Freight demand and Ocean Freight rate increased, aging vessels may continue operating

According to the latest report from BIMCO, only 2 million deadweight tonnes (DWT) ship capacity were recycled in the first quarter of 2024. This marks the ninth consecutive quarter below 3 million DWT.

The recent attacks by Houthi over the weekend have impacted the security situation in the Red Sea, leading shipping companies to divert near the Cape of Good Hope and exerting pressure on capacity.

On the other hand, according to US media reports, freight demand in various regions has continued to increase, with freight volumes on American routes reaching the highest level since May 2022. 

SNOAR: Freightos Spot Market Rate per 40’ Container (FEU) in SUSD

Due to successive turmoil and demand growth, many shipping companies have postponed plans to retire aging vessels, stating the need to maintain an adequate number of vessels to cope with the pressure.

However, there are still many idle fleets and newly constructed vessels set to arrive, which should provide sufficient capacity to address this situation. The impact of the Houthi attacks on global container freight rates has been brief and limited, and industry analysts have begun to downplay the impact of the Red Sea crisis on global logistics in various reports.

The increase in freight demand stems from a surge in consumer demand for imported goods during the COVID. The rise in ocean freight rates also includes seasonal factors, such as the celebration of the Chinese Lunar New Year. That an escalation in Houthi attacks happened to coincide with such annual events created a perfect storm for shipping rates to see short-term gains. However, this may not be reason enough for shipping companies to continue operating aging fleets.

Ship recycling, similar to aircraft recycling, occurs irregularly, often every 5-10 years. Combining with the implementation of the new carbon tax regime by the EU in January 2024 and maritime consultancy firm Clarksons report indicating a record high in new ship orders, it is expected that aging vessels will be recycled at an accelerated pace, potentially reaching historically high levels of efficiency.