Freightwaves article, non-paywalled. Read it over my post since it goes into more detail. But I'll give a shorter summary.
2020 regulations required ships to use a costlier, but environmentally friendlier type of fuel called “low sulfur fuel oil (VLSFO),” with 0.5% sulfur content. This as opposed to high sulfur fuel oil (HSFO) with 3.5% sulfur content. The spread in costs are at all time highs, with VLSFO more expensive: graph. “The average price of VLSFO at the world’s top 20 bunkering ports was $369.50 per ton higher than the average price of HSFO on Wednesday, according to data from Ship & Bunker. It reached an all-time high of $420.50 on July 5.”
However, by investing 2-3 million dollars, a ship can install a exhaust gas scrubber which allows them to continue using the cheaper HSFO. The cost savings are sizeable:
In bulk commodity shipping, the ship operator covers the fuel cost in a spot voyage deal, not the cargo shipper. Clarksons Platou Securities estimated that 10-year-old very large crude carriers (VLCCs, tankers that carry 2 million barrels of oil) with no scrubbers, burning VLSFO, earned the equivalent of $16,200 per day in the spot market on Thursday.
The same ship, with a scrubber, burning HSFO, was paying $22,000 less per day for fuel, equating to a net day rate of $38,400 per day.
In the dry bulk shipping sector, a Capesize (a bulker with capacity of around 180,000 deadweight tons) with no scrubber earned the equivalent of $22,000 per day in the spot market Thursday, according to Clarksons. A scrubber-equipped Capesize saved $22,400 per day on fuel, thus netting twice as much: $44,400 per day.
Currently,
According to Clarksons data, 46% of container ships with capacity of 8,000 TEUs or more already have scrubbers, with more installations pending. Of ships 12,000 TEUs or larger, 59% are already equipped with scrubbers.
Here are some companies likely to benefit from this trend:
He believes Scorpio Tankers (NYSE: STNG) and DHT (NYSE: DHT) are the best positioned among public tanker companies to gain from scrubber installations, with Star Bulk (NASDAQ: SBLK) and Safe Bulkers (NYSE: SB) best positioned on the dry bulk side.
The reason?
However, some analysts maintain there could be more differentiation going forward. Companies with scrubber-equipped ships and/or vessels built in the last decade with more fuel-efficient designs could pull away from the pack.
“Those companies with exhaust scrubbers, particularly on larger ships, should outperform as the market becomes more bifurcated,” Nolan said.
The conclusion:
Historically, investors have seen little differentiation in company fleets, but that is changing. Those companies with a heavier focus on modern, eco-design ships [and/or scrubbers] are likely to see a premium valuation … due to the visibly strong outperformance they are now capturing.
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