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A container ship that was priced at $60 million in 2010 was sold for scrap at only $5.5 million this year.

The Hammonia Grenada is one of many container ships that have recently been sold off for scrap at incredibly low prices due to growing overcapacity in the shipping industry—in other words, too many ships in relation to the amount of actual ocean freight.

One reason is that companies in the container shipping industry have attempted to cut costs by increasing scale with bigger ships, according to Rahul Kapoor, director of Drewry Financial Research Services.

Shipping has overcapacity in relation to sea freight demand

The Panama Canal had new locks built that could accommodate “Neo-Panamaxes”, container ships that could carry up to 13,000 TEU (20-foot containers) versus the previous size of 5,000 TEU, and other ports are following suit.

However, a sudden drop in cargo demand has led to a surplus of ships, and smaller container ships like the Hammonia Grenada are now selling dirt cheap as they are replaced by the larger models.

According to the World Trade Organization, growth in global trade increased only 15% between 2007 and 2015. But the number of vessels for commercial shipping has grown 50% since before the financial crisis.

Kapoor of Drewry believes there may now be a turning point, with global freight rates set to increase 12%, and an easing of overcapacity.

Nevertheless, trade expansion continues to stagnate.

(Source: BBC News)

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