face fresh challenges
The falling price of crude oil
to about US$82.54 per barrel on Friday compared with the record high
of US$147 per barrel in July is welcomed by all international
transportation companies. But will this drop cushion the effects of
crashing freight rates and lower demand due to the looming global
WHEN crude oil prices surged to
record highs about three months ago, many transportation
companies’ operational costs swelled, compounded by the hike in
the price of raw materials.
But now, as the price of crude oil
decreases which leads to a corresponding drop in the price of
petrol, diesel, bunker oil and jet fuel prices, transport operators
face greater challenges due to a global economic slowdown that
expects 2009 to be a challenging year.
According to Aseambankers (M) Bhd
senior analyst of equity markets Liaw Thong Jung, the softening
price of crude oil was a result of the global economic slowdown,
which has affected demand for crude oil.
“The world now has excess
inventory of oil,” he said.
Even the Organisation of the
Petroleum Exporting Countries is concerned about the effects of the
global financial crisis and its impact on world economic growth and
the price of oil.
Notwithstanding that, Liaw said,
the reduction in oil speculation also led to weakness in the price
“We take a view that the price of
oil would stay at US$100 per barrel in the near mid-term level of 18
months,’’ he said.
Maersk Line, the world’s largest
container shipping firm, sees no significant impact on its
operational cost due to the weak oil price.
Managing director for Malaysia and
Singapore cluster Omar Shamsie said while the price of oil had
dipped slightly, bunker fuel increased more than 70% last year and
has experienced a ten-fold increase over the last decade.
“Bunker costs now constitutes
nearly half of a vessel’s total operating costs. It was only 20%
ten years ago.
“We aim to run our business even
more efficiently to lessen the impact,” he said.
He said Maersk Line would continue
to employ more fuel-efficient solutions in its operations such as
slow steaming journeys and improved vessel designs.
“Other solutions range from waste
heat recovery systems on board vessels to a new software solution,
QUEST, in Maersk Line’s refrigerated containers that can cut
energy consumption (used for cooling) by up to 50%.
“In addition, Maersk Line
recently introduced a new formula, the bunker adjustment factor (BAF).
Our aim with the new formula is to provide a simple, fair and
transparent BAF for our customers.
“BAF also allows us to share and
recover the extraordinary costs caused by increasing bunker
prices,” he said.
On freight rates, Omar said, in the
Asia-Europe trade, the spot freight rate had decreased by as much as
50% in the last 12 months.
“Maersk Line’s strategy is to
keep its position in the Asia-Europe trade by matching the market
“Besides, we will continue to
take the necessary measures to adjust the capacity according to the
drop in demand,” he said.
Wilhelmsen Ships Service Malaysia,
a renowned shipping agency, sees the current economic downturn
having an adverse effect on business.
Managing director Winston Loo said
shipping had always been a vital supporting service in the world’s
“With 95% of the world goods
being transported via the oceans, the shipping industry will always
be one of the first to get hit in an economic downturn.
“Quite a large number of carriers
have either suspended some of their services or re-jigged their
services to minimize the negative impact on their bottomline due to
the slowing demand for vessel space.
“It was reported that in the
first seven months of this year, Asia-Europe westbound cargo volume
only increased by 6% compared with 20% in the same period last
year,” he said.
Loo said the flood of newbuildings
of vessels would also compound the situation.
“Between now and the end of 2010,
there will be 81 newbuildings of more than 10,000 TEUs (twenty-foot
equivalent units) vessels to be delivered.
“Vessels of this size can only go
to the Asia-Europe trade, which means the current fleet within this
trade, with capacity ranging from 5,000 TEUs to 7,000 TEUs, will be
displaced to the smaller trades.
“In a time of global economic
slowdown, there is just not enough cargo to fill up all these
ships,” he said.
Thus, Loo said, freight rates would
be under more pressure.
Malaysia Airlines Cargo Sdn Bhd (MASkargo)
managing director Shahari Sulaiman said the reduction in the price
of crude oil had brought down the price of jet fuel.
“But the cost of jet fuel is
still US$25 to US$35 higher than the crude oil price,” he said.
He said the recent reduction in jet
fuel price had certainly reduced MASkargo’s operating costs.
“MASkargo has recently revised
downwards its fuel surcharges based on the formula posted on our
website. The cost of jet fuel for our freighters can be as high as
65% of the operating cost.
“With the drop in the price of
jet fuel, we hope that fuel cost in relation to total operating cost
can be brought down to 55%,” he said, adding that the current jet
fuel price was still considered expensive.
On the challenges facing the
industry, Shahari admitted it was the world economic downturn.
“Air freight is dependent on a
robust global economy that increases trade and we anticipate that
the next 12 months will be very tough for the players in the
“If this is true, the current
overcapacity situation will also get worse and put more pressure on
the already declining yields,” he said.
In such challenging times, Shahari
said, MASkargo had to ensure it had a high standard of service while
keeping mishandling, pilferage and other discrepancies to a minimum.
“Our mishandling rate has seen
some encouraging improvements recently. The rate has dropped to
0.06% compared with 0.12 % last year,” he said.
Going forward, Shahari predicted it
would be even more challenging next year.
“Steps to counteract will include
deciding on the right size of capacity to operate more effectively.
“Taking the first half of this
year as an example, although we reduced our capacity by 5%, we
recorded much higher revenue due to greater yields and load factors.
“This was possible due to the
implementation of our revenue management system, revised selling
strategies, improve processes and teamwork within the organisation,”