I'm doing some data processing and wondering what is the best practice for dealing with categorical columns that has a value counts plot looking like the below (these are one-hot-encoded at a later stage). Should the rarely represented variables be dropped? What is a typical limit in terms of value count % that decides if they should be dropped? Should I group the categories between for example "Tug" to "Naval" as "Other"?
I realize that how the data is processed is dependent on the underlying "meaning" of the data. Nevertheless, would love some general comments on best practices for situations like this.