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Maritime Uncertainty and US-China Market Dynamics | Weekly News Update

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Uncertainty and change loom in the energy industry as the 2020 global sulfur cap looms overhead in the maritime industry. Key players are already responding, causing price fluctuations in the marketplace. Dynamics in domestic crude oil production are in flux as well, as China surpasses the US in annual crude oil imports.

Uncertainty Continues to Create Headwinds for Container Shipping

Several stories broke during the past week to suggest uncertainty and upward price pressure can be expected within the maritime shipping industry. Global liner shipping companies, including Hapag-Lloyd and Maersk Line, have increased their bunker fuel surcharges following particularly large increases in bunker prices during the fourth quarter of 2017. The International Maritime Organization also appeared in headlines for progress toward banning the transport of non-compliant fuel on board ships when the 0.5 percent sulfur limit takes effect in 2020.  Acceptable exceptions to this rule would include ships fitted with an approved technology to meet the 0.5 percent sulfur limit, such as scrubbing technology, or the use of a low-sulfur, alternative fuel, such as liquified natural gas. A separate Argus report highlighted the uncertainty of scrubber adoption for the biggest bunker fuel buyers, even stating “it is unlikely that containership, tanker and dry bulk vessel owners will rush toward scrubber installation.” Fuel expenses, through all of the aforementioned means, will most likely be passed along to chartering customers.

US and China Oil Market Dynamics are Changing

According to the Energy Information Administration (EIA), China surpassed the US in annual gross crude oil imports during 2017, as both US domestic production and Chinese domestic demand increased. The US has shifted from being the biggest market for OPEC producers’ crude, to a production giant that is now disrupting OPEC’s market share in other countries, such as China. Thomson Reuters data shows US crude shipments to China went from nothing before 2016 to a record 400,000 barrels per day during January of 2018. EIA statistics showed the US produced more oil than Saudi Arabia beginning in November, and current production estimates state this relationship will continue through 2018.

In Other News

2/5

Reuters: Exclusive: How Tesla’s first truck charging stations will be built

Reuters has learned that Tesla is collaborating with Anheuser-Busch, PepsiCo and United Parcel Service Inc to build on-site charging terminals at their facilities as part of the automaker’s efforts to roll out the vehicle next year.

China Surpassed the United States as the World’s Largest Crude Oil Importer in 2017

According to the EIA, China surpassed the US in annual gross crude oil imports during 2017, when it imported 8.4 mmbd versus 7.9 mmbd for the US. China had become the world’s largest net importer (imports minus exports) in 2013. China has experienced significant declines in its domestic petroleum production during 2016 and 2017, forcing the country to increase its imports. The EIA estimates China’s growth rate for domestic consumption of petroleum and other liquid fuels was the world’s highest for a ninth consecutive year.

Argus Media: Scrubber uncertainty lingers for biggest bunker buyers

As the January 2020 implementation date for new marine fuel regulations draws nearer, the industry’s largest consumers remain broadly indecisive on exhaust scrubber installations. An Argus report highlighted the uncertainty of scrubber adoption for the biggest bunker fuel buyers, even stating “it is unlikely that containership, tanker and dry bulk vessel owners will rush toward scrubber installation.” Container lines such as Maersk Line and Hapag-Lloyd have already stated they do not intend to use scrubber technology and will use 0.5 percent sulfur bunkers to comply with the 2020 regulations.

2/6

JOC.com Higher Bunker Fuel Prices Driving Up Fuel Surcharge

Shippers will likely receive higher bunker fuel surcharges from container lines during this year’s contract season. Several carriers, such as Hapag-Lloyd, have informed shippers of higher surcharges and changing programs, such as monthly bunker surcharge updates rather than the historic quarterly updates that were an industry standard. Hapag-Lloyd cited price volatility as a key driver of its decision-making. Breakthrough®Fuel received an interview from the JOC for this article and suggested shippers should think about the importance of separating fuel from freight in order to make fuel price volatility transparent in their rates.

Reuters: BP profits surge as oil major leaves downturn behind

BP lifted its production levels to volumes not experienced since the 2010 Deepwarer Horizon spill during 2017. Chief Financial Officer Brian Gilvary told Reuters that the oil major would generate profits in 2018 at an oil price of $50 per barrel, demonstrating improved break-even prices for the company.

2/7

CCJ: Test Drive – Kenworth’s Hydrogen Fuel Cell T680

Kenworth’s T680 will be be put to work between the ports of Los Angeles and Long Beach in about six weeks. The no-NOx daycab has a range of 150 miles, a top speed of 65 mph, and uses lithium-ion batteries to power a dual-rotor electric motor. The Kenworth model completed trials loaded with just under 79,000 pounds of freight. The hydrogen tanks can be filled in just 15 minutes. The Department of Energy estimates there are 39 hydrogen retail stations nationwide, with most located in California, and none in the 2,500 miles between California and South Carolina.

2/8

JOC.com: Convoy and Uber Freight Take on US Truck Market

Convoy and Uber Freight are among companies vying to capture market share within the US truck brokerage market. According to an article from JOC.com, the two technology startups are attempting to persuage US shippers they can deliver immediately covered contract and spot market loads, new capacity, total rate transparency, real-time tracking and data analytics, and market intelligence that can drive supply chain decisions.

2/9

Reuters: How soaring U.S. oil exports to China are transforming the global oil game

First, sharp drops in U.S. imports of crude oil eroded the biggest market that producers like OPEC had relied on for many years. Now, surging U.S. exports – largely banned by Washington until just two years ago – challenge the last region OPEC dominates: Asia.

American Shipper: IMO Moves to Ban Non-Compliant Fuel on Board Ships in 2020

The International Maritime Organization has made progress toward banning the transport of non-compliant fuel on board ships when the 0.5 percent sulfur limit takes effect in 2020.  Acceptable exceptions to this rule would include ships fitted with an approved technology to meet the 0.5 percent sulfur limit, such as scrubbing technology, or the use of a low-sulfur, alternative fuel, such as liquefied natural gas. The 2020 non-compliant fuel ban has been backed by a large swath of the maritime industry and environmental groups who warned that lack of enforcement will “lead to serious market distortion and unfair competition” for those ship operators that do not comply.

This weekly publication is designed to highlight relevant industry news to provide professionals in the transportation, supply chain, and energy sectors with up-to-date information in a rapidly changing marketplace. This update is purely a compilation of industry news and as such, does not necessarily reflect the opinion of Breakthrough®Fuel. We do not warrant or guarantee accuracy or completeness of information. For additional information, please contact us at info@breakthroughfuel.com.

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