In last week, NINGBO MARINE GROUP COMPANY LIMITED(600798, SH) announced that the company would sell the ship named “Mingzhou 28”as scrapped steel ship at the price of RMB 28,450,000. The company said that the company decided to scrap and sell the ship because the ship in service is losing money now caused by depressed market, lower freight rates and high operating cost.

As for the above situation, several shipping industry analysts said to the journalist of “National Business Daily” that it might be a smart move that NINGBO MARINE GROUP COMPANY LIMITED scrapped the ship for sale since the market is not good at present and the shipping freight rates continue falling. In fact, in addition to NINGBO MARINE GROUP COMPANY LIMITED, many shipping companies also chose to dispose the old ships to alleviate burdens.

One shipping industry analyst told to the journalist that the main reason why companies scrap more and more ships are that bad shipping market, surplus shipping capacity and lower shipping freight rates, for example, the recent shipping freight rates is extremely low.

NINGBO MARINE GROUP COMPANY LIMITED Alleviates Burdens by Scrapping Ships

At yesterday, NINGBO MARINE GROUP COMPANY LIMITED announced that on June 14, 2012, the Meeting of Sixth Board of Directors and the Second meeting reviewed and approved “Proposal in Respect of Scrapping the Ship “Mingzhou 28”and decided to sell the above ship to Zhejiang Hongying Ship Recycling Co., Ltd. for scrapping at the price of RMB 28,454,520.

The announcement reveals that the company purchased the above ship in March, 2001 for inland costal shipping line operation. Up to May 31, 2012, the book value of asset is RMB 3,022,200.

“The main reason for selling the ship is that the ship is too old with large fuel consumption and high operating cost, what’s more, the additional inspection fee is extremely high”, the officer of certification office in NINGBO MARINE GROUP COMPANY LIMITED said to the journalist National Business Daily.

In addition, NINGBO MARINE GROUP COMPANY LIMITED announced that the company decided to scrap and sell the ship because the ship “Mingzhou 28”in service is losing money now caused by depressed market, lower freight rates and high operating cost. At the end of June, 2012, the ship’s certificate of classification will expire and require additional inspection and maintenance which means large maintenance fee. And the estimated inspection fee may exceed RMB 4,000,000.

In fact, in addition to the ship “Mingzhou 28”, the journalist finds that on April 14, 2012, the company has sold the ship named “Mingzhou 3”with vessel age of 34 years as scrapped steel ship.

The Scrapping Trend Rises Because of Depressed Market

As for the sale of old ship owned by NINGBO MARINE GROUP COMPANY LIMITED as scrapping steel ship, the industry insider points out that it might be a good thing that the company chooses to decrease the shipping capacity for the market is depressed now.

“At present, the shipping capacity is surplus, or the company may not choose to scrap the ship if the market demand is large”, a shipping industry analyst said when interviewed by journalist of National Business Daily at yesterday.

The industry insider reveals that the service life of coastal vessels specified by China is generally 30 years while that of the ocean-going vessels is 25 years. However, recently the scrapping volume is on the rise, so many shipping companies choose to dispose the old vessels.

The journalist learned that in addition to the NINGBO MARINE GROUP COMPANY LIMITED, the COSCOL Shipping Co., Ltd. (600428, SH), China Shipping Development Company Limited and other shipping companies also have disposed and scrapped many old ships.

The 2011 annual report of COSCOL Shipping Co., Ltd. reveals that the company has scrapped 11 old ships in that year with the original value of RMB 0.47 billion, depreciation value of RMB 0.41 and the net value of RMB 58.71 million. Certainly, comparing to last year, the above returns causes the non-business income of the company in 2011 increases by 114.26% because of the above returns.

The 2011 annual report of China Shipping Development Company Limited also reveals that the company has scrapped 10 old ships in that year with the net non-business income of RMB 0.169 billion. Meanwhile, on May 30, 2012, China Shipping Development Company Limited announced that the company would sell the bulk freighter “LINIUX 202”and “LINIUX 203” as scrapped steel vessels to the DGDL Materials Recycling Company of Shanghai Shipping (Group) Co., Ltd. for scrapping and the sale value is about RMB 32.54 million.

One shipping industry analyst told to the journalist that in many cases, the reason why the shipping companies choose to scarp the ships is that the operating cost of the old ships is too high, rather than the technical life of the ships expire or the depreciation has been completed in financial.

In addition, the above industry insider told to the journalist that the main reason why companies scrap more and more ships are that bad shipping market, surplus shipping capacity and lower shipping freight rates, for example, the recent shipping freight rates is extremely low.

According to the data released by Shanghai Shipping Exchange on June 8, 2012, the China Coastal (Bulk) Containerized Freight Index closed at 1065.70 points, which falls by 1.1% compared to last week. Whereof, the China Coastal (Coal) Freight Index (CBCFI) closed at 606.30 points, which falls by 3.4% compared to last week. The freight rates of coal transportation market hits the new low record.

According to the February statistic data of Clarkson, the increasing rate of global dry bulk in 2011 is less than 5%. Meanwhile, a large number of new ships are put on the market in a short time, so the increase of shipping capacity is up to 14%, though the scrapping volume of the old ships breaks 20 million deadweight tonnages.