The cargo ship Dali after it ran into and collapsed the Francis Scott Key Bridge in Baltimore on Tuesday. Tasos Katopodis / Getty Images
FSK Bridge in Baltimore Impact on Supply Chain
RedStone Resource
April 2, 2024
Inside This Edition
Investment Firm Expects $100+ Oil by Late Summer
JP Morgan analysts are forecasting a surge in Brent North Sea Crude oil prices to reach above $100 a barrel by late this summer. Forty-five percent of the price of a gallon of diesel is tied to oil prices. This increase in the oil forecast is largely driven by Russia’s willingness to adhere to OPEC+ production quotas – despite its need for funding to support the war effort.
Maritime Rates Remain Higher Year-over-Year, But Ease
As the global supply chain adjusts to the Red Sea disruption, initial spikes in maritime prices have started to ease, slightly. Drewry rate trackers show that most lanes were dropping between 1% and 8% on a week-over-week basis through the third week of March. But most lanes inbound from Asia remain significantly higher year-over-year.
Panama Canal Throughput Increases to 27 per Day
The Panama Canal Authority (PCA) has increased the number of daily slots for transits through the lock system to 27, approximately 8 slots a day shy of the long-term average of 35 slots per day. Drought conditions have started to ease and some strategies by the PCA to improve water utilization is also helping reduce the impact of the drought.
Economic Briefing
FSK Bridge in Baltimore Impact on Supply Chain
Compassion goes out to those families impacted by the accident that destroyed large portions of the Francis Scott Key Bridge in Baltimore. Early estimates are that the impacts will likely be more regional in nature, and less of a national supply chain factor. The port averaged 300,000 inbound containers per year, compared to the New York/New Jersey port system which moves more than 2.4 million. Many shipments destined for Baltimore move via the Panama Canal and will pass near 5 other ports that are larger than the Port in Baltimore. Not to underestimate the importance of the port, but on a temporary basis there will be alternative ports for freight diversion. Some commodities may be more difficult to divert because of offloading capabilities of alternative ports, or local distribution systems and assets necessary to move those items. It was one of the largest roll-off ports for vehicles. But the Port in Baltimore was not the sole inbound location for any single commodity, but it did carry a large market share percentage of shipments of sugar, coffee, vehicles, and many others.
Local distribution will be impacted more heavily, and the complete repair of the bridge will take some time. Shipping channels will open more quickly once the investigation and recovery process are complete and clearing debris can begin. The narrow shipping channel is the primary focus for local officials, and restarting the flow of goods may take place much faster than expected (likely measuring it in weeks, not months).
Investment Firm Expects $100+ Oil by Late Summer
In a note released this week, JP Morgan analysts are forecasting a surge in Brent North Sea Crude oil prices to reach above $100 a barrel by late this summer. Forty-five percent of the price of a gallon of diesel is tied to oil prices. This increase in the oil forecast is largely driven by Russia’s willingness to adhere to OPEC+ production quotas – despite its need for funding to support the war effort.
Analysts believe that the White House can release more oil from the Strategic Petroleum Reserves (SPR) to offset any surge in domestic prices. Oil prices at $100 a barrel would push the average price for a gallon of gasoline above $4 a gallon (premium prices would approach $4.50 to $4.75 a gallon). The SPR is currently sitting at levels not seen since the early 1980’s, but when looking at recommended petroleum levels, JP Morgan estimated that the Federal Government is sitting on 188 days of net import demand, which is twice the IEA’s recommendation of 90 days of spare supply on hand. That may not meet US standards, and again, inventories are the lowest since the 1980’s.
Transportation Briefing
Maritime Rates Remain Higher Year-over-Year, But Ease
As the global supply chain adjusts to the Red Sea disruption, initial spikes in maritime prices have started to ease, slightly. Drewry rate trackers show that most lanes were dropping between 1% and 8% on a week-over-week basis through the third week of March. But most lanes inbound from Asia remain significantly higher year-over-year. For instance, Shanghai to LA rates are up 73% on average with a spot rate of $3,934 (but down 4% W/W). Similarly, Shanghai to New York spot rates are still up 107% Y/Y, despite being down 1% W/W.
Rates also remain elevated between Asia and Europe, with average spot rates still 115% higher year-over-year between Shanghai and Rotterdam. But unlike other periods since the closure of the Red Sea, return routes between Europe and Asia have also risen. Rates from Rotterdam to Shanghai are up 19% Y/Y despite softening slightly week-over-week in the latest report.
US inbound and outbound volumes could be disrupted slightly with the Baltimore bridge accident and volumes that were already surging at west coast ports. Port congestion should be modest, but inbound distribution volumes will change slightly which could lead to some short-term disruptions. This will look nothing like the congestion issues in 2020 and 2021, but some rate pressure could result from shifting volumes on a temporary basis.
Panama Canal Throughput Increases to 27 per Day
The Panama Canal Authority (PCA) has increased the number of daily slots for transits through the lock system to 27, approximately 8 slots a day shy of the long-term average of 35 slots per day. Drought conditions have started to ease and some strategies by the PCA to improve water utilization is also helping reduce the impact of the drought. That, plus the end of the dry season and start of the spring rain season is expected to bring some relief to depleted reservoirs. In addition, a change in the strong El Nino pattern will transition slowly into a neutral condition followed by a transition into a La Nina cycle later this year – which will likely change weather patterns, and potentially bring a temporary end to throttling of canal traffic.
