IMO Sulphur 2020 – Impacts to Operators, Shippers and Global Freight Markets

The second option, the installation of scrubbers, removes sulphur from the exhaust on board the vessel, enabling HSFO to continue being burned. The most prevalent design, the open loop, involves sea water being sprayed on the exhaust gases, which is then discharged into the sea (where alkaline sea water neutralizes the acid). Closedloop systems are preferred for waters with low alkalinity, such as the Great Lakes or the Mississippi River. This system uses caustic soda (or an alkaline alternative) and though it involves less power to operate than open-loop designs, it requires waste reception facilities at the port. A hybrid design allows flexibility and may be chosen if an owner believes future requirements will target washwater discharge into the ocean from open-loop systems. Indeed, bans on washwater discharge in the port waters of California, China, Fujairah and Singapore, among others, effectively mean vessels fitted with open-loop scrubbers will have to use compliant fuels when in port waters.

The attractiveness of scrubbers as a method for IMO 2020 compliance very much depends on the payback time. With installation costs reported at $2 million for a 200-210,000 dwt “Newcastlemax” bulker newbuilding and more for a retro-fitting, a premium of $200/t of VLSFO over HSFO (per recent futures pricing for 2020), if realized, would imply a payback on installation for a Baltic Exchangetype Capesize of more than one year. Scrubbers would, therefore, be most favored for modern, higher value, high fuel-consuming vessels – those with the shortest payback periods – and we do expect more scrubbers to be fitted to Capes on order.

We assume by March 2020 some 20- to 25 percent of Capes on the water will be scrubberfitted with smaller percentages of the Panamax and Supra/Ultramax fleets. With the majority of the dry bulk carrier fleet not scrubber-fitted by 2020 (and facing the prospect of higher bunker prices), we predict a rise in demolition activity during late 2019 and 2020 for older, less economical ships. The most economical ships may attract a premium for period rates, and some older vessels may slow steam to remain competitive, reducing fleet carrying capacity further and tightening market balances. In addition, anticipated bottlenecks in the supply of compliant fuels could add significant waiting time at key bunkering centers as well as bottlenecks in the supply of bunker barges.

The third option, alternative low sulphur fuels such as LNG, has yet to achieve mainstream uptake in the dry bulk sector due to a lack of bunkering infrastructure. There are very few current examples of LNG-fuelled dry bulk carriers either on the water or confirmed by new building orders.

Non-compliance with the new rules will be permitted only if vessels’ detailed actions to attempt to obtain compliant fuel and specifying reasons why compliant fuel was not available are made in a Fuel Oil Non-Availability Report (FONAR). Otherwise, breaches of IMO 2020 face penalty by port states in port waters or by flag states out at sea. Furthermore, a ban on the carriage of HSFO unless a certificate proves the existence of a working scrubber will become effective on March 1, 2020. This would prevent HSFO consumption at sea and close a potential loophole.

While care has been taken to ensure that the information in this article is accurate, it is supplied without guarantee.

SSY Consultancy and Research Ltd. can accept no responsibility for any errors, omissions or consequences arising therefrom.

The views expressed are those of SSY Consultancy & Research Ltd. and do not necessarily reflect the views of any other associated company.

Derek Langston is the Head of Research at Simpson Spence Young.