Are ship owners obliged to install scrubbers?

In general terms, shipowners are not obliged to install scrubbers. However this question cannot be considered without thinking the wider implications of MARPOL Annex VI, and from the terms of the charterparty.

Namely, it would be necessary to install scrubbers if any of the following scenarios takes place after 1 January 2020:

  1. The terms of the charterparty and / or the flag state regulations oblige ship owners to have such equipment on board (in order to comply with their 'legal fitness' obligations).
  2. The vessel is not technically capable, or requires modifications in order to receive, store and burn compliant LSFO.
  3. Charterers are not contractually obliged to supply compliant LSFO (and could elect to supply HSFO) in the context of a time charterparty.
  4. There are no alternative solutions available to enable ship owners to comply with their obligations under MARPOL Annex VI.

Are there areas where scrubbers are prohibited and / or regulated?

There are several areas worldwide where the use of scrubbers in territorial waters are prohibited or restricted. This largely depends on the type of scrubber fitted, Standard informs.

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If ships are to trade to ports in those areas, they must first ensure that sufficient compliant LSFO is available on board to comply with applicable regulations. Otherwise, sufficient compliant LSFO and ULSFO will need to be sourced.

Existing time charterparties (where a scrubber has been fitted) - What are the relevant considerations to bear in mind post 1 January 2020?

After 01 January 2020, the advantage to charterers of chartering a vessel with scrubbers is that they will benefit from likely lower fuel costs of HSFO, at least in the short term. The advantage to ship owners is that the ship may be able to benefit from higher charter rates.

What is more, the Carriage Ban will not be applicable to the vessel if the scrubber is fully operational and in compliance with the relevant MARPOL Annex VI provisions and EGCS guidelines and regulations.

However, existing time charterparties are not drafted with the regulatory change in mind, and this includes the use of alternative abatement technology, such as a scrubber.

When reviewing existing charterparties, the following (non-exhaustive list of) commercial considerations / contractual provisions should be considered:

  1. Operation and maintenance: this will be the responsibility of ship owners under their seaworthiness and maintenance obligations. This will result in increased crew training and monitoring which may need to be improved in order to accommodate the new equipment.
  2. Breakdown / deficiency: the costs of repair are likely to be for shipowners' accounts in line with their seaworthiness and maintenance obligations.  If any time is lost as a result, this is also likely to be for shipowners' accounts depending on the specific facts and the off-hire provisions of the charterparty. If compliant fuel (LSFO or ULSFO) is consumed to enable the vessel to continue trading, this will need to be supplied and paid for by the charterer in the first event. Repairs to the scrubber or sourcing compliant fuel could also lead to a disruption in the trade of the ship and related losses which charterers may seek to try and recover from ship owners.
  3. Storage of compliant fuel on board and availability: a wise approach may be for there to be sufficient reserve compliant fuel on board in case a scrubber breaks, although this may not be provided for in the charterparty. However, consumption of compliant fuel assumes that the vessel's fuel system are capable of receiving, storing and consuming such fuel without resulting in non-compliance with the Sulphur Cap. This may lead to separate lines and tanks, or for existing lines and tanks to be cleaned to be fit to receive compliant fuel. Current charterparty provisions do not address enough the risk, time and cost of such an exercise.
  4. Disposal of scrubber residues: the cost and time involved in dealing with the disposal of residues is not expressly addressed in current charterparties. It is also unclear how often residues must be disposed of and / or where suitable reception facilities are likely to be located. The likelihood is that ship owners will probably have to consider this in the first event. Nonetheless, it may be possible to argue that ship owners have the right to be indemnified by charterers, although this is still unclear.
  5. Impact on speed and performance: depending on the type and specification of the scrubber, it will need to have enough power supply and it is not inconceivable that its operation could affect the speed and performance of the vessel and any performance warranties.

In view of the above considerations, it is recommended that separate contractual arrangements be made for the use and operation of a scrubber in a charterparty context

Standard Club concluded.