Air Cargo: Energy is King

As fellow blogger – Mike Regan – notes in a fine recent article by Jeff Berman, “there has never been a period of volatility in fuel prices like there has been in the last year.”

This observation will no doubt resonate with the global air cargo industry.

According to the International Air Transport Association (IATA), difficulties in the jet fuel supply chain are being exacerbated by the big oil companies:

“The likes of Shell and Exxon are no longer interested in building new refineries but rather are investing upstream in exploration activities,” noted IATA in a recent bulletin.

Since the beginning of 2010 Chevron has sold downstream assets in more than 20 countries. Recently it sold its UK downstream assets, including the 220,000 barrels-per-day Pembroke Refinery, now owned by Valero Energy. BP has no refining capacity in the United Kingdom while Total and Shell are also looking to sell their remaining refining assets.

New players, such as Vitol, Morgan Stanley, Puma Energy, Sol, Rubis and others are coming in but they sometimes lack the expertise necessary to keep jet fuel prices low.

IATA adds that airlines could end up paying for “a newcomer’s learning curve,” although some see this as welcome competition and a positive long-term trend.

But given that the industry fuel bill has gone from $40 billion a decade ago to $139 billion in 2010, this divestment at a time when biofuel development is vital presents the industry with a huge challenge. Concludes IATA: These challenges in traditional jet fuel push alternatives to the vanguard.