January 20, 2021 Update
The US National average diesel price, as of January 18, sits at 2.69 / gallon, rising .31 cents since early November. After a period of both low prices and low volatility, diesel has risen 10 consecutive weeks and now is above the trailing 13-month average. The price increase can be directly tied to the recent increase in oil.
There are too many factors weighing against high oil prices including the ability of US shale producers to quickly ramp-up production as prices rise, the continued push toward renewable energy and the degradation of pricing power historically employed by OPEC. Additionally, less energy intensive behavior changes inspired by COVID are likely to become permanent.
Asia to US ocean container spot rates continue to soar. Asia to US west coast spot rates now exceed $4000 / FEU while Asia to US east coast spot rates are approaching $6000. That represents a 170% and 101% YoY increase, respectively. The west coast spot rates, which held steady at just under $4000 from September to December, are now on the rise again as are the east coast rates.
The delta between WC and EC is now over $1700, likely driven by the increased congestion we are seeing in Long Beach and Los Angeles.
Even more worrisome for the Beneficial Cargo Owner community is the likelihood that the new pricing discipline shown by the carriers (and their respective alliances) will result in significantly higher contract rates on the Trans-Pacific trade lanes as we approach the contract negotiation season.
TL rates, both contract and spot, increased in December for the 7th straight month. DAT data show that Dry Van spot rates for December were up 27% YoY and up an astounding 54% since their lows in May. Carriers have responded by ordering over 100,000 Class 8 power units in the last 2 months of 2020, representing 36% of all 2020 orders. As we move to the winter doldrums, one would anticipate an alleviation in rate pressure. However, increases in fuel may negate the benefits seen by shippers.
sources referenced in this post: Freightos, US Energy Information Administration, DAT
Mike Mulqueen is a leading expert in logistics solutions with over 30 years managing, designing and implementing freight transport technology. His functional expertise is in Multi-modal Transportation Management, Integrated Logistics (Fleet), Supply Chain Visibility, and Transportation Modeling. Mike earned his master’s degree in engineering and logistics from MIT and BS in business and marketing from University of Maryland.
Founded in 2003, JBF Consulting is a supply chain execution strategy and systems integrator to logistics-intensive companies of every size and any industry. Our background and deep experience in the field of packaged logistics technology implementation positions us as industry leaders whose craftsmanship exceeds our client expectations. We expedite the transformation of supply chains through logistics & technology strategy, packaged & bespoke software implementation, and analytics & optimization. For more information, visit us at www.jbf-consulting.com