News / IMO 2020 fuel restriction may prove a ‘windfall’ for the charter market

The Danaos-owned CMA CGM Rabelais © Atgimages

MSC, Maersk, Cosco and CMA CGM are among ocean carriers that expect to temporarily increase their capacity this year to mitigate the downtime as ships are retrofitted with scrubbers, or for the decontamination of tanks to accommodate compliant fuels, ahead of IMO 2020.

Notwithstanding seasonal supply and demand drivers, containership owners are anticipating a charter market boost in the second half of the year, as operators prepare for the introduction of the IMO’s 0.5% global sulphur limit on 1 January next year.

At the Danaos Q4 and full-year 2018 results presentation last week, CEO Dr John Coustas said the charter market had recently “shown encouraging signs of recovery” in the 5,000 teu and larger sectors.

“Anticipated slow-steaming and redesigning of liner networks, ahead of the implementation of new restrictions on sulphur emissions in 2020, together with vessels exiting service to be fitted with scrubbers, are all positive supply side developments that may lead to improved charter rates,” he said.

The Greek shipowner operates 54 containerships, ranging from 2,200 teu to 13,100 teu, which are mostly chartered out on a long-term fixed rate basis to the major liners.

Dr Coustas confirmed that Danaos had concluded deals for 11 of its ships in the 6,500-13,100 teu range, which a broker source told The Loadstar were on charter to MSC, Maersk and CMA CGM.

He said the charter parties had been amended to reflect a “step-up charter rate” – compensation for the cost of installation of the scrubber systems – and it is assumed that the vessels will remain on hire for the duration of the work, currently 35-40 days.

Prices for the installation of open-loop scrubbers range from $3m to $6m, depending on the size and age of the vessel, but delivery times now being quoted can be up to two years.

Dr Coustas also confirmed that a number of the company’s charter clients had requested that some of the ships that they had on charter should be allowed to trial the use of low-sulphur fuels well before their need to replenish tanks with compliant fuels, so any compatibility issues could be overcome.

He said Danaos was happy to meet these requests, but added that, as per the normal charter party terms and conditions, “fuel is the responsibility of the charterer”.

Indeed, it is not only the extra cost of LSFO (low-sulphur fuel oil) that concerns ship operators in relation to IMO 2020, but also the compatibility of the blended product. And even before vessels bunker with LSFO, there are a number of preparations to avoid contaminating the compliant fuel and, therefore, potentially the ship breaching the new regulations.

This includes draining and cleaning piping, purifiers and fuel treatment equipment, which means the vessel operator must  run down on-board stocks without risking running out of fuel.

Moreover, the cleaning of all tanks before the 1 March 2020 carriage ban on transporting high-sulphur fuels comes into force, will involve downtime at a layby berth, thus boosting the charter market further.