CRUDE oil prices have fallen 36 per cent since the summer and there was a sharp drop last week after the Organisation of Oil Exporting Countries (OPEC) announced it would maintain its production targets.
This has been good news for shipping lines and air cargo carriers as their single biggest cost continues to tumble, giving the freight transport industry a welcome end-of-year bonus to add to the best peak season in years, with some savings transferred to customers through reduced fuel surcharges.
Both air and ocean modes of cargo transport are entering the slack season after a busy peak season, and even though excess capacity has kept a tight rein on profitability, the cost savings from falling fuel prices are significant.
Fuel comprises half the operating costs of container lines and 40 per cent for aircraft, according to Newark's Journal of Commerce.
MOL vice president Stanley Smulders (Asia-Europe and West Africa) said the falling oil price was "very good news" for the shipping industry.
"We will enjoy it as long as it lasts. Our system costs - vessel, fuel and canal costs - are up to 60 per cent, depending on the service structure, so the low fuel price will definitely save us very nice amounts of money," he said.
Shipowners group BIMCO crunched the numbers: Spending 0.1 per cent less on bunker fuel compared to what shipping lines were paying 24-weeks ago adds up to daily savings of US$117 million.
According to a study by Hofstra University, as of June 1, the price to run an 8,000-TEU ship for one day was $86,700. At last week's prices, that cost sank to $65,625 per day.
For airlines, the declining oil price has seen carriers raising their fuel hedging positions. Cathay Pacific has significantly increased its fuel hedges with 52 per cent of 2015 consumption hedged, while Singapore Airlines is covering 65 per cent of consumption until next March, according to Citi Research.
This is expected to drive earnings next year. While there are some exceptions, air cargo surcharges across the industry have fallen by an average of six per cent in the last few months.
For Cathay Pacific, the decline in effective fuel prices following the hedging will reduce total 2015 fuel expense three per cent, offset somewhat by increased flight frequencies and capacity additions, the Citi analysts stated.
Shipping line fuel surcharges are also coming down. In the transpacific westbound trade, the average fuel surcharge per FEU of nine major carriers dropped from $575 in August and September, to $518 in October and $512 in November, a drop of 11 per cent.
APL's surcharge dropped from $689 in August to $519 in November, as did Evergreen's and Hapag-Lloyd's. Hanjin's went from $759 to $519.
There has been some discussion that the falling oil price may encourage shipping lines to increase the speed of their slow steaming vessels, but this was dismissed by Mr Smulders.
"It won't encourage us to sail faster," he said. "On the one hand we still have a lot of ships available, so it absorbs the surplus vessels, and secondly, we have not reached the point where going faster saves money."
WORLD SHIPPING
03 December 2014 - 23:33
Shipping lines, air cargo carriers continue to cash in on falling oil prices
CRUDE oil prices have fallen 36 per cent since the summer and there was a sharp drop last week after the Organisation of Oil Exporting Countries (OPEC) announced it would maintain its production targets.
WORLD SHIPPING
03 December 2014 - 23:33
Shipping lines, air cargo carriers continue to cash in on falling oil prices
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