Tanker TCEs During #IMO2020 Switch Demystified

Calvin Froedge
5 min readDec 27, 2019

If you’ve been following the maritime industry’s #IMO2020 fuel transition to lower sulphur fuels, you know that some vessels who have installed “scrubbers” can still burn high sulphur fuel oil (HSFO), while others have to burn low sulphur fuel oil (LSFO) or Marine Gas Oil (MGO), fuels which are much more expensive. As you can see from the chart below, the price differential between low and high sulphur fuels is hovering near 80%. Given that fuel is the largest cost of operating a large ship, this is a big deal.

This has caused some confusion among industry participants as to how much boats are actually earning. Journalist Greg Miller recently pointed out:

To all #shipping investors who’ve drunk the #IMO2020 Kool-Aid, don’t be surprised to read in future quarterlies: “Our average TCE rates are lower year-on-year as a result of higher fuel costs due to IMO 2020.” See cautionary reminder on reg headwind here:

He is referring of course to the fact that despite freight and shipping rates going up, fuel costs are as well, and for the 94% of the maritime fleet that has not installed scrubbers, higher day rates will be impaired by higher fuel costs.

However, not all vessels or asset classes are equal. There are three main distinctions:

Non-Eco: Standard ship design.

Eco: Modified engines, propulsion, and exhaust systems, resulting in ~15% higher fuel efficiency.

Scrubber: Cleaning system which removes sulphur from high sulphur fuel exhaust.

Eco and Scrubber retrofits cost millions of dollars and require months of downtime, and so few owners (only about 6% as of Dec 27) have opted to install scrubbers. Very few boats feature eco design.

Ship earnings are reported as TCE (time charter equivalent). As you can see from the table below showing VLCC rates from various routes, there are some large spreads between the earnings of ships based on permutations of the above options:



Calvin Froedge

Software developer, investor, energy markets analyst.