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Today’s Pickup: Ocean carriers looking at price spreads for fuel as 2020 approaches

Exxon Mobil’s Rotterdam refinery, which is preparing to sell IMO 2020 compliant fuel (Photo: Port of Rotterdam)

Price impact of low-sulfur fuel may not be as bad as feared, but still remains unknown; I-5 bridge remains a chokepoint for trucking.

The ocean shipping industry has less than one year to prepare for one of its biggest changes in decades as new rules on using low-sulfur fuel oil go into effect in 2020. This global mandate means that on January 1, 2020, world demand for low-sulfur diesel-type fuel will increase 1.5 million barrels per day. The shift could impact surface transportation markets. Maersk, CMA CGM and other major container lines have implemented a new bunker recovery surcharge formula this year in a move to recover the increased costs from shippers. But early indications show the hit might not be as bad as feared. Ship and Bunker reports that the current price spread between low- and high-sulfur fuel is hovering between $40 and $100 per metric ton, which is far from the $200 to $300 per metric ton higher cost originally predicted by some.  

Quotable:

“The IMO sulfur regulation is expected to increase demand for diesel and reduce that for high-sulfur fuel oil (HSFO) around 2020. This raises the prospect of a spike in diesel prices and a drop in HSFO prices, which could have broader economic ramifications beyond oil product markets.” 

Kim Tae-Yoon, International Energy Agency (IEA) analyst, on the IEA’s latest outlook for oil demand.

Did you know?

Orders for Class 8 trucks in December were 21,300 units, a 24 percent drop from November and a 43 percent drop from a year earlier, according to ACT Research. But 2018 still set a record with 490,100 units ordered during the year, beating a previous record of 390,000 ordered in 2004.

In other news:

Tight bridge space affecting Pacific Northwest motor carriers

Traffic congestion leading to calls for widening the I-5 bridge straddling the Columbia River. (The Columbian)

Norfolk Southern boost crane capacity

New Kalmar cranes aimed to boost intermodal capacity in Chicago and Memphis. (Railway Age)

OOIDA lawsuit succeeds in ELD lawsuit

Lawsuit aimed to block ELD record enforcement by New York state. (Land Line)

Hapag Lloyd evacuates crew of burning box ship

The Yantian Express had suffered a fire last week, but no crew was injured. (Reuters)

Spanish port pioneers use of hydrogen fuel cell technology

Port of Valencia claims first for use of clean fuel in Europe. (Energy Reporters)

Final Thoughts

Intermodal rail saw another year of good growth in 2018 as the U.S. found itself swamped with containers. FreightWaves’ SONAR platform shows intermodal rail traffic growing 4.8 percent last year, a second year of gains for intermodal rail. SONAR chief analyst Zach Strickland stated that intermodal rail’s price advantage “against trucking grows,” particularly on longer haul routes. But with many railroads under increasing pressure to boost returns, they are also dropping unprofitable routes, with Norfolk Southern being the latest to announce service changes. Those moves could have a positive effect on trucking as “reducing service in smaller lanes will help drive volume back into the trucking market.”

Hammer down everyone!

 

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Michael Angell, Bulk and Intermodal Editor

Michael Angell covers maritime, intermodal and related topics for FreightWaves. His interest in transportation stretches back several generations. One great-grandfather was a dray horseman along the New York waterfront and another was a railway engineer in Texas. More recently, Michael has written about the shipping industry for TradeWinds, energy markets for Oil Price Information Service, and general business topics for FactSet Mergerstat and Investor's Business Daily. When he is not stuck in the office, he enjoys tours of ports, terminals, and railyards.
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