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TRANSPORTCEO - 18/12/2018
Scrubbers on the rise.
With just over one year to go before the IMO's new marine fuel sulphur cap of 0.5% comes into force, more containership owners are opting for exhaust scrubbers. Could this reap immediate supply-side benefits?
After a slow start, adoption of exhaust scrubbers as a solution to the 2020 low-sulphur regulations is picking up. There are currently 266 containerships fitted with scrubbers with an aggregate capacity of 2.2 million teu. While the scrubber fleet only represents 5% of the fleet in number, it accounts for twice that ratio in teu capacity due to the emphasis towards larger ships being retrofitted. Moreover, scrubber penetration is much more significant in the orderbook, which combined with more anticipated retrofits in time will lift the ratio higher still.
Reasons for the scrubber reticence are well understood. The upfront expense of the retrofit and ongoing servicing costs, uncertainty about future environmental regulations and the availability of high-sulphur fuel oil (HSFO) in owners' minds will all have weighed against any potential competitive edge to be gained from lower fuel bill or higher charter rates.
One reason why more owners are considering scrubbers is perhaps because of warnings that if there are too few clients for HSFO suppliers could charge a premium to keep producing such small quantities. With time running out, it may have dawned on owners that they can no longer sit on the fence and need to demonstrate that there will be a sufficiently large customer base for HSFO, or else risk losing it as an option altogether. Another reason is that the capacity to get scrubbers retro fitted ahead of the deadline is getting scarcer by the day.
Whatever the reason for the greater uptake of scrubbers, if the trend intensifies there could well be some side benefits for ocean carriers by restricting supply during 2019. In the big picture, the new regulation is expected to reignite the demolitions market after a down year in 2018 by weeding out more of the older, more heavily polluting ships that will no longer be economic post-2020, but at a more macro-level a number of trades could see deployment numbers temporarily reduced next year as more ships are taken out of service for retrofitting.
Depending on the size and type of ship, an exhaust scrubber retrofit can as long as six weeks, which is a sufficiently long time to impact the slot availability. As things stand, the penetration of scrubber-fitted ships is low in the major East-West trades. For example, according to Drewry research just 17% of the ships deployed in the Asia-Mediterranean trade ran with scrubbers as of November. The ratio was even lower in the Asia-East Coast North America (10%), Asia-WCNA (9%), Transatlantic (6%) and Asia-North Europe (5%) lanes. This means there is plenty of scope for those ships to be pulled from active duty next year to get retrofitted, which unless replaced will reduce overall utilisation and aide spot market freight rate inflation.
How big a factor this will be will depend on the extent of the retrofit wave, and whether lines manage the process alongside the usual void sailings program or if it will effectively replace it altogether.
Scrubber-fitted containerships will be in the minority of the fleet, but as their popularity increases there is likely to be some temporary supply-side disruption that could affect freight rates in 2019.
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