FEATURE: Bunker Market Awaits Impact of New US Tariffs

Over the weekend the Trump Administration announced new tariffs on imports from Canada, Mexico and China. File Image / Pixabay

The bunker and shipping industries are bracing for the impact of new US tariffs on global trade. 

Over the weekend the new Trump Administration announced 25% tariffs on most imports from Mexico and Canada, with a rate of 10% on energy imports from Canada, and a 10% tariff on imports from China.

If these new levies last, rather than proving to be a short-term negotiating tactic, they are likely to have a profound impact on global trade. 

Bunker Holding, the world's largest marine fuels firm, points out the tariffs have the potential for both positive and negative impacts for the bunker market.

"On the one side, tariffs mean that trade patterns change; it can boost demand for shipping and/or bunker," Anders Grønborg, chief commercial officer at Bunker Holding, told Ship & Bunker on Monday.

"Notably, the US may source heavy sour crude oil from other places that go by tankers.

"Canada will try to ship its oil by sea.

"However, equally importantly, tariffs can dampen the global economy and hence the overall demand for bunker fuel."

China Tariffs

The 10% tariff on Chinese products is likely to have the largest impact of the decisions announced over the weekend, because of the scale of US trade with China.

But rather than reducing trade from China to the US, the tariff may drive tradeflows to middleman countries to avoid the new levy.

Peter Sand, chief analyst at Xeneta, said the imposition of Canadian and Mexican tariffs at the same time as ones on China may end up increasing US shipping activity.

"All other things being equal, if the US is putting higher tariff walls against Mexico and Canada than directly to US - it favors US port calls," Sand told Ship & Bunker.

"But if the tariffs are 'too high' then demand could be hit to such an extent that growth will fall.

"Ports in Canada and Mexico will most likely get hit by this too, as rerouted cargo with either of the two nations gets relatively more expensive compared to direct imports, most likely via the US West Coast.

"Bunker demand will most likely depend on the pricing of it - but to some extent also by the sheer number of ships calling."

A US-based trader told Ship & Bunker it remains too early to predict a decrease in the number of ships arriving at US ports, as importers will likely continue sourcing goods from other regions. But the tariffs could bring volatility to the market and tighten the supply of bunker fuels in the near term, the trader said.

"Major importers are likely to want to see the dust settle in the sense that Trump has promised to come with more tariffs soon," Lars Jensen, CEO of container shipping consultancy Vespucci Maritime, said in a LinkedIn post on Monday.

"Once the tariff landscape is known, it also becomes possible to better see what the new lowest cost options are in terms of manufacturing locations, assembly locations and shipment routings."

Canada/Mexico Tariffs

While tariffs on China are likely to have a global impact on trade, the new levies on Canadian and Mexican products will deliver a local impact on the US bunker market.

Crude oil is the largest import to the US from Canada. The US imports around 4 million b/d of Canadian crude, with most of this being taken by refineries in the Midwest.

Heavy Canadian crude delivers a high yield of fuel oil from crude distillation units, and refineries processing this crude will either need to replace it with lighter crudes from elsewhere - giving lower fuel oil output - or pay the tariffs and raise prices, unless a similarly crude can be procured from another producer like Venezuela.

Goldman Sachs estimates the Canadian tariff could add $2-3/bl to US refined product prices, equivalent to about $15-23/mt in fuel oil terms.

The tariff on Mexican products may also produce a significant impact for US bunker markets.

Mexican product took up about a third of all US fuel oil imports over the past two years, with much of this product ending up in the US Gulf bunker market.