Drewry: Shippers should be beneficiaries of lower fuel prices

The firm found that shippers are likely to ask that most fuel savings to be passed on to them and will benefit more than carriers from lower prices.    Lower fuel prices should help container carrier profits, but “the competitive and over-supplied nature of the market means that the principal beneficiary will be shippers,” says an article in the most recent issue of Drewry’s Container Insight Weekly.
   Similar benefits to air shippers were predicted by the International Air Transport Association last week.
   Bunker adjustment factors mean that, in theory, fluctuating oil prices should have little impact on carrier profits, but Drewry said, “Carriers, in general, only recover about half of their fuel costs” both because BAF is not applied in some contracts and because “the weaker leg of the round voyage will not contribute enough cargo sales to cover the fixed fuel costs.”
   One benefit of lower fuel prices could be increased spending by consumers and businesses, generating more revenue and better ship utilization for carriers.
   Lower fuel costs could “undermine their attempts to lift freight rates, as shippers will expect to see much of those fuel savings passed on.” Drewry said it  “understands that this sentiment played a part in carriers having to backtrack from recent U.S. West Coast port congestion surcharges”
   If carriers have been giving away or heavily subsidizing bunker costs, they need to take that into account when negotiating contracts.
   “Otherwise their base cargo rates will be unnecessarily dragged down by the expectation of a lower fuel element, which might not have existing in the first place,” the newsletter noted.