Storm is approaching: Companies fear shipping shakeup deliveries

LONDON / LOS ANGELES (Reuters) – The American furniture company RC Willey Home Furnishings is so concerned that new global clean air rules will cause transport disturbances to transmit the shipment of armchairs and sofas from China by two months.

FILE PHOTO: Transport containers are depicted at Yusen Terminals (YTI) at Terminal Island in Los Angeles Port in Los Angeles, California, USA, January 30, 2019. REUTERS / Mike Blake / File Photo

The Tougher Regulations That Are set by the United Nations, the International Maritime Organization (IMO), comes into force on 1 January. The costs will rise for ships towards the end of this year, and there will be an effect on trucks and other carriers moving goods around the world.

For shipping companies, this is the biggest shakeup for decades, adding to the pressure of an economic downturn and the threat of a growing trade war between the United States and China.

While consumers are not expected to pay more for goods, higher transport bills and disruptions in the company's deliveries can increase economic growth.

Shipping companies have to cut sulfur emissions to 0.5% from 3.5%. They can do this by using low-sulfur fuels, installing exhaust flue systems or choosing other, more expensive, clean fuels such as liquid natural gas or traveling slowly.

Jeff Child, president of Berkshire Hathaway's RC Willey Home Furnishings, moved the delivery of about 450 containers from September and October to July and August. He wants to avoid disturbances in the top fourth quarter as ships prepare for the changes, including rebuilding equipment.

"We will not be caught in a situation where it affects our inventory," he told Reuters.

Analysts say the container industry, which transports consumer goods such as sofas, designer clothes and bananas, will be one of the worst frames with extra costs of around $ 10 billion.

The world's two largest container shipping companies – Denmark's Maersk and Switzerland headquarters MSC – say they face annual additional costs of over $ 2 billion each. Twenty-five executives of logistics companies told Reuters that they would transfer any IMO related costs, such as ship upgrades or more expensive fuel, to customers.

"The sulfur cap will further put pressure on sea freight rates, and we … have to pass these costs on to remain competitive," said Peder Winther, worldwide sea freight manager with the Swiss transport company Panalpina Group.


Economists say manufacturers are expected to absorb their share of the cost, and it is unlikely to increase the price of consumables, but hits to businesses may be a drag on the world economy.

A Nestle S.A. spokesman said the food group was talking to the carriers about "fuel adjustment methodology" to reflect the impact of the new rules.

"Higher fuel prices will lead to higher transport costs," said Peter Nagle, economist with the World Bank's development prospect. "This would have the potential to lead to slower economic growth and trade."

Truck transport companies will also suffer. The IMO rules do not apply to them, but they will face new competition from ships for lower sulfur fuels. This is expected to increase the price of diesel for trucks by as much as 100 percent.

Small to medium sized trucks may find it difficult as they have not complained about negotiating fuel negotiations or raising costs.

"I'm on the verge of the market. All I can do is let customers know what's going on," said Mike Baicher, president and CEO of New Jersey based West End Express, who runs 90 trucks in New York, New Jersey. and along the east coast.

"There is only as much as the truck company can absorb."

In a letter sent to top US government officials, including national security advisor John Bolton, transport associations, including truck carriers, said that there was consensus that US transport industries would be "adversely affected by IMO 2020 pricing pressures." It said there could be market disturbances. "" There is a storm approaching, but we do not know how bad the storm is going to be, "said Glen Kedzie, energy – and Environmental Advisor to US Trucking Associations.


Shipping and Freight Forwarding Company, which offers a service to monitor delivery of Goods from beginning to end, expect to feel more cost pressures.

Bart de Vries, air and sea operator with US headquarters Hellmann Worldwide Logistics, expects to pay more for services that shipping companies transfer the costs.

Some companies may revise their business plans.

"It will undoubtedly force many exporters and importers to review their sourcing strategies and suppliers," said Cas Pouderoyen, senior sea freight director with global logistics company Agility

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Richard Fattal, co-founder of digital freight forwarder and logistics provider Zencargo said that it could be as much as a 10 to 20% increase in total operating costs next year.

Allen Clifford, a US-based executive vice president with MSC, said at a recent California forum that his company was facing huge expenses.

"Who's going to pay for it? You're going to pay for it. Because I'm tired of paying for it, he told business executives and port and customs officials.

Additional reporting by Richa Naidu and Karl Plume in Chicago; editing by Anna Willard

Our Standards: Thomson Reuters Trust Principles.

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