Impending environmental regulations set to slash bulker supply

Entrance into force of the new IMO environmental regulations in 2023 is expected to slow down the supply of vessels into the dry bulk market, according to a recent market forecast by Vessels Value.

The drop will remove up to 3-4% of the fleet’s effective trading capacity, based on the outlook, which indicates that the demand would outpace supply during the next couple of years.

Data from BIMCO shows that contracting from January to April 2022 has been the lowest since 1999, with the orderbook being only 6.6% of the trading fleet and low deliveries in the coming years. BIMCO also expects that contracting will remain low for the rest of 2022 amid high newbuilding prices that discourage owners.

According to VV, 2023 is poised to see high ordering activity across all vessel sectors primarily led by bulkers, pushing down newbuilding prices that have been on the rise over the past couple of years amid high demand.

However, as yards have large orderbooks it is expected that any ship contracted now would not be delivered before 2024 at the earliest.

As of 2023, existing ships will have to become compliant with the Energy Efficiency Existing Index (EEXI) regulations by adopting energy-saving solutions onboard or by adapting their speed.

The latter also means that a lot of shipowners will reap lower profits or lose business to ships not constrained by slow steaming.

The measure builds upon the Energy Efficiency Design Index (EEDI), which applies to new ships and has been in force since 2013.

Finally, having in mind that close to 80% of bulk carriers will not meet EEXI regulations pushing a great majority to opt for engine power limitation (EPL), as indicated by Maritime Strategies International, it is likely that we could see a spike in the demolition of ships.

What is more, VesselsValue estimates that prior to any efficiency modifications, more than 75% of the fleet — bulkers, tankers and containerships — will not be compliant with EEXI that will enter into force in 2023.

Hence, the decarbonization of the global fleet will be a major challenge for shipowners, having in mind that the employability of their ships will highly depend on their environmental friendliness.

Therefore, the push toward greener vessels is strong in the newbuilding market with a record 268 alternatively-fuelled vessels ordered in the first half of 2022, which is 61% of all newbuild orders placed by tonnage, Clarksons data shows.