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Auto parts manufacturers staring at painful transition to auto sales slowdown and transition to electric vehicles. – October 24, 2019

The automotive industry is under siege from a number of trade and economic factors. In the United States, auto makers and suppliers are awaiting a decision from the Trump Administration whether or not to take action under the same Section 301 program that currently impacting importers buying from China. In California, the first manufacturing standards for electric trucks were just announced. Now comes news that Germany’s Continental AG is reorganizing its business and taking a $2.8 billion write down, including scrapping plans for a partial IPO of stock in its powertrain division, as the company accelerates its transition from an internal combustion engine parts supplier to an electric vehicle one.

The Wall Street Journal (subscription required) reports that electrification of fleets globally is being driven increasingly not only by governments and manufacturers, but buyers as well. Global auto sales have also dropped simultaneously in the three largest markets – China, the United States and Europe. The story cites analysts predicting a fall in global auto sales of 4% to 6% this year on top of last year’s 0.5% decline in new vehicle sales. This was the first year that new vehicle sales declined since 2009.

Every major vehicle manufacturer has either launched or will be launching electric vehicles as a cornerstone of their fleets to lower overall emissions and meet consumer demand. US electric truck maker Rivian was the beneficiary of a 100,000 delivery vehicle order from none other than Amazon.

Greg Scheevel, TOC’s Director of Global Development, has been speaking with companies over the past several weeks in the wake of the GM strike and the impact it has had on the industry at large. For those in the business, this transition away from vehicles that are more software than moving parts is being felt up and down the automotive supply chain and companies are working quickly and diligently to meet both the changing demand curve and new vehicle engineering and parts demands.


DEADLINE ON THE USE OF LOW-SULFUR FUEL – October 22, 2019

TOC Logistics International would like to provide the following update regarding the deadline imposed by the International Maritime Organization on the use of low-sulfur fuel.

By now, everyone has heard of the impending deadline of January 1, 2020 imposed by the International Maritime Organization on the use of low-sulfur fuel. Throughout the year numerous stories have been reported and published on oil companies and refiners beginning production, carriers testing it on their ships and more carriers retrofitting vessels with scrubbers to clean the exhaust on the back end rather than using reduced sulfur fuel on the front end.

Everyone – shippers, carriers and economists alike – have been working to quantify and determine the additional costs that would, inevitably, translate into higher fuel surcharges for cargo. In laymen’s terms, think of this as the difference between regular, mid-grade or premium gasoline – the more the product is refined, the more expensive it gets. Low sulfur fuel is no difference. The amount of sulfur in the new bunker is reduced from 3.5% to .5%.

Because of the January 1st requirement, ships will likely be taking on their first loads of the new, lower-sulfur fuel in December, causing many carriers to evaluate the timing of changes to their surcharges.

Many carriers targeted this month – October 1st – for the initial imposition of these new low-sulfur surcharges, or LSS’s. Two of the world’s largest carriers, Maersk and CMA-CGM, have announced their plans which vary based on the duration of the contract under which cargo is moving.

  • So-called “market rate contracts” with quarterly durations and expirations will have new LSS formulae implemented December 1, 2019, incorporating the cost of the very low sulfur fuel.
  • Longer-term contracts, usually a year in duration such as what are seen on the eastbound trans-Pacific, will continue to use their existing BAF surcharges, however the index used to calculate fuel price will change from one based on the current 3.5% sulfur rate and to one based on the very low .5% sulfur rate.

What the trade was spared until the news reached the point of, “This is coming and will have an impact – stay tuned for greater details,” was what carriers went through to get ready. They needed to communicate and plan with global refineries to ensure a consistent formulation around the world. They needed to test that fuel at sea with existing power plants. For those who elected to go the route of scrubbing exhaust, that technology needed to be tested, procured and installed.

In short, the determinations being made on price, indices and matrices that will set dollar levels in this new environment are now coming into focus as the getting-to-market has now been sorted out.