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Demolition Sales Continue Below Expectations

demolition sales
Demolition sales were below forecast for the start of 2023 (file photo)

Published Apr 25, 2023 4:14 PM by The Maritime Executive

Analysts continue to forecast a coming surge in demolition sales, yet despite weak demand from shippers and falling freight rates, the sales for recycling have still failed to materialize. While there has been some selective weeding out of ships, sales to scrappers remain below expectations and especially in the containership sector hit hardest by the falling rates and beginning to see a surge in the delivery of new capacity.

“Demolition sales have increased at a slower pace than anticipated in the first months of 2023,” wrote the analysts at Alphaliner in their recent report on the market. Despite a rise in the number of idle vessels, they cite continued high charter rates and the strength of the secondhand market as factors continuing to delay the anticipated increase in containerships being sold for recycling.

Calculating sales year-to-date, Alphaliner reports that only 28 containerships have gone for scrap so far in 2023. Owners are not rushing to dispose of ships, with the data showing the average age remains high at 28 years. Among the leading sellers, MSC has been the most active to clear out old tonnage selling three 1980s vintage ships. Other sales are coming from vessels built in the 1990s. 

Equally telling is that owners are not rushing to dispose of larger capacity vessels, despite the current overcapacity on many routes and the increase in the number of idle ships. Alphaliner reports only 48,555 TEU was sold in total so far in 2023 with the ships ranging from a capacity high of 6,572 TEU to a low of just 591 TEU. The bulk of the sales (80 percent) came at the smallest end of the capacity range between 1,000 and 2,000 TEU.

“Some owners,” Alphaliner writes are “keen to prolong the commercial life of ships that would have been torched”

The anticipation was that 2023 would reverse the trends of the past few years. Scrapping peaking in the 2016–2017-time range during the last market slowdown with a total of approximately one million TEU in capacity sent off for recycling. Even in 2020 as the industry started to see growth in demand, nearly 200,000 TEU of capacity was sent for demolition. 

The bottom fell out of the demolition market in 2021 and 2022. Alphaliner calculated that just 16,500 TEU was sold in 2021 saying it was the lowest level in at least six years. In the second half of 2021, just four containerships were sent off for recycling and all of them were among the smallest ships with individual capacities of under 1,000 TEU.

Alphaliner expected a market rebound in 2022 saying that approximately 60,000 TEU would be removed from the sector with the expectation the rate would rise higher in 2023. However, with market demand, secondhand sales, and charter rates remaining at peaks for most of the year, Alphaliner reported the market fell to a new low far from its beginning-of-year forecast. Just six containerships went for scrap in all of 2022 with a total capacity of 10,600 TEU they calculated. 

The demolition market is up from 2022 when no containerships were sold for recycling during the first eight months of the year, but it is not meeting projections. Forecasts were that when Wan Hai in December 2022 announced the retirement and tender for scrap of 10 ships built in the 1990s it would be the beginning of a broad culling of fleets, which has simply not happened.

Alphaliner continues to highlight the coming influx of new tonnage and larger capacity ships as well as a new generation of more efficient feeder vessels. They also highlight the introduction of the Carbon Intensity Indicator (CII) and other environmental regulations including the pending carbon pricing by the European Union. Their analysts believe these factors still point to a coming increase in scrapping rates to remove older, less efficient ships, and that it is just delayed as owners hold on as long as possible before the economics and market conditions drive the growth in demolitions.