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Port Report: Coastal shift in U.S. container trade might be in cards for 2020

( Photo: Maersk )

Cost of all-water transit could rise as higher price, low-sulfur fuel comes into play; Maersk offers a peak in the fridge.

The U.S. East Coast and Gulf Coast ports saw strong growth in container volumes last year thanks to 18 months of a wider Panama Canal and the strong U.S. freight market. U.S. East Coast and Gulf Coast ports saw container volumes rise 7 percent and 9 percent, respectively, year-to-date through last November. That compares to 4.7 percent growth along the U.S. West Coast. But some market watchers say the growth could take a hit next year as higher marine fuel prices increase the economic advantage of discharging ocean-borne freight on the West Coast.

Josh Hurwitz, a senior consultant at Moffatt & Nichol, told attendees at last week’s meeting of the American Association of Port Authorities in Tampa that up to 1.2 million twenty-foot equivalent (TEU) containers coming into East and Gulf Coast ports could shift to the West Coast due to new rules that mandate commercial vessels use low-sulfur marine fuel by 2020.

The longer sailing time through the Panama Canal to the U.S. East Coast – roughly 28 days compared with 14 days to West Coast – means ships will burn more fuel going to those ports. With low-sulfur fuel pricing about $200 per ton higher than standard marine fuel currently, Hurwitz said the cost advantage for landing a inland-bound freight on the West Coast rises to 18 percent over the East Coast, versus a current cost advantage of 12 percent.

“When you look at that one variable alone, that has the potential to shift up to 1.2 million TEU of discretionary cargo that would have gone to East Coast and Gulf Coast ports back to the West Coast.”

 (Source: SONAR)
(Source: SONAR)

He is not alone in that view. Philip Damas, head of supply chain advisory at Drewry, echoed that view in an email statement sent to FreightWaves. Damas said the low-sulfur rule coming down from the International Maritime Organization (IMO 2020) “will have a major impact on the ocean transport sector and a limited indirect impact on the rail and trucking sectors where there is modal competition between these modes and ocean transport.

“If the IMO rule leads to much higher ocean freight rates or much longer delivery times via ocean, then U.S. importers may divert the routing of cargoes away from an all-water route from Asia to the U.S. East Coast to the Asia-to-West Coast route for some Midwest final destinations,” he continued.

Hurwitz indicated the amount of discretionary cargo that could shift is still a small percentage of the 23 million TEU that went through U.S. East Coast ports last year. And the price differential could just easily decrease should refiners step up production of low-sulfur fuel.

Hurwitz said the U.S. West Coast ports, still the primary gateway for Asian imports into the U.S., should “start planning for potential congestion because of this short-term bump in demand.”

Dan Richards, analyst at Maritime Strategies International, says the cost differential for an East Coast voyage can be mitigated by the increasing size of container ships. Indeed, the Georgia Ports Authority is already planning to receive those bigger vessels.

“The vessels going to the East Coast are generally bigger than the ones going to the West Coast, so you do have a cost that is slightly more favorable,” Richards said. “You have strong economies of scale in container shipping, which is why you see the large ships.”

He also said that ocean carriers can slow vessel speeds to save on fuel costs. But most liner operators already use slow-steaming to deal with over-capacity, so they “maybe knock a knot off here or there to absorb part of the issue of higher fuel costs.”

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Research firm outlines scrubber and LNG uptake by 2020

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Overboard container count jumps

Container loss from MSC Zoe rises to 345 from earlier estimates of 290. (World Maritime News)

Maersk touts new reefer tracking service

Maersk is betting that customers want to peak into their  beat out competitors with a better refrigerated container service. The world’s biggest shipping line plans to offer customers a way to track temperature and other metrics on their refrigerated cargoes while at sea, writes FreightWaves Nick Savvides. The tracking technology is now on 270,000 of Maersk’s reefer containers, with about 70 percent of customers signing up to use the system. Cold chain logistics for food distribution globally is estimated to be a $250 billion market globally, according to the U.S. Department of Commerce, and is one of the fastest growing segments. Other ocean carriers as well are looking at how to boost their reefer game. Germany’s Hapag-Lloyd said last year it plans to add more refrigerated containers to its fleet to meet customer demand.