Shipping Lines Will See No Long-Term Benefit from Bunker Price Drop

Box shippers will pass on savings

Shipping lines will not see a long-term benefit to profitability from falling bunker prices as freight rates fall faster and lines will pass on savings in any case, JOC reports.

Freight rates on Asia-North Europe routes fell to $739 per twenty-foot equivalent unit (TEU) at the end of November from $1,312 as at the start of the month, according to Shanghai Containerised Freight Index.

This 44 percent drop overshadows the fall in bunker prices, which Ship & Bunker data shows fell 10 percent for IFO380 in Singapore between October 31 and December 1.

The trend suggests the fall in the price of bunkers, which normally represent the single largest operating cost for shipping lines, is not enough to compensate for falling revenues from lower freight rates.

In addition to this trend, analysts for investment bank Barclays noted lower bunker prices will not be a structural growth driver since lines will pass on savings to customers.

"Approximately 80 percent of the savings in fuel cost would likely be passed to customers very quickly and virtually all of it over the course of three to six months," said Barclays.

Short term gains have been noted by shipping lines in recent results announcements but these are not likely to persist into the new year, according to consultants Container Transport International (CTI).

"We started to see lines that have been serial loss-makers suddenly starting to return to a little profit," said CTI partner Andy Lane.

"It has had a significant impact on the [third quarter] Q3 results and it will have a positive impact on the fourth quarter results, but it will probably all get washed away by quarter one next year."

However one area where operators could see some benefit from lower prices is in the utilisation of their their credit lines.

"The amount of credit available to buyers generally doesn't vary with bunker price, so lower prices should mean a little more flexibility and give them access to more volume," a supplier told Ship & Bunker.

Shipping lines are expected to pass on savings to customers through their bunker adjustment factor (BAF) surcharges.

Maersk Group's CEO last month said the company would pass on bunker price savings to customers following an announcement that its Q3 results were boosted by $41 million in bunker savings.