The shipping industry is taking a beating.
As the Wall Street Journal reports, about 1,000 ships capable of hauling 52 million metric tons of cargo will be cut up and sold for scrap metal this year. Owners have only ordered 293 vessels this year through July — a stark decrease from 2010 to 2015 when owners were buying 1,450 ships annually.
The reason? A stagnant global economy that stems back to little growth in Europe and a slowdown in China. Chinese imports from the European Union fell 14% last year, the WSJ reports. In the first quarter of this year, Chinese imports from the EU fell 7% from a year prior. Exports to Europe have fallen as well.
All of that means there’s an overcapacity of ships, leaving owners no choice but to leave them idle or recycle them. Typically, ships are recycled every 30 years. But this year, the average of ships getting recycled is 15 years.
“If you go back five years ago, people saw growing demand at very high rates. There was a bit of an uptick in the number of ships that were brought on, particularly in 2012, 2013, and 2014,” Sean Monahan, a partner at the consulting firm A.T. Kearney, told Business Insider.
“But generally demand has flattened, and in some cases a little bit declined …. there are a lot more ships either being dry docked or being scrapped,” Monahan, who is an expert on shipping, said.
And owners aren’t getting the same bang for their buck when recycling ships, either. A sharp drop in the price of steel has dropped the rate of return an average of 10% to 15% of the price of a new ship, the WSJ reported.
Monahan said he sees this being an issue for the next two to three years before demand bounces back to the point where more ships can be in use.
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