Container market collapse sees first ships heading for scrap

The container market collapse is in full view with ships heading for scrap and other vessels taking the long way back to Asia via the Cape of Good Hope to soak up capacity.

Both Clarksons and Braemar are reporting that several smaller containerships have been circulated in the recycling market this week “The trickle of vessels entering the market for recycling is starting to grow,” brokers Braemar noted, counting 14 vessels seeking offers for scrapping as of Monday.

“While a deluge of containerships is not expected at this stage, particularly in the larger sizes, it is still encouraging for recyclers to finally see some more units come to the table,” Clarksons Research suggested, stressing that these first scrappings were an “indicative sign that the container bubble has finally burst”. “The market collapse is clearly continuing to intensify” Sea-Intelligence noted in its most recent weekly report, published yesterday. “New demand data shows a market in a full state of collapse, driven by a strong desire amongst importers to reduce their inventory exposure,” analysts at the Copenhagen outfit wrote.

In a further sign of a market collapse Sea-intelligence has identified 13 vessels on the back haul from North Europe to Asia, which are planned to take the long route south of Africa, rather than go through the Suez Canal, in order to soak up capacity.

The dramatic drop in earnings – combined with high charter costs – has seen a number of smaller liner operators pull back with the first financial casualty registered in the UK where an administrator has been appointed to oversee the bankruptcy of Allseas Global Project Logistics, which had entered the Asia-Europe trades in the middle of last year.

The Shanghai Containerized Freight Index (SCFI) is at its lowest point since August 2020 with analysts at Jefferies noting in a recent container update: “Current spot freight rates on the major Asia-US West Coast and Asia-Europe routes have fallen to or below most liner operating costs, suggesting an overshoot to the downside that requires further blank sailings or outright idling of existing vessel capacity.”

Container lines are bracing to absorb record newbuild deliveries in the coming couple of years amid what looks like a dimmed demand outlook.

“Underlying demand is waning, since food and energy inflation is directing consumer spending away from containerised demand and interest rate hikes are increasing debt servicing costs globally,” Danish Ship Finance noted in a recent report, describing the short-term outlook as bleak, as a massive fleet expansion of 2.4 and 2.8 million teu – the equivalent of 10% and 11% of the fleet – is scheduled for 2023 and 2024.

“There are no obvious scrapping candidates, since the older vessels in the fleet are significantly smaller than the incoming vessels. Premature scrapping and lay-up of vessels seem inevitable,” Danish Ship Finance warned.

Credit Splash 247 by Sam Chambers