A new International Maritime Organization (IMO) regulation on ballast water management as well as continuing weakness in freight rates will increase tanker shipping demolitions over the next two years, with the trend accelerating in later years, according to maritime industry analyst Drewry.
In a report, Drewry said the relative youth of the global tanker fleet had so far not led to increased demolitions of ships, unlike the containership fleet, but that the new regulation requiring built-in Ballast Water Treatment Systems (BWTS) by September 2017 would force many ships out of service. Drewry added that demolitions could increase even more if a grace period for retrofitting some ships is not extended beyond mid-2018.
Drewry explained that the cost of retrofitting a ship might be prohibitive, even for relatively new vessels, if freight rates do not improve.
Drewry estimates that about 74 crude tankers, a total of 14 million deadweight tons (dwt) and 114 product tankers (5.6 million dwt) could be scrapped between mid-2018 and 2021 as a result of the regulation.
“We do not expect all these vessels to be scrapped since many of them are on long-term charter at attractive rates, justifying the additional cost of retrofitting BWTS. As tanker rates will remain well above operating costs during the forecast period, many owners might opt to operate their vessels after incurring this additional cost in anticipation of a recovery in rates,” Rajesh Verma, Lead Analyst for tanker shipping at Drewy, said in the report.
“However, since the tanker market will be oversupplied, older vessels will find it difficult to get employment, which in turn will force many owners to scrap their tonnage,” he added.