Shippers Must Foot The Bill For Post-Saudi Fuel Hikes

Shippers should be prepared to swallow the full cost of heightened fuel prices following drone attacks on Saudi Arabia's oil facilities last weekend.

With global crude oil prices surging as Saudi Arabia attempts to get capacity back online, and fears growing of further conflict in the Middle East after Iran warned that any attack on it by the U.S. or Saudi Arabia would spark an "all-out war," fuel costs have soared.

The Global 20 Ports Average price of IFO380 intermediate bunker fuel spiked to $502 per metric ton on Sept. 17, according to Ship&Bunker. It subsided to $485.50 per metric ton on Sept. 19, but it remains far higher than the $359 per metric ton price recorded Aug. 15.

As reported in FreightWaves, the rising cost of bunkers is expected to be quickly passed through to shippers by container lines.

"The way that crude prices have spiked after events in Saudi Arabia would indicate that there will follow a commensurate rise in BAF (Bunker Adjustment Factor), prices of which are closely aligned to crude," said Simon Heaney, senior analyst for Container Research at Drewry.

And shippers should also prepare for truck and aviation cost increases. "If the price of jet fuel and diesel for vehicles increases then unless the contracts are fixed price without variation clauses, [they will] just pass through costs to the customer and eventually the consumer," said Stephen Morris, acting director general at the International Federation of Freight Forwarders Associations (FIATA).

He told FreightWaves that while there may be a financial accommodation cost "as to timeline in the payment of invoices," higher fuel costs would not be absorbed by forwarders. "This is just commercial practice with suppliers and service providers," he added.

Brandon Fried, executive director at the Airforwarders Association, also said higher fuel costs would inevitably be passed on to shippers.

"While each forwarder independently determines the most appropriate way to deal with increased market costs, a drastic and unanticipated spike in fuel costs will most likely be passed on to the consumer," he told FreightWaves.

"It will probably take a while for the airlines to feel the effect of the increased fuel costs but once imposed by suppliers, rates are likely to increase in approximate correlation to the spikes. These increases are usually passed on in the form of surcharges."

Morris said higher fuels costs had come at a bad time for the transport sector, given the dampening impact of trade tensions and bearish consumer sentiment. "The loss of Saudi production is not helpful in any hoped-for upturn in trade," he added.

FreightWaves articles by Mike

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