Carriers that took the risk to install scrubber installations on their ships will likely have a competitive advantage in the containership industry. Effective January 1, 2020, vessels will be required to produce sulfur emission levels less than 0.5%. Scrubber installations allow carriers to buy the less expensive higher sulfur fuel. In principle, a scrubber cleans the higher sulfur fuel so it meets the required 0.5% lower sulfur emission level.
Some carriers initially balked at installing scrubbers on their ships due to the high installation cost of $3 million per ship. That strategy changed drastically over the last six months as the price differential between low sulfur fuel and high sulfur fuel continued to expand. The high price per metric ton for the lower sulfur fuel continues to be a major challenge for the carriers. The spread between the two fuels reached $250 per metric ton in November. With this type of spread, the return on investment for a $3 million scrubber will be much quicker than the carriers anticipated. Carriers championing a large fleet of ships with scrubbers will have a cost advantage in the market.
The number of ships with scrubbers installed has increased from 3 percent to 10 percent since March 2019. This percentage will continue to grow as additional installations take place in 2020. Carriers that decided against installing scrubbers on their ships are hoping that additional supply of the low sulfur fuel will eventually close the price gap that currently exists with high sulfur fuel. Until that gap closes, carriers without scrubbers may have no choice but to cut base rates in order to stay competitive in the market.
