SHIP CONVERSION MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2023 - 2030)

The global ship conversion market size is expected to be valued at US$ 14.34 billion in 2023 and is expected to reach US$ 24.10 billion by 2030, growing at a compound annual growth rate (CAGR) of 7.7% from 2023 to 2030. Ship conversion involves modifying or retrofitting vessels for purposes other than their original intended use. This includes converting commercial ships for military applications, cargo carriers to passenger ships, tankers to offshore vessels, etc. The rising seaborne trade and the need to comply with environmental regulations are key drivers fueling the growth of the ship conversion market.

By vessel type, the container vessels segment accounted for the largest share of the market in 2022. The rise in containerized shipping to transport manufactured goods globally has led to an increased demand for the conversion of container ships to meet changing market needs. For instance, outdated container ships are being converted to carry grains and other dry bulk commodities.

Ship Conversion Market Regional Insights

• Asia Pacific is expected to be the largest market for ship conversion during the forecast period, which accounted for over 35% of the market share in 2022. The growth of the market in Asia Pacific is attributed to the presence of major shipbuilding nations like China, South Korea, and Singapore.
• Europe is expected to be the second-largest market for ship conversion, which accounted for over 25% of the market share in 2022. The growth of the market in Europe is attributed to the presence of leading ship conversion yards in countries like the Netherlands, Germany, Italy, and Norway.
• North America is expected to be the fastest-growing market for ship conversion, growing at a CAGR of over 12% during the forecast period. The U.S. and Canada are integral contributors to the global ship conversion market.

Figure 1. Global Ship Conversion Market Share (%), by Region, 2023

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Analyst’s Viewpoint:

The ship conversion market is currently experiencing steady growth driven by the expanding offshore energy industry. As oil and gas production moves to deeper waters, there is an increasing demand for converting existing ships into floating production, storage, and offloading units. North America and Europe dominate the ship conversion market currently due to many large projects in the Gulf of Mexico and North Sea. However, Asia Pacific is expected to be the fastest growing market in the coming years with rising activity in Southeast Asia and India.

While drivers such as growing offshore Exploration & production activity and demand for converted vessels are supporting market expansion, tightening environmental regulations pose a restraint.

Factors like developing deep-water reserves and growth of renewable energy sectors are likely to ensure steady growth prospects for ship conversion market players in the long-term.

Ship Conversion Market Drivers:

• Increasing seaborne trade and cargo transportation: The growth in seaborne trade and rising cargo transportation through ships is a major factor driving the ship conversion market growth. The lifecycle of ships is limited, and most cargo vessels need to be replaced or upgraded after 15-20 years of operation. This has accelerated the need for ship conversion activities where existing ships are retrofitted or modified to suit current cargo transportation needs. According to a 2022 report by the United Nations Conference on Trade and Development (UNCTAD), the global seaborne trade grew by an estimated 3.5% in ton-miles in 2021 driven by higher demand for goods and commodities amid the pandemic. As per industry estimates, around 80% of global merchandise trade by volume is carried out by seaborne transportation. Converting existing ships provides a cost-effective way to add capacity and meet trade growth compared to new builds.
• Rising energy exploration activities: The increase in offshore oil and gas exploration and production activities is fueling the demand for ship conversions, especially oil tankers and offshore support vessels. According to the Arctic Council's Protection of the Arctic Marine Environment (PAME) program 1991, oil and gas exploration activities expected to significantly rise over the next decade as major oil companies have announced multibillion dollar investments to ramp up production from oilfields like Barents Sea. For instance, in 2021, SembCorp Marine, a marine and offshore engineering group, bagged a contract to carry out major life extension of an existing semi-submersible production unit and upgrade it with latest well intervention technology so it can support plug and abandonment activities for Chevron’s deep-water Gumusut-Kakap field in Malaysian waters. This is creating a substantial demand for retrofitting and converting oil tankers into Floating Production Storage and Offloading (FPSO), drill ships, offshore support vessels, to support offshore projects.
• Growth in passenger cruise tourism: The expanding cruise tourism industry is leading cruise liners to upgrade existing ships and convert vessels to meet changing consumer expectations. Adding new amenities, passenger capacity, and technologies through ship conversions provides an avenue for cruise companies to attract more tourists and gain a competitive edge. The growth in expedition and adventure cruises also requires ice-capable and technologically-advanced retrofitted cruise ships. United Nations World Tourism Organization (UNWTO) has revealed that international tourist arrivals could reach 80% to 95% of pre-pandemic levels by end of 2024. For instance, in 2022, Meyer Werft, a German shipyards company, converted the Costa Atlantic to suit Carnival Corporation's brands and met the growing Asian market demand. This renewed growth in cruise passenger volumes will drive further the demand for ship refits and renovations.
• Demand for green ships: With sustainability becoming vital in the maritime industry, ship owners are converting conventional ships into eco-friendly vessels running on alternative fuels like LNG, to comply with emissions regulations. The demand for green retrofitting to reduce pollution is rising, however, older ships are also undergoing conversions to improve their energy efficiency and environmental performance. For instance, the European Union launched its 'Fit for 55' package in 2021, which aims to cut greenhouse gas emissions from ships visiting European Union ports by 2% annually from 2025. This has resulted in more ships opting for modifications to burn cleaner fuels like liquefied natural gas. Similarly, international maritime organization (IMO) regulations stipulate that ships must meet a minimum energy efficiency requirement, so their Energy Efficiency Design Index (EEDI) which assures that ship designs achieve a certain level of efficiency and decrease carbon emissions, must not exceed a given threshold that is the lower a ship's EEDI, the more energy-efficient it is and the lower its negative impact on the environment. According to the United Nations Conference on Trade and Development (UNCTAD) review of maritime transport 2020, over 800 ships have been upgraded or ordered with LNG propulsion in the last couple of years. Hence, the need to upgrade aging fleets compatible with a low-carbon future continues to boost demand for ship conversion activities globally.
• The increasing focus on maritime security: The increasing focus on maritime security around the world is a major factor driving the growth of the global ship conversion market. As threats like piracy, terrorism, and smuggling at sea have risen over the past decade, many nations have placed greater emphasis on monitoring ship movements and cargo in their coastal waters and trade routes. In nations with extensive coastlines, the surveillance and protection of maritime zones are increasingly prioritized, with a growing focus on the utilization of sophisticated technologies.

Ship Conversion Market Opportunities:

• Navy fleet modernization programs: Several countries like China, ASEAN, and Indonesia have announced fleet modernization and expansion programs to strengthen naval capabilities in response to rising security challenges. Converting older naval ships provides a faster and cost-effective option over new constructions. Many nations are seeking to extend the operational lifetimes of existing vessels through upgrades and overhauls in order to maximize returns on past investments. Converting existing ships to take on new roles or integrate improved capabilities can allow navies to gain years of additional service at significantly lower costs than new-build programs. According to data from the US Department of Defense, over 50% of US Navy cruisers and destroyers will reach the end of their planned service life by 2030 if not undergoing conversions and refueling overhauls. The US Navy's recent report on its fighter jet requirements estimates a need for over 250 aircraft carrier-based jets by 2030 in order to meet operational demands, which will require at least 10 aircraft carriers remaining in service through extensive service life extension programs and overhauls. The modernization programs underway by navies around the world represent a significant opportunity for the ship conversion market in the coming years.
• Development of autonomous ships: Advancements in maritime technologies and automation are leading to the gradual adoption of autonomous ships. The conversion and retrofitting of existing crewed ships into autonomous vessels provides an opportunity to leverage these futuristic operations. Companies can potentially target conversions to upgrade navigation, communication and control systems for autonomous operations. Data from trade organizations like International Maritime Organization indicates autonomous shipping pilots and projects are growing exponentially each year providing real world experiences to scale up conversions globally. According to the United Nations Conference on Trade and Development, over 80% of shipping companies plan to have autonomous-ready ships by 2030. This underscores the enormity of opportunity in this domain for ship converters in the future.
• Expansion into emerging economies: Rising investments to develop shipbuilding infrastructure and capabilities in emerging economies such as India, Indonesia, Vietnam, Nigeria and Egypt have seen strong GDP growth rates in the past decade and are expected to continue on an upward trajectory according to World Bank projections which is opening up new geographical opportunities. Companies can expand into these markets by leveraging lower cost advantages and tap into conversion demand from local ship owners and yards. Local partnerships can help gain share. This economic expansion is generating substantial demand for imports and exports. Since more than 80% of global trade is transported by sea, the growth in trade volumes means more ships will be needed to carry goods between nations. Countries are expected to boost spending on infrastructure to support their growing manufacturing and consumer sectors in the next decade according to projections by United Nations Conference on Trade and Development. By proactively targeting these emerging economies, ship conversion companies can position themselves to benefit from an estimated multi-billion dollar market opportunity in the coming years as new ships are built and older ones undergo retrofitting. This strategic focus on emerging markets can help propel ship converters to stronger revenue growth and an expanded global customer base.
• Inland waterway vessel conversions: Growth in inland waterway transportation for domestic cargo movements provides new conversion opportunities for obsolete marine vessels. Companies can target conversions of deep-sea ships into river-sea ships, barges, and other vessels types suited for inland waterways. Conversions can also meet the demand for eco-friendly cargo transport. Converting existing inland vessels and barges to modern specs with modifications like expanding capacity, improving fuel efficiency, and installing latest emission technologies allow older vessels to continue operations in an eco-friendly manner. For instance, battery- or liquefied natural gas-powered conversions can help reduce carbon footprint substantially. With more countries investing in inland infrastructure under programmes like the EU Trans-European Transport Network, the volume of inland cargo movement is projected to rise steadily in the coming years. This reliable demand makes inland vessel conversions a stable segment within the ship conversion industry. According to data by the United Nations Economic Commission for Europe, freight transported via European inland waterways increased from approximately 1,000 million tonne-kilometres in 2015 to over 1,100 million tonne-kilometres in 2020. The commission has also set a target of doubling current modal share of inland waterways by 2030 and tripling it by 2050 to promote water-based logistics. Growing focus on ecologically sustainable modes as well as such programmes indicate the significant headroom available for inland vessel conversions to maximize environmental and cost gains in coming times.
• Expanding intra-regional trade post-pandemic: Asia Pacific’s rowess in fostering regional integration has been well-established, demonstrated by the dynamic and ever-progressing connections in commerce, capital deployment, and technological advancement. The region's kaleidoscopic diversity in populations and cultural expressions has been harmonized into a tightly interwoven economic fabric, intensely oriented towards maximizing global commercial prospects. The firmly established synergies within Asia Pacific are positioned to provide the region with a competitive edge as it navigates the post-pandemic landscape in 2022 and beyond. This holds particularly true for small enterprises striving to remain resilient in the face of adversity. There is a strategic benefit in seeking expansion prospects within the regional vicinity – a tactic that gains prominence amidst the prevailing global economic flux. As per the United Nations Conference on Trade and Development (UNCTAD), intra-regional trade as a percentage of regions' overall trade increased in 2021 compared to the pre-pandemic period, indicating a shift. For example, in Europe, intra-regional trade accounted for approximately 67% of total trade in 2021, up from 64% in 2019.

Ship Conversion Market Trends:

• Adoption of new technologies: Ship owners are increasingly adopting new technologies such as hybrid propulsion, batteries, and fuel cells through conversions to enhance efficiency and comply with emissions rules. Electronic systems for navigation, automation and propulsion systems also see strong retrofitting demand. AI-based condition monitoring systems are being integrated into existing fleets. For example, in 2021 South Korea's Hyundai Mipo Dockyard completed an extensive conversion of a very large crude carrier (VLCC) to operate on LNG, demonstrating the viability of conversions for transitioning existing tonnage to less polluting fuels. Between 2020 and 2022, orders for ship conversions to install scrubbers, ballast water treatment systems, exhaust gas cleaning systems, and preparations for dual-fuel propulsion more than doubled according to the International Maritime Organization, demonstrating strong market demand. Major classification societies like DNV and LR have supplied technical advisory on over 150 such retrofit projects during this period as well. The long-term outlook suggests technology adoption through vessel conversions will continue to reshape and grow this important sector of the shipbuilding industry.
• Focus on operational efficiency: Obtaining higher operational efficiency is a key priority. Companies are offering comprehensive conversion solutions involving machinery upgrades, waste heat recovery systems, optimized hull designs etc. to improve ships' fuel economy, speed and payload capacity. This focus on operational efficiency is driving significant business in the ship conversion market. Data from the International Maritime Organization shows that over 300 ships were already equipped for LNG usage as of 2021.Major shipping companies like Maersk have committed to deploying LNG-powered ships via retrofits by 2025 in order to reduce carbon emissions by 25%. Their actions are indicative of the wider push for cleaner marine fuels and propulsion technologies among global fleet operators. The ship conversion market has increasingly focused on operational efficiency in recent years due to rising fuel prices and concerns about environmental sustainability. Ship owners and operators want to maximize profitability by minimizing operating costs, particularly fuel usage and carbon emissions. Converting ships to use cleaner and more efficient fuels as well as installing new technologies that boost efficiency has thus become a major priority.
• Ship life extension services: With new ship builds becoming expensive, conversions are widely undertaken to extend the life cycle of vessels. By upgrading aged systems, refurbishing interiors and replacing corroded sections, ship life can be prolonged by up to 15 years. This provides better asset utilization and saves on new construction costs. As ship owners seek to squeeze additional years of profitable operations out of older ships rather than purchasing new builds, the demand for conversions aimed at upgrading, renovating and modernizing existing tonnage has increased sharply. Conversion contracts supported over 65,000 shipyard jobs in Europe in 2021 according to data from the European Commission. However, ship-owners demands have also become more complex as they need conversions delivering comprehensive solutions to maximize efficiency gains from older assets. Those able to meet this demand for comprehensive renovations will gain an advantage in this growing segment. Yards adapting swiftly to these demands stand to reinforce their role in this essential component of maintaining an aging global fleet. In summary, as ship owners increasingly pursue service life extensions, the conversion market is experiencing higher workload but also requires to satisfy the holistic upgrades vessels.
• Transition towards gas-fueled engines: LNG is gaining wider acceptance as an alternative marine fuel. Converting conventional diesel-driven ships to dual fuel or gas-only engines is rising. Along with emissions compliance, the price advantage of LNG over other fuels is also driving such engine conversions and tank storage retrofits. The trend of transitioning towards gas-fueled engines is having a significant impact on the ship conversion market. Many shipping companies are looking to convert their existing fleets to run on cleaner burning fuels like liquefied natural gas (LNG) instead of conventional heavy fuel oil. For instance, the number of LNG bunker vessels certified by Norway's classification society DNV increased from 17 in 2020 to 34 by early 2023, indicating the growing focus of countries and ports on facilitating gas-fueled ships. Overall, the gradual tightening of emission norms by IMO and growing availability of LNG as a marine fuel alternative is driving more ship owners and operators to explore conversion solutions, significantly boosting the prospects of this segment of the ship conversion industry.

Ship Conversion Market Restraints:

• High conversion costs: Ship conversions require extensive engineering changes and are capital intensive. The typical conversion costs vary from 25-40% of a comparable new build. Obtaining project finance for conversions is also difficult. The high conversion costs have been a major restraint on the growth of ship conversion market in recent times. Carrying out conversions often requires substantial capital expenditures which have deterred many ship owners and operators. Conversion projects usually involve dismantling of existing structures and equipment, installing new machinery, systems and outfitting according to the vessel's new role. This complex process needs careful planning and management of resources which drives up the costs. The high capital expenditure has made ship owners hesitant to commit investments for vessel conversions especially during downturn periods in shipping industry. As per the Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection (GESAMP) report published in 2022, almost 30% of global ship owners cited high conversion costs as the primary reason for delaying or deferring their conversion projects planned in 2021.High conversion expenses will continue capping the growth projections of this niche segment within global shipbuilding industry. Perform detailed cost-benefit analysis for various conversion options. This helps in justifying the investment and can be key in decision-making to ensure cost savings in the long run with technologically advanced solutions.
• Longer time required: The longer durations and resulting downtime lead to loss of revenues for ship owners. Converting an existing ship typically takes 12-18 months on an average, which is a significantly long period of time. This is a complex engineering challenge involving fabrication, installation of new equipment and systems, sea trials, statutory approvals and certifications. All this makes ship conversion a time-intensive process. The prolonged period that a ship remains out of service for conversion inhibits the quick adaptation of shipping companies to changing market demands and regulatory norms. For instance, the compliance of new carbon emission regulations within a short time frame through ship conversion may not be feasible considering the lengthy process. This encourages ship owners to opt for new building construction over conversion especially when replacement of aging ships is necessary. To conclude, the significant amount of time involved in ship conversion poses financial and operational challenges for ship owners, putting constraints around fast decision making. This acts as a hurdle for the sustained growth of this specialized segment of the shipbuilding industry. Ensure detailed project planning with a clear grasp of regulatory and compliance factors to prevent non-compliance delays. Embrace modular construction and prefabrication methods, enabling off-site completion of sections for swift on-site assembly, thereby diminishing total conversion time.
• Overcapacity and volatile freight rates: Market challenges such as overcapacity, low charter rates, and freight market volatility in segments like bulk shipping impact earnings of ship owners. Weaker financials limit their ability to invest in capital-intensive conversion projects to upgrade or modify ships until markets stabilize. In 2020 and 2021, the COVID-19 pandemic severely impacted international trade and disrupted global supply chains. This led to a huge imbalance between freight supply and demand. As per UNCTAD reports, in 2020 global merchandise trade fell by around 5% due to the pandemic. Even now in 2022 and 2023, as economies recover but face new challenges like high inflation, geopolitical conflicts and uncertain economic outlook, ship owners are uncertain of future demand trends and reluctant to take on capital intensive conversion contracts. In summary, overcapacity in the shipping industry along with high volatility in freight markets deters ship owners from long-term investment commitments required for ship conversion. Unpredictable demand and freight fluctuations increase business risk, discouraging capital expenditures. Focus on specialized conversions within niche markets to secure premium rates, thus mitigating the impact of overcapacity. Adopt flexible financing models attuned to the shipping industry's cycles, offering adaptable financial terms that accommodate freight rate volatility, enhancing project feasibility for clients.

Recent Developments

New product launches

• In January 2023, Damen Shipyards, a Dutch defense, shipbuilding, and engineering conglomerate company, launched its Expedition Cruise Vessel ECS design tailored for the luxury adventure cruise segment. The innovative design provides higher passenger capacity along with range flexibility.
• In 2022, Hyundai Heavy Industries, a shipbuilding and heavy equipment manufacturer, received an order to build four Liquefied Natural Gas-powered container vessels. The eco-friendly vessel will help reduce carbon emissions for ship owners.
• In 2021, Fincantieri, an Italian shipbuilding company, delivered Seven Seas Splendor, an ultra-luxury cruise ship with expanded passenger capacity after its conversion and refitting. The ship provides enhanced onboard entertainment and dining options.

Acquisition and partnerships

• In 2022, Al Seer Marine, a maritime solutions provider acquired Bahri Dry Docking, a dry bulk logistics provider, in Dubai to expand its ship maintenance and repair capabilities in the Middle East region
• In 2021, Cochin Shipyard, shipbuilding and maintenance facility, partnered with Fincantieri, an Italian shipbuilding company, for technology transfer and joint development of civilian and defense vessels

Figure 2. Global Ship Conversion Market Share (%), by Services, 2023

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Top Companies in the Ship Conversion Market

• Damen Shipyards Group
• Global maritime
• Groupe Beneteau
• Kongsberg Maritime
• Mercury Marine
• STX France S.A
• Royal Huisman
• Neorion Shipyards
• Sembcorp Marine
• Deep Sea Supply Plc
• Hyundai Heavy Industries
• CSSC Chengxi Shipyard
• Cochin Shipyard
• Fincantieri
• Orient Shipyard
• VARD Group
• Wilson Sons
• Oman Drydock Company
• Bahri Abha Shipyard
• Abu Dhabi Ship Building

Definition: The ship conversion market involves converting or retrofitting existing ships and vessels for purposes other than their original intended use. It includes upgrading ship systems and adding new capabilities through extensive structural modifications and installations. Ship conversions are undertaken to prolong the operational life of vessels, meet new environmental standards, enhance earning capacity, or deploy them for alternative applications. The market comprises conversion service providers, equipment suppliers, ship owners, and yard operators engaged in commercial and military ship conversion activities worldwide.