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Regulatory Changes for Shipping and Shipbuilding and Implications for the Scrapped Ship Market

Author Nam, SangUk Date 2021.09.23 Issue No
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As of 2020, Korea ranked first in the shipbuilding industry and seventh in shipping, making Korea a global leader in these fields. As such, changes in shipbuilding and shipping environmental regulations are expected to have a significant impact on Korea’s economy. The new requirement for double hulls for oil tankers ? part of new environmental regulations for shipping and the shipbuilding industry ? was put in place to prevent environmental damage from oil leaks and to phase out single-hull oil tankers. This study examined the impact of mandatory double hulls on the scrapped ship market and revealed that single-hull tankers were more likely to be scrapped than double-hull tankers.

 

Along these same lines, new greenhouse gas (GHG) regulations for ships may also increase the likelihood of ships being scrapped. The International Maritime Organization (IMO) has adopted the Energy Efficiency Design Index (EEDI) for new ships, the Energy Efficiency Existing Ship Index (EEXI), and the Carbon Intensity Indicator (CII). The goal of these measures is to reduce carbon intensity by 70 percent and GHG emissions by 50 percent by 2050 compared to 2008 levels. As the EEXI has accelerated the scrapping of inefficient ships, we can expect to see ship scrapping occurring at accelerated rates across the board. If CII enforcement is added, ship scrapping will occur even faster.

 

Environmental regulations are likely to increase demand for replacement ships. As Korea’s shipbuilding industry has a relatively high level of technological advancement compared to the shipbuilding industries of other nations, environmental regulations in shipping and the shipbuilding industry are expected to benefit Korean industries. Demand for new ships and repair services is expected to increase as shipping companies will need to strategically comply with regulations by securing highly energy efficient ships and by continuously repairing existing ships. It is very likely that demand for ship renovations will increase as well. Life-cycle maintenance services that include ship repairs and renovations will become increasingly important. In order to meet the expected increase in demand for ships and ship-related services, Korea must take a strategic approach.