Analyst doesn’t buy dire fuel price predictions

Tan Hua Joo also asserts that carriers are downplaying their scrubber strategies as they tell customers they must recover the higher fuel costs.

Analyst doesn’t buy dire fuel price predictions

Tan Hua Joo also asserts that carriers are downplaying their scrubber strategies as they tell customers they must recover the higher fuel costs.

Analyst doesn’t buy dire fuel price predictions

Tan Hua Joo also asserts that carriers are downplaying their scrubber strategies as they tell customers they must recover the higher fuel costs.

 

   Doomsday predictions surrounding the IMO 2020 sulfur fuel cap and the impact on container lines are unfounded, according to Alphaliner chief analyst Tan Hua Joo.
    Speaking Tuesday at the TOC Asia Container Supply Chain Conference in Singapore, Tan dispelled claims of market chaos and carrier bankruptcies, although he admitted, “This is the most important subject for the industry in the coming months.
    “But there’s been some pretty catastrophic predictions being made, and while there’s a lot of uncertainty on IMO 2020, I don’t think these dire predictions are entirely justified,” Tan said.
    He said, for example, estimates of the new regulation costing up to $50 billion were overblown and instead placed the cost at around $10 billion on an annualized basis, adding that this would be the “top end and the likely cost will be much lower.”

   Tan added that carriers have shown resilience in the past in overcoming some major challenges brought by new regulations. The buildup to the Sulphur Emission Control Areas (SECAs) in 2015 and the VGM container weight regulation in 2016, for example, both entailed similar confusion and apparent lack of preparedness, but both events passed with almost zero market disruption and high compliance, he said.
    “Having said that, a $10 billion bill is still an extremely large one for the industry to bare and it’s suddenly the costliest IMO rule that’s ever been attempted,” Tan said.
    The biggest point of uncertainty remains the cost spread between the new low-sulfur fuel oil (LFSO) and the current heavy fuel oil (HFO). Tan pointed out the current spread between HFO and the 0.1 percent sulfur fuel required for SECA — which is significantly less than the 0.5 percent global cap from IMO 2020 — is around $200.
    “And the cost of producing 0.5 percent LFSO is very likely much lower than for the 0.1 percent spread,” he said, cautioning that initially it could be higher since it will take time for the new fuel’s supply and demand dynamics to level out. “Any teething problems will be resolved relatively quickly and certainly within 12 months, and I expect the spread to become significantly below $200.”
    Tan added that three years ago HFO costs were at $600 per tonne compared with the current $400 per tonne, meaning there is room for the industry to absorb the extra costs on the horizon.
   Another key factor at play is carrier uptake of scrubbers, with demand for the exhaust gas cleaning systems — which allow carriers to continue burning HFO — surging in recent months after an initial period of inertia, according to Tan, who said the “economics of scrubbers are too compelling that even Maersk changed its mind on them.”
    Tan said, “Right now there’s a real sense of urgency from shipowners to take action and scrubber orders are constantly increasing. Based on the data we’ve collected, more than 20 percent of global container capacity will be on ships with scrubbers installed by the end of 2020 — which is much higher than initial predictions of 5 to 10 percent.”
    One potential danger of the increased scrubber uptake is how carriers will react if the fuel cost spread is higher than expected.
    “If the spread turns out to be higher than I predicted, then those who do have scrubbers will have a significant cost advantage. How they’ll use this advantage to price and gain market share remains to be seen,” he said.

We want to see meaningful changes in China’s trade practices, but it makes no sense to punish Americans as a negotiating tactic. If the administration wants to put more pressure on China, it should form a multinational coalition with our allies who share our concerns.

The OCEAN Alliance is slated to blank two sailings each on its ECC2 and PNW1 transpacific loops in June, which OOCL said was due to expected low seasonal demand.

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Analyst doesn’t buy dire fuel price predictions

Tan Hua Joo also asserts that carriers are downplaying their scrubber strategies as they tell customers they must recover the higher fuel costs.

Apr 11, 2019 on Dec 27, 2018AmericanShipper.com

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Analyst doesn’t buy dire fuel price predictions

Tan Hua Joo also asserts that carriers are downplaying their scrubber strategies as they tell customers they must recover the higher fuel costs.

Apr 11, 2019 on Dec 27, 2018AmericanShipper.com