Only 2M dwt of ship capacity was recycled in Q1 2024, marking the ninth consecutive quarter with recycling levels below 3M dwt. The last time recycling was this low for a prolonged period was before the 2008 financial crisis.
BIMCO attributed this to a combination of strong demand following a series of market shocks, and low orderbooks keeping older ships operating for longer than usual.
“Over the past eight quarters, ship recycling of bulkers, tankers and container ships has dropped to the lowest level in 20 years. A combination of strong demand following a series of market shocks and low orderbooks have kept older ships operating for longer than usual,” remarked BIMCO shipping analyst Filipe Gouveia.
“As the fleet is currently much larger than before the financial crisis, recycling during the past eight quarters has been at the lowest level in 20 years. On average, only 0.1% of the fleet has been recycled during this period compared with 0.45% on average during the past 20 years,” said Mr Gouveia.
High demand and freight rates, and limited orders for new tankers and bulkers have kept ship recycling low. In addition, combined bulker and tanker newbuilding deliveries have also reached the lowest levels in 20 years.
The current security situation in the Red Sea is the latest in a series of jolts that have boosted demand for ships.
Underlying trends towards longer-haul voyages in the Atlantic oil and iron ore export sectors, and the events in Red Sea where vessels are being targeted by Yemen’s Houthi militants, have amplified the ’distance kicker’ to overall shipping demand.
These disturbances and the resulting diversions have benefited many larger vessel classes. Older tonnage that would otherwise have been sold for scrap has found new employment at a premium moving oil and products around the Cape of Good Hope.
During 2022 and 2023, sanctions on Russian oil and coal exports had a similar and lasting impact on the tanker and bulk sectors. BIMCO added that consumer behaviour also changed during the Covid pandemic, causing a spike in container demand.
Despite the low level of deliveries seen recently, some indicators point to stronger fleet development in the near future. In the container sector, the newbuilding delivery record from 2023 will be broken in 2024 and supply is expected to grow faster than demand.
In the tanker sector, recent increases in newbuilding contracting will cause deliveries to rise significantly in 2025 and 2026, while cargo volume growth could remain low.
However, BIMCO believes the rebound is inevitable as new tonnage and regulations make it necessary. Mr Gouveia added, “The ships that would have been recycled if the Cape of Good Hope rerouteing had not been necessary, will likely be recycled soon after the situation is resolved. Therefore, despite this short-term lull in recycling, we still expect more than twice as many ships will be recycled between 2023 and 2033 than were recycled during the past 10 years.”
