Shipowners jettison the scrapping option
Since 2018 shipowners generally have been reluctant to sell older or less economical ships to breakers’ yards. During the past five years average annual recycling totals in the world merchant ship fleet were the smallest since an exceptional freight market boom, with associated reduced scrapping, ended almost sixteen years ago in 2008. Further emphasising how low scrapping has been, volumes were minor percentages of the existing fleet.
In individual recent years relatively large annual recycling totals for bulk carriers and tankers were seen, preceded and followed by low annual volumes. But for the merchant ship fleet as a whole, durIng the past five years scrapping averaged under 1% of the fleet’s beginning-of-year deadweight tonnage. In the previous five years an average 2% was scrapped annually, while levels in earlier years were higher at 3-4%.
What is likely to happen in the years ahead? Even in the short-term future of up to twelve months ahead, forecasts of demolition sales typically prove incorrect. Unpredictable volumes are an enduring feature of shipping markets, because it is usually not predictable how freight market patterns and changes in sentiment and expectations will affect owners’ scrapping decisions. For the longer-term future most estimates are based on guesses, albeit informed by historical observation. Adding to more recent perplexity has been the unclear impact of environmental regulations. However, signs suggest that tightening regulations and an ageing fleet in many sectors may boost demolition in the next few years.
Scrapping trends
Typically merchant ship volumes scrapped vary greatly from year to year as shown in the graph. These volumes offset a proportion of new capacity – newbuilding deliveries – joining the fleet, thereby moderating fleet growth to a greater or lesser extent. The graph emphasises how low annual scrapping activity was in the past few years, compared with the preceding period.
In 2022 and 2023 annual merchant ship scrapping – bulk carriers, tankers, container ships, gas carriers and other ship types – totalled 11 million deadweight tonnes in each year. These totals, based on Clarksons Research data, were half the volumes seen in the previous three years, 2019 to 2021, when an average 21.7m dwt was recorded.
The figures are also well below a 29m-59m dwt annual range recorded in the previous ten years from 2009 to 2018, resulting in an average of 39.9m dwt annually for that period. After the shipping market collapse caused by the world financial crisis and accompanying global recession in 2008-2009, merchant ship recycling rose to record high levels including 44m dwt in 2011, a peak 59m dwt in 2012, and 48m dwt in 2013, resulting in a three-years total of 150m dwt. Since then only one year, 2016, saw a total approaching these levels at 45m dwt.
Calculations showing these figures as proportions of the existing world fleet provide a further perspective on the receding contribution of demolition sales. During the ten years from 2009 to 2018, scrapping was within a range of 2-3% of the existing fleet in eight of the ten years. The average was 2.5%. Since then in the past five years, 2019 to 2023, the average was a third of this percentage, a minimal 0.8% of the fleet scrapped annually.
A large part of the merchant fleet scrapping decline has reflected reduced bulk carrier demolition sales, emphasised in the next graph. This pattern has been especially prominent in the past three years, 2021 to 2023, when bulk carrier scrapping averaged 5.0m dwt annually, compared with a 9.2m dwt average in the preceding three years, and much higher levels previously. Another large part, tanker scrapping averaged 5.6m dwt in the past five years after a 8.9m dwt average in the previous five years. Within the container ship segment scrapping averaged 1.5m dwt in the past five years, compared with a 4.8m dwt average in the preceding five years.
Several influences explain the trend towards limited scrapping. This trend may seem inconsistent with surplus capacity in the world merchant ship fleet, a prominent feature over much of the past decade or longer. The surplus varied in intensity among segments, and varied from year to year in each segment. Subdued freight markets prevailed for a large part of the period, interspersed with occasional upturns. When there were signs of better market conditions for whatever reason, there was sometimes renewed market optimism for an eventual fundamental improvement in the vessel demand/supply balance and freight rates. Despite great uncertainty about prospects, the positive pointers bolstered owners’ confidence, restraining sales for demolition. Increasingly also in recent years doubts about replacement tonnage amid regulatory uncertainty had an impact.
Patterns of recent scrapping
Looking in more detail at recycling sales in the world merchant ship fleet during 2023, activity remained remarkably stable but the composition varied. The total was unchanged from the previous year at 11.0m dwt, according to Clarksons Research provisional calculations which may be revised significantly. This volume was again equivalent to a minimal half of one percent of the fleet capacity measured at the beginning of the year.
Within the overall figure contrasting changes among the main segments were seen, as the above graph shows. Container ship scrapping surged in 2023, albeit from a very low level, raising the volume from 0.2m dwt in the previous year, to 2.3m dwt. Gas carrier (lng and lpg) scrapping rose from 0.2m dwt to 0.5m dwt. By contrast tanker scrapping plummeted from 5.1m dwt to 0.9m dwt. In the bulk carrier segment, demolition sales rose from 4.3m dwt to 5.4m dwt.
Differing freight market performances coupled with expectations of the future trend were reflected in these varying demolition sales outcomes. The tanker market provided a clear example of how the main influences usually affect recycling activity. Improved employment opportunities, freight rates and prices for sales on the secondhand market were instrumental in reducing tanker scrapping to just a few vessels, with very large crude carrier scrapping at nil. Strong employment also included the large ‘shadow’ tanker fleet of mainly elderly units, some of which potentially are recycling candidates.
Declining prices offered by recycling yards in the main countries – Bangladesh, India and Pakistan – also acted as a disincentive for owners to recycle tonnage in the past twelve months. In the Indian sub-continent economic and financial factors had an impact on the availability of funds for shipbreakers to purchase tonnage. There were ongoing challenges in accessing letters of credit (documentary credits) from banks to finance scrapping import deals, particularly in Bangladesh and Pakistan. Meanwhile the anticipated boost for recycling derived from tighter environmental regulations has been limited so far.
Another feature of scrapping patterns last year was limited or no involvement of the larger vessel sizes in each segment, even when there was greater overall activity within the segment. Among bulk carriers scrapped, only 6 were capesize (100,000 dwt and larger). In the container ship 8,000 teu (twenty foot equivalent unit) and over size range, 1 ship was sold for demolition. Among tankers, vlccs (200,000 dwt and over) were absent while 1 suezmax (125-199,999 dwt) vessel was recorded.
Most demolition in 2023 was concentrated in the medium and small vessel size groups. Bulk carrier scrapping in the handysize (10-39,999 dwt) up to panamax/kamsarmax size (70-99,999 dwt) totalled 86 ships. Container ship scrapping in the size groups up to 7,999 teu comprised 82 ships. These two components totalling 6.6m dwt contributed 60% of all merchant ship demolition sales. Noteworthy also was the 44 offshore service vessels of 1.4m dwt recycled.
An enduring characteristic emphasised again over the past twelve months was that changes in scrap prices in the world market usually play a secondary role in influencing shipowners’ attitudes towards selling ships for demolition. Typically the decisive influences are the prevailing levels of the freight market and rates, coupled with secondhand ship prices, and also expectations for the future trend. When incentives to continue operating older or relatively uneconomic ships are strong enough, as occurred in many parts of the shipping industry during 2023, the motivation for owners to consider scrapping is largely removed.
Potential future scrapping
During the next few years much greater scrapping of merchant ships is expected to occur. The age distribution of the world fleet, the limited lifespan of most vessels, together with low demolition sales in recent years points towards this outcome. While a large part of the fleet is modern and efficient, it also includes numerous older ships which may become uneconomic and potentially will not comply with new regulations. Tightening international maritime regulations are becoming a big influence, probably hastening the obsolescence of many older vessels.
Numerous merchant ships have already reached, or in the next few years will reach, the end of a typical working life of up to around 25 years. Currently about 7 percent of the world fleet is aged 25 or more years. About 8 percent is in the 20-24 years category, approaching an age where scrapping is common. A large proportion almost certainly will be scrapped because of physical or mechanical deterioration, resulting in uneconomic operation, as well as being affected by the regulatory changes.
In circumstances where a substantial amount of capital expenditure is required to prolong an older vessel’s lifespan by five or more years, the cost may not be justifiable. If freight market rate levels and secondhand ship values are not high enough, and expectations for improvement in the near future are limited, demolition becomes a more attractive option. But the balance will be altered by added large spending necessary to ensure that a vessel complies with the new energy efficiency and carbon emissions rules. Potentially these will impose another financial burden resulting in more scrapping.
As seen clearly in the past couple of years, expectations for additional merchant ship scrapping by some market observers proved inaccurate and the reverse happened. Such a contrary outcome reinforces opinions about the unpredictability of future scrapping volumes, and the consequent low accuracy of forecasts. Calculated future levels may be viewed as largely speculative. Nevertheless broad indications of the likely trend direction – upwards or downwards – together with estimates of changes that can be realistically expected, may be plausible.
If the world merchant ship fleet’s scrapping reverts to the historical average of 2.5% annually seen in the 2009-2018 period before it declined sharply, huge volumes are implied. Based on the fleet’s deadweight capacity of 2346m dwt at the end of 2023, this percentage would provide an annual recycling sales figure of 59m dwt, over three times the recent five-year average of 17m dwt and over five times the actual 11m dwt figures seen in the latest two years. Although this volume is so far from recent experience that it seems hard to imagine, it is consistent with suggestions by BIMCO that in the decade from 2023 about 15,000 ships with a 600m dwt capacity (a quarter of the current fleet) are expected to be recycled.
An event affecting ship recyclers’ ability to participate in the global market is now approaching. At the end of June 2025 the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, agreed at the International Maritime Organization will be fully adopted. This convention was agreed in 2009 but until the middle of last year was awaiting a sufficient number of countries to agree ratification and implementation. This progress is likely to facilitate the handling of much higher scrapping volumes in future years.
Regulatory pressure prevails
One element of tightening international maritime regulations apparently providing limited impetus for scrapping so far is the Ballast Water Management Convention. Newbuilding merchant ships have been mandated to comply fully since 2017, but ships already existing then are permitted to attain the required standard within the period up to September 2024. Over 80% of world merchant ship fleet capacity at the beginning of 2024 had incurred the cost of retrofitting necessary equipment to achieve BWMS compliance. Retrofitting costs may alter calculations for a ship’s potential earnings over its remaining lifespan, especially if only a relatively short period remains, pointing towards a recycling sale.
A more far-reaching regulatory element was introduced over twelve months ago. For some years newbuilding vessels have been required to comply with mandatory measures, adopted at the International Maritime Organization, intended to reduce greenhouse gas emissions. From the beginning of 2023 all existing merchant ships are required to adopt the Energy Efficiency Existing Ship Index (EEXI) and the Carbon Intensity Indicator (CII) regulating technical and operational aspects of performance designed to contribute to the industry’s decarbonisation. Compliance could necessitate substantial capital investment and may adversely affect operating costs in many vessels, implying that scrapping may become a more attractive option, especially where the ship’s remaining lifespan is limited.
Additionally, stakeholders are applying increasing pressure to cut carbon emissions in the world merchant ship fleet, another influence affecting operational viability. Stakeholder groups exerting direct pressure include banks and other finance suppliers, cargo owners as well as the general public. According to classification society DNV, cargo owners are perceived as the most influential of these pressure groups and, in turn, they are affected by attitudes of customers throughout the supply chain.
Increased recycling activity approaching
One firm conclusion – albeit in the context of unpredictable changes in scrapping activity – is that reduced annual recycling volumes are the least likely outcome in the next few years, given growing pressures accelerating the obsolescence of many vessels in several categories. Stable recycling volumes at the exceptionally low levels seen in 2022 and 2023 also seem implausible. Consequently it seems more likely that rising demolition sales to breakers’ yards will materialise, perhaps even including the beginning of a strong acceleration in the near future.
Because merchant vessel demolition sales volumes have been so low, the annual total could see a doubling or more within the next two years. This expectation may seem a dramatic expansion, but it is well within fairly recent historical experience. Typical freight market influences having a restricting impact on vessel earnings in various future periods are likely to be prominent. But an extra, large impact set to arise from tightening regulations, reinforced by other pressures for reducing ships’ carbon emissions, could boost an upturn in recycling sales.
Source: Article by Richard Scott, managing director, Bulk Shipping Analysis and visiting lecturer, City, University of London for Hellenic Shipping News Worldwide
