Despite the recent drop in tanker freight rates, demolitions have not yet picked up, Drewry noted. But once owners start feeling the heat of persistent, low freight rates, scrapping will increase in the next two years, though at a moderate rate due to the relatively young global fleet.
And with the Ballast Water Management (BWM) Convention set to be imposed on 8 September 2017, owners will look to scrap those tonnage that fail to install the Ballast Water Treatment System (BWTS).
Drewry noted that existing tankers will have a grace period to carry out the retrofit during their next special survey if this occurs after the BWM Convention implementation date.
Some owners are expected to bring forward fourth special surveys, if they fall around the scheduled deadline, in order to delay retrofitting BWTS to the fifth special survey. But vessel owners for which the survey is due after mid-2018 will probably have to either retrofit BWTS or scrap their tonnage.
The additional cost of retrofitting BWTS along with the special survey will force many owners to scrap younger vessels before the next survey is due, according to Drewry.
Drewry estimates that about 74 crude tankers of 14m dwt and 114 product tankers of 5.6m dwt will have their fourth special survey due between mid-2018 and 2021, making them potential victims of the new 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 retro-fitting BWTS.,” said Rajesh Verma, Drewry’s lead analyst for tanker shipping.
“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,” Verma said.
“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 just before their next survey is due.”