Shipping Fuel Costs Rise Sharply at Los Angeles and Long Beach Ports

The massive container ships calling at the ports of Los Angeles and Long Beach are paying millions of dollars more for fuel as oil prices have climbed amid the war in Iran. Rates at the two ports have also risen by more than at other ports since the conflict began.

With some ships requiring the equivalent of millions of gallons of fuel after loading and unloading cargo, the extra costs accumulate quickly. Shipping companies are reducing fuel consumption by running vessels at slower speeds and avoiding expensive routes.

Much of the added expense is expected to appear in the prices of consumer and industrial goods moved through the ports in hundreds of thousands of containers each month. "If someone asks you to ship something, you're still going to do it, you're just going to quote them a higher price," the president of the Pacific Merchant Shipping Association said.

" The closure of the Strait of Hormuz since late February has blocked a large portion of global oil supply. Uncertainty from the conflict has kept oil prices volatile. A fragile ceasefire continues despite reported violence in the strait in recent days.

California relies on the Middle East for 30 percent of its crude oil, including shipments that pass through the Strait of Hormuz. Less than a week ago, the last oil tanker to transit the strait before the war began delivered 2 million barrels of crude to the Port of Long Beach.

With no further shipments arriving from the Persian Gulf, the state will miss an average of 200,000 barrels of oil per day from that region. As with other fuels in the state, taxes, fees and environmental rules add to the cost of marine fuel. California is also more exposed to supply disruptions because it imports oil from other states and countries.

Data show that very low-sulfur fuel oil used by ships is more expensive in California, as are gasoline and jet fuel.

The average price of very low-sulfur fuel oil has risen 70 percent to $925 per metric ton at the world's top ports since the war started. At the ports of Los Angeles and Long Beach the price has jumped almost 88 percent to $1,080 per metric ton. Fuel now accounts for about 25 percent of the total cost of a voyage from Asia to Los Angeles.

"Fuel is our No. 1 expense for operating a ship," the president of the Pacific Merchant Shipping Association said. " When fuel is expensive, cargo ships often reduce speed to burn less. Major shipping lines have implemented fuel surcharges. Amazon announced a 3.5 percent fuel and logistics surcharge last month.

The U.S. Postal Service is charging an 8 percent fee on certain packages, its first fuel surcharge. Hapag-Lloyd reported that its fuel costs have increased by $50 million a week. Maersk implemented an emergency bunker surcharge in late March. "We have undertaken significant redistribution of fuels to offset shortages in the Middle East, and are securing alternative sources from different locations and suppliers," Maersk said.

The company added that the surcharges will not immediately cover sustained higher costs and that profits will be affected.

"We expect fuel price volatility to impact our near-term earnings due to a timing lag between when we incur fuel costs and when we can fully recover these costs through our fuel surcharge," the company's chief executive said on the call. Activity at the ports has not slowed drastically despite the cost increases.

The Port of Long Beach handled 774,935 containers in March, an increase of more than 6,000 from February. Activity at the Port of Los Angeles was down 3 percent from the previous year in March. The two ports together handle more than $600 billion in cargo per year.

Fuel supplies are tightening and congestion has increased at fueling hubs, the chief executive of the Port of Long Beach said. Shippers are adjusting cargo movements to manage costs and avoid congestion. Higher shipping fuel costs are expected to continue contributing to inflation even if the conflict with Iran were resolved immediately.