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Analysts have been predicting that the pace of ship recycling would be increasing as the industry begins to deal with issues ranging from emissions regulations and the EU’s carbon tax to the International Maritime Organizations CII and EEXI rules for ships coming into effect. Yet according to industry trade group BIMCO, the continuing shocks ranging from the pandemic to the Red Sea and strong demand in sectors such as tankers have conspired to keep ship sales to scrappers or recycling at modern lows.

“A combination of strong demand following a series of market shocks and low orderbooks have kept older ships operating for longer than usual,” writes BIMCO analyst Filipe Gouveia. “Ship recycling will inevitably rebound in the coming years,” the analysis predicts while noting it will take increases in new orders and a stabilizing of demand.

According to BIMCO, over the past eight quarters, ship recycling of bulkers, tankers, and containerships has dropped to the lowest level in 20 years. They highlight that the last time recycling was this low for a prolonged period was before the 2008 financial crisis.

During the first quarter of 2024, only two million deadweight tonnes (DWT) of ship capacity were recycled BIMCO calculates. This marks the ninth consecutive quarter with recycling levels below three million DWT. 

“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,” says Gouveia. “On average, only 0.1 percent of the fleet has been recycled during this period compared with 0.45 percent on average during the past 20 years.”

The current security situation in the Red Sea is the latest in a series of shocks that have boosted demand for ships. They note that 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 attacks by Houthis. 

This helped to slow the small number of containerships that had started to go to the breakers in recent months as the industry grappled with overcapacity. Lines were forced to reactivate tonnage and defer some possible retirements while companies such as Ocean Network Express (ONE) just reported it was delaying addition to its U.S. East Coast service. 

In other market segments, they highlight that during 2022 and 2023, sanctions on Russian oil and coal exports had a similar and lasting impact on the tanker and bulk sectors. At the same time, both the bulker and tanker segments had low orderbooks for ships. BIMCO highlights that newbuilding deliveries in these segments have also reached the lowest levels in 20 years.

Despite the low level of deliveries seen recently, BIMCO highlights the growth in expected new ship deliveries. For example, in the container sector, they report 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.

BIMCO believes that 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, BIMCO still expects that more than twice as many ships will be recycled between 2023 and 2033 than were recycled during the past 10 years.