INTERVIEW: Wärtsilä Sees Container Downturn Driving New Wave of Scrubber Investments

by Jack Jordan, Managing Editor, Ship & Bunker
Wednesday March 22, 2023

Engineering firm Wärtsilä is expecting to see a new wave of scrubber installations this year, driven in part by recent weakness in the container market.

Installations of the emissions-cleaning systems have been steadily progressing over the past few years, following a spike in the run-up to the global 0.50% sulfur limit coming into force. Kashif Javaid, sales director at Wärtsilä Exhaust Treatment, set out his firm's assessment of the state of the scrubber industry in an interview with Ship & Bunker.

"The market for scrubber installations looks promising, in much better shape than what we saw last year," he said.

"And even last year, there was quite a strong business case, favourable economic trends with regards to the spread between high- and low-sulfur fuel.

"Payback times have been shrinking on the back of the high fuel spread.

"But we have not seen that resulting in a retrofit wave yet, which we expected towards maybe the end of last year."

Fuel Price Spread

The spread between VLSFO and HSFO -- a key measure of the profitability of scrubbers -- exploded last year as global bunker tradeflows were rearranged in the aftermath of Russia's invasion of Ukraine. The spread between Ship & Bunker's G20-VLSFO and G20-HSFO indices measuring prices across 20 key bunkering ports hit an average of $240/mt in 2022, up from $112/mt in 2021 and $92/mt in 2020.

The spread has since declined, recently dipping below $150/mt, but remains well above the levels seen two years ago.

But scrubber installations slowed at the same time as spreads widened in 2022; shipping industry body BIMCO recently reported a total of 399 last year, down by 24% from the previous year's level.

"Firstly, the geopolitical situation created quite a lot of uncertainty," Javaid said.

"Another reason for lower contracting activity could be the high earnings in the container segment, which historically has been the major segment for scrubbers.

"Container earnings were at extraordinary levels, so they owners were quite reluctant to take vessels out of service to install scrubbers.

"Another major factor was COVID-related challenges; most of the retrofits are installed in the Shanghai area, and due to all the restrictions, it was not always possible for us to proceed with installations.

"Also In addition, last year we did not witness much container newbuilding activity, which was the main driver for scrubbers."

Boxships Available for Scrubber Installations

The container market is no longer in such rude health, with freight rates in decline for more than half a year now. While it would have been impractical to take boxships out of the overheating market of recent years for a scrubber installation, in today's weaker market it may make more sense.

"I strongly believe that there will be more and more activity in the container segment, because the rates have been falling," Javaid said.

"That should be combined with COVID-related restrictions easing up to encourage owners to go ahead with scrubber installations."

The tanker market should also see an increase in scrubber retrofits, with scrubber-equipped ships earning almost twice as much as non-scrubber ones in some segments, Javaid added.

Peak Scrubber

Some oil-market analysts have previously forecast a peak in scrubber installations beyond which few more are added, as the number of ships consuming HSFO narrows the discount to VLSFO to a less profitable level. But Javaid sees no sign of this peak yet appearing on the horizon.

"There are still quite a significant number of vessels sailing on low-sulfur fuel which, if they had a scrubber installed, could have saved a lot in bunker fuel bills last year," he said.

"We believe that there will be a new wave [of retrofits], but whether it will be as significant as the one seen in 2018 and 19, that remains to be seen.

"There are strong indications for the market coming back in various segments this year, so we remain quite optimistic and positive that in the coming months, there will be more contracting of scrubber installations."