Can anyone tell me where I can find more information about shipping terms for coal contracts in the PNW. I am an MBA student working on an article. My hypothesis is that different shipping terms may affect the total amount of environmental impact (however big or small) caused by shipping coal across the PNW on it’s way to china. In order to research the issue, I will need to know a lot more about how coal is purchased by china and under what shipping terms.
I do not know what you are trying to prove, but shipping terms, which has to do with who pays the freight and where title to the goods passes from seller to buyer, are irrelevant.
What is relevant, from the buyer’s perspective, is delivered cost per million BTUs. Taking a Chinese power plant as the customer, and an American seller, that is the sum of purchase price, rail freight, port costs, steamship freight, port costs, and inland freight, all in tons, divided by millions of BTU per ton.
You may be able to get ballpark estimates of each cost component, but remember you have to run all of the buyer’s reasonable possibilities for example, Colorado/Wyoming vs Powder River, vs Australian, vs. several Chinese suppliers. Do not forget about currency exchange rates. Frankly I do not think you are going to be able to have much confidence in any of your data.
The Chinese, being unregulated will give no weight to the amount of sulpher in coal, as compared to an American power plant which is regulated.
The “no trains” groups on the west coast think that if we do not sell coal the Chinese will not burn it. That position is beyond stupid.
I was just curious as to how that deal is arranged. If the Chinese coal company buys the coal and the shipping in a package deal (FTP I think its called) then the American coal company would have every interest to keep the shipping costs low. On the other hand, if the Chinese company buys the coal and then has to procure its own logistics, then the American coal company may have less interest in the cost of shipping.
The only reason that this may be important, and it may not be, is that environmental groups that might have interest in the dust associated with the moving coal may prefer that the coal and the shipping be purchase separately. That would mean that the shipping costs because of environmental regulation. Hypothetically, that would cause the market to find the safest way to ship the coal so as not to incur regulation.
On the other hand if the Coal and Freight are purchased together then the US company would have risk raising costs of doing business.
Does that make any sense? I’m really just exploring the idea. Thank you for your insight and I appreciate any other resources that I could read about.
When you refer to shipping cost being paid by either the Chinese buyer or the U.S. seller, I assume that you mean the shipping cost from the mine to the U.S. port. No matter whether the buyer or the seller pays that cost, if environmentalists can raise that cost, it will raise the cost of the deal for the Chinese. The only risk to the seller is that the higher price for the Chinese may price the coal out of their market.
If the environmentalists don’t want the coal being mined, shipped, or burned, they can simply work toward that regulation. They can’t prevent the Chinese from buying, shipping, or burning coal, but they can surely prevent U.S. coal from being produced or marketed. I expect big changes for U.S. coal coming soon.
Scenario A: Chinese company agrees to a ten year contract to purchase coal. Terms are that the American seller agrees to provide shipping to port. Two years into the deal, environmental activists successfully lobby that affects the cost of shipping (lighter loads, more tightly sealed cars, cleanup fees, whatever). In this scenario the increased cost of shipping would hurt the American company who has the obligation to fulfill the contract.
Scenario B: Chinese company agrees to a ten year contract to purchase coal. Terms are that the Chinese buyer must independently provide for their own shipping. Environmental regulation then increases the cost of that shipping, an independent business. The American seller fulfills the contract merely by making the coal available to ship.
Either way, the total cost of buying the coal and shipping is still affected by regulation but I think that the two scenarios allocate those costs differently.
Do you know anywhere that I could find out more about these contracts? I want to learn more about how these deals are negotiated.
I don’t think it matters either way, who is purchasing the shipping component cost of moving the coal to the port. It’s all part of an aggregate cost, as Mac points out above. Truth be known, I have my doubts that environmentalists really give a hoot about coal dust. They’re just using that as one more way to aggrevate the coal industry, in the misguided belief that if China couldn’t afford to buy American coal, it would just quit burning all coal. (Dumb)
I’m not really interested in the environmental debate (at least not right now). I was really hoping that someone could point me to a resource that would educate me on the nature of how those contracts are drawn and what role the shipping has within the contract. Any help would be great.
I was hoping for a link to a website or something that would give me more about the specifics of those contracts. Any thoughts?
I think the environmentalists realize that they can’t stop China from producing and using coal, but they hope they can stop the U.S. from doing so. Their objective is to phase out coal fired power plants, and coal mining in the U.S. They realize that may take a while, so in the meantime, they are not about to let U.S. coal producers suddenly find new life in a Chinese market for U.S. coal. Stopping that would kill two birds with one stone: It would raise the cost of coal in China, thereby reducing coal use in China; and it would hasten the death of the U.S. coal industry.
In any case, I don’t think the anti-coal activists are going to have to diddle around with coal dust and coal train issues. The EPA is about to make their dreams come true.
I understand that you want an explanation of how international coal contracts work, but it might be easier to get to your point of concern if you could explain what type of outcome you are speculating might arise from the different payment scenarios. In the end, the consumers are going to pay for all expenses related to the coal. Those consumers may be people heating with coal in China; or they may even be Americans buying Chinese products that have American coal used in their production.
If government regulation suddenly added cost to the performance of the contract, I would think that the contract would allow either party to cancel the contract because it would amount to an unforeseeable added cost to the coal. That would be perhaps covered under what is called force majeure in a contract. Or it might be more directly detailed in the contract language.
No, not at all. None whatsoever. Maybe you can explain it more clearly.
If you want the industry to find a safer way to ship coal, first identify what you deem unsafe about shipping coal, and then get a law passed to ban that unsafe characteristic. If you don’t want coal dust emission, ban it. Ban it from the trains; ban it from the loading, the unloading, the storage, and the reloading. Ban it from the mines. Ban dust adhering to coal that is sold to the Chinese, so they don’t emit it once it gets to China.