Could Diesel Shortages Be the Next Crisis?
RedStone Resource
May 18, 2022
Inside This Edition
China Says Could Ease Restrictions in Coming Days
Promises have been made in the past by elements of the Chinese Government to start easing COVID restrictions, but there are some real signs that this could be the case. China has moved to restrict visitors to the country in order to try and isolate and protect populations in China from getting the virus. And with cases in cities like Shanghai now back down to near zero, local authorities are willing to ease restrictions.
Producer Price Index by the Modes: What it Tells Us About Transport Prices
The producer price index for April came in 11% higher year-over-year at a composite level. Truckload prices captured by the PPI (which includes contract, spot, and fuel surcharges) were 5.1% higher month-over-month and were 39.6% higher year-over-year.
West Coast Contract Negotiations Begin
A contract covering more than 15,500 port workers along the US West Coast has begun in advance of the current contract’s deadline at the end of June. Shippers have experienced challenges in a hand full of prior contract negotiations and those experiences have some importers on edge.
ECONOMIC BRIEFING
Could Diesel Shortages Be the Next Crisis?
Highway diesel supplies are starting to indicate some low inventory levels across parts of the US. At a national level, inventories have now dipped to their lowest levels since the early 2000’s. But, in some areas like New York, diesel for distribution has hit 30-year lows. The US is reportedly trying to fill the gap left by sanctions on Russia by feeding Europe with a record volume of US exported refined fuels. The US is now approaching 1.3 million gallons of diesel exports per day out of the Gulf region.
Until diesel inventories can rebuild, diesel prices will continue to remain high. Farmers are also beginning to experience shortages of diesel for farm use, and farm diesel is higher than on-highway diesel for the first time that anyone can remember. Some areas of the country are running short on farm diesel and are unable to meet every order to refill farm tanks. Given the current situation in Ukraine and reductions of Russian energy flowing to Europe, the US will likely be called upon to continue to fill the gap – and US shippers will be paying the price.
China Says Could Ease Restrictions in Coming Days
Promises have been made in the past by elements of the Chinese Government to start easing COVID restrictions, but there are some real signs that this could be the case. China has moved to restrict visitors to the country in order to try and isolate and protect populations in China from getting the virus. And with cases in cities like Shanghai now back down to near zero, local authorities are willing to ease restrictions.
Although little is known about the easing of restrictions, authorities did mention that it would begin to open up education, industrial production, and medical services. There were a reported 335 ships anchored off of the coast of Shanghai recently because of the 7 weeks of lockdowns. Whether China can ease restrictions and keep them relaxed is a matter of speculation. The highly contagious omicron variants are making the virus spread more easily and keeping a zero-COVID success rate could be very difficult. But it would have a significant impact on the global supply chain if freight were to begin flowing more readily from the region and if it were to keep that momentum for a period of time.
TRANSPORTATION BRIEFING
Producer Price Index by the Modes: What it Tells Us About Transport Prices
The Producer Price Index is compiled by monthly surveys of users or suppliers of various services and commodities. It is an extensive survey and covers thousands of industries and commodities, and it provides some detail on three major components of US transportation.
The producer price index for April came in 11% higher year-over-year at a composite level. Truckload prices captured by the PPI (which includes contract, spot, and fuel surcharges) were 5.1% higher month-over-month and were 39.6% higher year-over-year.
Less-than-truckload was up 23.9% year-over-year and a sharp 5.2% higher month-over-month. The fuel surcharge is likely factoring in heavily into these figures. DAT Trendlines reported that fuel surcharges are still up more than 60% year-over-year.
Rail prices also remained firm in April, they were 2.6% higher month-over-month and 9.7% higher year-over-year. Rail companies are still struggling with too much demand and not enough capacity to move loads.
West Coast Contract Negotiations Begin
A contract covering more than 15,500 port workers along the US West Coast has begun in advance of the current contract’s deadline at the end of June. Shippers have experienced challenges in a hand full of prior contract negotiations and those experiences have some importers on edge. As mentioned in other reporting, China currently has hundreds of ships waiting to get loaded with products destined for the US. Those shipments have been delayed because of COVID lockdowns in China, and releasing a wave of ships headed to the US (much like the 2021 summer scenario) could prove problematic and hit at the height of negotiations.
At this stage, it is early in the negotiations and there is really no clear indication of whether a deal will be reached before the deadline. Shippers are still facing more dramatic uncertainties in other parts of the world at this time, it is just good to have these contract negotiations on your radar.
