Compliant Low-Sulphur Fuels The Dominant Choice Among Dry Bulk Owners Says Shipbroker

While scrubbers seemed to be a very popular choice among shipowners looking to comply with the IMO’s 2020 rule regarding the use of low sulphur fuels, starting next January, it seems that the financials of this investment proved to be too much for the vast majority of ship owners operating in the dry bulk market. In its latest weekly report, shipbroker Banchero Costa said that “2020 is fast approaching, and with it the implementation of new regulations regarding sulphur content in bunker fuel which is going to have significant technical and commercial repercussions also on the dry bulk shipping sector. Last month, the Baltic Exchange announced that the benchmark bulkcarrier used for the calculation of their widely used timecharter indices will remain described as a “non-scrubber fitted vessel”. This decision proved highly controversial, and the road to it attracted a lot of debate and intense lobbying from various parties. However, we believe that the decision to settle for a ‘no scrubber” clarification makes sense, and essentially was the “default” option all along, being just a reconfirmation of the current definition”.

According to Banchero Costa, “whilst the adoption of scrubbers is a very controversial and polarising issue in itself, the reality on the ground is that in January 2020 no more than 10 percent of trading bulkcarriers will have exhaust scrubber equipment installed. Next year, the vast majority of vessels will simply take the route of using compliant low-sulphur fuels. It was not supposed to be like this. Last year, scrubber-enthusiasts were forecasting a much wider adoption of this technology, with supposedly quick financial returns based on expected wide price differentials between compliant and high-sulphur fuels. However, dry bulk shipowners are a pretty conservative bunch. Also, after a number of lean years, they are quite a cash-strapped bunch. The prospect of having to invest upfront millions of dollars in the hope of potential returns seems too much of a gamble”.

The shipbroker added that “the negative press regarding the open-loop version of the technology – the vast majority of those being installed – probably also helped to cool the enthusiasm. The technical problems experienced by many of the early adopters of water ballast treatments systems – another new anti-pollution technology – perhaps also made people stop and think. It is widely believed that the economics of a scrubber should work for larger bulkcarriers, such as Capesizes and VLOCs. For smaller vessels, in particular Supramaxes and Handies, the economics look far more shaky, and there is also often lack of physical space on board to install what is a rather bulky piece of equipment”.

According to Banchero Costa, “current adoption numbers suggest that by the end of 2020, up to 30 percent of Capesizes could be scrubber-fitted. For smaller vessels, the adoption rates will be much, much smaller. This in itself creates a perverse incentive. As most small vessels will rely entirely on compliant fuel, there will be little incentive for bunker suppliers to stock high sulphur fuel at more remote ports. Therefore, scrubber-fitted small vessels could have significant problems with fuel availability. There is no doubt that the timecharter rate for a scrubber fitted vessel should include a premium compared to a comparative non-scrubber fitted vessels. They will, after all, be able to use cheaper high-sulphur bunkers. This is no different from a modern “eco” vessel commanding a premium compared to older tonnage with higher fuel consumption rates”.

“Will these premiums be sufficient to cover the installation cost of a scrubber? It will depend on what the actual bunker price spreads will be. It will also depend on the strength of the freight market, and therefore on the bargaining power of the shipowners versus the charterers. For the majority of bulkcarriers, the choice will be between 0.5% blends and marine gasoil. It’s by no means an obvious choice. Blends, using a mixture of high sulphur fuel oil and distillates such as vacuum gasoil, are expected to be the cheaper solution. However, these blends are not yet standardised and generally untested. There are serious concerns about their stability, especially when mixing blends from different suppliers. The risk is expensive damage to the engine. Therefore, at least in the initial stages in 2020, many shipowners will take the safe route and use tied-and-tested, but more expensive, MGO. There is no doubt that, in 2020, compliant fuels will be more expensive than what is burned today. IMO 2020 will push overall bunker costs upwards. And this will have plenty of implications”, Banchero Costa concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide