Oil prices rose yesterday on renewed concern that Iran will try to make good on its threat to disrupt oil shipments moving through the Strait of Hormuz, shipments which account for about 20% of the world’s oil. Bloomberg reported that crude oil for February delivery increased by 93 cents, or 0.9%, to $102.24 a barrel on the New York Mercantile Exchange, while West Texas Intermediate oil traded on the Nymex has increased by 20% in the past three months.
Depending upon which analysts you trust, a blockade of the Strait of Hormuz could cause fuel prices to rise by as much as 50%. Right now, the bet is that Iran will back down, largely because a blockade would be as damaging to Iran and its key oil customers as it would be to the rest of the globe, but the saber rattling on both sides is rattling nerves worldwide, nonetheless. For trucking, a sudden steep spike in fuel prices could seem like 2008 revisited, only crueler.
The crisis at Hormuz may never happen, but the effect of change at another of the world’s major waterways, the Panama Canal, is absolutely guaranteed to impact the trucking industry. By 2014, if the construction schedule holds, shipping patterns will be forever altered—and trucking will be dragged along in the wake of this enormous tidal shift, like it or not.
A wider canal with a larger set of locks, expected to double the amount of goods that can pass through the Panama Canal each year, is scheduled for completion in 2014. According to a recent Science column in the New York Times, the expansion will allow much bigger container ships and other cargo vessels to easily reach the Eastern United States, altering patterns of trade and putting pressure on East and Gulf Coast ports like Savannah, GA., and New Orleans, LA to deepen harbors and expand cargo-handling facilities.
It may also siphon cargo away from Western ports. According to a December article in the Los Angeles Times, “A major expansion of the Panama Canal is raising alarms in Southern California, where business, labor and public officials are warning that the project threatens to dent the region's role in international trade.
“The $5.25-billion project will make the canal wider and deeper, allowing huge freighters from Asia to bypass West Coast ports and head straight to terminals on the Gulf Coast and East Coast. The neighboring ports of Los Angeles and Long Beach, which together handle about 40% of the nation’s imported Asian goods, could lose as much as a quarter of their cargo business by some estimates after the Panama expansion is completed in 2014.”
There is plenty of speculation about what will happen to dependent, land-based freight movement if/when these sea changes take place. “Routing decisions following the expansion will ultimately be determined by the demands of the shippers and receivers in the interior of the United States. Shippers control supply-chain decisions that will influence the use of the canal,” noted the Mid-American Freight Coalition this week. “While the expanded capacity of the canal will make size less of a concern for routing decisions, routing strategies will continue to be assessed based on fuel prices, sourcing decisions, and delivery times. Added value (by expanded capacity) enables the shipper to capture economic opportunities along the supply chain. Off-shoring is a common added value strategy where producers improve their productivity by lowering their input costs (mostly labor) while actors in freight distribution add revenue opportunities through the growth of long(er) distance trade. Off-shoring and its added value opportunities could not have worked effectively without intermodalism, which has permitted supply chains to internalize several added value functions. Despite what governments push for, the supply chain is mostly privately operated and privately owned.”
While it may be too early to predict the true outcome of these sea changes on the trucking industry, a weathervane out at terminal might not be a bad idea. Apparently, every fleet is now in the intermodal business, like it or not.