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RCL reacts to profit decline by recycling older ships

RCL reacts to profit decline by recycling older ships
RCL reacts to profit decline by recycling older ships

Regional Container Lines (RCL), a company that operates ships for transporting cargo containers, is experiencing lower profits. To address this, they are increasing the number of older ships they are scrapping.

In the second quarter of 2023, RCL’s net profit dropped by 37% compared to the same period last year, reaching THB576 million ($16.33 million). This decline is due to container freight rates remaining low and competitive.

Their average revenue for the second quarter also decreased from $394 per container equivalent unit (teu) in the first quarter of 2023 to $353 per teu. This drop is driven by strong competition in the market as it returns to a more normal state after the pandemic. Additionally, lower time-charter rates, especially for smaller vessels, have contributed to this competition.

Ship recycling market facing challenges

Recently, RCL sold two older ships, Jitra Bhum and Kama Bhum, both built in 1997, for recycling. They each fetched $3.63 million, or $515 per light displacement ton (ldt). In June, another older ship, Ratana Thida, built in 1996, was sold for scrapping as well. RCL has also indicated that more ship demolitions are planned in the future.

The company currently owns 10 ships that are at least 20 years old and suitable for recycling. This decision is part of a larger trend in the industry, as around 112,000 teu of ships have been scrapped this year due to challenging market conditions. This is a significant increase compared to the 10,600 teu scrapped last year.

RCL anticipates ongoing difficulties in the market as more newly built ships from the Covid-19 boom are put into service. These challenges include a slowdown in the global economy, particularly in the US and Europe, as well as higher interest rates affecting consumer demand and purchasing power. The oversupply of vessels resulting from new builds during the pandemic has led to a continuous decline in average freight rates since the latter half of 2022.

Persisting challenges in Indian ship recycling: insights from Best Oasis

To stay competitive, RCL is adapting its strategy. They have ordered four 7,000 teu and two 12,000 teu vessels, which will be used for mid-haul routes as they aim to expand beyond their main intra-Asia business.

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