BIMCO: Recycling Wave Could Come After Ships Hung on to Deliver More Boxes

The shipping industry has speculated for years that a potential recycling wave might be coming, but it was delayed by low capacity, high demand, and issues ranging from the pandemic-related shipping surge to the diversions away from the Red Sea. Industry trade group BIMCO highlights that many older ships have been hanging on longer than anticipated, creating a large market overhang ripe for recycling.

“Using the average recycling pattern during 2000-2019, we estimate that the current minimum recycling overhang is 500 ships and 1.8 million TEU,” says Niels Rasmussen, Chief Shipping Analyst at BIMCO.

The numbers could be even more dramatic, BIMCO says, if you use the data from the earlier recycling of ships during the weaker market conditions of the 2010s to estimate the current maximum recycling overhang. Rasmussen highlights that this results in a maximum overhang estimate of 850 ships and 3.1 million TEU.

The share of ships 20 years old or older has increased from 16 percent at the beginning of 2020 to 24 percent currently, BIMCO reports. These ships were used to fill gaps in capacity over the past few years, and they are likely to make up the bulk of future recycling. The data highlights that the share of older ships has not been higher since the early 1970s.

“So far this year, only 10 container ships have been recycled,” says Rasmussen. “This extends a pattern of low recycling activity seen since 2021, as many ships have continued trading beyond their usual recycling age. Applying historical recycling patterns, we have calculated an average lifecycle for each size segment of the fleet and compared it to the current fleet. For instance, during the period from 2000 to 2019, 20 percent of ships were recycled before the age of 20, and 53 percent of ships were recycled before turning 25 years old.

There are a few other factors that could influence the speed at which ships are sent for recycling. BIMCO highlights the currently very large orderbook, the threat of ship demand erosion if ships return to normal Suez Canal routings, and regulatory requirements to improve ship efficiency. All of this could contribute to the higher end of its estimate.

“Future recycling is very difficult to estimate accurately,” says Rasmussen. “However, our estimates indicate an overhang of 6-10 percent of currently trading ships, equal to 33-55 percent of ships older than 20 years.

He notes that the estimated overhang is larger than the orderbook for all ship segments, but that is especially so for the small, under 8,000 TEU, vessels. He says this points to a trend where fleet growth in the coming years will be driven exclusively by the larger ships, which in turn could drive further cascading of larger ships into routes where smaller ships are currently deployed.