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Cargo ships and cruise ships are increasingly being written off as operators affected by the coronavirus pandemic try to take advantage of their unemployed vessels in the recycling market.

Iron ore railcars and tugboats are at the head of a growing fleet that is about to be scrapped. Cruise ships, which are still inactive due to the restrictions imposed at the beginning of the pandemic, are moving to shipyards where ships are dismantled for steel.

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Shipping companies are trying to restore the balance that was upset earlier this year by the global industrial slowdown when factory closures in China and global expansion brought shipping routes to a standstill.

Last spring, car sales fell along with the raw materials market, as China, the largest importer of raw materials, closed its doors to fight the disease. Continued cruise bans have led to the closure of dozens of luxury cruise ships as storage costs have increased.

Production activity resumed worldwide this autumn, while car sales recovered. Nevertheless, according to the data supplier Statista, car sales worldwide are expected to fall below last year’s figure (75 million) to around 62 million this year.

Shipowners say their finances are still damaged by earlier closures.

Last spring was a very difficult period for road hauliers, says Emanuele Grimaldi, co-owner of the Italian company Grimaldi Group SpA, which manages a fleet of road hauliers and heavy goods vehicles. I’ve returned six chartered ships to their owners and thrown away two of our own.

According to the American data provider VesselsValue, a total of 557 vessels were completed in October, compared to 889 for the whole of 2019. This year the figure is significantly lower than in 2012, when a large number of ships were taken out of service as a result of the 2008 financial crisis. This year, however, the dumps were closed for three months and the ships left for the process known as demolition, while the shipyards were reopened.

In the second quarter you had too many ships for too little cargo, says Anil Sharma, managing director of Global Marketing Systems, a US and Dubai-based company that buys more than half of the ships destined for shipyard recycling. Despite the fact that the order book for new ships is fairly balanced, demand for delivery services fell off a cliff during this period.

Rising steel prices on the scrap markets have also led to a change in the economic calculations of some ship operators.

India offers about $370 per tonne of steel, about 30 per cent more than in the second quarter, but cruise ship owners are hammered with only $100 per tonne due to strong demand, Sharma said. The ships are anchored in Greece and are waiting for a niche [in the shipyard] in Turkey, which may take months.

In general, ship operators can obtain about 20% of the original purchase price of a 25-year-old ship by selling it to processors. Under the conditions of a difficult credit market, owners see the scrap market as a potential source of money for the shipping industry, which will have to invest billions in the next few years to develop a new generation of environmentally friendly ships.

According to VesselsValue, 22 ore ships were sold for scrapping this year, compared to a dozen last year and two in 2018. Ten cruise ships were shipped out for disposal this year, after nine ships were scrapped together in the past two years. The scrapping of tankers this year amounted to 28 units, which corresponds to a record number in 2016 in 2012.

The ship’s management indicated that these three ship types accounted for approximately half of the total volume of recycled materials this year. Several container ships have also been ordered for scrapping, but these have been rejected because the demand for freight transport has increased since the end of the summer thanks to the recovery of the production and consumption economy.

For almost five decades Carnival has been building a global fleet of cruise ships. But in light of the pandemic, health authorities and passengers are wondering whether operators like Carnival can navigate safely, says Carter McCall of the WSJ. Photo: Getty Pictures

Write to Costas Paris at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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