Bulk carrier scrubber orders outpace tankers

Less than 15 months remain until the IMO 2020 sulphur cap regulations come in to force and with this date looming, ship owners who have yet to address the situation are being forced to make prompt decisions in order to comply and continue to trade come January 2020 and beyond. Compliance options are to install scrubbers, to switch to LNG or another compliant fuel or face non-compliance and any penalties that this could entail. With some reports indicating that the penalties for non-compliance are low compared and potentially cheaper than the economic incentives such as switching to scrubbers or cleaner fuels. 

According
to our analysis, Bulk Carrier have outpaced tankers with scrubber installation, with around 30% of vessels with scrubbers in the bulk carrier sector, particularly in the capesize and newcastlemax categories, either on order or already installed, compared to just 18% for tankers. Perhaps this outcome is surprising, considering that vessels fitted with scrubbers are currently able to command a premium over standard vessels and with tanker rates still at relatively low levels by historical standards. We have calculated that on average, scrubber installed tankers are earning around 10% more on five-year timecharter rates, after an initial investment of between $2-8 million per ship with the return on investment is thought to be from one-three years. 

In it’s latest World Energy Outlook, OPEC predicts that due to uncertainties surrounding the implementation of IMO regulations, the rate of non-compliance could be around 75% in 2020, gradually increasing to 90% in 2023, in line with the increasing number of vessels with on-board scrubbing facilities. 

Charterers will have the benefit of cost saving in the case where the vessel is fitted with a scrubber and operating on a “cheaper” heavy fuel rather than using MDO or other potentially expensive compliant fuels. Reportedly some owners have even received financial backing from charterers to install scrubbers. There have also been instances where scrubber fitted vessels have an advantage when securing financing, with large banks.

Indications from owners suggest that they see scrubbers as only a short-term solution if compared to the alternatives which provide a more structural and profound long-term solution. However, the economic case behind them is strong, particularly in larger vessels.

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