Smaller bulkers are a larger gamble when it comes to scrubbers

Danish maritime advisory Liengaard & Roschmann runs the numbers on scrubber installations.

Over the last couple of months, the discussions about the potential impacts of IMO2020 has been picking up. A vast variety of opinions have been exchanged about anything from refinery capacity and price spreads to legal risks, two-tier freight markets and commercial advantages and disadvantages.

The purpose of this contribution is to address, in tangible terms, how the income potential and operational speeds of four sample dry bulk carriers are going to be affected and how it translates into the business case?

To capture the daily earning potential our VesselIndex methodology will be applied.

Four dry bulk vessels will be considered, one handysize, one supramax, one panamax and one capesize. The vessels are common designs from each segment. See details in table 1 below.

It is important to emphasize that the speed and consumption figures of the vessels selected for this exercise will influence all the findings below. Choosing other designs will produce different results.

The analysis will cover two vessel cases;

Case 1: vessels trade without a scrubber installed.

Case 2: vessels trade with a scrubber installed.

Market levels – and availability


It will be assumed in the analysis that the base market levels (i.e. basis BHSI, BSI, BPI & BCI) are around the levels we see today. So, for handysize – approximately $9,500 a day, supramax – approximately $12,000 a day, panamax – approximately $12,000 a day, capsize – approximately $19,000 a day.


The analysis will consider three (3) fuel price scenarios; Scenario 1: non-compliant fuel is $400 per metric ton and compliant fuel is $900 per metric ton. Scenario 2: non-compliant fuel is $500 per metric ton and compliant fuel is $800 per metric ton. Scenario 3: non-compliant fuel is $600 per metric ton and compliant fuel is $700 per metric ton.

All of the above is summarised in table 2 below.

Fuel availability:

Further to the above it is important to note that the analysis is assuming 100% certainty of physical availability of the non-compliant fuel.

Operational speeds

Depending on the market environment the vessels in question will be trading at different speeds. A way to capture this and get a tangible and reasonable figure is to apply an ‘optimal speed’ approach. The optimal speed is the operational speed at which a given vessel yields its maximum index/return under a given market scenario. This is also interesting to observe as it will affect the dynamics of dry bulk tonnage supply to the market.

The business cases

Income side and operational speed:

The results are compiled in tables 3 – 5 below

The VesselIndex figure shows the daily earning potential of the given vessel relating to the Baltic Index vessel for each segment.

Not surprisingly an increased spread between the compliant and non-compliant fuel results in a larger gap in the income potential. Furthermore, a scrubber fitted vessel has economic incentive to trade at higher speed than a non-fitted vessel.

For instance, looking at scenario 1 in table 3, the handysize scrubber fitted vessel yields an earning potential of 177,1 points to the Baltic index vessel compared to the non-scrubber fitted vessel of 111,7 index points. This is equivalent to a difference in daily earnings of $6,213.

Concerning the optimal speed, the scrubber fitted vessel will have an economic incentive to operate at 14 knots while the non-fitted vessel will have an economic incentive to trade at reduced speed of 11 knots.

Cost side

Apart from the purchase price of the scrubber itself, the owner must also consider costs relating to engineering, supervision/commissioning and shipyard cost. Further there is the off-hire i.e.; positioning off-hire, dock off-hire and re-positioning off-hire.

Our take on the total cost for an average turnkey scrubber solution is given in table 6.

Post installation the owner will also have to budget for running maintenance. This has not been included in our consolidation below.

Payback time

Table 7 shows the expected payback time for the four vessels under following assumptions: 360 trading days, 100% availability of non-compliant fuel, no maintenance cost and freight markets remain “As is”.

On top of the obvious uncertainties relating to the fuel price and the freight market, it is worthwhile revisiting the uncertainty of physical supply and consider to what extent will non-compliant fuel be available in the global perspective?

It is difficult to tell, but one thing is certain; the trading patterns of the capesize segment is much more well defined compared to the trading patterns of the smaller segments – the complexity of supply chain management is less in the larger segments.


By applying a structured approach, this contribution is an attempt to shed light on the complexity surrounding scrubber decisions. Decisions which are not only for shipowners but also for stakeholders like lenders, shareholders, potential investors, etc.

From the authors point of view, the main takeaways are:

• Capesize appears to be a more obvious case.

As expected, the larger vessels i.e. capesize see the strongest business case for installing scrubbers. Even when looking at Scenario 3 where the spread in fuel prices is only $100 per metric ton, the payback time is ‘only’ around four years. In conjunction with the expected availability of non-compliant fuels at larger main hubs, the capesize case seems to make sense in many regards.

• Handysize, supramax and panamax is a gamble.

To install scrubbers for handy, supra and panamax ships seems to be a bit of a gamble. Not only is the economics pointing in various directions depending on assumptions, but physical obstacles about availability of non-compliant fuel also poses a risk.

• Higher operational speeds.

The higher the spread between the compliant/non-compliant fuel, the higher incentive for the scrubber fitted vessels to operate at higher speeds. The potential dynamic effects of this circumstance are difficult to predict, but one thing is certain; if speed goes up, more tonnage supply will go into the market.

• Individual vessel scenarios are necessary.

Above examples are just a fraction of what shipowners must do in order to diligently evaluate the scrubber case. In order to get the overall perspective, the decision maker must look at the individual vessel case and the exercise must be performed for varying freight market scenarios.

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