Sea Logistics Booms; Land Transport Struggles

The logistical labyrinth that the world faced in storing and moving petroleum fuels in the midst of the COVID-19 pandemic has seen business for clean and dirty product tankers rocket over the last few weeks. Though Standard & Poor’s (S&P) says the wet transport and storage boom will only be temporary, on land, COVID-19 is proving problematic.

The sharp jump in world freight prices was due to the scramble for transportation and storage of petroleum products that were still being produced as the global demand plummeted. The outcome has been such that according to Refinitiv, the financial and risk arm of Thomas Reuters, movement of clean freight from the Middle East to Japan has hit its highest rate for 12 years.

Companies managing Very Large Crude Carriers (VLCCs) and Large Range 1 (LR1) and 2 (LR2) carriers have been among the few beneficiaries of the recent oil downturn. According to S&P, VLCCs on the Persian Gulf-North Asia route now command US$225,000 per day, the highest in six months, while LR2 rates between the Persian Gulf and Europe are US$1.5 million over LR1s on the same route. 

S&P reported that rising prices for tankers would be unsustainable into 2Q20 and that though the short-term future was bright, the mid-term future would be far more cautious.

Closer to home, in Mexico, companies participating in the country’s oil and gas industry have seen a more challenging landscape form. Kansas City Southern, one of the main companies transporting petroleum products in and out of Mexico to the US and Panama, saw its share price drop by 22 percent on Thursday of last week. The company, which utilizes the Mexican rail system, has felt the effects of reduced movement and border closures.

Logistics companies covering other industries have also seen their business take a hit. According to T21, Mexican transport companies Traxion and Grupo Mexicanos Transportes saw a share price drop of 33 percent and 24.7 percent on the BMV on April 2.