Commentary: Rarified air
Nothing comes for free these days. Even clean air.
On Aug. 1, a new regulation requiring ocean carriers to burn low-sulfur fuel within a 200-mile coastal corridor of North America came into effect.
So it was little surprise that carrier members of the Transpacific Stabilization Agreement announced in late August they had developed a formula to capture the additional costs generated by the new regulation.
The surcharge advised by TSA is $17 per 40-foot box to the U.S. West Coast and $21 per 40-footer to the U.S. East Coast. It’s not a huge amount, less than 1 percent of an eastbound transpacific rate these days. The concern comes, as my colleague Chris Dupin pointed out in our August issue, if or when supply of low-sulfur fuel fails to keep pace with demand.
This trend would only be exacerbated by similar standards being enacted in other parts of the globe. Sure, once a market develops, it’s hard to see refineries not reacting to the demand. But in that interim period, when carriers are coming to grips with the regulations, updating the hardware aboard their ships and securing sources of the cleaner fuel, the costs will mount.
It’s only natural they would pass this cost on to shippers. It’s a bitter pill to swallow, though, coming as it does when the base level for fuel prices has seemingly reached a high plateau. Fuel prices this year are pretty stable, meaning they aren’t swinging wildly month-to-month, nor are they growing by significant divergent rates year-on-year.
The problem is they’ve stabilized at a high level, one that shippers have likely now accounted for in their annual budgets. The new normal is the catchphrase, I believe.
So, layered on top of these elevated rates is a new cost of doing business in international trade. Cities want their coasts cleaner, and the International Maritime Organization has decreed low-sulfur fuel will help achieve that. It’s now up to shippers to decide if cleaner air comes out of their margins, or out of the pocket books of their customers. (Eric Johnson)
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