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Fuel prices to increase in wake of attack on Saudi Arabia's oil refinery
Date:2019-09-24 Readers:
THE drone attack on Saudi Arabia's Abqaiq oil refinery is likely to push up fuel prices for shippers as container lines are expected to pass on the higher cost of bunker fuels.
 

With global crude oil prices soaring as Saudi Arabia tries to get capacity back online and concerns mounting of further conflict in the Middle East after Iran warned that any attack on it by the US or Saudi Arabia would spark an "all-out war," fuel costs have surged.

The Global 20 Ports Average price of IFO380 intermediate bunker fuel spiked to US$502 per tonne on September 17, according to Ship&Bunker. It dropped to $485.50 per tonne on September 19, but it remains considerably higher than the $359 per tonne price recorded on August 15, reported American Shipper.

"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," Drewry's senior analyst Simon Heaney was quoted as saying.

In addition, shippers should brace themselves 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 International Federation of Freight Forwarders Associations' (FIATA) acting director general Stephen Morris.

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.

Airforwarders Association executive director Brandon Fried 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."

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