The high cost of complying with incoming regulations on ballast water and sulphur emissions is widely expected to send a significant percentage of the world fleet to the scrapyards, on the understanding that owners will choose to spend money on new vessels that will make them more competitive, rather than on retrofitting systems for compliance with incoming regulation on older ships.

While owners may have been granted a two-year (possibly longer) reprieve by International Maritime Organization (IMO) to install ballast water treatment systems on their ships, scrubbers are a different matter, with operators under pressure to select, order, and book in installation of such systems in the coming months if they prefer this option to using more expensive low-sulphur distillates. Additionally, as scrap prices are so favourable, many operators may choose to cash out of their existing investments in favour of new vessels that could give them a competitive edge.

However, Hew Crooks, Ridgebury Tankers CFO, warned that this will not be the case for all owners. “Although there is a move to a larger and more modern tonnage, it’s worth remembering that older tonnage is happier in a poor market,” he said, addressing the audience at the 9th Marine Money in London. “These vessels won’t have as much debt against them as a newbuilding, and so they can better deal with lower rates – and are often more competitive to operate.”

He believes there will be a number of routes that will allow operators to operate older vessels at a profit while still being compliant with emissions regulations. “The whole fleet cannot run on gas oil. If shipping needs fuel, it will be supplied … and there will be sulphur-compliant HFO [heavy fuel oil], although this may be more expensive than current bunkers,” he said.

Some operators such as Torm have already opted to install scrubbers across their fleet, while others, including Sovcomflot, have ordered LNG-fuelled vessels rather than retrofit their ships.

“We have no plans to retrofit the remaining fleet with scrubbers,” Sovcomflot CFO Nikolai Kolesnikov said during the panel discussion, adding that the company would determine the best means of compliance with regulation closer to the time of enforcement.

While this may take the form of scrapping older tonnage, he warned that many operators may not be eager to part ways with their vessels, particularly at a point where the market is in flux. “No one wants to be the first for scrapping. People would rather wait it out and see what happens.”

However, Kolesnikov admitted there could be external influence in the decision-making. “Remember that the fleet is controlled by lenders, so it’s their decision in reality,” he said.

Crooks acknowledged that in some cases, it may make business sense for operators to cash out, particularly if there is pressure from financiers or investors. “Scrap prices have doubled over the past five years and if you can sell a vessel at a historically high price that will keep the banks happy and the balance sheet in good form, the market may see more scrapping.”

According to VesselsValue, the post-Panamax fleet has most vessels where ships values have equalised against scrap prices, indicating that many of these ships are “ready” to move from the water to the yards for scrapping. But recovering oil prices and largely positive market sentiment for this year and next may lead owners to try to squeeze out as much profit from their ageing assets as possible before they are recycled.