This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
With experts estimating the cost of compliance to the ocean carriage industry at anywhere between $35 billion and $60 billion, IMO 2020 is expected to disrupt shipping markets for at least the first half of 2020. Fuel and bunker markets will need to find price equilibriums before stabilizing. While a financially fragile carrier industry is at the forefront of compliance costs, price hikes are expected to ripple rapidly through the entire supply chain, all the way down to the end consumer.
The impacts for ports are likely to be greater for those bunkering ports outside Emission Controlled Areas (ECA), where they will have bunkering services accordingly. For ports located in ECAs, the impact should be mitigated as they watch a tug of war between cash-strapped carriers keen on passing additional operating costs to cargo owners as the annual contract negotiation period kicks off.
From a macroeconomic standpoint, risks are admittedly on the upside. While the China–US tariff escalation seems to have somewhat toned down in recent weeks, the stretching of the economic cycle, as well as the deceleration of manufacturing activities in the United States, justifies concerns over a looming recession. From a Canadian perspective, the CUSMA trade deal — known as USMCA in the US — has yet to be ratified by the US Congress and remains a risk, albeit a low one. Canadian economies most heavily trading with the US and Mexico are serviced essentially by land modes, which significantly mitigates risk to Canadian ports should ratification of the deal be delayed.
Finally, while North American East Coast container ports have been enjoying consistently solid growth in recent years (in some cases by ­double-digit percentages), capacity issues are gradually surfacing as well as expansion projects. Montreal is one of very few growing ports enjoying the luxury of a land reserve exceeding 400 hectares and is well underway towards opening its Contrecoeur facility. The year 2020 will be a landmark year for Montreal, as the port shall obtain its environmental permit, identify its operator, and plan the construction of the largest infrastructure project in the port’s history.