Image: Genco Shipping & Trading

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The CEO of Genco Shipping & Trading Ltd., John Wobensmith, says he expects the company to make a final decision regarding whether to exercise the option to install scrubbers on an additional 15 ships by early 2019, "if not before".

A month ago, the shipper announced that it intended to install exhaust gas scrubbers on its 17 Capesize vessels, with options for installation on an additional 15 minor bulk vessels.

And on Thursday, Wobensmith explained, during an analysis of the company's results, that Genco was "still working through" the decision-making process on the extra ships. The firm's major concerns, according to its CEO, are linked to fuel availability in smaller ports and how much its minor bulkers would be required to deviate to specific ports in order to refuel, and also how long the price spread between low- and high-sulphur fuels would remain in place.

Price spread concerns and payback

According to Wobensmith, Genco is "very confident" that the price spread between high-sulphur fuel oil (HSFO) and low-sulphur fuel will be around $200 in the first year after the global cap is implemented.

"We've been modelling all of our payback periods based on only a $200 spread, which I believe is conservative, particularly for the first year," he said.

And with a $200 differential, Genco estimates that the scrubber payback for an Ultramax or Supermax vessel would be 2.4 years if burning high-sulphur fuel oil (HSFO) 100 percent of the time; but the payback then goes to three years when using HSFO 75 percent of the time, and five years when running on HSFO half of the time.

"That's on a $200 spread," Wobensmith stressed. "So it's not just [the] location of high sulphur fuel, but it's what is your view in terms of how long that spread lasts before you get to equilibrium, which is probably somewhere around $100 to $120.

"We believe in 2020 that that spread [$200] will be employed. So it could be higher, but the question is how quickly does the market adjust as we get into 2021 and 2022; and that's what we are working through," Wobensmith declared.

Capesize justification

Wobensmith noted that the situation with the 17 larger Capesize vessels was different to that of its minor bulk vessels in that earnings per day for each ship is currently around $4,000 to $5,000, whilst they make up just over 40 percent of Genco's total fuel costs.

"So you get quite a bit of bang for your buck on doing all the Capes," Wobensmith pointed out.