Business

Thursday December 6, 2007

Far-reaching effects of high oil prices

News analysis by B.K. SIDHU



RAISING fuel surcharges is becoming a norm for some global airlines and it should be no surprise if the two local carriers decide to follow suit to offset rising operating cost as a result of higher crude oil prices.

For now, AirAsia Bhd said it would not review its surcharge whereas Singapore Airlines and several Indian carriers raised theirs on Tuesday.

Crude oil price hit its historic peak of US$99.29 per barrel on Nov 21 but has fallen by almost US$10 since. At 9.30am New York time yesterday, crude oil for January delivery was up 63 cents at US$88.95 a barrel.

Oil rose yesterday after Organisation of Petroleum Exporting Countries decided to keep output levels unchanged, rebuffing consumer country calls for more crude to rein in prices now near US$90 a barrel.

To the airlines, passing the cost to the consumer is a small adjustment that offers a partial relief for them in footing their jet fuel bills.

But, for the consumer, it is another story as rising fuel surcharges and more expensive air tickets are going to hit them harder. The consumer must also live with other hikes, such as land transportation, electricity and cost of goods with higher oil and gas prices.

The oil hike affects not just airlines but the entire transportation sector - shipping and courier companies, cruise liners and even land transport companies.

Globally, some shippers are concerned and are passing this cost down. According to a report, they do not want to raise base rates but impose fuel surcharges, just like the airlines.

Recent reports said DHL raised its fuel surcharges on Tuesday while FedEx and UPS a day earlier.

A foreign wire report said consumers sending holiday gifts might not notice the uptick, but merchants taking phone or Internet-based orders would. It said many companies would lose 0.25% to 1% of their sales revenues because of fuel surcharges.

Cruise liners globally are also raising or imposing fuel surcharges to offset rising cost due to oil and gas hikes.

In Japan, reports said the government was looking into ways to help the public and small and medium companies facing difficulties with the higher oil prices. One measure considered is the lowering of night-time expressway toll charges. Another measure is to monitor business transactions to ensure transportation and construction firms do not pass an unfair amount of their increased fuel costs to subcontractors.

There may be rigid checks and balances but the rise in oil and gas will have an impact on many sectors, not just transportation, and this means the consumer will have to pay more for goods and services.

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