Freight Boom Fires Buffett Trains, Maersk Ships and Oil Prices
(Bloomberg) - A large global inventory is available that fills ships, trucks, and trains, and also fuels oil demand.
In the depths of the Chinese coronavirus crisis at the beginning of the year, shipping giant A.P. Moeller-Maersk A / S an unprecedented number of canceled crossings, as the Asian country was as good as sealed off from the world. Since then, the company's shares in Copenhagen have risen to the edge of a record. In the US, Warren Buffett's freight giant, BNSF Railway Co., is experiencing a boom that has increased the number of wagonloads and containers it has carried in the past few weeks from last year.
A change in consumer behavior, particularly in western countries, has resulted in oil prices in excess of USD 50 a barrel in recent weeks. People have redirected expenditures previously intended for things out of reach - like vacations and dining out - to buying physical goods. And that's just the beginning: stores, warehouses, and industries have gone through a major replenishment phase. As more box loads move across the planet, the demand for fuel for ships, trucks and freight trains increases.
"This is the perfect storm for global container flows," said Lars Mikael Jensen, network manager at Maersk, which has a fleet of nearly 700 ships. "The current restocking in the US and Europe is driving demand, while global measures to contain the pandemic are placing heavy strain on the supply chain due to the lack of ships, containers and trucking capacity."
Although the boom is having a positive effect on oil prices and freight forwarders, it is putting a strain on important transport infrastructures. In ports around the world, bottlenecks are intensifying and distorting supply chains for everything from auto parts to cosmetics. The recent suspension of freight shipments from France to the UK is a reminder that things could get worse - but also that the full economic and trade impact of the coronavirus is still far from certain.
Los Angeles is a symbol of the turnaround. Together with Long Beach, LA is a corridor for the import of goods from Asia to the USA. Earlier this year, thousands of empty containers sat at the dock in Los Angeles, a symptom of both trade tensions with China and Covid. Today imported goods pour in.
"Right now we are facing a change in buying habits," said Gene Seroka, executive director of the Port of Los Angeles. “Where we used to buy mainly services, you and I have turned back to buying products and those stocks need to be replenished. People have ordered so much for delivery that we can't process it fast enough. "
Exports from China are increasing and the country's trade surplus is reaching a record high. The country's businesses shipped $ 268 billion worth of goods in November, up 21% year over year.
In India, the lifting of lockdown restrictions and the full resumption of domestic vehicle traffic in October resulted in an increase in road fuel consumption. According to Senthil Kumaran, director, diesel demand rose more than 7% year over year for South Asian oil at industrial advisor FGE.
The shipping costs are going crazy. Transporting a 40-foot steel box by sea from Shanghai to the European trading center of Rotterdam costs around $ 6,500 per container, according to Drewry, most for the time of year since at least 2011.
The trends are important to the oil market as, according to the International Energy Agency in 2019, trucks account for around 16% of global oil consumption and almost half of total diesel consumption.
The rebound in activity coupled with the onset of winter in the northern hemisphere has fueled a previously disastrous fuel market for about two months.
In September, the so-called crack spread - the diesel premium for crude oil - fell in Europe to just USD 2 per barrel.
In addition to stuttering demand, a collapse in global aviation was a major cause of the diesel market's weakness. Oil refineries responded to this slump by instead redirecting production of jet fuel to making diesel, and increasing production when consumption was weak. With people often staying away from public transport to avoid contracting the virus, refineries had to maintain high output to meet gasoline demand - which further increased the diesel supply at a time when it was not needed.
This dynamic has turned. Last week the crack spread rose to $ 6.28 a barrel. This is at a time when the underlying price of crude has also risen sharply.
In the United States, trucking is the main influencer of diesel and is seen as a sign of the health of the overall economy. The interstate miles traveled by trucks have increased by over 9% year-on-year, while traffic for all vehicles has decreased by more than 10%, according to statistics from the Federal Ministry of Transport.
One indicator of demand in the US is how much oil refineries are supplying for petroleum products. In the week leading up to December 11th, they delivered 4 million barrels of distillate heating oil a day, including diesel. As early as May, that number fell to 2.7 million a day, the lowest level in decades, according to data from the Energy Information Administration. Inventories remain high but are far less bloated than they were earlier this year.
The attraction to diesel is evident in the excessive demand for supplies this year. Data from consultant Freight Waves shows that 26% of requests for freight transport are denied this quarter, twice as much as a year ago.
While trucking may be the mainstay of diesel demand, Buffett's BNSF railroad is one of the largest U.S. buyers of the fuel - after the Navy. Increasing activities are also reported here.
"We have seen a strong recovery in intermodal volume as an increase in e-commerce sales drives demand for intermodal parcel shipments and truck loads on our network," said Tom G. Williams, vice president of consumer products for the BNSF Group. "As cities and states reopened, intermodal demand was further supported by the recovery of brick and mortar retailers."
The current volume in some of the BNSF's intermodal facilities is up to 20% higher than at this time last year. The company continues to work with its customers to deliver a "constant surge in demand" while replenishing low inventory levels since the pandemic broke out, he said.
In Europe, the continent's largest truck owner is reporting the same dynamic, filling the company's fleet and increasing diesel consumption.
"There is definitely a new consumer pattern," said Kristian Kaas Mortensen, general manager at Girteka Logistics, a Vilnius, Lithuania-based owner of more than 7,500 trucks. "Since we can't give it face to face, we ship it."
Girteka is so busy that it allows other freight forwarders to run overflow. The busiest year end in its history awaits.
In Germany, the kilometers driven by large trucks have risen steadily since September and are currently the highest in a month, according to the country's statistical office. Heavy traffic in Poland in the week ending December 20th is about 20% higher than last year. It was a similar picture in the UK before the country's most recent lockdown rules.
But there is a global upswing that, according to Gebr. Weiss, a 500 year old company that claims to be the oldest logistics company in the world.
"If we look back on our history, we can say that we have mastered a number of challenges: a war, one or two revolutions, but in all my years in logistics I have never had a year like this", said Gebr. Weiss board member Lothar Thoma. "Covid clogged up, disrupted transport arteries on a global scale and messed up the cycles of inbound and outbound goods, be it air, sea, rail or road."
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