'Storm approaching': firms fear for deliveries in shipping shakeup

Daseke

25/06/2019 06:46

* IMO introducing tougher clean air rules for ships from
2020
    * Ship owners must cut sulphur emissions to 0.5% from 3.5%
    * Companies may face transport disruption, higher delivery
costs
    * Higher transport bills could drag on economic growth,
trade 

    By Jonathan Saul, Lisa Baertlein and Martinne Geller
    LONDON/LOS ANGELES, June 25 (Reuters) - U.S. furniture
company RC Willey Home Furnishings is so concerned that new
global clean air rules will cause transport disruption that it
brought forward the shipment of arm chairs and sofas from China
by two months.
    The tougher regulations, set by the United Nations shipping
agency, the International Maritime Organization (IMO), come into
force on Jan 1. Costs will rise for ships towards the end of
this year and there will be a knock on effect for trucks and
other transporters that move goods around the world.
    For shipping companies it is the biggest shakeup in decades
and adds to the pressures of an economic slowdown and the threat
of an escalating trade war between the United States and China. 
    While consumers are not expected to pay more for goods,
higher transport bills and disruption to company deliveries
could further dent economic growth.      
    Ship owners must cut sulphur emissions to 0.5% from 3.5%.
They can do this by using low-sulphur 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  BRKa.N  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.
    Analysts say the container industry, which transports
consumer goods such as sofas, designer clothes and bananas, will
be one of the worst hit with extra costs of about $10 billion.
    The world's two biggest container shipping lines - Denmark's
Maersk  MAERKb.CO  and Swiss headquartered MSC - say they face
annual extra costs of over $2 billion each.     
    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. 
    "The sulphur cap will further put pressure on ocean freight
rates and we... will have to pass those costs on to remain
competitive," Peder Winther, global head of ocean freight with
Swiss transportation company Panalpina Group  PWTN.S  said. 
     
    TRUCKERS WORRIED
    Economists say manufacturers are expected to absorb their
part of the cost and are unlikely to raise the price of consumer
goods, but the hit to companies could be a drag on the world
economy. 
     A Nestle S.A.  NESN.S  spokesperson said the food group was
talking to transport companies about "fuel adjustment
methodology" to reflect the impact of the new rules.  
    "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." 
    Trucking companies will also suffer. The IMO rules do not
apply to them but they will face new competition from ships for
lower sulfur fuel. This is expected to push up the price of
diesel fuel for trucks by as much as 100 percent.
    Small to mid-sized truckers may find it tough as they lack
the clout to negotiate fuel deals or to recoup the costs.  
    "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.
 
    "YOU'RE GOING TO PAY"
    Shipping and freight forwarding companies, who offer a
service overseeing the delivery of goods from beginning to end,
expect to feel more cost pressure. 
    Bart de Vries, chief operating officer for air & sea with
U.S. headquartered Hellmann Worldwide Logistics, expects to pay
more for services as shipping companies pass along the costs. 
    Some companies may overhaul their business plans.
    "It will undoubtedly force many exporters and importers to
review their sourcing strategies and vendors," said Cas
Pouderoyen, senior vice president of ocean freight with global
logistics company Agility  AGLT.KW        
    Richard Fattal, co-founder of digital freight forwarder and
logistics provider Zencargo, said there could be as much as a 10
to 20% rise in overall operating costs next year.   
    Allen Clifford, a U.S.-based executive vice president with
MSC, said at a recent forum in California that his company was
facing huge expenses.
    "Who’s going to pay for it? You’re going to pay for it.
Because I’m tired of paying for it," he told industry
executives, and port and customs officials.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Ship owners worry about clean fuel bill as ports ban 'scrubbers'
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Factbox: IMO 2020 - a major shake-up for oil and shipping   
 urn:newsml:reuters.com:*:nL5N22P66E
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 (Additional reporting by Richa Naidu and Karl Plume in Chicago;
editing by Anna Willard)
 ((jonathan.saul@thomsonreuters.com; + 44 207 542 4357 ; Reuters
Messaging: jonathan.saul.thomsonreuters.com@reuters.net))