With ocean freight rates for container carriers staying low recently, there is an outlook that ship demolitions could surge. The shipping industry expects that if scrapping increases, some of the excess capacity (cargo that can be loaded) could be resolved.
According to the shipping industry on the 8th, next year's container ship demolitions are estimated at 260,000 TEU (1 TEU is one 20-foot container), up 1,200% from this year. Demolitions over the next four years are projected to reach 3.65 million TEU, equivalent to about 12% of the world's container ship capacity.
Ship demolitions fell sharply after the COVID-19 period, when ocean freight rates soared. According to French shipping research firm Alphaliner, demolitions were 664,717 TEU in 2016 but fell to 12,992 TEU in 2022. This year, they reached 8,484 TEU through September. From 2020, when COVID-19 spread, through this year, ship demolitions are expected to total about 491,753 TEU.
Ocean freight rates have recently fallen to levels before the Red Sea incident. The Shanghai Containerized Freight Index (SCFI) stood at 1,550.7 as of Oct. 31, down 29% from the same period last year. The SCFI had risen to 4,567.28 at the end of Oct. 2021.
As rates have fallen, profitability at domestic carriers focused on container ships has also worsened. HMM posted operating profit of 847.1 billion won in the first half of this year, down 19% from a year earlier, while Heung-A Shipping also recorded operating profit of 10.5 billion won for the same period, down 26%.
Although ocean freight rates have shown a slight rebound since September, this is due to carriers increasing blank sailings (temporary suspension of service). The industry expects that if large-scale scrapping begins next year, downward pressure on ocean freight rates will ease. According to Alphaliner, new container ships totaling 3.06 million TEU are scheduled for delivery by 2027, but if demolitions proceed as planned, they could offset a significant portion of that.
A shipping industry official said, "While rates rose due to external variables, we have operated aging ships with lower efficiency, but if rates move sideways at current levels, scrapping will increase."