Owners still “watching and waiting” as Sulphur Cap deadline approaches

The uncertainty surrounding the impending introduction of the Sulphur Cap in 2020 was highlighted at North P&I’s briefing on ‘2020 Vision – Get Ready for the Sulphur Cap’, held in London on July 11th.

Colin Gillespie, Director (Loss Prevention) at North, said that many owners and charterers were watching and waiting and still had not made up their minds about how they would comply with the 0.5% sulphur regulation.

“The one word that really encapsulates the 2020 Sulphur Cap is uncertainty,” he said. “There is no certainty about which compliance option you should take. From a commercial and an operational point of view, there is a lot of uncertainty in the market and that means that people in the business – owners and charterers – haven’t made their minds up about what they are going to do.”

He said there would obviously be a change with the technical side and also contractual issues. “We see potential for lots of disputes running across 2020 because the bunkering situation now will be completely transformed in terms of the landscape after 2020.”

Gillespie observed that owners and charterers would want to try to avoid disputes, and going forward they would need to think about clauses in contracts.

Alvin Forster, Deputy Director (Loss Prevention) added: “We don’t know what the right choice is. It appears the vast majority will burn distillates.”

He said there were pros and cons to every choice.  By burning cleaner fuels there would be less maintenance required, but the downside was the price differential and possibility of a shortage in available supply, at any price.

He said the option of hybrids and blends could lead to a risk of incompatibility, while some might also fall outside of ISO 1827.

Exhaust gas cleaners, known more commonly as scrubbers, had the best green credentials but would likely require the biggest initial cost, although this could be recouped over the years.

Tiejha Smyth (Deputy Director) FD&D said that it was believed by many that there would be enough very low sulphur oil (VLSO) to supply demand, though it might not be available everywhere in the world. “All these issues will mean an increase of cost to somebody,” she said, noting that the cost of the 2020 requirements to the container shipping industry could be as much as $30bn, according to the International Transport Forum at the Organisation for Economic Co-operation and Development (OECD).

She added that the high fuel cost could lead to charter party disputes during the cross over period and charter parties relating to bunkers would need to be reviewed. Terminology would also have to change in bunker clauses, she said, stressing that owners and charterers needed to think ahead about this.

“This issue needs to be tackled now, not just because of technical reasons but for the charter party issues as well,” she said.

Ian Crutchley of Veritas Petroleum Services said that “there will be operational challenges in the early days post 2020”..

Jack Jordan of S&P Global Platts concluded with some analysis of the bunker market and forecasts. He said the biggest concern for owners thinking about VLSO was its compatibility. Latest figures from DNV GL showed a ‘dramatic rise’ in the number of ships which have ordered or installed scrubbers – 817 by the end of May 2018. However, he said that, despite all the positive news about scrubbers, they were still a relatively niche option and believed they would only become more expensive as their popularity rose.