Globally, tanker asset earnings have remained above breakeven levels for the last few years, so tanker scrapping, the removal of tankers from productive use, has been relatively low when compared to other industrial equipment segments. However, the recently released International Maritime Organization’s (IMO) regulation on ballast water management could result in an acceleration of tanker scrapping in the near future.
The new regulation requires that vessels sailing through deep sea waters must have a built-in ballast water treatment system (BWTS) by September 8, 2017.
When considering technology, labor, and operations, the cost of installing a BWTS could reach up to $3,300/day. Due to the cost of installing a BWTS combined with age, out-dated or inefficient operations, and normal wear and tear, it could make certain vessels difficult to find profitable employment. Therefore, it could be more appealing for tanker owners to scrap these assets. Approximately 74 crude tankers (14 million DWT) and 114 product tankers (5.6 million DWT) will have their 4th special survey due between mid-2018 and 2021, making them “potential casualties” of the new regulation.
However, lead tanker shipping analyst at Drewry, Rajesh Verma, doesn’t expect the extent of vessel scrapping to be this severe. A lot of tankers are on long-term charters at attractive rates, which would justify the expense of retrofitting them with BWTSs. He also believes that many owners might choose to incur these costs and continue operating their tankers in anticipation of a rate recovery.
While an increase in tanker scrapping would reduce excess capacity, stabilize rates and reduce risk in an uncertain global economic climate, fortune could favor the brave if the upturn in global bulk freight transport continues.
For a list of all IMO regulations on Ballast Water Management and additional guidance click here.
April has been working with Penn Intermodal’s Sales and Operations team to educate clients on the benefits of leasing chassis for bulk liquid storage and transport since 2012.