With the International Maritime Organization’s (IMO) 2020 regulations capping sulfur content in marine fuels at 0.50%, shipowners and charterers have adopted different compliance strategies. One of the most debated solutions is the use of Exhaust Gas Cleaning Systems, commonly known as scrubbers. These systems allow vessels to continue burning high-sulfur fuel oil (HSFO) while meeting emissions regulations.
Scrubber benefits are the financial benefits to both shipowners and charterers, depending on the charter party terms from the scrubber-fitted ships and the type of fuel used by them. This blog explores these benefits, with examples and calculations to illustrate their impact.
Key Scrubber Benefits in Charter Parties
| Aspect | Scrubber Benefits to Owners | Scrubber Benefits to Charterers |
|---|---|---|
| Fuel Cost Savings | Owners can burn cheaper HSFO instead of costly low-sulfur fuel (VLSFO). | If a vessel has a scrubber, a time charterer benefits from lower fuel costs. |
| Freight Rate Advantage | Scrubber-fitted ships can offer lower freight rates while maintaining profitability. | Charterers can secure lower freight rates due to owners’ reduced bunker costs. |
| Increased Marketability | Scrubber-fitted ships are preferred for long-term charters in high bunker price environments. | Time charterers prefer scrubber-fitted vessels to reduce voyage costs. |
| Profit from Bunker Spread | Owners can charge a scrubber premium or directly benefit from HSFO-VLSFO spread in a voyage charter. | If the charterer provides the fuel, they benefit from using cheaper HSFO. |
| Regulatory Compliance | Ensures compliance with IMO 2020 while maintaining operational flexibility. | Charterers avoid potential penalties for non-compliance by hiring compliant vessels. |
Example 1: Scrubber Benefits to Owners (Voyage Charter)
A shipowner operates a scrubber-fitted vessel and fixes a voyage charter with the following details:
| Parameter | Value |
| Fuel Consumption | 30 MT/day |
| Voyage Duration | 15 days |
| HSFO Price | $500/MT |
| VLSFO Price | $750/MT |
| Total Fuel Cost without Scrubber | 30 MT × 15 days × $750/MT = $337,500 |
| Total Fuel Cost with Scrubber | 30 MT × 15 days × $500/MT = $225,000 |
| Savings | $112,500 per voyage |
Since the owner covers fuel costs in a voyage charter, the scrubber allows them to save $112,500 per voyage, improving the vessel’s profitability.
Example 2: Scrubber Benefits to Charterers (Time Charter)
A charterer hires a scrubber-fitted vessel under a time charter agreement with the following conditions:
| Parameter | Value |
| Daily Fuel Consumption | 40 MT/day |
| Charter Period | 180 days |
| HSFO Price | $480/MT |
| VLSFO Price | $750/MT |
| Fuel Cost with VLSFO | 40 MT × 180 days × $750/MT = $5,400,000 |
| Fuel Cost with HSFO | 40 MT × 180 days × $480/MT = $3,456,000 |
| Savings to Charterer | $1,944,000 over 180 days |
Since the charterer supplies the fuel under a time charter, using a scrubber-fitted vessel results in nearly $2 million in savings over six months.
Considerations When Negotiating Charter Parties
- Scrubber Clause: Charter parties should explicitly state how scrubber benefits are shared, such as fuel price savings and operational risks.
- Bunker Adjustment Factor (BAF): Owners may negotiate a BAF to recover scrubber investment costs.
- Maintenance Responsibility: Time charters should define who is responsible for scrubber maintenance and downtime.
- Trading Restrictions: Some ports and regions have banned open-loop scrubbers, which may impact vessel operations.
- Fuel Quality and Availability: Charterers should ensure reliable HSFO supply at trading ports.
Standard Charter Party Scrubber Clause
“The Owners warrant that the vessel is equipped with a fully functional and regulatory-compliant exhaust gas cleaning system (scrubber). The scrubber shall be maintained in efficient working order throughout the charter period. The Charterers shall supply and pay for High-Sulfur Fuel Oil (HSFO) for the vessel’s operation, provided the scrubber is operational. Should the scrubber become inoperative for any reason other than force majeure, requiring the vessel to consume Very Low Sulfur Fuel Oil (VLSFO), any additional fuel costs incurred shall be borne by the Owners. Any applicable regulatory restrictions on scrubber usage shall be observed, and any alternative fuel requirements shall be mutually agreed upon between the Owners and Charterers in such instances.”
Conclusion
Scrubber-fitted vessels create financial advantages in charter parties, but how these benefits are distributed depends on the agreement structure. Owners benefit most in voyage charters, while charterers gain significant savings in time charters. Careful contract negotiation is essential to maximize value for both parties.
Understanding scrubber economics can help shipowners and charterers make informed chartering decisions and optimize their fuel cost strategies in a competitive shipping market.
