Shipping and logistics company
DFDS has confirmed that bunker fuel consumption fell by 16.7 percent in 2015.
In its annual report, the Copenhagen-headquartered firm confirmed that consumption of bunker fuel and goods included in operating costs was 1,919,414 tonnes last year compared with 2,303,533 tonnes in 2014, representing a decrease of 384,119 tonnes, or 16.7 percent.
Target for 2017
After previously achieving a 10 percent reduction of the bunker consumption over a five year period, DFDS has set a new target of a 5 percent reduction to be achieved by 2017.
Revenue from bunker surcharges
Due to the recent drop in the price of oil and bunker fuel, DFDS has stated that revenue from bunker surcharges is expected to "decrease significantly" in 2016.
Including bunker surcharges, DFDS expects revenue growth to be around 3 percent.
Hedging
Summary:
- Total hedging as a percentage of bunker consumption in 2015: 92 percent
- Commercial hedging in 2015: 87 percent
- Financial hedging in 2015: 5 percent
Currently, 87 percent of DFDS's bunker consumption is commercially hedged through bunker clauses in freight customer contracts. The remaining consumption is consumed on passenger routes and financially hedged as appropriate.
According to DFDS, a price increase of 1 percent compared to the price level at year-end 2015 - approximately USD 306 per tonne for marine gas oil (MGO) and USD 125 per tonne for heavy fuel oil (HFO) - is estimated to have a negative impact on financial performance of around DKK 2 million (USD 295,000) in 2016.
Commenting on its hedging policy, DFDS said in its annual report: "The most important financial risk factors for DFDS are diesel and bunker prices, interest rates, currencies, investments and liquidity. It is the policy of the Group not to enter into active speculation in financial risks. The intention of the financial risk management of the Group is only to manage the financial risks attached to operational and financial activities. The Board of Directors annually approves the financial risk management policy and strategy. In addition, DFDS has established a Bunker Committee, which monitors hedging levels and market development on a monthly basis. Please refer to the section Risk Factors in the Management review."
DFDS added: "The cost of bunkers constitutes a specific and significant operational risk partly due to large fluctuations in bunker prices and partly due to the total annual bunker costs of approximately DKK 1,304m or 10% of the Group's revenue in 2015 (2014: DKK 1,692m or 13% of the Group's revenue). In the freight industry, bunker costs are primarily hedged by price-adjustment clauses (BAF) in freight customer contracts. In the passenger industry, fluctuations in the cost of bunkers are reflected in the ticket price to the extent possible. In addition, hedging transactions, primarily bunker swaps, are used to manage risk of the remaining bunker costs.
"DFDS Group uses bunker swaps to hedge the variability in bunker costs that are not commercially hedged through customer agreements. An increase in the bunker price of 10% compared to the actual bunker price at balance sheet date would, other things being equal, have had a hypothetical positive effect on the Group's equity reserve for hedging of DKK 7m (2014: DKK 6m). This is due to the bunker contracts for future delivery entered to hedge the cost for bunkers. A decrease in the bunker price would have had a similar negative effect.
"The sensitivity analysis on bunker contracts has been prepared under the assumptions that the effect is calculated all else being equal on the bunker contracts entered at the balance sheet date; the hedges are 100% effective and based on the actual market situation and expectations to the development in the bunker prices."
Image: Ficaria Seaways
