The owner is tangled! The record-breaking price of the ship and the freight rate are still high. Will the container ship be demolished or not?

The booming container market has delayed the scrapping of hundreds of old container ships. However, as the shipping market begins to fluctuate and scrap steel prices are at record highs, whether to dismantle container ships has become a tangled issue for shipowners?

Currently, the number of potential ships in the ship recycling market has risen to an all-time high. According to Braemar ACM shipbrokers, there are currently about 730 container ships aged 23 years and above, which have reached the average age of ship scrapping.

Most of the old container ships are under 2000TEU. In terms of vessel numbers, these 730 vessels represent 13% of the entire fleet, which means there are many container ships waiting to be "retired".

The owner is tangled! The record-breaking price of the ship and the freight rate are still high. Will the container ship be demolished or not?

Workers at a Bangladeshi shipbreaking yard are at work, but not a single container ship has been sent to the country for demolition this year

Is now the right time to scrap the ship?

So far this year, the shipping market and the charter market are at all-time highs, so the demolition market is still inactive.

Braemar ACM data shows that time charter rates are 396% higher than the 5-year average and spot market rates for container shipping are 250% higher than the 5-year average. That's why the demolition market is in a slump right now, the company said.

Jonathan Roach, container market analyst at Braemar ACM, predicts that the arrival of larger, more specialized container ships will have an impact on the container demolition market.

Hapag-Lloyd CEO Rolf Habben Jansen noted that things could change soon. There are signs that the shipping market has reached its peak.

The first volatility in the shipping market is emerging, with rates from Asia to Europe down 30% from their peak earlier this year.

The doubling of the high dismantling price has not attracted shipowners, and only one ship has been scrapped this year

Ship breakers have been raising prices for scrap due to a lack of scrapped container ships, and the current sale of container ships will also allow liner companies to benefit from the highest demolition prices in history.

But so far, high scrap prices have not lured owners to abandon older ships.

Container ship dismantling prices have doubled since the onset of the Covid-19 pandemic, with prices recently breaking $700/ldt, a record high, Braemar ACM data shows.

However, the number of abandoned container ships remains practically zero. Only one container ship was dismantled this year, the 1,700 TEU "Matsonia", a ro-ro container ship owned by Matson in the United States. It was built in 1973 and was sold to an Indian shipbreaking yard for dismantling in January this year. .

In addition to this, only 18 container ships with an average size of 800TEU will be demolished in 2021.

The owner is tangled! The record-breaking price of the ship and the freight rate are still high. Will the container ship be demolished or not?

Data provided by Clarksons Research for Xinde Maritime Network shows that so far this year, not a single container ship has been scrapped. Only 16 ships will be scrapped in 2021.

Who will give in first?

As more new container ships are delivered, the likelihood of container ship scrapping is likely to increase next.

Jonathan Roach pointed out that the "demolition effect" will emerge as older, traditional Panamax container ships are gradually replaced by larger, newer container ships.

This could open up the possibility of more demolition if trade demand is sluggish in the coming years.

About 148 container ships aged 23 years and above are about to enter the special inspection period this year, 173 in 2023 and 150 in 2024.

Jonathan Roach said this figure shows that there is a large number of potential ships waiting to be scrapped and it will be interesting to see who will give in first to profit from the high scrap prices. "

Clarksons also predicts that demolition activity will increase in 2023, when the tonnage to be dismantled could reach 164,000 TEU.

This would be a milestone volatility in recent years, but still dwarfed by the peak year of 657,000 TEU dismantling in 2016.

Braemar ACM said the decision of shipowners to dismantle ships will depend largely on whether containership earnings remain strong, although shipping earnings are likely to decline between late 2023 and 2025. Therefore, it is expected that the dismantling of container ships will increase from 2024 to 2026 to adapt to the trend of larger and more specialized ships.

Source: Xinde Maritime