Industry Insight: Viability of Scrubbers for Different Type of Vessels

Dr. R. Vis, Director, Viswa Lab. Image Credit: Viswa Lab

The justification for a scrubber is based on the following criteria:

1. Return on investment which includes the CAPEX and OPEX cost
2. The weight of the scrubber that will be added on to the vessel increasing the energy expended by the vessels engines all through its lifetime. Horizontal scrubbers weigh half or even less as compared to vertical scrubbers. The vessel saves in not having to carry this extra weight all through its lifetime.
3. The space occupied by the scrubber is less than half of the vertical scrubber. To the extent of the space saved, the vessel can carry more cargo. In terms of weight, the vessel can carry additional cargo equal to the weight saved.
4. If the vessel is owned and operated by the same party, fitting a scrubber is an obvious choice.
5. The same applies if the vessel is on a long-term charter or bare boat charter. It is well worth for the charterer by himself to fit the scrubber.

Only if the vessel is on a short-term charter (less than 6 months) will the scrubber not be in the best interest for the charterer, but it will still be in the best interest for the owner who can get better charter rates. As more owners start fitting scrubbers, the charterer is unlikely to charter a vessel which does not have a scrubber.

VIABILITY CALCULATIONS FOR CONTAINER VESSELS

Container carriers come from very small sizes such as 1,000 TEU's to the bigger ones of about 20,000 TEU.

The 1,000 TEU ships consume about 30 MT per day while the 20,000 TEU ships consume about 250 MT per day.

Considering the biggest container vessel (20,000 TEU) consuming 250MT per day, based on a differential price of HSFO and LSMGO of $200/MT, the additional cost of using LSMGO over HFO is USD 50,000 per day.

If the vessel is sailing for 300 days, the vessel will be paying $50,000 X 300 days = $15 Million additionally per year for LS fuel unless a scrubber is fitted.

Scrubbers for this size of vessel will cost about $8 M including installation. This means an ROI of 6 to 7 months.

Let us look at it from a different way. The daily saving is $50,000 and on a per container basis this is $2.5 per day per container. If we assume a typical voyage of 18 days, the added cost is $45 per container per voyage. If the vessel is charging $1,200 per container for a voyage, this $45 represents about 3.75% more as additional cost. An owner operator who does not want the complication of a huge scrubber, installation, running etc. can easily pass on the 3.75% increase to the customer calling it "fuel surcharge". Is this the logic used by companies like AP Moller's, Hapag Lloyd, CMA CGM, MSC and others?

Looking at the above scenario, in the first year, the owner operator who installs a scrubber can benefit $15 M  less (scrubber cost of $8 M) less (OPEX of $1 M) less (additional cost due to scrubber weight and size of about $0.5 M) for a total savings of $5.5 M in year 1. From the second year onwards, since he has already paid off his scrubber, he will save $15 M less (OPEX of $1 M) less (additional cost due to scrubber weight and size of about $0.5 M) for a total savings of $13.5 M per year from year two onwards. If the 20,000 TEU vessel costs USD 220 M the savings of $13.5 M represents 6.1% of the vessel cost.

Considering the smallest container vessel (1,000 TEU) consuming 30 MT per day, based on a differential price of HSFO and LSMGO of $200/MT, the additional cost of using LSMGO over HFO is USD 6,000 per day.

If the vessel is sailing for 300 days, the vessel will be paying 6,000 X 300 - $1.8 Million additionally per year for LS fuel unless a scrubber is fitted.

A scrubber for this size of vessel will cost about $2.25 M including installation. This means an ROI of 14 months.

Let us look at it from a different way. The daily saving is $6,000 and on a per container basis this is $6 per day per container. If we assume a typical voyage of 18 days, the added cost is $108 per container per voyage. If the vessel is charging $1,200 per container for a voyage, this $108 per container represents about 9% more for the additional cost. An owner operator may find it difficult to pass on the 9% increase to the customer calling it "fuel surcharge".

Looking at the above scenario, in the first year, the owner operator who installs a scrubber can benefit $1.8 M less (scrubber cost of $2.25 M) less (OPEX of $0.15 M) less (additional cost due to scrubber weight and size of about $0.1 M) for a total expense of $0.7 M in year 1. From the second year onwards, since he has already paid off his scrubber, he will save $1.8 M less (OPEX of $0.15 M) less (additional cost due to scrubber weight and size of about $0.1 M) for a total savings of $1.55 M per year from year two onwards. If the 1,000 TEU vessel costs USD 20 M which represents 1.55/20 or 7.75% of the gross margin from year 2 onwards.

CONCLUSION FOR CONTAINER VESELS

For an owner operator of a 20,000 TEU container vessel, the additional cost of low sulfur fuel could be recovered by charging a fuel surcharge of only 3.75% from the customer. He does not have to worry about having the scrubber installation, operating etc and other related problems. However, if a competing vessel owner fits a scrubber, the costs for him will be less by up to $50,000 per day. Currently all major container operators have announced that they will not go for a scrubber. It remains to be seen if they will walk the talk.

On the other hand, if it is a smaller container vessel (around 1,000 TEU), the additional fuel surcharge comes to 9%. If he is able pass this on to the customer, this is fine. If he is not able to pass the fuel surcharge on to the customer, or, if he is chartering the ship on a per day or per voyage basis (not container wise) fitting the scrubber cost will get him a 7.75% return on the scrubber investment.

It is interesting to note that one scrubber manufacturer says they have fitted scrubbers on 11 container vessels and all these vessels are below 2,000 TEU

VIABILITY CALCULATIONS FOR TANKERS

For a Handy Tanker (40dwt), the daily consumption is about 30 MT per day. Based on a differential price of HSFO and LSMGO of $200/MT, the additional cost of using LSMGO over HFO is USD 6,000 per day.

If the vessel is sailing for 300 days, the vessel will be paying 6,000 X 300 = $1.8 Million additionally per year for LS fuel unless a scrubber is fitted.

Scrubber for this size of vessel will cost about $2.25 M including installation. This means an ROI of about 14 months.

As per Alibra.com, Wet time charter rates for a Handy tanker are USD 12,500 per day. So a savings of USD 6,000 per day in additional fuel costs is significant. Therefore, scrubber purchase is fully justified.

VIABILITY CALCULATIONS FOR BULK CARRIERS

For a Cape Size bulker (170kdwt), the daily consumption is about 80 MT per day. Based on a differential price of HSFO and LSMGO of $200/MT, the additional cost of using LSMGO over HFO is USD 16,000 per day.

If the vessel is sailing for 300 days, the vessel will be paying 16,000 X 300 = $4.8 Million additionally per year for LS fuel unless a scrubber is fitted.

Scrubber for this size of vessel will cost about $4 M including installation. This means an ROI of about 10 months.

As per Alibra.com, Dry time charter estimates for a Cape Size bulker are about USD 20,000 per day. So a savings of USD 16,000 per day in additional fuel costs is significant. Therefore, scrubber purchase is fully justified.

CONCLUSION

Fitting a scrubber is fully justified under all circumstances. The only exception seems to be for the Mega Container carriers where, if it is possible to pass on the additional cost on a per container basis to the customer, the fitting of scrubber can be avoided.

However, all these arguments for and against scrubbers will have to be viewed afresh in view of the new technology and pricing of horizontal scrubbers.

There will be no two opinions on going for scrubbers.