Drewry: Rising Bunker Prices Will Likely Mean Carriers' Revenue Being Outpaced by Costs

Drewry says that rising bunker costs expected this year will put more pressure on freight rates for container carriers.

In its latest Container Forecaster report Drewry Maritime Research (Drewry) predicts that for 2016 carriers will come under increased pressure from rising bunker prices, that will see rising costs outpace revenue.

"Carrier profit margins this year will be influenced by big swings on both prices and costs, but as things stand carriers will lose between $6-10 billion this year," says Drewry.

Looking at 2016 Q1 results so far, Drewry says freight rates fell more than it had expected, but this was cushioned by larger than expected unit cost savings.

"Repeating the same cost savings will get tougher as the year progresses with bunkers on the rise, making it even more important for carriers to get freight rates off the floor," says Drewry.

Looking at full year 2015, Drewry calculates that the carrier industry as a whole made an operating profit of about $5 billion.

While unit costs were kept below unit revenue for most of last year, that gap narrowed as the year progressed and, ultimately, unit costs exceeded unit revenue in the fourth quarter.

As to whether carriers will be able to keep unit costs and unit revenue aligned, Drewry says the prospects are not good, and points to their repeated failed attempts to raise spot market rates, while at the same time, bunker prices are on the rise.

Indeed, Ship & Bunker data shows the IFO380 Global Average Bunker Price has risen from $179.50 per metric tonne (pmt) on January 21, 2016, to $240.50 pmt on Monday.

"We think the chances of carriers making a profit this year is fairly remote as they will not be able to prevent rates from falling harder than costs," the consultancy concluded.

In January, BIMCO said lower bunker prices are no benefit to an industry in which the demand growth is sluggish compared to the supply side.