Ship recycling hits 20-year lows

Ship recycling of bulkers, tankers, and container ships has dropped to the lowest level in 20 years over the past two years, according to the world’s largest international shipping association BIMCO.

The organisation claimed that only 2m dwt ship capacity was recycled during the first quarter of 2024. This marks the ninth consecutive quarter with recycling levels below 3m dwt. BIMCO stated that the last time recycling was this low for a prolonged period was before the 2008 financial crisis.

These numbers coincide with research done by analysts at Clarksons. They said that 2.5m dwt was reportedly sold for recycling in the year through to March 22 which, they claim, was broadly in line with the historically low levels seen in 2022-23. Clarksons also revealed that 31% of the global merchant fleet is now above 15 years old.

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GMS, a cash buyer of ships for recycling, said in its latest weekly newsletter that a small, yet growing number of demolition yards could be entering a “vegetative state” sooner rather than later. It also described current conditions as an “extremely malnutritioned spread of recycling tonnage”.

A factor in this is the current security situation in the Red Sea which has boosted ship demand. A larger number of ships is needed to transport the same amount of cargo as sailing distances increase when ships reroute via the Cape of Good Hope due to the risk of Houthi attacks.

“A combination of strong demand following a series of market shocks and low orderbooks have kept older ships operating for longer than usual,” said Filipe Gouveia, a shipping analyst at BIMCO.

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During 2022 and 2023, sanctions on Russian oil and coal exports had a similar and lasting impact on the tanker and bulk sectors while the covid pandemic caused a spike in container demand.

“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,” Gouveia said.

Another part of the recycling equation is the limited tanker and bulker orderbooks seen in recent years. BIMCO noted that combined bulker and tanker newbuilding deliveries have also reached the lowest levels in 20 years.

However, BIMCO does see a silver lining for ship recycling. Namely, 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.

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“Ship recycling will inevitably rebound in the coming years. The ships that would have been recycled if the Cape of Good Hope rerouting 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 that more than twice as many ships will be recycled between 2023 and 2033 than were recycled during the past 10 years,” concluded Gouveia.

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