IMO 2020 a Game Changer: Charter Ships to Recover Scrubber Investment

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  • The shipping industry is all set to face an interesting year in 2019 with the delivery of 46 ULCVs.
  • The consultants predict a higher tonnage and a global fleet expansion with scrapping and charter market influenced by IMO 2020 regulations.
  • An investment of $9 million per vessel to retrofit exhaust gas cleaning systems has been made to encourage scrubbbers.

According to reports compiled by Alphaliner, the shipping industry is set to see an interesting year in 2019 with a release of 1.15m teu newbuild capacity, including the delivery of 46 ULCVs.

Tonnage Specifications

The consultants predict a tighter outlook with a ‘top-heavy’ orderbook for tonnage in the 10,000 teu and under sector and a more modest global fleet expansion of around 3.5% than the 5.7% growth of last year. By the end of 2018, the world’s cellular fleet stood at 5,284 ships, for 22.3m teu.

Reports stressed that an 11.2% fleet increase in ships of 10,000-23,000 teu this year was likely to be tempered by shrinkage of some 2.5% in the 4,000-10,000 teu range and an anemic 2.5% growth in the very smallest containership sizes.ULCVs of 13,800-21,400 teu hit the water at an average rate of one a week last year, totaling 901,000 teu – 35 of the 52 were deployed between Asia and Europe. Their arrival triggered cascading and service restructures purely implemented to make good use of smaller tonnage.

Scrapping to pick-up phase

Most analysts expect containership scrapping to pick up again this year, driven by preparation for next year’s IMO 0.5% sulphur cap regulations, which will make older fuel-guzzling vessels much more expensive to operate.

Only around 60 vessels, equating to just over 110,000 teu, were sold for demolition in 2018 – a seven-year low – compared with 151 ships for 431,000 teu scrapped in 2017.

Reports estimate that containership deletions will be around 300,000 teu this year, with the number of ships sold for scrap accelerating in the second half as operators weed out the more uneconomic vessels from their fleets.

Investment in scrubbers

At a cost of around $9m per vessel to retrofit exhaust gas cleaning systems (scrubbers) to ships to enable the vessels to continue to consume cheaper heavy fuel oil post-IMO 2020. Alphaliner said, it expected only chartered ships of 10 years and younger would be considered, given the requirement to recover the scrubber investment by way of higher daily hire fees.

Experts said, “IMO 2020 will be a game-changer, as it will bring fuel costs to the forefront. It should lead to a massification of volumes on all trades that will benefit the larger ships at the expense of smaller ones”.

Charter market influence by IMO 2020

The consultant’s charter market outlook for 2019 is heavily influenced by the pre-IMO 2020 preparations, which could also increase short-term demand as ships are temporarily taken out of service for tanks to be cleaned, or scrubbers to be fitted, and some have been scrapped.

The low-sulphur regulations will have a significant impact on the container liner industry and, if not recovered, the associated higher fuel costs could prove to be extremely damaging for the financially weaker players.

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Source: The Loadstar

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