The Impact of Oil Prices on the Shipping Industry

Sep 2, 2016 | Industry

Shipping is one of the most important facilitators of trades around the world. Therefore, a rise or fall in the cost of shipping is an aspect of great importance to everyone who is a part of the shipping industry in one way or another.

Oil Prices: A Clear Picture

report on Hellenic Shipping News Worldwide states that in the last year, there has been a significant drop in oil prices. As a result of this cut-down in oil prices, the demand for oil tankers has increased and the cost of operating ships has decreased.  The cost of bunkering ultra large crude oil carriers has come down from $40,000 per day only last year, to $20,000 per day in recent times. This has allowed ships to enter more markets than it had before.

Ocean Carriers

Changes in fuel pricing will allow ocean carriers to significantly change the variety of services and vessels they provide. Before, when oil prices peaked, ships deployed were larger and slower due to their higher fuel efficiency. The major complaint of customers back then was the slow speed of maritime shipment. A fall in fuel prices means that ocean carriers will deploy ships that are smaller and faster.

Air Transportation

Many different airlines are involved in long-term deals at prices of about $100/barrel or more, as a means of security from the volatile nature of oil prices. If oil prices drop, these deals might turn into a major loss.

Railway Transportation

Oil companies opt to ship by rail because it is cheap, and large quantities can be shipped all at once. As the price of oil plummets, the oil companies might cut down on the amount of their production. As a result, the volume of railway shipping will also reduce.

Country Actions and Consumer Behaviour

Countries are taking advantage of the significant drop in oil prices. Most notably, as stated in this report, China is stockpiling large amounts of cheap oil in hopes of reaping benefits during times when crude oil prices will spike. Such acts have resulted in the rising demand of huge oil tankers and ships.

Similarly, on a consumer level, a decrease in oil prices also means that people will have more money as disposable income. This will allow them to spend more on commodities, resulting in shops restocking more often. This will also increase the shipping of imported goods.

Although there’s never been any sign of a drastic drop in the global appetite for crude oil energy, when there is a rise in the oil prices, people wish to counter the increasing prices. In developing countries, people drive and fly less often when oil prices rise, industries cut down on production, and businesses reduce the number of services they offer.

Use of Alternative Energy

High oil prices might also lead the shipping industry to use potential technological improvements that will enhance the performance of ships through biofuels and gas. As a result, emissions of gas and noxious substances into the atmosphere will reduce, making way for a cleaner shipping industry. Recently, as stated in a press release by Maersk, they have placed an order for 10 container ships with a capacity of 18,000 TEU containers. This will allow Maersk to produce an astonishing 50 percent less CO2 per container moved.

Methods of Shipping

Businesses in the shipping industry consolidate certain routes together as well as refrain from providing certain services while oil prices are higher.  In order to lower their operational costs, shipping companies operate their cargo ships at lower speeds. This approach towards slow steaming cuts down on bunker fuel consumption. The lower average speed of vessels means a reduction in harmful emissions.

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