Vessel
operating costs are expected to rise in both 2015 and 2016, according to the
latest survey by international accountant and shipping consultant Moore
Stephens. Crew wages, repairs and maintenance, and drydocking are the cost
categories likely to increase most significantly over that period.
The survey is based on responses from key players in the
international shipping industry, predominantly shipowners and managers in
Europe and Asia. Those responses revealed that vessel operating costs are
expected to rise by 2.8 percent in 2015 and by 3.1 percent in 2016.
Crew wages are expected to increase by 2.4 percent in 2015 and
by 2.3 percent in 2016, with other crew costs thought likely to go up by 2.0
percent and 1.9 percent respectively for the years under review. The cost of
repairs and maintenance is expected to escalate by 2.3 percent in 2015 and by
2.4 percent in 2016, while drydocking expenditure is predicted to increase by
2.6 percent and 2.3 percent in 2015 and 2016 respectively.
The cost of hull and machinery insurance is predicted to rise by
1.8 percent and by 1.9 percent in 2015 and 2016 respectively, while for P&I
insurance the projected increases are slightly lower – 1.7 percent and 1.8
percent respectively.
Expenditure on spares is expected to rise by 2.3 percent in 2015
and by 2.2 percent in 2016, while for stores the corresponding projected
increases are 1.8 percent and 1.9 percent. The increase in outlay for
lubricants, meanwhile, is predicted to be 1.1 percent and 1.7 percent in 2015
and 2016 respectively, and that for management fees 1.7 percent in each of the
two years under review.
The predicted overall cost increases for 2015 were highest in
the offshore sector, where they averaged 3.4 percent against the overall survey
increase of 2.8 percent. For 2016, it was the tanker sector which was predicted
to experience the highest level of increases – 3.4 percent compared to the
overall survey average of 3.1 percent. The container ship sector, meanwhile,
was not far behind at 3.3 percent.
One respondent said, “We expect costs generally to increase as
charter rates creep up, although they will probably lag behind the latter. With
charter rates generally low at present, the provision of services to the
shipping industry needs to remain competitive, with suppliers reluctant to put
up charges too soon for fear of losing business.”
Elsewhere it was noted, “Future operating costs will increase
exponentially due to innumerable new regulations, the low competence of
seafarers, the high bargaining power of the oil majors, stricter rules
regarding maintenance and repairs carried out in ports, the advent of more
sophisticated onboard machinery, and increasing consolidation in the marine
equipment and services sector, resulting in more bargaining power for fewer,
larger companies.”
Another respondent highlighted the fact that ship managers are
under increasing pressure, pointing out, “Overcapacity within the markets is
driving charter rates down, owners are facing higher costs to finance vessels,
and operators are fighting much harder for cargo. Ship managers are now
required to look after much more for the same management fees.”
Another still emphasized, “Due to the high financial costs
involved in operating a newer world fleet, and to an over-supply of tonnage and
depressed freight markets, there will be increasing pressure to maintain or
freeze operating cost levels in order for owners to remain competitive. This is
likely to change between 2017 and 2020, however, with significant capital
expenditure required for regulatory compliance.”
One respondent predicted, “Crew costs will continue to be the
main area of increased operating expenditure,” a sentiment echoed by another,
who referenced the effect of the Maritime Labour Convention 2006 in this regard
to support this supposition. Elsewhere, however, it was noted, “Crew costs will
remain stable because the workforce will always be recruited from cheap
countries.”
Staggering cost increases due to redundancy in electronic
navigation and communication equipment, and increased port dues, were among
other issues deemed by respondents in the survey to be likely to result in an
increase in operating costs.
Moore Stephens also asked respondents to identify the three
factors that were most likely to influence the level of vessel operating costs
over the next 12 months. Overall, the most significant factors identified by
respondents were finance costs at 22 percent (compared to 21 percent in last
year’s survey) and competition also at 22 percent (up from 18 percent last time).
Crew supply was in third place with 17 percent (down 3 percentage points on
last time), followed by demand trends (down by one percentage point to 16
percent) and labor costs, unchanged at 13 percent. The cost of raw materials
was cited by eight percent of respondents (compared to 10 percent in last
year’s survey) as a factor that would account for an increase in operating
costs.
Moore Stephens shipping partner Richard Greiner says, “The
predicted increases in ship operating costs for this year and next compare to
an average fall in 2014 of 0.8 percent in operating costs across all main ship
types recorded in the recent Moore Stephens OpCost report. Nevertheless, the
level of increases anticipated for 2015 and 2016 are low in comparison with
many we have witnessed in recent years. Shipping has seen much worse, and
prevailed. For example, many of the companies which endured a 16 percent rise
in operating costs in 2008 are still operating successfully today.
“It is no surprise that crew wages feature near the top of the
predicted operating cost increases for both 2015 and 2016, not least because of
the entry into force of the Maritime Labour Convention 2006, which mandates the
manner in which seafarers must be paid. For shipping, as for every industry,
investment in good people will always be money well spent.
