BCG: Sulfur Cap Investments Will Pay for Themselves

Investment of $159 billion is required, but companies will save $179 billion

Boston Consulting Group (BCG) says box shippers's investments to comply with sulfur regulations should pay for themselves, but it will be crucial to make the right choices at the right time, and payback times may be lengthy.

"If investments to comply with emissions regulations are well designed and executed, companies can expect a net positive return," said BCG.

According to the consultants' analysis, "stakeholders in the container segment will need to invest $159 billion from 2015 through 2030, but companies will save $179 billion in operating expenses as a result—a net gain of $22 billion."

In addition, government subsidies to encourage fuel switching may be forthcoming, increasing the return for those investing in LNG.

Under its "base case" scenario, BCG said price differentials between LNG and HFO will narrow, making LNG more competitive and adding further value to environmental investments.

But shipping companies will have to wait some time before they see the returns.

"The cumulative savings in operating expenses will exceed total capital expenditures beginning in 2029," said BCG.

In addition, BCG's predictions for the market assume all box shipping companies choose the best option at the optimum time, which the consultants said will not happen in every case.

To have the best chance of investment programmes being self funding "it is crucial for companies in the container segment to gain a better understanding of their best options for complying with regulations affecting vessels that operate in ECAs today and to be ready for the global sulfur-emissions cap if it is applied in 2020," said BCG.

Even still, funding the investments will present a challenge at a time when shipping companies are not awash with free cash-flow and financing options are limited, added BCG.

Earlier this month, Wärtsilä Corporation and Clean Marine Energy announced they were teaming up to offer a financing solution for investments in scrubber technology, one option shippers have to comply with sulfer cap regulations.