Switch to low-sulphur fuel (LSFO) becomes
mandatory within two years and it will be illegal to power a ship with fuel
having more than 0.5% sulphur content unless the vessel is fitted with an
exhaust clean gas system, known as a scrubber. .
However, according to a new white paper,
released by Swedish financial services group SEB, fewer than 2,000 ships out of
a world merchant fleet of some 60,000 – 3.3% – are expected to have scrubber
systems installed by 1 January 2020.
Shipowners are not coming readily forward
to install scrubbers; in the report SEB says that, despite the significantly
higher cost of low-sulphur fuel oil (LSFO) – currently about $580 per tonne
compared with heavy fuel oil (HFO) at about $370 per tonne – shipowners are
resisting calls to install scrubbers.
According to SEB, the key reason is that
generally it is the charterer who indirectly pays for the fuel as a
pass-through cost. It is much easier to pass on a specific fuel-cost than to demand
compensation for capex spending on scrubbers.
The shipowners have their own reasons to
switch to LSFO in their ships; it provides more free space on the ship, less
maintenance and less need for greater crew competence and again there is
uncertainty with regard to sludge disposal costs.
the major container lines rely on the charter market for a high percentage of
their fleet. For example, CMA CGM charters 62% of its capacity and MSC 66%, and
if shipowners won’t pay the $5-$10m cost of installing scrubbers, the
charterers will be obliged to budget for the higher operating costs of using
LSFO, whether they want to or not.
And given that an
ultra-large container vessel will burn about 250 tonnes of fuel a day at sea,
the extra cost will be massive. According to a blog published today by S&P
Global Platts, it is estimated that if the global container fleet were to
switch overnight from HFO to LSFO, the extra cost would be a staggering $34bn a
year, based on today’s prices.
To put this into perspective, it is reckoned that the liner
industry enjoyed a good year in 2017, achieving a consolidated profit of
Clearly it would be impossible for container lines to absorb the
extra cost and they will be obliged to pass it on to shippers as bunker
Given that the new IMO low sulphur regulations in 2020 will be a
game-changer for shipping, Platts says it is time to move away from the
traditional bunker adjustment factor (BAF) system of recompense.
It notes that carriers and shippers have their own ideas on BAF
calculations, which can include variables such as bunkering ports, size of
vessels and, not least, the price of fuel.
With this in mind, Platts said that starting in January next
year, it will create an index “agile enough to react quickly to market
dynamics”, which it said would aim to reflect a price or surcharge in dollars