As we kick off 2020, the trucking industry is wondering about fuel cost projections for the first quarter and how much drivers will pay at the pump. While oil production in the United States is nearing 20 million barrels per day, there are other moving parts in fuel cost projections that may drive up the price.
How the Open Seas Affect the Open Roads
The United Nations officially rolled out the International Maritime Organization (IMO) Low Sulfur Mandate on January 1, 2020. The goal is to reduce sulfur oxides in ships to reduce hazards to the environment and human health. To get ahead of the mandate, many countries started purchasing very low sulfur fuel oil (VLSFO) last year. In order to meet the mandate, a good portion of domestically-produced diesel is being diverted to shipyards and major hubs, such as New York. On the other side of the coin, there may be a slight rise in fuel prices overall, with higher hikes along coastal states where fuel is being reserved for ships.
Exaggerated Doom and Gloom
When the IMO 2020 mandate for low sulfur fuels was first announced, analysts immediately jumped to fuel cost projections that were astronomical. Initial projections had the price of diesel skyrocketing to upwards of $7/gallon. While there is no way around the fact that the switch to VLSFOs by the shipping industry will have an impact on diesel prices and consumption for trucking, $7/gallon is on the hyperbolic side. The trucking industry may see a slight increase at the pump, but it will be nowhere near the doom and gloom of fuel cost projections that the analysts were pushing a year ago.
Fuel Cost Projections and Capital Reserves
Until the IMO mandate levels off, it is wise for carriers and owner-operators alike to allot extra capital to their fuel budget just in case. Even a slight increase can add up quickly for a fleet of trucks. One easy way to do this is via freight factoring. Q1 2020 still has many carriers waiting on payments from shipments in 2019. Freight factoring can convert those unpaid receivables to cash in a single day, so carriers can build up capital reserves in case a fuel cost hike in 2020. Single Point Capital is a national leader in freight factoring. If you want to get ahead of any potential hikes in fuel cost projections and build up capital reserves by factoring your outstanding receivables, contact Single Point Capital today.