Economy - BIMCO Bulletin

Economy

ECONOMY June 2020 Lay-ups reaching 2009 levels as owners lose faith in swift recovery By Mette Kronholm Frnde, Communications Manager and Editor at BIMCO The interest in lay-up more than testifies that the outbreak is hitting economies The number of ships heading for lay-up is growing, as the Covid-19 crisis continues to depress production, consumer spending, economies and world trade. The rise in enquiries for placing ships in lay-up reflects shipowners expectations that the market will not be recovering any time soon. With more than 10 per cent of the world container fleet around 2.4 million twenty-foot equivalent units (TEUs) currently lying idle and the already existing overcapacity topped up by a drop in demand caused by the Covid-19 outbreak, the pool of ships being placed in lay-up or scrapped is growing. The interest in lay-up more than testifies that the outbreak is hitting economies and, therefore, shipping markets. When a shipowner goes for cold lay-up, regardless of timeframe, it is not something they do because they want to. It is something they do because they have to. The current 10 per cent is tragic, says BIMCOs Chief Shipping Analyst, Peter Sand. If you decide to lay up whether hot or cold or scrap ships that are at the end of their commercial lifecycle, you do so because the market is so bad that you cannot see the return of a decent level of demand anytime soon. According to Sand, the share of both hot and cold lay-ups is likely to pick up, especially for ships of 10 to 20 years of age, while more modern and efficient ships will be kept operating. There is still a lot of cargo that needs to be transported. But there is not enough for everyone, as a result of the outbreak, and therefore, we are seeing an increase in lay-ups, he says, adding that while lay-ups are increasing for dry bulk too, it is primarily container shipping recording the rise. There is still a lot of cargo that needs to be transported. But there is not enough for everyone We are moving into territory not seen since 2009 in the aftermath of the global financial crisis. Overcapacity has become more significant, and even liner-owned ships are seeing occasional cold lay-ups now. The extent of which, we only saw in 2009 in locations such as Labuan, East Malaysia. In Labuan, Wilhelmsen Ship Management, a company operating its own lay-up services for clients, has reported that it is receiving a large number of enquiries from nearly all sectors of shipping. We are moving into territory not seen since 2009 in the aftermath of the global financial crisis No V-shaped recovery in sight Sand believes the level of lay-ups as a result of the Covid-19 outbreak will exceed levels seen during and in the aftermath of the financial crisis in 2009, when 10 per cent of the world container fleet was idle. That level has already been reached and there is growing uncertainty about how the situation will develop. The increasing interest in lay-ups offers insight into the minds of shipowners. It tells us that they do not see a V-shaped recovery in the wake of the virus outbreak. They only put ships in lay-up if they see this dragging on and need to act rather than sitting on the fence doing nothing, he says. When markets are facing a drop in demand, like the one expected in the wake of the outbreak across the globe, every owner and operator will look at costs to compensate for evaporating revenues and freight rates under pressure. While operators have the possibility to redeliver ships as soon as the contract allows to cut costs if fixtures are unprofitable, for owners, the ships end up in their hands eventually, unless they are ready to be scrapped, says Sand. Photo (top): iStock / owngarden As an owner, you have to pay heed to operational expenditure and financial expenditure on every ship. Looking at the cost implications from keeping it in the water ready to take the next cargo, as opposed to bringing it into cold lay-up, comes down to expectations about when you believe the market will return and how much money you have in the war chest to ride out the storm. BIMCOs Ship Lay-up Guide can be ordered through Witherbys. Connect with BIMCO Facebook Twitter Linkedin YouTube