Fuel cost 'key challenge for shipping and aviation'

The soaring cost of fuel is the biggest challenge for the shipping and airline industries with no relief in sight for the next few years, said an industry leader on Wednesday.

The one positive is that firms which have managed to survive the past few lean years are likely to be resilient enough to hold out for the turnaround, said Mr James Hughes-Hallett, chairman of John Swire & Sons.

Mr Hughes-Hallett, whose conglomerate has businesses in both shipping and airlines, said: "(The cost of fuel) is certainly a key variable for ship owners.

"But for the airline industry, it's more than a key variable. It really is the difference between profit and loss or even survival and failure."

Mr Hughes-Hallett, who was delivering the Singapore Maritime Lecture at the Shangri-La Hotel, spoke on the key differences and challenges in both the maritime and aviation sectors.

The cost of fuel looks set to rise over the next five to 10 years although it is already at elevated levels.

"People believe in future oil price strength. It's hard to believe anything very different," said Mr Hughes-Hallett, though he added that such predictions on oil prices could well turn out to be inaccurate.

Still, today's maritime and aviation companies will probably survive even if energy costs rise further, he said after the lecture, which was a key feature of Singapore Maritime Week.

"Any company that is still in business has seen a very tough time with the high oil price. The companies that have got through the last five years are probably OK."

While high oil costs are a shared issue among the two sectors, one major difference lies in their challenges in terms of labour.

Industrial relations have affected airline finances, said Mr Hughes-Hallett, whose Swire conglomerate is the largest shareholder of Cathay Pacific Airways.

Cathay Pacific is "lucky" to have to deal with only three unions - much less than some other airlines, he said.

A shortage of pilots often adds to the headache for companies, noted Mr Hughes-Hallett.

Swire's container and bulk shipping operations are conducted through its Singapore-based unit, The China Navigation Company.

Unions are not the force they used to be in the sector as increasing numbers of seafarers come from largely non-unionised workforces in the Philippines, China and Eastern Europe.

Previously more workers were from the developed world, which tends to have stronger unions.

Mr Hughes-Hallett said this shift has led to the "tilting of the odds against responsible ship owners", meaning they could be at a disadvantage.

He did not offer a direct reason for this but this could be because less responsible firms pay mariners lower wages and skimp on expenses that ensure their safety and security.

They can then charge customers less for moving goods, and responsible firms may lose business if their prices remain higher due to higher costs.

Singapore Maritime Week officially ends on Friday.

jonkwok@sph.com.sg

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