The prices for demolishing container ships are expected to go up due to several factors. The continuous schedule of new ship deliveries, a slow charter market, and reduced demand for steel in China are causing prices to decrease.
A ship brokerage company named Braemar has confirmed that this year, 57 ships with a capacity of 110,000 twenty-foot equivalent units (TEU) have been sent for demolition. This is a significant increase compared to last year, where only four ships with a capacity of 2,750 TEU were demolished by August 14, 2022. It’s estimated that a total of 105 ships, amounting to 207,000 TEU, will be scrapped by the end of this year.
Jonathan Roach, a researcher at Braemar specializing in containers, noted that the number of demolitions is lower than anticipated. He attributed this to slower ship speeds and the upcoming introduction of carbon charges by the European Union in January.
Roach explained that the consistent schedule of new ship deliveries is putting pressure on the need to get rid of older ships that are no longer in use. The rate of demolitions is expected to increase at the end of 2023 and even more in 2024, coinciding with the influx of newly built ships.
In the first half of 2023, 126 container ships were delivered, and another 210 are expected in the second half of the year. An additional 381 deliveries are planned for 2024.
Braemar’s reports show that companies like Maersk and MSC are actively scrapping old ships to make space for new ones. The chartering market remains active despite the slower summer period. Although charter rates are generally stable, there is a negative trend. Rates and time periods for most segments are decreasing gradually.
Braemar predicts that around 160 ships will be scrapped next year, and a similar number will be scrapped the following year. New vessels, especially those with capacities of around 15,000 TEU, will replace ships in the range of 5,100 to 7,500 TEU.
Roach pointed out that there are 145 ships with a capacity of 880,000 TEU that are over 20 years old in the 5,100 to 7,500 TEU range. In comparison, there are only 28 ships over 20 years old in the 7,500 to 10,000 TEU range. Historically, ships have been scrapped at an average age of 17.5 years.
Generally, the size of a container ship corresponds to its age, with smaller ships being older. The industry has favored larger ships to save costs. Consequently, even traditional panamax ships (4,000 to 5,099 TEU) are likely to be scrapped. Currently, 84 vessels of this size are over 20 years old, and an additional 60 will reach that age milestone in 2024.
Given the decline in freight rates and the continuous influx of new ships, the demolition market is expected to remain active.