With jet fuel prices clearing the once-unthinkable landmark of $3 a gallon, the surcharges airlines and forwarders charge their customers are about to clear another barrier. But cargo operators have to wonder whether the rising charges may be a bar to shipper business.
Cargolux raised its fuel surcharge to about 95 euro-cents a kilo effective March 31, and with oil prices soaring deeper into triple digits last month the barrier of $1 and one euro looked to be the next one to tumble.
The U.S. Energy Information Administration said daily jet fuel prices on spot markets peaked at $3.48 a gallon in New York on March 14, by far the highest price ever recorded for jet fuel and nearly 20 cents higher than the price just the week before. Jet fuel prices in Los Angeles and went beyond $3.30 a gallon, Rotterdam was at $3.26 and the price of $3.11 a gallon in Singapore looked like a bargain by comparison.
Cargo industry officials say carriers and forwarders are passing along the increases but they're seeing shippers respond by moving to less costly transport where possible.
"Customers are reconsidering air and going to ocean on the import side, especially with their less critical shipments," said Joseph Hoban, director of international air services at forwarder AIT Worldwide Logistics.
He said shippers, for the most part, are accepting the rising energy charges as a cost of business.
Hoban said the fuel impact has been softened by relative stability in core air pricing. "Rates have been pretty good out of Shanghai and Hong Kong, and exiting the U.S. The airlines may be a little shy about doubling up on high fuel surcharges and rates," he said.
Jet fuel prices have grown about $1.65 since the start of 2007. Prices started 2008 at about $2.65 a gallon but have increased some 31 percent since January.
The latest surge has given a boost to those airlines that have hedged their prices this year. Lufthansa, for example, has hedged more than 83 percent of 2008 fuel costs and 27 percent for 2009. The airline says it expects 2008 fuel costs to rise to nearly double to $7.6 billion from 2007, although some relief could come from further weakening of the U.S. dollar.
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