The Effect of Vessel Supply on Ship-Demolition Prices

Abstract

The ship-demolition is one of the four main markets that form the shipping industry and plays an important role on the seaborne trade, as it mitigates imbalances between supply and demand for transportation services by adjusting the merchant fleet supply. The aim of this study is to examine whether the factors that determine the supply of vessels for demolition are capable of affecting materially the ship-demolition price formation. The availability of ships for demolition is primarily a function of the fleet's age and the conditions on the freight and secondhand markets. The analysis is conducted on the crude tanker and the bulk carrier segments and the vector autoregressive model methodology is employed, whereby the effect of both the supply and the demand factors on the ship-demolition prices is examined. The results indicate that the supply side has limited effect on the price formation in the industry, which is driven by the demand for the steel-scrap commodity.

The Reflection of Ship Demolition Prices to Construction Costs in Turkey

“…In the study of Kagkarakis (2017) the effects of both the supply and the demand factors on the ship-demolition price formation has been investigated by the vector autoregressive model method in the crude tanker and the bulk carrier markets. The findings of the study have showed that the supply side factors have limited impact on the price formation in the demolition industry.…”

“…There are fairly limited and rare studies focused on the economic analysis of the sector and the factors affecting demolition sector. In summary, the main topics related to the demolition industry in the literature; the probability of a vessel to be scrapped in major demolition yards in the world and impact of several factors on that probability (Knapp et al, 2008), the relationship between international scrap price and demolition price (Kagkarakis et al, 2016), the process of ship sale for demolition (Karlis and Polemis, 2016), the relationship between freight levels and the amount of vessel sent to the demolition (Açık and Başer, 2017), the impact of supply side on the price formation in demolition industry (Kagkarakis, 2017), the relationship between the demolition price and the freight level in the dry bulk market (Açık and Başer, 2018a), market efficiency in ship demolition prices (Açık and Başer, 2018b), ship demolition decisions of individual shipowners in different market conditions (Yin and Fan, 2018). Also, some evaluations are made about ship demolition market through various statistical data in some studies (Buxton, 1991;Mikelis, 2007;Mikelis, 2013).…”

A Decision-Support Tool for Demolition Sale of a Vessel

“…The scrap value of a vessel is a direct function of the demand for scrap steel which in turn defines the price of it, and scrapping costs [34], [35]. Since the main aim of a shipowner is to get the highest price possible for his asset, the ship, an owner with a vessel close to EOL needs to follow scrap steel price and trends closely for the best possible timing of the scrap sale.…”