THE weak US dollar is the reason for oil exporting countries to increase the price of oil to maintain a real return on their exports. The US dollar is expected to weaken even further and this will reduce the purchasing power of the American consumer. Exports from Asia to America will, in the short term, slow down and affect Asia's growth rates. This will affect freight rates of shipping companies. Freight rates will, in the immediate future, have to increase to compensate for the increase in fuel prices. New ships will cost more as iron and steel, the basic component of ships, are very energy dependant.
I see a flattening of demand for new ships in the medium term if cargo expansion cannot meet the availability of new shipping space due to a slowdown in the US economy. As a shipping company, we instruct our ships to conserve fuel by running them at economical speeds. On the brighter side, the high oil price will spur demand for anchor handling tugs, supply vessels and rigs to support the increased demand for oil exploration.
Ross Wilson
Managing Director, Consumer Products and Services, Apac Region
Trend Micro (Singapore)
I AM a little worried by the rising price of oil, but only in as much as it seems to be part of a perfect storm. The nose-diving dollar, the sub-prime lending fiasco, the increase in natural commodity costs and the escalation of unrest in the Middle East all point to a large correction of one sort or another. I think that the world's economies are global enough to weather this storm, but it will be a rough ride.
Wee Piew
CEO
HG Metal
FOR now, I feel that the impact of the higher oil and energy prices on the Singapore economy has not been as significant as it was in the past for a few reasons. Firstly, the increase in oil prices has coincided with the growing strength of the Singapore dollar. This has helped mitigate the impact of the higher oil prices in Singapore dollar terms.
Secondly, the Singapore economy has been resilient and is likely to remain robust in the next couple of years. The only fear is that higher oil prices may lead to higher inflation next year if oil prices continue their climb unabated. However, the government's recent decision to postpone $2 billion of construction jobs will help in reducing pressure on the construction sector.
For the steel sector, higher oil and energy prices mean that the cost of steel production has increased and may continue to rise. Added to the already significant increase in the price of the major raw material - iron ore - steel prices have increased significantly in the past year. The higher oil prices also mean that transportation cost of steel - which is a significant cost factor - has also increased.
On the other hand, demand for steel is likely to continue to be strong given that major projects like the integrated resorts, the Marina Bay Financial Centre and numerous residential projects will gather steam in the coming year.
Dora Hoan
Group CEO
Best World International
THE price of oil has a deep impact on the economy of an oil importing country. It has the tendency to slow the rate of growth and may reduce the level of national productivity. There are a number of factors for its rapid increase. It reflects booming Asian demand. Phenomenal growth in China alone is expected to account for roughly 40 per cent of the increase in demand for oil. What happens is that all the fairly priced oil is being used up at breakneck speed. Supplies cannot keep pace and new production is expensive.
The challenge for business is how to maintain productivity and profitability given this backdrop. There's no question that high oil prices put upward pressure on the cost of other goods. There is, therefore, the risk of price increases as the cost of doing business is passed on to the consumer. But it is also true that oil price increases no longer have the same effect on modern economies that they used to have decades ago.
In this era of globalisation, the pressure to remain competitive has curbed businesses' ability to pass along the burden of price increases to their consumers. Therefore, there are others factors that come into play in today's market-driven economies. For instance, competition, outsourcing and cheaper foreign labour costs do help keep a lid on inflation.
There is real concern, however, for small businesses. When a business is keen on remaining competitive and cannot pass on higher prices to its consumers, then it will have to absorb them one way or another. However, it will require a higher capital base to do so.
Still, I am confident that the hike won't kill the bull. We have seen tough times and have stood up well against them. This threatening time, however, will require of us sound business principles, a strong, efficient organisation and the ability to innovate on products and services as well as on the business model in order to remain resilient.
Pinaki Rath
Managing Director
Gold Matrix Resources
WHILE the industry that we are in, base metals, has exhibited a strong performance in the last few years, it is unlikely to carry on with such fervour. Metals are ultimately driven by their own fundamentals but momentum factors on oil are creating humps. We have already witnessed a cooling off in base metal prices in the last few months. It may be presumptuous to relate it to the high oil prices, but on a sustained basis, high oil prices will dent the fortunes of base metals. High energy prices encourage designers/architects to make buildings, cars and aircraft as energy-efficient as possible, which means using light materials such as plastics in place of heavy metals. This may bring down costs in the short term, but it comes at the price of a not-so-green product coupled with question marks on safety and reliability. High oil prices can prove to be the biggest dampener to the economy and it's a ticking time bomb. If the rise is not checked, gargantuan problems are in store. The answer lies in switching to alternative sources like nuclear energy.
Lars Ronning
President, Asia-Pacific (excluding China and Japan)
Tandberg
OIL-EXPOSED industries, such as mining, chemicals, aviation (hedging notwithstanding), and small businesses, which are petrol-reliant, are put in a vulnerable position. A weakening dollar has softened the impact but governments - especially in emerging economies - need to do away with price subsidies and caps.
Companies should leverage technology to offset oil consumption. We are consistently working towards reducing organisational carbon footprint through video communication: technology that allows natural face-to-face communication reduces the need to travel. The corollary is reduced carbon emission. Yes, we are taking deliberate and imperative steps to building a globally responsible corporation.
Benjamin Low
Managing Director
S-E Asia, India
Secure Computing Singapore
I JUST went to my favourite petrol kiosk and topped up my car. For 65 litres, I paid $120 after the standard discount. The oil price increase has far-reaching consequences across the entire economic and food chain. From the cost of electricity to toast and coffee, everyday essentials have been or will be rising very soon. The impact on ordinary folk and businesses will become more pronounced as cost increases filter downwards. Managing a business in Singapore has become increasingly challenging. Rising GST and a drastic increase in property prices, coupled with the increasing cost of goods, have all resulted in a higher cost of living. Our customers are not paying more for our products; their technology and IT budget remain the same. With a diminishing profit margin, we will simply have to be more mindful about keeping costs down and work hard to increase our revenue through acquiring new customer bases and sales. There is simply no easy way out.
Douglas H Miller
Vice-President
Boeing International Corporation
THE rising cost of fuel is a key issue that the aviation industry is working hard to address. At Boeing, we have spent much time improving the performance of our aircraft so that the aviation industry as a whole benefits. For example, the 787 Dreamliner is not only made of advanced weight-reducing materials, but will also use 20 per cent less fuel than other similarly-sized aircraft. This will save airlines incredible amounts of money on fuel while also lowering noise and carbon emissions.
As a company, we are also conscious of the urgent need to conserve resources. We have put into place various regulations to conserve energy and recycle materials as much as possible. As a result, we have reduced electrical use in our factories and offices by 35 per cent in recent years and we continue to look at new ways to optimise energy usage.
Lim Soon Hock
Managing Director
Plan-B Icag
I BELIEVE the current oil price and energy crisis is a reaction to the strong global economic growth especially that of China and India. These two Asian economic giants are transforming the world's energy balance, with their multi-fold increase in energy consumption. The world economies today do not have any shock absorbers to tackle the imminent crisis, not even with all the modern mitigating measures taken by many countries, for example, to be less reliant on oil and to tame inflation.
The combination of the recent sub-prime mortgage crisis, depreciating US dollar and rising oil prices is a lethal cocktail that can send the global economy into a downward spiral towards possible stagflation.
Singapore businesses have to brace themselves to face the prospect of oil prices that are more than what the world can tolerate. The long-term rise of oil prices and the dramatic increase in energy consumption are demand-driven, which is different from what had transpired in the 1970s and again in the 1980s.
Businesses would do well if they go green more aggressively than before, and adopt processes that are energy-efficient and energy-saving. In addition, they can be more conservative with investments, contain and manage costs and watch inventories.
Annie Yap
CEO
The GMP Group
THE world is cringing as the price of oil and energy continues to surge, burning holes in every one's pockets from increased costs, whether transferred or absorbed. For businesses to weather the storm, innovation can prove to be a great way to accommodate something we so ubiquitously depend on.
A perfect example is how an American pizza store offers the option for customers to pick up their own orders and save on delivery charges.
In the same spirit, businesses should re-evaluate their operation methods most affected by the oil price rise and look for ways to get around the setback. Survival only occurs through change and adaptation. Sometimes it takes the smallest change to make that crucial difference.
Michael Reading
Managing Director
Island Power Company
THE rising price of energy is a concern for all businesses. As global energy demand continues to rise, the increasing price of energy that results has the potential to dent the financial performance of businesses and the economy.
In addition to oil, natural gas prices have recently risen as well. Gas is the most efficient source of fuel for electricity generation. Gas exporters are already facing governmental pressures to keep the gas for domestic use. Therefore, Singapore must treasure its gas imports and through technology make the most efficient use of it. Competition through a liberalised energy market, which includes both electricity and natural gas markets, will insure that electricity generators provide the most cost-efficient energy possible to their customers. The rise in energy prices highlights the need for Singapore to complete the liberalisation of its energy market.
Tan Kok Leong
Principal
TKL Consulting
THE root cause of the rapid rise in oil price is the unprecedented boom in the world economy, particularly China and India.
Rapid urbanisation, cross-state or country industrial production, improvement in transport infrastructure and use of cars, travel by hundreds of millions of Chinese and Indians and the lack of upstream investment in oil production and expansion mean a higher average price of crude oil in the short and medium term.
Business is driven by energy, mainly oil. A higher oil bill eventually has to be paid by users.
David Miller
President of Asia-Pacific & Senior Vice-President
Lenovo
RISING oil prices are likely to directly impact the transportation industries that use oil for fuel - airlines, shipping companies and trucking firms. High oil prices will also impact food processing companies that use oil.
Even though Lenovo's business is not directly affected by the price of oil, we do see some impact. As a global business, we transport our components and finished products all over the world. Therefore, logistics costs are significant to us, and these are negatively affected by the increase in oil prices.
On the flip side, logistics and oil costs are denominated in US dollars, as are most of Lenovo's costs. Also, most of Lenovo's revenues are not in US dollars - rather, they're from currencies that have appreciated versus the US dollar. So the direct impact is not necessarily significant when we sell outside of the US market.
More importantly, the increase in oil and energy prices reminds us that we all need to be more responsible in the way we use our planet's scarce natural resources. Large organisations are often the biggest consumers of energy. Therefore, CEOs must take responsibility as powerful global citizens and make sure their companies continually strive to reduce the environmental impact of their operations and the products they create.
At Lenovo, we have invested heavily into producing some of the world's greenest and most energy efficient PCs. Technology leadership and innovation go beyond what's in the box. Environmental considerations should also be a central part of all companies' business practices.
Eric Hoh
Vice-President
Symantec, Asia South
THE rising fuel price is definitely an impetus for businesses and governments to do their part to reduce their carbon footprint and develop greener technologies that are energy-efficient. With the IT industry being one of the biggest producers of carbon, emissions, and waste, companies need to be educated that while there may be increased short-term costs associated with selecting greener technology, these are outweighed by the longer-term performance and environmental benefits.
At Symantec, for example, we have developed software products that help customers reduce data storage energy consumption by as much as 50 per cent and total data centre energy consumption by up to 25 per cent. Symantec's software also allows enterprises to exploit new energy-efficient servers and storage more easily, enabling them to continue conserving energy optimally.
Environmental responsibility makes good business sense as it results in concrete savings which ultimately makes taking the green path an effective tactic for retaining customer loyalty and trust.
Sam Yap S G
Group Executive Chairman
Cherie Hearts Group Int'l
THE surge in energy prices, no doubt, has a negative impact on businesses in general as the cost of operations rise. Fortunately, Cherie Hearts is not badly affected as the childcare industry is not energy-intensive.
Nonetheless, we keep a tight control over our energy consumption by adopting energy-saving measures such as installing energy-efficient refrigerators and light bulbs. We also constantly remind staff to join in our efforts to conserve energy by adopting best practices.
Furthermore, being in the business of education, we make it a point to inculcate in our children the importance of saving energy and playing our part in conserving the environment. After all, the energy crisis is not just about costs but also about the sustainability of our environment - it is critical that the young generation joins in the energy conservation effort!
