The Up and Down of Scrapping Old Ships: A Look at Trends in Merchant Ship Demolition
This article dives into the world of merchant ship scrapping, exploring the recent slowdown in activity and what the future holds.
Low Scrapping Volumes in Recent Years
Since 2018, there’s been a surprising trend: shipowners are less likely to sell older or less efficient vessels to scrapyards. This has resulted in the lowest average annual recycling rates for the global merchant fleet in over a decade. These low scrapping volumes are just a fraction of the existing fleet’s tonnage.
Unpredictable Future Forecasts
Predicting future demolition sales is a challenge. Shipping markets are known for their volatility, making it difficult to anticipate how freight market patterns and owner sentiment will influence scrapping decisions. While some informed guesses can be made based on historical observations, additional factors like environmental regulations add complexity.
Reasons Behind the Slowdown
Several factors explain the recent decline in scrapping activity:
- Fluctuations in Freight Markets: Periods of better market conditions, even if temporary, can lead to renewed optimism about future demand and freight rates, encouraging owners to hold onto their ships.
- Uncertainty Around Regulations: Doubts about the impact of upcoming environmental regulations have also caused some owners to delay scrapping decisions.
Scrapping Patterns by Ship Type
The decline in scrapping is particularly evident in bulk carriers and tankers. However, there’s a lot of variation within each segment. For example, in 2023, container ship scrapping surged from a very low level, while tanker scrapping plummeted. These contrasting trends reflect the unique market conditions for each ship type.
What’s Driving the Decline in Scrapping Prices?
Several factors have contributed to the decrease in prices offered by shipbreaking yards in major countries like Bangladesh, India, and Pakistan. These include economic and financial limitations in these regions, along with challenges in accessing financing for scrapping deals.
The Role of Ship Size
Another interesting pattern is the limited involvement of larger vessels in recent scrapping activity. In 2023, for instance, very few large crude carriers or very large crude carriers were scrapped. The focus has been on medium and smaller sized vessels.
The Secondary Role of Scrap Prices
Scrapping decisions are primarily driven by freight market conditions, secondhand ship prices, and expectations for the future. Scrap prices themselves tend to play a less significant role.
The Coming Surge in Scrapping?
Despite the recent slowdown, a significant rise in scrapping activity is expected in the next few years. This is due to several factors:
- The Ageing Fleet: A large portion of the global fleet is reaching the end of its typical lifespan, making these vessels less efficient and potentially non-compliant with new regulations.
- Tightening Regulations: Upcoming environmental regulations, like the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII), are likely to accelerate the obsolescence of many older ships.
Potential Impact of Regulations
The full impact of regulations like the Ballast Water Management Convention and the EEXI remains to be seen. Retrofitting costs associated with these regulations could push some owners towards scrapping their vessels, especially if their remaining lifespan is limited.
Looking Ahead: Increased Recycling Activity Likely
While the exact timing and scale are uncertain, a rise in demolition sales seems inevitable. This could even lead to a doubling of annual recycling volumes within the next few years. The combined effect of an ageing fleet and tightening regulations is likely to outweigh the influence of fluctuating freight markets.
The Hong Kong Convention: A Potential Game Changer
The full adoption of the Hong Kong International Convention for Safe and Environmentally Sound Recycling of Ships in 2025 is expected to facilitate the handling of much higher scrapping volumes in the future.
Conclusion
The recent slowdown in merchant ship scrapping is likely temporary. Several factors point towards a significant increase in demolition activity in the coming years. This trend will be driven by an ageing fleet, tightening environmental regulations, and pressure to reduce carbon emissions.
