Shipping outfits hedge their bets as fuel prices soar
By Barry Parker, JANE's
26 July 2005
In early July, 'IFO 180', a standard grade of fuel, reached USD300 per metric tonne (MT) in Rotterdam - versus less than USD200 per MT in January 2005.
Marine grades of diesel and gas oil reached in excess of USD500 and USD570, respectively.
Because large tankers or bulk carriers typically consume between 50 and 90 MT of the IFO grades per day at sea, and containerships even more, the impact of rising fuel prices on company costs and bottom line earnings has been significant.
JTF spoke to Dirk Visser, managing director of Netherlands-based fuel consultants Dynamar, which conducted a study of fuel consumption at sea for typical containerships on a run between Rotterdam and Singapore, where a 6,700 teu vessel consumes 275 MT of fuel per day, translating to about 4,100 MT on a typical voyage. Illustrative of the dramatic impact of 2005's upward fuel price spike, Dynamar calculates that fuel cost per teu carried rose from USD138 per teu to USD197 per teu between early February and late April 2005.
Risk management
In the liner sector, JTF looked at Horizon Lines, Maersk and P&O Nedlloyd, all of which managed their fuel price risk. The interplay between a carrier's fuel price risk and ability to impose BAFs [bunker adjustment factors] is less clear.
Horizon describes its activities as follows: "The Company utilises derivative instruments tied to the US Gulf bunker index to hedge a portion of its quarterly exposure to bunker fuel price increases. These instruments consist of fixed-price swap agreements.
"The Company does not use derivative instruments for trading purposes. Credit risk related to the derivative financial instruments is considered minimal and is managed by requiring high credit standards for its counter-parties."
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