This article showcases the difficulties of arctic oil production andlogistics. It is a very nice summary of the most important long term issues.
Of course there are many others, on the sustainability side, like devastation of the tundra habitat, and melting of the permafrost, which might have an effect on global climate. But the more direct impacts noted here show that it’s a tenuous business that only persists because people still need so much oil.
This story is a follow up to one I did a couple of weeks ago. Fuel surcharges are varying wildly. A consultant found that there’s a wide disparity, the rate rationale is not very transparent, and rates vary even within alliances. Conditions like this lead to confusion and annoyance among customers, especially smaller shippers. I expect 3PLs will also be annoyed, but they will be figuring out how to explain the surcharges or where to hide them in their reselling agreements. It doesn’t make for great credibility among the ocean carriers.
The ONE ocean carrier group has decided to arbitrage the price of Low Sulfur Fuel Oil (LSFO) vs High Sulfur Fuel Oil (HSFO) by not installing scrubbers on their vessels. That means they will have to use the LSFO everywhere it’s required, mostly in the special ECA emissions control areas set up by a variety of countries.
ONE plans to use fuel price surcharges to offset the difference in price of the fuels. Many firms are deploying price surcharges December 1. Surcharges have attracted a lot of unpleasant words from shippers, who will have one more thing to take into account to determine total landed cost. ONE may need to charge more than some of the firms that are installing scrubbers, such as Maersk, Evergreen, and MSC. It may be a disadvantage.
But, on the supply side, refiners are starting to produce the LSFO, and bunkers providers are going to inventory it. It’s possible the price differential may not be as steep as the $200 per ton currently predicted. There certainly will be some fluctuation in the price difference, and not only in global indexes; it may vary for region to region and provider to provider.
There could be an interaction with routes. Certain routes may offer opportunities to buy LSFO at lower prices; if they’re convenient, the cost hit may not be as bad as that predicted for the industry as a whole. Perhaps ONE knows something we don’t about their routes and bunker providers.
Apparently the scrubber producers and installers are backlogged at present, so it’s not possible to get one installed promptly. Over time this demand will fall, and maybe one can install a scrubber cheaper later on, an example of the learning curve phenomenon.
But rather than tag ONE management with ‘too slow too late’ decision making, we need to see how the whole picture plays out. There are lots of moving parts in the problem of how to meet IMO2020’s 0.5% sulfur requirement.
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Supply Chain and Logistics 