Short term (next six months)

A good freight market in the container segment is expected until the northern hemisphere summer with accompanying demand for secondhand container vessels preventing the expected deluge of container vessels. However, the containership orderbook is strong at 28%-30% of global fleet size with 2.5m teu worth of newbuildings to be delivered this year.

This should result in increased flow of containers (mainly of feeder size) for recycling. Unconfirmed rumours of significant delay in NB deliveries from South Korean yards could result in a knock-on effect in delaying units for recycling.

In tankers, that is less likely as the sector’s cargo market has good long-term prospects and the NB orderbook sits at only about 4% with a sizeable number of tankers already recycled in 2021-2022. We do not expect many units from the dry bulk sector to be sent for recycling.

Medium term (seven–24 months)

Newbuildings’ deliveries in container segments will provide additional capacity of 3m teu and 1.7m teu in 2024 and 2025 respectively, which is less likely to meet with matching demand as the growth in global trade is expected to slow down to 2.1%-2.4% in the period till 2027. This should push a sizeable number of container vessels to recycling during 2024 and 2025. Low NB in the tanker segment will result in lower tanker units for recycling.

The strong vehicle carrier NB orderbook at about 25% and driven by a fossil fuel-free vessels push, will see the majority delivered in 2024-2025 which could shunt older vehicle carriers for recycling. Dry units’ NB orderbook is about 7%; thus, supply of dry NB will be tight. Liquefied natural gas carriers have the highest NB-to-current fleet size ratio at about 45%-50%, which means older vessels (mainly less efficient steam turbine-driven ships) will be likely to be heading for recycling.

The International Maritime Organization’s regulations on EEXI and CII will challenge older tonnage. Vessels failing efficiency testing will need to be upgraded, which is possible by making investments in the vessels. However, if the amount to be spent does not justify return on investment, owners will have to scrap these older vessels. About 20%-25% of the dry units would fall into the CII’s D and E (inferior) categories, and many of these could head for recycling from 2025 and onwards.

Long term (25-60 months)

Technological changes because of decarbonisation goals set by the IMO will restrict commercial viability of older ships. Less fuel-efficient ships will find fewer charterers, and at lower freight rates, pushing these units for recycling. Ships recycled as a percentage of the global fleet has drastically reduced since 2019 to little more than 1%, compared with 2.5%-3% during the previous periods. Ships have a limited economic life and lower recycling in recent years will result in many more vessels being sent for recycling in the coming period.

With an average global fleet growth rate of 2.4% from 2022 (which is much lower than 3%-4% seen during the past decade), global fleet size may reach 2.41bn dwt in 2026 and 2.65bn dwt in 2030. Recycling 2% of global fleet size would involve 48m dwt in 2026 and 53m dwt in 2030, equivalent to approximately 10m light displacement tonnes in 2026 and 11m in 2030. Present maximum ship recycling capacity in India, Bangladesh, Pakistan and Türkiye works out to 12m ldt per year, and half of theoretical capacity of EU-listed yards is 1.5m ldt per year.

That would imply all the ship recycling facilities would be working at 70% capacity at 2% recycling. But at 3% recycling, we would be running short of ship recycling capacity by about 1.75m ldt in 2026 itself and that shortfall would double to about 3.25m ldt in 2030.

It is heartening to note that Bangladesh may ratify the Hong Kong Convention this year which could bring the convention into force from 2025, thus meeting one of the most challenging conditions for ship recycling capacity.