As Charter Market Soars, Boxship Scrapping Hits Six-Year Low

Maersk boxship at alang
File image courtesy Maersk

Published Jan 22, 2022 3:04 PM by The Maritime Executive

Aging boxships that would ordinarily be decommissioned continue to remain in service as owners take advantage of a booming container charter market, according to Alphaliner.

In its latest weekly report, Alphaliner says that last year saw a significant decline in the demolition market as container ship owners opted to keep aging vessels in service. The impact has been a substantial decline in demolitions, with just 16,500 TEU of container carrying capacity scrapped in 2021 - a six-year low. The annual rate is just a fraction of the 194,500 TEU scrapped in 2020 and the 655,000 TEU removed from the market in 2016. 

The demolition market slowed significantly in the second half of the year, when the boxship charter and resale markets were soaring and big carriers like MSC were buying up older, smaller tonnage at any price. During this period, only four ships were sold for demolition globally, all of which had an individual capacity of less than 1,000 TEU.

This was despite a spike in scrap prices, with buyers in Turkey, Bangladesh, India and Pakistan offering nearly double the prices of 2020. Demolition prices in South Asia were recently at $560-615 per LDT, while demolition prices in Turkey were around $340.

“The red-hot charter market and the astronomical charter rates obtainable have prompted [non-operating shipowners] to retain in their fleets older ships of 20-30 years of age, many of which would have otherwise been recycled had the market turned out differently,” said Alphaliner.

Port congestion and supply chain crises across the globe last year ignited an exponential surge in boxship charter rates. Day rates quadrupled from the start of the year, hitting a peak of $110,000 per day in September. By comparison, rates were hovering around $6,000 a day in June 2020.

As an example of the changed earning potential, one 20-year-old 2,200 TEU ship was chartered at a rate of $35,000 per day - compared to just $9,000 before the onset of the COVID-19 pandemic.

Alphaliner noted that this was a once-in-a-lifetime opportunity that non-operating owners could not afford to miss, despite the current attractive demolition prices. This year, chartering rates are forecast to remain high due to a persistent shortage of tonnage, a development that is expected to allow boxship owners to leverage longer hire periods.

The container ship demolition market is projected to rebound slowly to about 60,000 TEU per year before rising further in 2023, when a raft of newbuildings will finally push older ships out of the market.