100,000 ships to be updated? The shipping industry needs to invest 3.4 trillion US dollars in the next 30 years.

2021-04-19 09:00

If decarbonization plans are implemented, the global shipping industry will need to invest approximately US\$3.4 trillion over the next 30 years to replace its existing fleet of nearly 100,000 merchant ships. This means that over 3,000 merchant ships with a total deadweight tonnage of approximately 80 million will need to be replaced annually, indicating a still-bright outlook for the new shipbuilding market.

This prediction was made by Martin Stopford, non-executive chairman of Clarkson Research Services and a shipping expert, in a keynote speech at the decarbonization conference of the Capital Link shipping forum.

Stopford stated that US\$2.2 trillion of the US\$3.4 trillion would be used to ensure ships meet environmental regulations, while US\$1.2 trillion would account for global trade growth. Stopford noted that the US\$3.4 trillion figure is a rough estimate based on current ship prices over the next 30 years. However, the actual figure could be higher, as more complex ships in the future may be more expensive. "Building ships with new technologies will cost a lot of money; high-tech new ships are easily much more expensive than existing ships."

According to Stopford's estimates, the container ship sector may require the most investment, with the shipping industry expected to invest US\$518 billion in container ships, US\$509 billion in bulk carriers, US\$395 billion in liquefied gas carriers, and US\$357 billion in cruise ships. On the other hand, investment in tankers and offshore support vessels is relatively less, with projected investments of US\$214 billion and US\$319 billion respectively, as fleet expansion in these two ship types will be limited by oil demand.

However, decarbonization investments of up to US\$919 billion are needed for smaller cargo ships operating mainly in coastal waters, as well as non-cargo ships such as tugboats, fishing vessels, and mini-bulk carriers. Stopford pointed out that different ship types play vastly different roles in the shipping market, thus requiring different technologies and investment levels.

The extremely high investment budget raises the question of how shipping companies will finance future orders. Stopford said that over the past 20-30 years, the shipping industry's cash flow has been driven by the spot market, averaging US\$15,000 per day for 30 years. "This means we barely have enough money to cover the expenses involved."

Stopford believes that collaboration with charterers is crucial in this process. Charterers must take the lead in deciding what types of technology they want to participate in. Shipyards must take the lead in providing the corresponding new ships, while ship owners must establish organizations that can provide security to charterers to ensure that charterers' money receives its due value.

According to International Ship Network, the latest data from Clarkson shows that the global existing fleet consists of 99,907 ships with a total deadweight tonnage of 2.139 billion, including 12,353 bulk carriers (917 million DWT), 15,812 tankers (672 million DWT), and 5,455 container ships (283 million DWT).

Considering the currently available shipbuilding capacity, it is estimated that it will take up to 25 years for the shipping industry to replace its entire existing fleet. The shipbuilding industry plans to deliver approximately 80 million tons of new ships this year, which only accounts for 4% of the existing fleet, and next year's deliveries may be even less.

However, in Stopford's view, the shipping industry does not need to completely abandon existing ships; existing ships can continue to operate for a long time. He believes that the advantage of the existing fleet lies in its lower capital value, meaning that ship owners can afford a slower pace of transactions.

Currently, the most striking way to reduce greenhouse gas emissions is to slow steaming, reducing ship speed to 8 knots, which is equivalent to a 60% to 80% reduction in carbon emissions. Stopford shared several options that the shipping industry might choose, including retrofitting the existing fleet, which is considered one of the most important factors for future development.

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