IMO2020: Freight Rate Jump has Owners Rethinking Scrubber Install Schedules

by Michael Donaldson-Badger, Managing Director - DMCC, NSI
Monday October 14, 2019

With 1st January just a few short months away everything is settled and everyone has committed to their compliance plan.......until it changes.

The tanker market in particular has had a turbulent few weeks, Cosco sanctions, last weeks incidents in the Red Sea, US-China trade wars and potential of some sanctions impacting Turkey on the horizon (watch your twitter for President Trumps latest on that).

So the scrubber / not scrubber decisions that were taken months ago - how often should they be revalidated? Are the decisions taken months ago still optimum? With such volatility in freight rates should you re-examine these decisions now?

Owners built their economic cases around the scrubber or compliant fuel options basis a series of assumptions and forecasts around the topics (in no particular order):

  • Price spreads
  • Fuel availability
  • Scrubber availability, price and installation
  • Credit
  • Freight
  • Environmental impact

Price Spreads

The pricing spreads between grades has so far not hit the eye-watering levels that some predicted 9 months ago, and although the paper spread has widened the market is still subject to logistical squeezes and rising bunker premiums over the hedged cargo indexes making the actual spread potentially smaller.

Fuel Availability

We are no longer working in an 'assumption world' and we now have a clear picture of where specific fuel grades are and where the choke points are. was intended as an internal tool resource for NSI but now our customers and subscribers are using it for availability and contingency planning.

Scrubber / Yard Availability

A rapidly changing picture as scrubber manufacturers have scaled up production and some planned vessel installations are now being delayed. As yard spots open up and some owners swap installation spots between their tanker and dry bulk fleets now is a great time to re-examine installation timing. "Make hay while the sun shines" one owner commented last week describing their decision to reschedule some scrubber installations, for those owners disappointed that an earlier installation slot was not available it may be worth looking again now.


We have been working all year with owners, suppliers and traders to open additional credit for our customers so they can have access to most economical and lowest risk options possible. We have found physical supplies become more accommodating and flexible as the year has progressed to owners credit against the backdrop of traders credit lines becoming more expensive and the increased lines that they have secured not seeming to cover the required levels to service the market, where cheap credit has been available easily for years its clear that credit will become more expensive into next year. There are certainly more diverse credit options than ever before for an owner to consider and mitigate this.


Not wanting to take anything away from other markets but VLCC rates are taking the headlines at the moment - with rates of $300k+ a day making the headlines and Suezmax rates getting a welcome boost from this - which owners are going to take their ships out of service to install a scrubber when rates are so high? Even if this is a short term spike missing out on 20/30 days earning at over $200k a day above previous rates represents a missed opportunity of $4-6m USD.Even in a scenario where a scrubber manufacturer imposed a delay/cancellation penalty this must be small compared to freight opportunity.

Environmental Changes

The potential risks of open loop scrubbers has been raised so many times in the industry media with compelling arguments made from both sides of the floor. But with all this new information has your opinion as an owner changed? Will Greta target open loop? Will current bans be lifted? How do these bans impact your planned usage and ship operation with its particular capacities and constraints?

So now is the perfect time to dust off the scrubber / compliant fuel business case and recheck those financial assumptions against current reality. Scrubber manufacturers should be flexible with such a backlog of business and we now have a good picture of fuel availability, pricing and avails and it's clear that there will be a strong spot market rather than contract dominated as some had hoped.