consider the current age profile of the fleet, such a demolition target is considered as a very drastic measure and not easy to happen since it should lead to the scrap yards all of the vessels with an age of older than 20 years old and/or decrease the average demolition age well below the 20 years, especially for the Panamax and Capesize bulkers.

Required demolition for market equilibrium

Required demolition for market equilibrium

As long as the dry bulk fleet becomes younger, the demolition prospects become worse. Thus, the fleet oversupply will be hardly beaten within the next couple of years. Taking into consideration the ongoing market pressure for shipowners and the competition which becomes stronger, the demand for advanced technological tools offered by the OpenSea marketplace is increased. We already see a growing interest nowadays, since such new technologies give chartering professionals the opportunity to source new business and develop new relationships faster than the traditional ship chartering tools (i.e. phone calls & mail circulars). We are welcome dry bulk shipowners to try our service absolutely free, because we know that you are needed in additional opportunities like OpenSea.

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