IMO 2020 triggers payment delays, cost overruns in scrubber retrofits

EXTRAORDINARILY high bunker bills connected to IMO 2020 compliance has led to payment delays, a shortage of yard slots and cost overruns related to the scrubber retrofitting of vessels.

Add to the quagmire, Chinese ports has reported five ship violations of the UN's International Maritime Organisation's (IMO) new rule that caps the content of sulphur in marine fuel to 0.5 per cent.



Maritime authorities at the ports of Qingdao, Dalian, Ningbo, Xiamen and Weihai reported the violations of IMO 2020 regulations. All five cases showed a small excess of sulphur in the fuel, ranging from 0.546 per cent to 0.68 per cent, suggesting none of the vessels involved were using high sulphur fuel oil, reports London's Lloyd's List.



Causes of overrunning the sulphur cap were said by officials to have been improper blending of the fuels or an incomplete switch to compliant fuels.



The Xiamen Maritime Safety Administration offered the most detailed explanation in its case detected on January 3. It said the ship caught had switched to very low sulphur fuel from December 27 but had been largely out of service since then while some high sulphur fuel oil



The high premium price of very low sulphur fuel oil (VLSFO) is also causing the global maritime industry a big headache. The average VLSFO price at the world's top ports has reached US$651.50 per tonne, according to Ship & Bunker, far higher than $369 for HSFO IFO 380.



The extra bunker costs have triggered a cash crunch among some ship operators with less deep pockets, as highlighted by Singapore's Pacific International Lines (PIL).



As the time goes by more VLSFO production will come online. That can help to reduce the spread, while the tax rebate reportedly approved by Beijing for local refineries will facilitate that trend.



The new tax regime is likely to ramp up China's VLSFO output and lower its imports of bunker fuels that have been the chief source of supply at Chinese ports for vessels.



At the same time, ships that have fitted exhaust gas scrubbers are reaping the benefits of better earnings.



Cleaves Securities earlier put rates for a scrubber-fitted very large crude carrier at $117,000 per day versus $101,000 per day of a non-scrubber sister ship.



Fearnleys noted in a report this week that a scrubber-fitted capesize dry bulker presently earned an extra of $8,000-$10,000 per day against a non-scrubber one.



The use of scrubbers also involves many maintenance costs. Scrubber components need to sustain corrosive products at high temperature, with the wear and tear requiring great monitoring, according to Milutin Gojkovic, a liner shipping and bunker expert who previously worked for a major European carrier.



Overrun of installation costs is another headache, as yard slots have become increasingly tight.



One shipping executive whose company completed a scrubber retrofit on one of its capesize dry bulkers in November said the final cost charged by the shipyard in China was 30 per cent higher than the quoted price, with the job finished three-four days later than scheduled.




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