Building on our previous report, in which we analyzed the projected bulk carrier deliveries for 2025, and considering the current downturn in the freight market, an increase in demolition activity could serve as a positive development within the ship-owning industry. Among the two conventional sectors, the dry bulk market is currently experiencing a challenging environment, marked by weak demand and anticipated vessel deliveries that will lead to fleet growth surpassing the estimated tonnage demand growth for 2025. In this context, any rise in demolition activity within this sector could offer relief to the shipping industry. However, the underlying factors influencing this potential increase remain mixed.
The strong freight market conditions of recent years have led to an increase in the average age of bulk carriers, which now stands at 12.5 years—the highest level recorded since January 2011. Specifically, the Handysize sector has reached an average age of 13.49 years, followed by Supramax at 12.27 years (a record high), Panamax at 12.18 years, and Capesize at 11.30 years. For further context, 9% of the total bulk carrier fleet is over 20 years old, with the Handysize sector leading at 14%, followed closely by Panamax and Supramax at 13% and 11%, respectively, while only 4% of the Capesize fleet falls within this age category. Since 2019, the average demolition age has remained above 27 years. However, in 2016, when the freight market conditions placed significant pressure on owners' earnings, this figure declined to 23.4 years. Whether a similar trend will emerge this year remains uncertain. Nonetheless, considering current freight market conditions and the introduction of new environmental regulations, it is anticipated that some owners may opt for demolition as a strategic decision.
Examining the market dynamics of 2016, it is evident that the price premium of 20-year-old vessels over their scrap value was at a record low. For instance, in the Handymax/Supramax segment—which is expected to see the highest number of new deliveries in 2025—the average annual scrap value of a Supramax vessel in 2016 exceeded the average market price of a 20-yearold Supramax vessel. Currently, however, the price of a 20-yearold Supramax vessel holds a premium of approximately $3.8 million over its scrap value, a gap that is expected to narrow. In terms of secondhand vessel prices, a decline is anticipated in 2025, as current valuations remain significantly elevated relative to prevailing freight rates compared to previous years. Alternatively, this price gap could also be reduced if scrapyards offer higher scrap prices. However, market sentiment in this regard remains cautious, with limited optimism for a substantial increase in scrap values.
The average scrap prices offered by Bangladeshi scrapyards currently hover around the mid-$400/ldt range, with further declines anticipated. Several factors contribute to this downward trend, including low steel margins, the influx of inexpensive imported Chinese steel, political and regulatory uncertainties (as detailed in our previous analysis of the Hong Kong Convention), and weak domestic demand. These challenges hinder any potential increase in offered scrap prices. A key concern that arises is whether shipbreakers will have the capacity to absorb an influx of older vessels being offered for scrapping, which could, in turn, exert further downward pressure on prices. Simultaneously, other shipping sectors, particularly the container segment, may also face the necessity of scrapping older units, intensifying competition and placing additional pressure on scrap prices. In summary, we anticipate a rise in the availability of vintage vessels for recycling, a trend that is already becoming evident within the bulk carrier sector. However, with scrapyards struggling to accommodate a significant increase in supply, this could lead to a further decline in offered prices, in cases where both buyers and sellers agree to proceed with transactions.
Data Source: Intermodal