Business | Shipping
Bunker prices cause gloom
Over the past 12 months there has been an unprecedented rise of around 50 per cent that, combined with the weak dollar, is seriously eroding the profits of ship operators and has already removed the glaze from the boom that has fuelled a spate of new-buildings and given shipping stocks a high time on the markets.
- By Frank Kennedy, Special to Gulf News
- Published: 00:27 May 5, 2008
Since the turn of the millennium, the cost of marine fuel has increased an incredible six-fold, a rise that has been uncomfortable at times but relatively manageable for the first seven years or so, helped by a parallel increase in global operational business, precipitated by the Chinese factor.
However, over the past 12 months there has been an unprecedented rise of around 50 per cent that, combined with the weak dollar, is seriously eroding the profits of ship operators and has already removed the glaze from the boom that has fuelled a spate of new-buildings and given shipping stocks a high time on the markets. Even the continuing demands by China are unlikely to mitigate this evolving situation as the global shipping industry realigns itself to the economic forces that are playing down upon it.
Yet these worrying circumstances are becoming evident at a time that business for the tanker operators is certainly hectic, the bulk market is very buoyant and the container business is extremely healthy. In the immediate future, increasing fuel surcharges are thus a certainty and at the end of the day, the consumer will pay. But adding fuel surcharges will not make the increasing pressures caused by the oil-price factor go away, and all predictions point such an increasing oil price as a fact of economic life, never to change.
The present situation is, however, tempered somewhat by the shortage of tonnage, particularly in the tanker market - a shortage that has been driven by the demand for oil and also been complimented by the phase-out of single-hull vessels. This notwithstanding, such a shortage of vessels will be a short-lived 'silver lining' as the supply of tonnage of all types is going to increase exponentially when the new-building orders made during the 'years of plenty' are delivered, and that threshold is now distinct on the horizon. Adding this potential glut of ships to the current trend will therefore spell very difficult times ahead for the industry.
Other factors are also at play. The potential cost to the industry of implementation of the requirements of Marpol Annex VI - regarding sulphur emissions from ships, will add to the gloom together with increasing insurance premiums and the general rising costs of compliance across the spectrum of mandatory certification. Add to this the tendency of the financial institutions to be more cautious in the light of the global 'credit crunch' then there is a very clear message to all ship operators to be fastidious now, despite the continuing irony of buoyant business.
Yet this is not a new phenomenon - by its very nature, the shipping industry is cyclical and the experienced analyst is likely to say that provided the prudent operator has made sufficient provision during the good times then he will survive the bad. Those that do not will suffer the consequences. Such a phase of the cycle is becoming apparent due to the factors mentioned above and players will need to be on their guard to protect against the down forces and not be counted among the inevitable casualties.
The writer is UAE-based marine consultant.
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