Cargo Ships Being Scrapped at Record Rate

The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying industrial commodities, slipped to another all-time low last week on worries about vessel oversupply and slowing global demand according to Reuters.
The Baltic Dry Index is down about 98 percent from its peak of 11,793 points in May 2008, marking the lowest level since the records began in 1985. The Baltic Dry Index is compiled by the London-based Baltic Exchange and measures how much it costs to ship dry commodities, meaning raw materials like grain and steel, around the world.

It is frequently used as an indicator  how well international trade is performing. If the price is low, it suggests trade is slowing.

The drop has been so bad that ships are being scrapped faster than they are being built. Analysts at Deutsche Bank led by Amit Mehrotra have been watching the fall closely and made the following notes:

  • Total dry bulk capacity declined by almost 1M tons (net) last week as the pace of deliveries slowed and scrapping remained elevated.
  • Around 16 ships were sold for scrap last week totaling 1.6M tons. This more than offset 9 new deliveries, translating to a net reduction of 7 vessels.
  • Last week’s scrapping would represent an annualized pace of 11% of installed capacity, which is almost double the all-time high of 6.3% set in 1986.
  • Year-to-date scrapping is up 80% versus same time last year.

It’s bad news for the industry, as it means that ship owners expect demand for cargo transport to remain weak well into the future.

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