The Ballast Water Management Convention (BWMC) that will come into force next year may accelerate the scrapping of old ships as owners need to evaluate the cost of fitting the required equipment in their ships, according to an analyst with Arctic.
There are about 40 different systems on the market at the moment and ranging in cost from USD0.5 million to USD5.0 million, depending on technology and vessel size, said Andreas Wikborg, shipping analyst at Arctic in Oslo, adding that the system must be fitted to existing vessels in their first dry docking after September 2017.
Vessels less than 10 years of age would not pose an issue for their owners, but starting with the third special survey, the cost of the equipment becomes a cost consideration, he said in a market report.
Assuming a cost of between USD1 million and USD3 million for the system, the equipment would add between USD275 to USD825 per day to the cost base of the vessel. Using the same cost range for the equipment, Wikborg has calculated that the daily cost addition rises to USD550 per day in the fourth special survey and further to USD3,300 in the fifth one.
“Although the decision to take vessels through fifth (and in some instances third/fourth) dry dock often depends on current rate environment, we see the incremental cost per day as likely leading to higher scrapping rates,” Wikborg said.
Between 15% and 25% of the existing merchant fleet face increased prospects of scrapping due to the new rules, Wikborg said, adding that about 6,600 vessels are due for either third, fourth or fifth special survey between 2018 and 2020. These include about 1,550 dry bulk carriers, 1,300 container ships, and a total of about 1,600 crude and product tankers.
“We are fully aware that not all vessels included here will be scrapped – some will have BWTS [ballast water treatment system] installed and some will likely be exempt or trade in regions ‘less scrutinised’. Nevertheless, with a shipping market that looks oversupplied in the majority of segments, we see the regulatory impact of Ballast Water Treatment as a factor that is largely overlooked when considering the long-term prospects. We find the prospects of constrained fleet growth as a consequence of shipowners deciding to scrap as opposed to go through a third-fifth dry dock as a positive where the impact will be seen in 2018 onwards,” he concluded.
Jonathan Spremulli, technical director at the International Chamber of Shipping (ICS) said that shipyards may struggle to find the capacity to fit the equipment to all ships that require it in the next few years. Using International Association of Classification Societies (IACS) figures, he estimated at the ICS annual conference in London that there could be a shortfall of retrofit slots of 1,900 to 2,000 ships by 2020.
Both Wikborg and Spremulli draw attention to important questions. As the implementation of the BWMC has been – and remains – a complex issue, a lot of attention has been paid to issues relating compliance and other technical matters.
However, the availability of slots at shipyards to retrofit the equipment and the cost effect on owners’ decisions regarding to which vessels fitting the equipment is cost effective, has received far less attention.
Should it happen that the predictions of Wikborg materialise, perhaps helped by the notion of Spremulli regarding yard capacity, the serious overcapacity that continues to plague many sectors of shipping could be eased by the BWMC.
However, estimating the extent to which old tonnage would be scrapped must be very difficult as this depends on various factors, including the development of freight rates and individual owner’ perceptions of how their respective markets would develop.