Will shipyards have the capacity to deliver new build vessels at the rate needed to reach Paris climate goals?

By Dr Nishatabbas Rehmatulla and Akash Kapur

Accounting for approximately 3% of global emissions annually, with a likelihood of this share increasing in the future as other sectors decarbonise, the maritime transport sector is under increasing pressure to curb its Greenhouse Gas (GHG) emissions. The sector is highly dependent on fossil fuels as its primary source of energy, particularly heavy fuel oil, a high-carbon fossil fuel that closely resembles tar. Decarbonising the sector would necessitate significant efforts, requiring its global fleet to be made more energy efficient, in terms of both operations and technology makeup, whilst also requiring it to switch to Scalable Zero Emission Fuels (SZEF).

An S-curve based analysis suggests SZEF would need to make up 5% of the international shipping fuel mix by 2030 to enable decarbonisation in line with the Paris Agreement’s temperature goals. This target, which is now widely accepted in the sector, creates a tipping point for mass adoption of SZEF An important step towards this is to modernise the fleet, through building new vessels, or retrofitting existing vessels, with energy efficiency technologies, capable of running on SZEF.

In its report, titled “Strategy for the Transition to Zero-Emission Shipping”, UMAS projects the number of new builds and retrofits needed to scale up SZEF penetration over the next three decades of the transition. The analysis estimates that new builds and retrofits, each, will constitute around half of the total number of vessels that are required to run on SZEF throughout the transition period. Such as, by 2040, 40,000 vessels need to be capable of running on SZEF, of these it is estimated that 20,000 vessels will be retrofitted, with another 20,000 new build vessels entering the market. The retrofitting activity is significant in the 2030s and will need to encompass vessels built today, and potentially vessels built earlier than 2022.

Further analysis suggests that of the two, building new energy efficient vessels capable of running on SZEF could be the desired option due to several factors, including installation-related constraints on retrofits, as many new technologies require certain specification of space and vessel design that is not always available on older vessels to result in desired efficiency increase. Other constraints include opportunity costs for drydocking to install energy efficiency technologies, such as air lubrication, and vessel retrofit yard capacity constraints.

Given the above, the key question that arises is whether there will be enough shipyard capacity to deliver new build vessels at the rate at which they will be required under the Paris Agreement temperature goals. To answer this question, this analysis aims to understand the historic new build capacity to infer future potential new build capacity and compare this with projected new build vessels required. Two key assumptions are made: first, in the long run all shipyards will be able to deliver vessels to the new energy efficiency specifications; and second, actual historical deliveries are a proxy of shipyard capacity.

Clarksons World Fleet Register is used to understand historic global new build vessels shipbuilding capacity between 1998 to 2018, as depicted by the orange bars in the graph below. This data is further used to drive a projected shipbuilding capacity growth rate from 2022 to 2050, which has been done by using the historic global shipbuilding delivery growth rate from 1998 to 2010 and considering 2018 as the base year for its plot. This projected delivery rate is depicted by the grey bars in the graph below. Finally, this projected shipbuilding capacity rate has then been compared with projected global new build vessels required rate which has been derived by understanding the current global fleet and future delivery requirements, along with considering vessel replacement requirements (2022 – 2050). This derivation for project new build vessels required rate has been extracted from the Fourth IMO GHG Study in 2020 (IMO4), and has been depicted by the blue line in the graph below. The projected new build vessel requirement is a rough estimate that effectively tracks the natural change in terms of shipbuilding based on anticipated market requirements, whilst considering policy changes towards decarbonisation. Please note, current global fleet data is taken from 2018 (as it was the latest year for which data was available in the IMO4 study).

Data source: Clarksons Research Services (2022), Fourth IMO GHG Study (2020), and own calculations

Keeping in mind the narrow scope of this analysis, one can conclude that with appropriate market or policy signals, if the shipbuilding industry could grow its capacity at the same rate as it did from 1998 to 2010, there would be sufficient capacity to meet global future new build vessel demand out to 2050. It’s interesting to note that many studies, such as (OECD 2017), have also established that the supply of new build vessels far outstrips demand; and though this analysis’s focus was not to validate these studies’ respective excess capacity claim, it does validate the fact that the shipping sector should not see a shortage of new build vessels to at least fulfil its future demand.