Higher fuel prices have already been felt at the pump by consumers in the form of rising gas prices, and now shipping at-large is starting to feel the effects.
Rising fuel costs have started hitting container shipping, with most carriers – large and small – feeling the pain as of today. After WTI crude prices hit a low of around $67 per barrel in June, prices rose to over $91 per barrel yesterday, September 19th. That new high comes as shippers had already been feeling the pain of higher fuel prices. In the world of bunker fuel, New York industry-standard low-sulphur fuel (VLSFO) hit $643 per ton on Friday before rising to $684 yesterday.
These recent record-highs threaten to further reduce demand for the shipping and logistics sector, which had already been suffering from lower demand in recent months.
While shipping carriers have some mechanisms in place to fight against rising fuel costs and pass these costs onto customers, the industry at-large has already been dealing with lower profits and revenue following historic highs during the supply chain crisis of 2021-2022.
Why are fuel costs rising so high?
Production cuts are the main reason. OPEC+, the cartel largely responsible for global oil prices, has cut production multiple times over the past 18 months in a bid to raise oil prices. Prices had been low in the wake of the Covid pandemic. Additionally, U.S. refinery capacity was reduced in the wake of some natural disasters last year, and refinery upgrade projects. Russia has also been seen to be trying to manipulate oil prices in a push to get Ukraine to the bargaining table amidst its ongoing war there.
How are shipping carriers responding to the lower demand brought on by rising fuel costs and other economic factors?
Ocean carriers are starting to make moves to counter reduced demand. Just today, THE Alliance, one of the major shipping alliances, announced it will suspend its PN3 route from Asia to the U.S. West Coast in an effort to reduce oversupply and balance supply and demand, according to The Loadstar.
Last month, Maersk warned of reduced demand hampering profits, but stopped short of taking any specific action to push back against oversupply.
Higher fuel prices have also began affecting trucking operations, with diesel prices rising to over $4.60 this week. This is likely to increase truckload costs and reduce trucking demand, too.
