News / Containership scrapping set to boom by year-end

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A surge in scrapping of small container vessels illustrates that liner big-profitability is well and truly over, according to Alphaliner.

Scrap sales have passed 100,000 teu so far this year, almost ten times the 10,900 teu recycled in the whole of 2022.

The disproportionately older fleet of vessels in the sub-5,000 teu sizes were highly sought-after at the height of the pandemic disruption, being less liable to be tied up in long-term contracts, they made excellent candidates for spot trades.

And some customers like Home Depot and IKEA would bypass carriers and charter ships themselves.

Then, owners held off scrapping these older vessels, being able to generate considerably higher revenues from them than ever before. In some cases, such a vessel, purchased secondhand, could repay its buyer within a month.

Despite this, however, shipowners aren’t buying new smaller vessels. Clarksons data from July shows the number of orders in the sub-3,000 teu category down 78% compared with the same period in 2022, while the 8,000 teu+ category has dropped by just 14%.

But even during the 2021 newbuild fever, orders in the sub-3000 teu category were hardly booming, at 5.9m dwt (compared with 1.8m in 2019) versus 8000 teu+ orders, which reached 31.9m dwt (from 6.6m in 2019).

Now, Alphaliner data shows that smaller vessel types are now facing the chop. But, the analyst notes, this year’s scrappage will be nothing compared with the massive fleet reductions of 2016-17, “with 655,000 teu and 417,000 teu respectively sold to recyclers”.

And, says the analyst, in the coming years, scrapping is likely to be less lucrative for shipowners. Thanks to improving safety and environmental standards for scrapyards, instead of producing a large sum from a cash buyer for the steel, scrapping a vessel could be a net loss.

Experts have suggested this might have “interesting consequences” for the ship-owning economy, such as extending the life of vessels beyond their traditional lifespan and retrofitting fleets for carbon reduction in preference to renewing them.

“Containerships are some of those that can trade for the longest time,” Peter Sand, Xeneta’s chief analyst, told The Loadstar recently.