Shippers are bracing for disruptions and increases in transportation fuel surcharges as regulations governing sulfur in ship and airline fuel are set to take effect Jan. 1.
According to the Financial Post, it’s the biggest shakeup in decades for the marine sector and adds to the pressures of an economic slowdown and the threat of an escalating trade war between the United States and China.
Ship owners must cut sulfur emissions to 0.5% from 3.5%. They can do this by using low-sulfur fuel, installing exhaust gas cleaning systems or opting for other, more expensive, clean fuels such as liquefied natural gas or traveling more slowly.
Jeff Child, president of Berkshire Hathaway’s RC Willey Home Furnishings, moved the delivery of about 450 containers from September and October to July and August. He wants to avoid any disruption in the peak fourth quarter as ships prepare for the changes, including refitting equipment.
“We just don’t want to get caught in a situation where it affects our inventory,” he told Reuters.
Twenty-five logistics company executives told Reuters they would pass along any IMO-related costs, such as ship upgrades or more expensive fuel, to customers.
“Higher fuel prices would result in higher transport costs,” said Peter Nagle, an economist with the World Bank’s Development Prospects Group. “This would have the potential to lead to slower economic growth and trade.”
While the IMO rules do not apply to trucking companies, which have been using virtually sulfur-free diesel for over a decade, they will face new competition from ships for the lower sulfur fuel. This is expected to push up the price of diesel fuel for trucks significantly.
“I’m at the whim of the market. All I can do is let the customers know what’s going on,” said Mike Baicher, president and chief executive of New Jersey based West End Express, which runs 90 trucks in New York, New Jersey and along the East Coast.
“There is only so much that the trucking company can absorb.”
In a letter sent to top U.S. government officials including National Security Advisor John Bolton, transport associations including trucking groups said there was consensus that U.S. transport industries would be “negatively affected by IMO 2020 pricing pressure.” It said there could be market disruptions.
“There’s a storm approaching but we don’t know how bad the storm is going to be,” said Glen Kedzie, energy and environmental counsel for the American Trucking Associations.
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