shipping logistics

Food production, distribution and packaging costs are set to fall in the wake of declining crude oil prices - but some categories will benefit more than others.

Following months of plummeting value, crude oil prices are down 47.7% year on year [Mintec], OPEC is refusing to adjust production levels and demand is set to remain weak.

“The significant drop in the price of crude oil will have an impact on raw material and end products” says Mintec data director Brian Smith. The drop will have greater impact on foods that rely on machinery, he adds, with agricultural and fish commodities both likely to benefit as they require fuel for the heavy machinery used.

Vegetable oils have become cheaper as the drop in crude reduces demand for biofuels, with rapeseed oil down 12% year on year and soyabean 10%. Strong supplies have also contributed to the decline, however.

Producers will benefit from reduced packaging costs, with EU plastics prices affected by the drop in naphtha and ethylene, produced mostly from crude oil. But declines have been limited by tight stocks.

Lower prices will reduce distribution costs but, as with foodstuffs, shipping is subject to a range of factors. Up to 60% of a ship’s operating costs are bunker fuels. And, while these have declined in line with crude, other drivers for shipping costs are availability of vessels and seasonal demand. As of December, the rates for shipping 20ft and 40ft containers from the US to Europe, for example, had dropped 15% and 10% year on year respectively but fuel costs could have a greater impact as time goes by.

“Price fluctuations have not been in place for long enough to show real cost benefits,” suggested a distribution industry expert. “Fuel is just one element of contracts, so we can’t infer any real benefits at the moment - it’s a watching brief.”