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Oil change

Oil prices look to be heading back from record lows – but what does this mean for air cargo operators? Helen Massy-Beresford finds out

A  period of unprecedentedly low oil prices has had a big impact on the aviation industry, with the effects being felt on both the cargo and the passenger side, but now that oil prices may be on the rise again, what will be the effects on cargo industry players?


Record low prices were more straightforwardly positive for the passenger side of the industry, taking some pressure off airlines’ operating costs and allowing carriers to offer their passengers cheap deals on airfares. But even so, analysts and industry experts warned that having more room for manoeuvre could tempt carriers to expand too quickly, adding new routes and services, leading
to overcapacity.


On the cargo side, lower oil prices may have had some benefits for operators’ costs, but these have been offset by one major blow.


Operators agree that the main effect of low oil prices so far – which plunged below $30 a barrel in early 2016 before staging a tentative rally – has been to make a big dent in demand for transporting goods from the oil and gas sector. For some operators this has been a heavy blow.


“In the UK, the oil sector shed circa 84,000 jobs in 2015 and is forecast to shed a further 40,000 jobs this year. As the oil sector is very specific to the geographical areas in which oil is produced, carriers have seen a slump in demand for cargo capacity in those particular areas,” says David Mallinson, General Manager UK Air Division, Kerry Logistics.


A KLM Cargo spokesman agrees: “The oil sector is kind of depressed. Oil companies' profits fell, pushing them into cost reduction measures; the domino effect hit all subcontractors including transportation. It is all the more true for countries in Africa and the Middle East where the oil sector is prominent. It also affected forwarders engaged in the oil and gas business, which shifted to other commodities like the perishables market, seasonal but not as volatile as oil and gas.”


However, Mallinson cites uncertainty in the broader market, outside the challenges specific to the oil sector, as having a more pronounced effect on the stagnation or modest growth of the logistics business.


“If anything, the lower oil price has caused a greater softening in demand in a market that is already struggling from the effects of overcapacity.”


Even if oil prices have recovered from historic lows, prices are notoriously volatile for a number of geopolitical and macroeconomic reasons and there is no clear consensus among commodities experts about where they will go from here. >>

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