Falling oil price unlikely to cut wine and spirits distribution costs

By Gemma McKenna

Published: 12 January, 2015

The wine and spirits sector can expect to see little relief on distribution costs despite the plummeting oil price, say logistics experts.

Shipping transport While oil prices have more than halved, the knock-on effect on shipping costs is not so dramatic, logistics chiefs warn

Although fuel costs have fallen, and some customers are taking advantage of that, new measures restricting sulphur emissions in transit mean ships have to use more expensive fuel in the first place.

World oil prices remained at a fairly constant level from 2010 until mid-2014, at around $110 a barrel. But the past six months have seen prices more than half - brent crude oil has dropped below US$50 a barrel for the first time since May 2009 and US crude has also fallen below US$50 a barrel. However, although logistics providers are passing savings along where possible, new charges, especially relating to the use of lower sulphur fuels, mean the effects are not as dramatic as one might have hoped.

David Mawer, managing director of JF Hillebrand UK, said: "We have maintained a transparent approach to the variable fuel cost element within our overall pricing, having implemented a fuel adjustment factor since the beginning 2009 when underlying oil prices began to rise, linked to the Rotterdam bunker index.

"As such, our customers on the bunker adjustment factor (BAF) mechanism are enjoying the full benefit of the reducing underlying fuel costs we have seen in recent months and we hope this can be maintained.

"The additional element we are managing since January is the introduction of lower levels of sulphur emissions from vessels operating in the four sulphur emission control areas (SECAs), which include the Baltic Sea, the North sea and English Channel, North America (East and West Coast) and the United States Caribbean Sea (Puerto Rico and USVI). This requires the use of higher grade, more expensive fuel when sailing in the SECAs, the additional cost of which is being recovered through our BAF mechanism, again on a transparent basis."

The impact of the exchange rate of USD vs GBP would have a greater effect on distribution costs than oil price, says Uniserve.

Jacques Jordaan, head of operations at Uniserve Drinks Logistics told Harpers.co.uk that he did not believe lower oil prices would result in savings when it comes to distribution. He said that given three of the top five wine import markets are deep sea "the biggest element of cost is freight not fuel" - rather he said the strengthening of the US dollar to GBP would have "a greater impact than the reduction in fuel costs".

He agreed with Mawer that the new lower sulphur surcharges that have come into play will also drive up distribution costs.

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