Lewis Hart, the head of Commodities & Logistics at Brown Brothers Harriman, spoke with Anton Posner, CEO of Mercury Resources, about the impact of the COVID-19 pandemic on the commodities and logistics sector across the U.S. and globally. For the most part, the supply chain remains steady and resilient, despite minor disruptions.
Brown Brothers Harriman: Anton, this is certainly an unprecedented time for global trade. Mercury spends most of its time ensuring cargo moves freely around the world. There are many courageous individuals in ports in the U.S. and abroad who are making sure cargo continues to move. Beyond the standard social distancing and disinfection protocols, are you seeing any effective approaches to maintain the continuity of operations among leading stevedores?
Anton Posner: Mercury Resources is in constant contact with its partners across the entire supply chain. Our stevedoring partners have implemented several policies to ensure operations are not disrupted and continue to provide us real-time information on how the situation is unfolding. Some of these measures and observations include the following:
- Operators are restricting more than 10 people from attending any one meeting, including those related to safety and operations.
- Any individual showing symptoms is required to leave and stay home.
- To the extent possible, longshore labor is staying away from the crew members of ships and notifying management if a ship’s crew appears to be ill (note that they are finding that ship crews are far more afraid of shore labor than vice versa for obvious reasons).
- Per Centers for Disease Control and Prevention guidance, longshoremen are not wearing masks or gloves at this time.
- Mercury’s partners expect to implement checks on temperature in the near future once they are able to secure temperature guns.
BBH: Have you seen any disruptions with ships or port calls?
AP: We are starting to see disruptions to ships’ calling ports due to quarantine measures, but it has been uneven. For example, India is implementing 14-day quarantines for any ships at sea that are headed to Indian ports. If the ship hasn’t been at sea for 14 days prior to arrival, then the ship goes to anchor for the balance of days needed to hit the 14-day mark prior to being allowed to berth. While other countries may not have as rigorous standards, the situation is similar. For example, in Argentina, agriculture export ports are experiencing delays and disruptions, which is impacting soybeans and other bulk commodities. These disruptions will likely continue to slow down supply chains across the global economy.
BBH: Talk about what is happening with inland transportation in the U.S. today. Are the literal and proverbial trains running on time?
AP: The big picture in North America is that operations are running fairly smoothly on inland logistics – whether we look at barges, railroads, trucks or stevedoring operations. There have been no major disruptions yet, other than spotty temporary disturbances, such as when the Port of Houston shut down two large container terminals last week due to an infected employee. Both terminals were reopened and back up and running the following day.
BBH: We have seen a dramatic and record-setting move in crude oil prices over the past few weeks. This has certainly made its way into the refined products that fuel ships and airplanes. What impact is this having on freight costs?
AP: Reduced energy costs are certainly affecting freight. Lower fuel costs have immediate impacts on the freight market in both the spot and in long-term contracts via fuel adjustment clauses. To give you a feel, the price of marine fuel oils has fallen from $700 per ton in January to about $300 per ton. This has caused the cost to move Supramax size cargoes from the U.S. Gulf to India to drop from about $42 per metric ton (MT) to about $32 per MT. The widely followed Baltic Dry Index has fallen 42.66% year to date as of Friday, March 20, 2020.
BBH: What are the biggest risks your clients are presently focused on?
AP: The good news is that the interconnected supply chain in North America has some built-in resilience to disruptions in specific sectors, but the risk comes from mass shutdowns of critical supply chain infrastructure. One tugboat and its small crew, which is susceptible to infection, pushes 30 barges at a time on the river system, which equates to 45,000 tons of cargo. If several crews were to be hit with infection, the backup could wreak havoc. Prolonged port shutdowns could also be massive issues for movement of food, raw materials and other critical commodities.
To our advantage, the U.S. military has extensive capabilities in controlling the supply chain. When I was a U.S. Navy Officer in a Naval Control of Shipping unit, my unit’s mission was to ensure maritime supply chain operations in times of war. However, we were focused on a different kind of enemy, and for now, COVID-19 does not operate attack submarines. Although the U.S. military does have extensive capabilities in this space, it does not have anywhere near the capacity to take over U.S. supply chains of commercial goods and the domestic food supply.
BBH: What are you seeing in the Italian market given the national shutdown?
AP: We are active in supporting our clients’ imports and exports out of Italy. Despite the countrywide shutdown, port operations are functioning, even if not back to complete normalcy. However, we are now starting to see steel mills and manufacturing facilities shut down, which will further slow down activity in that region.
BBH: Anton, thank you for your time and insights. We’ll be watching as more developments unfold.
Anton Posner is the CEO of Mercury Resources, a provider of full-service supply chain solutions to the global commodities market, with a focus on metals, steel, raw materials, agricultural products and other industrial dry commodities. The firm has deep experience servicing producers, consumers, trading companies and banks involved in the commodity trade space.
Prior to joining Mercury Resources, Posner was CEO of CWT Commodities USA, the North American unit of Singapore-based global logistics and financial services company CWT Limited. Posner holds a B.S. in marine transportation and business administration from the State University of New York Maritime College at Fort Schuyler, where he also obtained his United States Merchant Marine license as a third mate. Following SUNY Maritime, Posner served as an officer in the United States Naval Reserve in various units, including as a junior officer in the Naval Control of Shipping unit in New York.
Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2020. All rights reserved. PB-03450-2020-03-26