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Because of the increasing chemical tanker costs since 2020, most businesses worldwide have been seriously affected. It starts from the fact that the increased cost of tankers makes changes in oil tanker rates and other relevant issues. To understand the background of this hike, businesses that are generally involved in chemical production, trading, and logistics have to understand the matter. So, let’s try to find out the reasons behind the increasing chemical tanker costs, the problems that industries face, and what is in store for them in the future.
Understanding Chemical Tankers and Their Significance
Chemical tankers are mainly designed vehicles that are meant to carry bulk quantities of liquid chemicals in them. Those ships have sophisticated features like stainless steel tanks along with complicated systems, which ensure the safe and secure transportation of hazardous or sensitive chemicals. These tankers are of extreme importance worldwide as they transport a variety of products starting from petrochemicals to agricultural fertilizers.
Since 2020, the prices of chemical tankers have increased exponentially, along with being part of the most significant disturbances that many businesses have ever encountered since they became reliant on chemical transport. The reasons behind the expenses have been attributed to the COVID-19 pandemic, global supply chain disruptions, and the rising price of oil tankers. Businesses should come to understand the real drivers behind this rise in price in order to be able to make progress.
Key Factors Contributing to the Increase in the Price of Chemical Tankers
COVID-19 and its Impact on Global Shipping
The global COVID-19 pandemic has largely affected worldwide international shipping and logistics. In a bid to combat the spread of the virus, all major economies have implemented various lockdowns and restrictions. Almost immediately, such interventions slowed down activities in shipping to a great extent. As economies began to gradually open up, the demand for shipping touched a new high.
- Supply Chain Disruptions: The virus caused supply chains to suffer massive disruptions with the delays and bottlenecks in the ports which faced a labour shortage, reduced their capacity and increased shipping costs, for instance, chemical tankers.
- Increased Demand for Chemicals: There was a higher demand for chemicals and chemical products, especially pharmaceutical and cleaning products. This sudden rise created massive pressure on the demand for chemical tankers, pushing tanker prices up.
- Container Shortages: There was a container shortage in the world that added to the problem at hand since the cost of transporting the chemicals also increased.
Long living pandemic effects are being witnessed in these current times, and the cost of chemical tankers is high after such a pandemic.
Increasing Fuel Costs
Another relevant reason that makes the chemical tanker expensive is increased fuel costs. Tankers, like any other shipping vessel, use fuel as a huge share of their operational inputs, and changes in oil prices always affect the cost of the operation of these vessels.
- Oil Prices: Since 2020, oil prices have been up because of geopolitical tensions, as well as production cuts by OPEC, and disruptions in global supplies of oil have caused increased cost factors in operating tankers, which are translated into higher shipping rates for business.
- Oil Tanker Rates: Apart from the increase in fuel prices, oil tanker rates are also on an uptrend. As crude oil shipping is often impacted by global oil shipping, so are chemical transport costs. The more expensive oil tankers become, the pricier chemical tanker operations will be, adding to the already burdened supply chain.
Increased Regulatory Compliance Costs
Shipping is one of the most regulated industries, especially the transport of hazardous materials such as chemicals. Over the last few years, new environmental and safety regulations that have been adopted aim at reducing the negative impacts of shipping to the environment.
- International Maritime Organization (IMO) Regulations: The IMO has strict regulations, one of which is the IMO 2020 mandate that limits sulfur emissions coming from vessels. The new rule mandates doused an investment by shipowners in cleaner fuels or scrubbers in their vessels. Shipping rates from chemical tankers rose due to such compliance costs.
- Safety Regulations: The transport of chemicals should be carried out with precise safety measures to avoid accidents and leaks. These regulations require upgrading the advanced safety equipment on a chemical tanker, which increases the costs of maintaining and operating the vessels.
Also Read: Checkpoints For Choosing Right Chemical Supplier
Shortage of New Chemical Tankers
A lack of new chemical tankers has restrained the availability of chemical tankers because new ships entering the market have become scarce in recent years. Shipbuilding yards were drastically marred by the pandemic, which meant that the construction of new vessels was delayed. This has resulted in a poor supply of chemical tankers, pushing up tanker prices.
- Delays in Shipbuilding: Considering the preliminary slowdown of international trade due to the pandemic, the shipyards have cut down their production levels. With this rebound in demand for chemical tankers, the capacity in shipbuilding could not keep pace with the increased demand, and there was a shortage of vessel availability.
- An aging fleet: Most of the chemical tankers are already older ships, which have less fuel efficiency and more expensive maintenance costs. The shortage of new vessels has compelled ship owners to keep using the older ships, thereby improving operating costs as well as shipping rates.
Geopolitical Tensions and Trade Wars
Geopolitical tension is yet another reason for the growth in the costs of chemical tankers. Trade wars, sanctions, and regional conflicts have hindered the flow of goods, and their impact has affected the availability and price of shipping services.
- Trade War: Most likely, the major economic wars over trade between US-China and similar rivalries have caused the imposition of tariffs as well as other forms of trade barriers. This impacted the supply chains of the world, making transportation a costly affair if chemicals move across borders.
- Sanctions: The economic sanctions placed on the countries of Iran and Russia have hindered the availability of specific shipping routes, which have, in turn, led businesses to various other routes, including many costlier chemical routes. These geopolitical factors also bid the prices of tankers up.
Rise in Labor and Insurance Costs
Labour and insurance costs played a part in raising the price of chemical tankers. The shipping business is labour-intensive, with skilled workers involved, from the crew to port workers. Since 2020, labour shortages and increasing wages have increased labour costs for chemical tankers.
- Crew Shortage: Lockdowns in various countries prevented the rotation of crew members because of restricted travel; it had repercussions in the form of higher wages for a seafarer and increasing operations expenses for the shipowner.
- Insurance Costs: The cost to insure chemical tankers increased because the risks attached to the carriage of hazardous materials have risen. The shipping corporations pay more in premiums and then the business is passed this cost along through higher-priced tankers.
Also Read: Which Chemical Material Sourcing Strategy is Best for Your Chemical Business?
Effects of the Rising Price of Chemical Tankers to Industries
The increasing price of chemical tankers has affected industries relying on the transportation of chemicals. The increased costs of transportation strain companies producing chemicals, pharmaceuticals, agriculture and manufacturing.
- Increased Production Costs To the Chemical Manufacturer: Cost increases associated with shipping translate into higher production costs for chemical manufacturers, which are passed on to the selling price of the final product. Such costs then frequently get passed downstream.
- Supply Chain Delays: In particular, high shipping costs have also contributed to supply chain delays as businesses are now finding it difficult to afford a timely shipment of goods and products. As such, the production and distribution of chemicals are experiencing some shortages in a few sectors.
- Competitive Pressures: Firms whose business depends on chemicals are exposed to competitive pressure as increasing shipping costs create a competitive scenario in the market. This, therefore, shows the need for a firm to innovate and develop alternative logistics solutions while ensuring optimized supply chains to minimize pressure from the high costs of tankers.
The Future Outlook: What Lies Ahead?
Chemical tanker prices are likely to be volatile in the future; however, certain factors might either push the value of chemical tankers or divert it in the near future.
- Economic Recovery: Because of the pandemic, the global economy has not yet fully recovered. This will continue to show an upward movement for chemicals and chemical transport. But if the supply chain disruption does not end, chemical tanker prices will continue to go up.
- Technological Progression: More fuel-efficient ships are capable of bringing down the running cost of chemical tankers to a greater extent in the future.
- Sustainability Initiatives: It is increasingly being challenged by the shipping industry to become more sustainable in its nature. Greener shipping technologies would lead to lower consumption of fuels and thus have lower prices of tankers over time.
Conclusion
Chemical tankers’ costs have risen radically since 2020. This can be attributed to several factors: supply chain disruptions, the rise in fuel cost, and regulations compliance in terms of chemicals. These have profoundly affected chemical transport industries, forcing higher production costs as well as supply chain delays.
In this age of rising shipping costs, the importance of reliable partners in the space of chemical logistics has become more crucial than ever. Do you want cost-effective and efficient ways to ship chemicals? Check out Elchemy, which offers customized solutions tailored to your needs. Expertise in chemical logistics can help optimize supply chains, cut costs, and ensure on-time delivery from Elchemy.
