Shipping lines suffer from skyrocketing oil prices

While the likelihood of war between the US and Iraq escalates, international oil prices have followed right along, causing further difficulties for shipping companies in terms of operational costs.

Worries over a war in Iraq and the decline of US oil reserves caused West Texas oil prices to hit $37.66 as of February 26, an increase of $1.69 over the previous day. It was the highest price on record since 1990. The bunker price for vessels varied by country, ranging from $180 to $210.

International oil prices, in spite of no real war yet, closed at $40 per barrel, similar to prices just after the outbreak of the Gulf War in 1990.

The Korea Shipowner's Association noted that international oil prices have doubled, citing how West Texas Intermediate (WTI) oil doubled from $19 to $38 per barrel from January 2002 to February 26, 2003.

Following the trend, vessel oil prices also hit between $190 -and $210 per ton as of Feb. 26, up from between $102 and $117 in January 2002. Especially, Busan had sharp increases to $209.50 per ton on Feb. 26, up from $117 in January 2002. So did Singapore, up from $112 to $198 during the same 13 month period.

This oil price hike is predicted to cost Korean shipping lines more than $500 dollars extra annually, burdening the country as a whole for $1.5 billion in oil costs annually. Korea uses 7.7 million tons of oil worth over $1 billion per year. Oil costs account for 15% of vessel operating costs.

World Global Alliance announced it would raise the BAF (Banker Adjustment Factor) to cover vessel operating costs due to oil price hikes. However, the association still estimates the BAF hikes would not be enough to cover the increase of operating costs.

The TSA (Transpacific Stabilization Agreement) filed with the Federal Maritime Council (FMC) to raise the BAF for 20ft containers to $172.50 from $135.75 by April 1 and $230 for 40 ft containers from $185.

The FEFC (Far Eastern Freight Conference) also tried to increase the BAF from $70 per TEU to $97 and, from $140 per FEU to $194 as of March 1.

ANZEC also planned to raise its BAF from $125 to $150 per TEU and $250 per FEU from $200.

In other trades, Korea - Japan trade introduced a $104 BAF up from $84 per TEU starting from mid-March. General cargoes will also see the price increase. Korea-China-Japan trade, which hasn't imposed a BAF, introduced an Emergency Bunker Surcharge (EBS), charging $20 per TEU and $40 per FEU from March 1.

Along with continuous high oil costs, maritime experts pointed out that the GRI will advance from each scheduled trade in April or May.