Cleaner, costlier shipping fuels could mean higher prices

January 21, 2019

New international rules will require ships burn cleaner, but more expensive fuel could raise prices for consumers, affecting everything from the cost of filling pick-up trucks to the price of an airline ticket.

In less than a year, International Maritime Organization, a United Nations agency that oversees international shipping, will impose the new pollution rules that will force most of the shipping industry to shift from a cheap, dirty fuel with high sulfur content to low-sulfur marine fuels made with diesel. That shift is projected to raise the fuel costs of the shipping industry, which moves about 90 percent of the world’s cargo, by about $60 billion.

Shippers appear likely to pass along those higher costs to their customers, which in turn could push at least some of those costs by raising the prices of a wide variety of consumer goods.

The Danish shipping company Maersk, which controls about a fifth of the world’s container shipping market, said that its fuel bill will jump by $2 billion after the new pollution standards take effect - and it expects to add a fuel surcharge starting this month to recoup those costs, according to a Sept. 2018 announcement.

Once cargo is offloaded, the vast majority of consumer goods are moved by diesel-powered trucks and trains. Diesel prices are expected to rise because of increased demand from the shipping industry, which will need to replace about 3 million barrels a day of marine fuel.

The trucking industry is largely thought to be ill-prepared for the spike in diesel - a fuel that accounts for as much as 20 percent of overall costs of operating a trucking business, according to the trade group American Trucking Association. Trucking companies will either have to eat the cost or increase prices for customers.

Analysts expect the diesel price spike to push up the cost of jet fuel, too, since jet fuel prices tend to follow diesel. In addition, refineries could potentially cut jet fuel production to try to meet swelling demand for diesel, leading to shorter supplies of jet fuel and higher prices.

Fuel costs account for a quarter of operating expenses in the airline industry. Airlines are likely to recoup at least some of costs through higher ticket prices. A poll of more than 20 airline companies found that in North America companies are expected to increase fares as a result of fuel cost increases, according to findings from Macquarie Research, an Australian commodities research firm.

“When prices start to rise on jet fuel and diesel, consumers will likely complain,” said

Richard Joswick, head of products pricing at S&P Global Platts. “The refineries are going to get the blame, but they’re going to be doing the best they can.”



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