Add Expected Ocean Carrier Fuel Cost Rises and Increased Cost to Shippers to the List of Challenges to Global Trade.

Reference: JoC article: Upward Pressure on Low-Sulfur Fuels Raises Shipper Risk (7/26/19)

There just seem a lot of quite important headwinds facing trade for the next few years. These headwinds will certainly impact supply chain planning and the logistics industry. This JoC article about impending carrier fuel cost increases and how it will impact ocean shipping time and/or shippers costs is important as we consider it alongside a raft of dynamics in the near/mid-term marketplace.                                                                                           

Looking at near-term changes in the requirements for low-sulfur fuels, ocean shipping costs will likely increase and with trade agreement and geopolitical upheaval, increased manufacturing migration in Asia, instability in holding the EU together and China's massive economy now performing at a sustained lower growth rate, we need to adjust to a new normal.                                                                                                                                

From our work with shippers across a range of production industries, the logistics industry and ports/airports, we believe that there will be some reasonably significant adjustments to the traditional logistics system order. A couple of observations:

• In our view there is no doubt that we will see increased corporate production and supply chain management strategy focusing on logistics hubs as integrated production/ assembly/supply chain management hubs. This is has begun to occur but the level of investment in seaport (and airport)-oriented investment hubs will increase.  Reducing landside shipping costs, increasing delivery speed and assuring higher levels of reliability are the main factors.  There are land-availability and cost challenges at most load-center logistics hubs, but 1) some secondary logistics hubs will have new competitive advantage due to land/cost, and 2) there will be an evolution of fully integrated port-to-extended market inland ports.
• We see the Southeast Asia-to-West Coast North America/Europe trade lanes becoming far more substantial.  We think this is a relatively common view, but we see it as increasing at a more rapid rate than most.  From our perspective this increasingly supported by three fundamental dynamics: massive and systematic improvements to logistics service and ports/airports infrastructure, sophisticated economic policy and strategy to grow production industries, and the likelihood of extended and increasing impacts resulting from a spiraling US-China trade policy.  We see this last dynamic continuing for at least six more years, given the political climate in the US through the next US Presidential cycle. Whether Trump or a Democratic Party challenger wins the election in November, 2020 there will be pressure to reshape the trade relationship between the US and China.  In the end, this prolonged geopolitical landscape supports markets like Thailand, Indonesia, Vietnam, Malaysia (and also including the Philippines).