Drewry: Tanker industry faces scrapping crisis

The global oil tanker industry may face a problem in disposing of obsolete vessels, as the volume of ships ready for scrapping worldwide increases, and poor profit margins are forcing scrappers out of business. So says Drewry Shipping Consultants Ltd., London, which said shipowners have never before viewed disposal of obsolete tonnage as a problem. "Shipping industry has always found breaking capacity available," said Drewry, "even if the centers of the industry have moved geographically, and

Nov. 18, 1996

2 min read

So says Drewry Shipping Consultants Ltd., London, which said shipowners have never before viewed disposal of obsolete tonnage as a problem.

"Shipping industry has always found breaking capacity available," said Drewry, "even if the centers of the industry have moved geographically, and always expected to receive a not-inconsiderable financial sum for its redundant tonnage."

The scrapping industry has never before been faced with such high volumes of prospective demolition candidates, many of which are enormous.

Purchase prices for obsolete ships have fallen to the point where profit margins for scrappers have been largely eroded. Ship scrap is in price competition with lower grade ferrous scrap in the market place.

Last year, 52 tankers of more than 100,000 dwt were scrapped, said Drewry. But this year, there are 296 tankers more than 20 years old and six more than 25 years old. In 2000, Drewry expects there will be 393 large oil tankers more than 20 years old. Then there will be 197 more than 25 years old, the customary age limit for oil tankers.

"Shipbreakers have virtually no 'upside' on the prices they can offer shipowners," said Drewry. "With an aging fleet-particularly in the larger vessel sizes-increasing the demand on breakers, which in turn are seeing their own markets diminish, shipowners can only realistically expect the prices paid to them by breakers to drop."

It said that as current, low-cost ship scrapping operations in China and India become uneconomic, there are few new potential scrappers in prospect.

"It may be that there will be a return to operations akin to the higher technology, berth-based operations that were the mainstay behind the major ship scrapping heydays of the 1980s," said Drewry, "rather than the unsophisticated beach operations that mark today's norm. Even so, there are no guarantees of viability."