While tonnage deliveries are forecast to decline after 2017, given a weak demand outlook hope of recovery will hinge on the extent of scrapping activity, which will be influenced by the forthcoming IMO regulation on ballast water treatment.
“We expect the market to start a gradual recovery from 2020. For any recovery before 2020, demolitions need to be strong enough to keep fleet growth slower than demand growth,” said Rajesh Verma, Drewry’s lead analyst for tanker shipping.
In the existing fleet, there are about 20m dwt of vessel capacity aged 19 years or more. Drewry assumes that all of these vessels will be scrapped during 2017-22, as unattractive freight rates, poor employability and the additional cost associated with complying with the forthcoming IMO regulations on ballast water treatment will force owners to scrap them.
Additionally, there are about 367 vessels of 67m dwt in the age range of 14-19 years with their owners needing to decide whether to scrap them or to incur the cost of fitting ballast water treatment systems (BWTS) as well as scrubbers required to comply with IMO regulations on sulphur limits by 2020.
Verma said that if about a third of these vessels are demolished during the forecast period of 2017-22, the recovery in tanker freight rates will not start until after 2019. However, the extent of actual demolitions will be a crucial factor for deciding how quickly the market recovers.
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