Copyright 2008, Traffic World, Inc.
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. Cargolux raised its fuel surcharge to about 95 euro-cents a kilo effective March 31, pushed the U.S. dollar equivalent beyond $1 a kilo for the first time.
The U.S. Energy Information Administration said daily jet fuel prices on spot markets peaked at $3.19 a gallon in Los Angeles on March 6, 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 New York reached $3.165 a gallon on March 6 and prices also pushed to near $3.10 a gallon in the U.S. Gulf Coast and Rotterdam markets. Jet fuel prices have increased some 18 percent since January from a starting point of $2.65 a gallon.
United Airlines fuel costs have more than doubled in the past five years to a bit more than $5 billion in 2007 and may exceed $7 billion this year, airline Chief Operating Officer Peter McDonald said last week. "A few years ago, we had the choice of not passing along the costs to our largest customers," said David Pollard, southeast and midwest director for Estes Air Forwarding. "Not anymore."
Cargo industry officials say carriers and forwarders are passing along the increases but they are 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. "Customers are not happy about it, but they can see the connection between filling up their SUV and what we are seeing in jet fuel prices. The level of complaining probably hit its crescendo last year, but they can see what the airline costs are."
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.
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.