THE EFFECT OF VESSEL SUPPLY ON SHIP-DEMOLITION PRICES

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.