Rising Oil Price

Rising oil prices drive costs up for local firms
Expenses rise 30% this year for some despite stronger Sing$, weaker US$

WIDENING IMPACT: Oil price hikes have hit transport, freight and logistics firms the hardest so far, but the impact is also spilling over to other sectors such as food catering.

THE northward charge of crude oil prices, now on the cusp of US$100 a barrel, is starting to take a heavy toll on Singapore businesses. Some business costs have shot up 30 per cent this year, even though the rising Singapore dollar - and a weaker greenback - have provided a cushion to the oil hikes.

Transport, freight and logistics companies have been the hardest hit so far, but the impact is spilling over to other sectors such as food catering.

Then there are less obvious repercussions - such as the rising cost of petrochemicals that go into products as diverse as sofas and electronic goods.

The price of black gold has jumped from about US$60 a barrel in January to a high of US$98 earlier this week.

Soaring oil prices were a talking point at a recent Singapore International Chamber of Commerce (SICC) dialogue on the appreciating Singdollar. SICC chief executive Phillip Overmyer said 10 to 15 firms were concerned about the impact of sky high oil prices. They were high energy users from sectors such as electronics manufacturing, transport and logistics.

'Our margins have also been affected by about 10 per cent, as we've been absorbing the rise in fuel costs.'

MR KUMAR, Network Courier MD

'But some pointed out that the rising Singapore dollar has helped to insulate them against this increase, as oil prices are fundamentally in US dollars,' he added.

Transport firms and those using raw materials made from oil have been hit directly. For example, Network Courier, which handles about 7,000 deliveries a day, has seen its operational costs rise by 10 per cent this year.

Said its managing director V.S. Kumar: 'Our margins have also been affected by about 10 per cent, as we've been absorbing the rise in fuel costs thus far.'

Similarly, Mr Victor Goh, the owner of CK Vehicle Rental, said his profit margins have been hurt, as maintenance costs have gone up 20 per cent to 30 per cent since June. He added: 'Suppliers of car batteries, tyres and lubricants have all raised their prices as they say the oil price rise has affected their costs.'

But while profit margins are being eroded, he sees stronger demand from clients such as caterers, event management firms and movers, due to the rise in vehicle maintenance costs.

Others such as Singapore-listed, Hong Kong-based sofa maker Man Wah Holdings have seen a rise in raw material costs stemming from the oil price hike.

Its chief financial officer Francis Lee said the cost of petrochemicals, which is used in sofa foam production, is up about 20 per cent this year. The foam makes up 17 per cent of the production cost for Man Wah's leather sofas.

Even food caterers have not been spared.

Said Mr Tony Seow, the founder of Purple Sage: 'Higher oil prices affect me. I've got two lorries and three vans and we do, on the average, 10 to 15 events a day.'

While some firms have chosen to absorb the costs, others have passed on some of the rises to customers.

Said air freight forwarding firm National Forwarder's managing director Rajoo Amurdalingam: 'Our turnover has increased but our margins have not gone up.

'While we're able to pass on the airline fuel surcharges to the customers, we'll have to pay for the 5 per cent rise in operating costs.'

What if the oil price surge continues? Mr Kumar said: 'Then we may have no other choice but to raise prices in January. We may also have to tighten our operations to reduce delivery costs.'

Added Mr Seow: 'I'll ride it out for a while, until January next year, and then see what happens.'


Source: The Straits Times