Shipping analysis agency Linerlytica pointed out in its report this week that the scale of capacity that the container shipping industry needs to phase out in the next four years will be equivalent to the total of the past 25 years. As a large number of newbuilds flood the market in the coming years, this increasingly “top-heavy” market will need to scrap 4.5 million TEU of capacity by 2030, but the existing shipbreaking yard capacity is expected to constrain the pace of demolition.
Linerlytica stated that to achieve market rebalancing, the volume of container ship demolitions in the next four years must reach the scale of the cumulative level of the past 25 years. Hsieh Chih-chien, former chairman of Yang Ming Marine Transport, also pointed out that the delivery speed of newbuilds is much faster than the progress of old ship demolitions, which will inevitably generate a huge demand for shipbreaking in the future.
In recent years, container ship demolition volumes have remained low: only about 12 ships (totaling 8,465 TEU) have been scrapped this year, and the average age of the scrapped ships has reached a high of 30 years, setting a historical second-highest record, only surpassed during the pandemic in 2022. This is mainly due to adjustments in tariff policies, which have dispersed goods previously exported centrally from China to multiple countries, leading to a surge in demand for small and medium-sized container ships. The proportion of older vessels is particularly high within this ship type. Alphaliner data shows that container ships over 20 years old currently account for 13.3% of the fleet.
Furthermore, the container shipping market is currently facing the problem of overcapacity. The Linerlytica report shows that, driven by a large number of orders, the container ship orderbook has reached its highest level since 2010 this year. Currently, about 31.7% of the fleet is on order, and the container shipping market may face a decade-long cycle of overcapacity.
According to Alphaliner statistics, container ship capacity will only see year-on-year growth: capacity is expected to increase by about 2.2 million TEU this year, about 1.5 million TEU in 2026, about 2.8 million TEU in 2027, and about 3.2 million TEU in 2028, which will be a historical high.
Shipbroker Braemar predicts that 600 newbuilds, with a total capacity of 4.5 million TEU, will be delivered globally over the four years from 2027 to 2030. The company also warned about whether existing shipbreaking capacity can handle future demolition demands.
Image source: ShippingWatch
Jonathan Roach, a research analyst at Braemar, pointed out in this week’s market report that container ship demolition in 2025 is nearly stagnant, and ship recycling transactions have become extremely rare. The average age of ships scrapped this year is expected to increase from the conventional 23-24 years to 28 years. According to Braemar estimates, the fleet elimination rate this year is only 0.09%, far below the five-year average of 1.6%.
Roach said: “Similar low levels were only seen during the demand shock of the COVID-19 pandemic in 2021-22. In relatively normal years since 2010 (excluding ’21/’22 and 2025), the annual average container ship demolition volume has remained around 210,000 TEU.”
With the Hong Kong Convention officially coming into force in June this year, global shipbreaking capacity itself will become a constraint on global container fleet management. Roach believes that due to the varying speeds at which different shipbreaking countries and their yards adapt to compliance requirements, the Hong Kong Convention will initially suppress demolition activities in its early implementation stages. However, even without the constraints of the Hong Kong Convention, achieving the required demolition levels remains questionable. According to Braemar data, container ship demolition reached 670,000 TEU in 2016, with an annual average of 410,000 TEU (approximately 150 ships) between 2012 and 2017.
In this regard, Roach predicts that the significant future growth in container ship demolition demand will stimulate investment in compliant shipbreaking yards, prompting global recyclers to expand their operations over the next five years.
Image source: Lloyd’s List
Shipping consultancy Dynamar concluded by comparing market expansion with capacity growth data: between 2014 and 2024, container trade volume grew at an average annual rate of 2.2%, while capacity growth during the same period reached 5.6%.
Analyst Darron Wadey from the agency stated that to restore market balance, assuming capacity growth aligns with cargo volume growth, the fleet size at the end of 2024 should have been only 23.4 million TEU, not the actual 32.4 million TEU. All else being equal, a capacity difference of 9 million TEU needs to be eliminated to maintain a “mathematical equilibrium.”
However, due to trade imbalances, the Red Sea crisis, and port congestion caused by extreme weather, all supply chain disruptions require additional capacity. Rolf Habben Jansen, CEO of Hapag-Lloyd, pointed out in a recent webinar that operators need some surplus capacity to deal with the unexpected events that have become the norm in this decade.
The World Bank estimates that about 5%-6% of the global fleet was idled last year due to shipping disruptions. Even taking the higher estimate of 6%, this means the net available capacity growth is still 0.7% faster than cargo volume growth. Wadey concluded that when the Red Sea crisis eases, the market will face huge overcapacity pressure.
Hsieh Chih-chien predicts that once tariff policies become clearer next year and the market stabilizes, demand for small and medium-sized container ships will decline, and older ships will gradually enter the recycling and demolition cycle.
