London — The global debate on the potential ban of open-loop scrubbers continues to add to uncertainty in the shipping industry ahead of the implementation of the lower-sulfur cap in 2020 mandated by the International Maritime Organization.
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Scrubbers -- exhaust gas cleaning systems -- have seen increasing uptake as the industry prepares for the IMO's new sulfur cap, which requires vessels sailing on the high seas to burn fuel with a sulfur content of no more than 0.5%, from the current level of 3.5%, unless they are fitted with a scrubber.
Open-loop scrubbers send water used to clean emissions back into the sea while closed-loop scrubbers retain the emissions for disposal at port.
THE GLOBAL DIVIDE
However, countries remain divided over open-loop scrubbers due to environmental concerns over the discharge of polluted washwater into the sea.
As a result, countries have started banning the use of open-loop scrubbers in their port waters, necessitating either the use of closed-loop scrubbers or lower sulfur marine fuels.
In January, the Port of Fujairah said it was banning the use of open-loop scrubbers in its port waters while Singapore is set to implement a ban from January 1, 2020.
China has already banned their use within its emission control areas covering inland waters and most of its coastline.
Other countries with bans or restrictions are India, Belgium, Germany, Lithuania, Latvia, Ireland, Norway and parts of the US.
However, according to the Clean Shipping Alliance 2020, several port authorities indicated they had no intention of banning the use of open-loop scrubbers in their waters, including Japan and more than 20 ports covering Europe, the Americas, Asia and Australasia.
Furthermore, in a statement published Monday, Christopher Fee, member of the CSA 2020 executive committee, said some ports were even considering "revoking their earlier decisions to restrict open-loop scrubber use now that more academic studies have been made publicly available."
UNCERTAINTY FOR SHIPPING INDUSTRY
According to the latest data from DNV GL, the Norwegian accredited registrar and classification society, the total number of ships in operation and on order with scrubbers fitted rose to 3,275 in May.
Of those 3,275 ships, 2,412 are retrofits and 863 newbuilds, according to DNV GL data. Some 80% of scrubbers fitted or to be fitted to ships are open-loop scrubbers while 16% are hybrid scrubbers enabling ships to operate in both open and closed loop.
Many believe scrubbers will split the shipping time-charter market into two tiers.
Under time-charter terms, the charterer hires the vessel for a specified period of time, paying the shipowner a daily hire rate. The charterer also becomes responsible for the commercial expenses of the hired vessel, including bunker and port costs.
As a result charterers may be inclined to hire vessels with scrubbers that would allow them to burn cheaper fuel, cutting their operational costs.
Hence, the potential ramifications of a ban on the most widespread type of scrubber are numerous.
The appeal of scrubbers is that they will allow shipowners to avoid paying higher prices for compliant fuel and continue to buy high sulfur fuel oil, which is expected to price considerably below very low sulfur fuel oil.
S&P Global Platts assessed FOB Rotterdam 0.5% marine fuel for Cal20 on the swaps forward curve at $512.75/mt Tuesday, compared with $317.75/mt for FOB Rotterdam for 3.5% fuel oil barges.
The uptake of scrubbers has had a very marked impact on the container industry, which currently has its own ways of dealing with increasing fuel costs.
Bunker costs in most freight deals are handled using a mechanism commonly referred to as the BAF, or Bunker Adjustment Factor.
In theory, it allows carriers to recoup the fuel expenses they incur when transporting containers. These formulas take into account numerous factors, including, but not limited to: size and fuel consumption of a typical vessel on that route, capacity utilization, distance and perhaps most importantly, the type of fuel used during the voyage.
The use of scrubbers would significantly reduce strain during the negotiation period for annual freight contracts, as the BAF system would not have to be employed, casting some already agreed annual contracts into question.
Should open-loop scrubbers be banned in a majority of ports, however, there would be a significant increase in strain between container carriers and BCOs (Beneficial Cargo Owners) during the negotiation period for annual freight contracts, as a BAF system would have to be employed in these negotiations.
With a wide and diverse range of calculations and persistent uncertainty over the pricing of 0.5% marine fuels, the confusion over the methods to mitigate increasing bunker costs will only be exacerbated by banning the majority of scrubbers in the shipping markets.
--Leon Izbicki, firstname.lastname@example.org
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--Edited by Jonathan Fox, email@example.com