Cheaper oil brings short term relief for shipping lines
Declining oil prices help shore up bottom lines for freight companies, but prolonged slump would hurt demand and reduce transport volumes
Falling oil prices are lending substantial short-term support to shipping lines, which have been awash in red ink for the past five years, but their mid- to long-term effect could be more complex due to the interplay of different factors.
If the trend continued, with Brent crude remaining at US$86 per barrel or lower and the bunker price around US$460 a tonne, shipping lines would see earnings improve significantly in the fourth quarter, Sand added.
Container shipping lines, which carry containerised goods via regular services and fixed port networks, stand to benefit the most. A container ship with a capacity of 14,000 20-foot equivalent units (teu), the workhorse for Asia-Europe trade, would see costs fall 10 per cent to US$1,063 per teu, according to Lawrence Li, transport analyst at UOB-Kay Hian.
Bunker generally accounts for 20 per cent to 30 per cent of the total operational costs for container lines. The upside can be partly read from third-quarter earnings. China Cosco, which owns the world's fifth-largest container ship fleet, reported a 12 per cent operating margin, up from 4 per cent in the same period last year.
China Shipping subsidiary China Shipping Container Lines, the world's seventh-largest carrier, recorded a 6 per cent operating margin in the third quarter, compared with negative 2 per cent in the same period last year.
For tanker and dry bulk carriers, which transport bulk commodities such as oil and iron ore, the benefit will be felt later and could be greater.