Container Shipping Crisis: One in Five Ships Faces Demolition, Industry in Turmoil
The global container shipping industry is facing a significant challenge. New analysis by Alphaliner reveals that one in five container ships around the world is ready for demolition. The largest liner in the world, the Mediterranean Shipping Co (MSC), is responsible for nearly a quarter of all container ships aged 20 years or older. This means that MSC’s decisions regarding when and how many ships to scrap could have a substantial impact on the fortunes of other shipping lines, particularly in light of the overcapacity projections that are expected to plague the container sector in the coming years.
MSC embarked on a massive buying spree of container ships in August 2020, acquiring a total of 330 secondhand liner vessels. Out of these, a staggering 145 are 20 years or older, indicating the aging profile of MSC’s fleet. In fact, the global fleet of container ships aged 20 years and older currently stands at around 1,200 vessels, with a combined capacity of approximately 2.9 million twenty-foot equivalent units (TEU). This represents just over 20% of the total fleet of cellular container ships and 10.5% of the transport capacity in the industry, according to Alphaliner’s analysis.
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Container shipping is at a critical juncture, entering a once-in-a-generation fleet renewal period. This renewal comes at a time when the existing fleet is ripe for significant scrappage. BIMCO, a shipping organization, recently reported that container ships have reached their highest average age ever, standing at 14.2 years. This is notably higher than the average ages in other major shipping sectors, with dry bulk vessels averaging 11.9 years and tankers averaging 12.8 years.
Furthermore, data from Clarksons Research indicates that there are currently 902 container ships on order, which is an all-time high and equivalent to 25% of the existing fleet. Despite the container shipping industry experiencing a significant downturn in freight rates over the past 15 months, the recycling or scrapping of ships during 2023 has remained relatively low compared to the previous decade. In the first nine months of the year, only 57 ships have been recycled, compared to an average of 81 over the previous 10 years.
The pressure to scrap older vessels is expected to intensify as the container shipping industry faces several quarters of financial losses. Clarksons data also reveals that 2.5% of the container ship fleet is already over 25 years old, which is a concerning sign of aging vessels in the industry.
The container carriers are anticipated to collectively report a combined loss of $15 billion in 2024, as predicted by the Container Market Annual Review and Forecast from UK consultants Drewry. Drewry further suggests that it may not be until 2026 that fleet growth and demand align, indicating a prolonged period of oversupply in the industry.
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Sea-Intelligence, another prominent analysis group, is even less optimistic, projecting that overcapacity absorption may not occur until 2028. This timeline aligns with the post-global financial crisis recovery period, suggesting an eight-year cycle to restore balance in the container shipping industry. Sea-Intelligence points out that this cycle resembles the one that occurred from the financial crisis until balance was restored in 2017.
In summary, the container shipping industry is facing a complex challenge. With a significant portion of the global fleet aged 20 years or older, and a record number of new vessels on order, there is an urgent need to address the overcapacity issue. The decisions made by major players like MSC in scrapping older ships will impact the industry’s future. With financial losses on the horizon and uncertainty about when supply and demand will align, the container shipping sector is navigating through a period of significant change and uncertainty.
