A surge in container shipping rates following the eruption of tensions in the Red Sea could put the brakes on a long-awaited revival in boxship demolition led by MSC Mediterranean Shipping Company.
Gianluigi Aponte-controlled MSC scrapped four vessels this month, bringing its disposals in the past year to 21 ships.
Now, just as container lines are adjusting to their new rate reality after the largest boom in industry history, the much-needed demolition spike could be pushed into the second half of the year.
MSC’s moves are closely watched in the scrap market after the world’s largest container carrier bought more than 300 mostly secondhand vessels during the past three years.
Any decision by the Geneva-based giant to send a major chunk of its fleet to the breakers could mark the bottom of the cycle, analysts believe.
“I’m not convinced that Aponte has started the firing gun on scrapping yet, despite the recent uptick in demo deals by MSC,” said Veson Nautical analyst Dan Nash. He noted that overall scrapping numbers remain low.
In addition, Aponte will likely be encouraged by recent freight rate increases from the Red Sea crisis, which no one saw coming before trouble erupted in the key global shipping artery in the past two months.
AP Moller-Maersk chief executive Vincent Clerc told a forum in Davos last week that such disruptions will probably last for months.
That could be enough to put boxship scrapping on hold until the second half of 2024, said Nash.
That suggests “a postponement [of demolition] is more likely, possibly until the latter part of 2024, if earnings and values maintain their current levels or better,” Nash said.
Demolition to double
While the MSC sales might not signal the start of a long-expected clearout, the company’s programme could mark the start of a new scrapping cycle.
Container tonnage demolition sales bounced back in 2023, following two years of record-low rates.
Some 87 vessels totalling 167,000 teu reached recycling facilities last year, according to Alphaliner data.
That compares with 10,904 teu scrapped in 2022 and 16,500 teu disposed of in 2021.
The figures remain well below expectations, due to an unexpectedly resilient container market.
However, a sharp rise in demolition sales is expected in 2024.
Scrap sales could more than double and reach 375,000 teu, approaching demolition levels last seen in 2017, Alphaliner said.
That is needed to partly cushion the impact of a whopping 3.2m teu of newbuilding capacity due to hit the market in the next 12 months.
“With just under 3m teu of tonnage aged 20 and above, there is an obvious reservoir of scrappable ships, even if many vessels in this age group are expected to continue to trade in the foreseeable future, especially carriers’ ships,” Alphaliner noted.
“But the rising competition of modern energy-efficient tonnage could eventually convince a number of non-operating owners to finally scrap their older tonnage, especially if overcapacity drives down charter rates to unsustainable levels for the least efficient units.”
At the vanguard
MSC is already the most prolific recycler of container ships, even though it has yet to open the demolition floodgates.
The company sold 17 vessels from its operated fleet with a capacity of 51,000 teu last year, according to Alphaliner.
That is way ahead of second-place Wan Hai Lines, which sold 10 vessels of 12,560 teu, and Transworld Group of India, which recycled eight vessels totalling 13,300 teu.
MSC is keeping up the pace with the sale of four ships for demolition so far this year, according to a weekly report by Wirana Shipping.
The 17,400-dwt multipurpose vessel MSC Eagle F (built 2000) and the 2,398-teu MSC Jemima (built 1994) are reported sold this week to hand-picked yards at Alang that are certified under the Hong Kong Convention for the Safe and Sound Recycling of Ships.
The 1,837-teu MSC Uma (built 1998) was sold at $530 per ldt just two weeks prior, while the 3,500-teu MSC Sophie (built 1993) was sold to Indian buyers for strict green recycling at the start of January.
These add to the tally that MSC sold for demolition last year, including the largest boxship to hit the beaches in 2023.
The 8,034-teu MSC Rita (built 2005), which caught fire while anchored off Abu Dhabi’s Khalifa Port in June, was later sold for recycling.
One source said MSC, which has been contacted for comment, has a very strict policy of selling only to carefully vetted yards at Alang that offer enhanced green recycling.
