Vessel operating costs expected to rise

Vessel operating costs are expected to rise by 3.8% in 2011 and by 3.7% in 2012, with lube expenditure and crew costs identified as the categories most likely to produce the highest levels of increase, according to a new survey by international accountant and shipping consultant Moore Stephens.

The survey is based on responses from key players in the international shipping industry, predominantly ship owners and managers in Europe and Asia. And those responses identified lubricants as the cost category likely to increase most significantly over the two-year period – by 3.6% in 2011, and by 3.1% in 2012.

Crew wages, meanwhile, are expected to increase by 3.1% in both 2011 and 2012, while the cost of spares is expected to escalate by 2.7 % and 2.6 %, respectively, in the two years covered by the survey. Expenditure on stores, meanwhile, is expected to increase by 2.5 % in each of the two years. The cost of repairs and maintenance is expected to increase by 2.8% and 2.6 % in 2011 and 2012 respectively, while the increase in P&I costs for those two years was estimated by respondents at 2.4 % and 2.3 % respectively. As was the case in the previous survey, in 2010, management fees was identified as the category likely to produce the lowest level of increase in both 2011 and 2012, at 1.8 % and 2.0 % respectively.

“Bunkers and lubes are our biggest cost,” said one respondent, while another observed, “The cost of bunkers is unrealistically high. There is no reason for that. If the price of bunkers remained at a reasonable level, shipowners would not be struggling in the way they are at the moment.” Another still said, “There will be an inevitable cost consequence of implementing fuel efficiency measures at the request of charterers, while the benefits of such measures will not be seen in terms of operating costs”.

One respondent expected dry cargo crewing costs to increase more than tanker crewing costs, while another noted, “The Manila amendments to STCW will result in significant increases for ‘other’ crew costs, especially in respect of training.”

A number of respondents expressed concern about overtonnaging and the weakness of rates in the freight and charter markets, “Overcapacity and newbuilding deliveries involving larger tonnage on the main routes will maintain downward pressure on rates,” said one. Another maintained that there was “no sign of resolving the overtonnaging problems in the dry bulk sector”, arguing that this, together with unpredictable trade volumes, would lead to pressure for cost increases and for reflagging as a means of driving operating costs down. Another respondent pointed out, “Depressed charter rates will lead owners to seek in vain to minimise operating costs.”

Predictably, worldwide economic and political problems were uppermost in the thoughts of some respondents, with one commenting, “World financial conditions will depress shipping revenues, and this will impact on ship requirements and charter rates.” Another respondent felt, “China’s effective control of the market, together with inflation, will make shipping markets difficult for most people involved in the business.” Yet another said, “It all depends on whether the global economy – and particularly that of the US – can recover, and whether the US dollar continues to be the only currency for oil trading.”

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, 26% of respondents identified finance costs as the most significant factor, followed closely by crew supply (25%). Demand trends were in third place, with 14%. In last year’s survey, 30% of respondents identified crew supply as the most significant factor, followed by finance costs, at 28%, and demand trends at 16%. “Finance costs and potential interest rate hikes will be key factors for the market,” said one respondent.

Labour costs, competition and raw materials costs were other significant influencing factors which featured in the responses to the survey. One respondent said, “Raw materials will increase in cost, so there will be upward pressure on stores, spares and repairs.”

Moore Stephens shipping partner Richard Greiner says, “Ship operating costs increased by an average of 2.2% across all the main ship types in 2010. And it is no surprise that our latest survey anticipates that costs will rise in both 2011 and 2012.

“These projected increases are nowhere near the increases we saw in the 2000s. They point to a less volatile period for operating costs. But any increase in costs is going to be a problem for a shipping industry struggling with overtonnaging, declining freight rates, and the cost of regulatory compliance and environmental accountability. Add to that the continuing economic and political problems which form the background to shipping’s operating arena, and you can see that the industry is not going to be for either the faint-hearted or the short-termist.”

Bone fide journalists can request an electronic copy of the Future Operating Costs survey by emailing john@merlinco.com

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 638 offices of independent member firms in 97 countries, employing 20,588 people and generating revenues in 2010 of $2.151 billion.

For more information:

Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Court confirms Marco Polo Seatrade Chapter 11 protection and frees vessel

The New York Court supervising the reorganisation of Marco Polo Seatrade and its group affiliates has rejected the motions filed by the Royal Bank of Scotland and Credit Agricole seeking to dismiss the group's US Chapter 11 filings. Both lenders had asserted that Marco Polo Seatrade was not eligible for Chapter 11 protection and had indeed initiated its Chapter 11 case in bad faith. The court rejected all of the lenders' arguments.

Antonio Zacchello, MD of Marco Polo Seatrade, says, "We are delighted that the court has confirmed that we acted in accordance with the law and in good faith in starting our Chapter 11 proceedings. We now look forward to developing the Chapter 11 reorganisation plan, preferably on a consensual basis with our lenders and creditors that will enable us to emerge from Chapter 11 as a strong and healthy competitor in the global shipping market."

Marco Polo Seatrade has reached an agreement with Credit Agricole to release the 115,000 dwt aframax tanker Montiron from arrest and return it to operations. Credit Agricole’s arrest of the Montiron on July 21, 2011 was one of the precipitating factors for Marco Polo's Chapter 11 filing. Marco Polo Seatrade is confident that it can resume its day-to-day activity in the pool within the next few days. This consensually resolves the litigation begun by Marco Polo against Credit Agricole relating to the release.

The return to operations of the Montiron is the latest in a string of consensual agreements reached by Marco Polo Seatrade with its lenders in its Chapter 11 proceedings. This includes Marco Polo's continued use of its lenders' cash collateral and its ability to obtain additional ‘debtor in possession’ financing from the Royal Bank of Scotland.

Marco Polo Seatrade will now continue to focus its efforts on emerging from Chapter 11 within a short period time and to provide a safe and reliable service to its clients.

Inadequate newbuilding supervision leads to costly claim

International Transport Intermediaries Club (ITIC) says a recently concluded claim brought against a newbuilding supervisor helps illustrate the level of diligence which might realistically be expected of such a specialist service provider.

In the latest issue of its Claims Review, ITIC cites the case of a newbuilding supervisor appointed by a technical management firm to oversee the building of a number of chemical carriers. A dispute arose concerning two hulls which were scheduled for delivery in early 2009. In his monthly report for December 2008, the newbuilding supervisor stated, “There are no known matters at this stage with regard to the construction and commissioning of the hulls which may affect the scheduled target date”. On the basis of this report, the technical manager nominated the two vessels as performing vessels under a contract of affreightment.

Upon completion of sea trials, deficiencies were identified relating to the tank coating of the first vessel. An independent surveyor was appointed and reported that the tanks were badly corroded. It appeared that some remedial action had been taken by the yard to cover up poorly adhering paint. In respect of the second vessel, deficiencies were found in the form of ‘mud cracking’ in the tank coating, and there was further evidence that the yard had covered up areas of poorly adhering paint. The delivery of both vessels was delayed by two months until later in 2009 as significant work had to be carried out re-blasting and re-coating all cargo tanks on both vessels.

The technical manager brought a claim against the newbuilding supervisor for losses of $830,000. The newbuilding supervisor argued that the defects only became apparent at the sea trials and that he was not responsible for the yard’s failure to properly apply the paint. ITIC says, “The main point at issue was what could realistically be detected by a newbuilding supervisor.”

A key concern was in relation to one of the hulls, as the mud cracking and unauthorised repairs were evident in 20-30 per cent of the total tank area. It became apparent that the newbuilding supervisor had possibly failed in his duty to adequately supervise the newbuilding, especially in failing to detect the yard’s attempt to cover up poorly adhering paint. Negotiations to settle the claim led to final agreed compensation in the amount of $350,000.

Copies of the ITIC Claims Review can be requested from: chris@merlinco.com

ITIC is managed by Thomas Miller. More details about the club and the services it offers can be found on ITIC’s website at www.itic-insure.com

For more information:
Charlotte Kirk
ITIC
Tel. +44 (0)20 7338 0150
Fax. +44 (0)20 7338 0151
charlotte.kirk@thomasmiller.com

Liberian Registry co-operating fully in Rena salvage operation

THE Liberian Registry has confirmed that it is continuing its investigation and is working co-operatively with the maritime authorities and emergency response teams in New Zealand following the grounding of the containership Rena off the country’s coastline on October 5.

The ship has been entered with the Liberian Registry since November 2010 when it was acquired by the current owners, who have a long-standing and reliable history with the Liberian Registry. It has been engaged in regular trading between Australia and New Zealand, and is understood to have been a regular caller at the port of Tauranga.

The Liberian Registry’s specialist investigation team of marine experts is co-operating closely on site with the owners, local maritime authorities, and the salvage contractor Svitzer, which has been engaged under an LOF form of salvage agreement. Prior to the deteriorating weather conditions, all efforts were focused on taking measures to limit pollution from the vessel’s bunker tanks. These measures, which were approved by both the Liberian Registry and the New Zealand Authorities, were taken in the best interests of the safety of the crew and response personnel and the environment.

Scott Bergeron, chief executive officer of the Liberian International Ship & Corporate Registry, says, “The casualty is a source of great regret to the Liberian Registry. Our sympathies are very much with the people of New Zealand. For the moment, the priority must be protection of the environment and of the interests of those whose livelihoods may be threatened. The registry will do everything in its power to help achieve those objectives. It will refrain from any attempt to apportion blame, or to attribute causation, until a full and proper inquiry has been carried out.

“Liberia will conclude an official investigation as soon as possible, using its extensive resources to establish the cause of the casualty. A full investigation report will be issued in due course, as is customary with any casualty involving a Liberian-flag ship. Liberia is rightly proud of its excellent safety record, which continues to be endorsed by independent port state control authorities around the world.”

The Liberian Registry is one of the world’s largest and most active shipping registers, with a long-established track record of combining the highest standards for vessels and crews with the highest standards of responsive service to owners. www.liscr.com

London Club issues warning on inflated claims and legal delays

THE London P&I Club has warned that shipowners face a significant increase in exposure to claims and fines levied against them in jurisdictions which suffer from a combination of high interest rates and a reputation for protracted legal proceedings.

In the latest issue of its StopLoss Bulletin, the club notes, “Brazil provides a good example of such a jurisdiction. The prevailing interest rate is in the region of 12 per cent per annum, in addition to which the courts apply a further variable uplift to take into account the effects of inflation, which can be as much as 6 per cent.

“In practice, this means that a club member’s exposure to a claim or fine can increase by almost 20 per cent for each year that the matter is pending. Bearing in mind that it is not unusual for a claim to take five years from start to finish, this can result in a member’s ultimate exposure potentially doubling.”

The club warns that there are times when the effect may be even more severe. It cites one instance where a cargo claim, initially presented for an amount in the region of $1m, ultimately resulted in an adverse judgment of just under $4m, after protracted litigation.

The club concludes, “Careful consideration should be given to any opportunity to settle at a reasonable level at an early stage.”

Also in StopLoss, the club highlights an emerging trend in Brazil for crew members to be required to obtain visas for up to 30 days for entering Brazilian waters. The club understands that such visas are only required for tourists and are in fact completely unnecessary for members of a ship’s crew. Nevertheless, there have been instances where unexpected delays to ships have meant that the crew have remained within Brazilian territorial waters after their visas have expired, resulting in fines being levied upon ship operators for a breach of immigration regulations.

P&I correspondents in Brazil say such fines have no legitimate basis and recommend that they be challenged. The club has urged its members to contact it for further advice if faced with demands for payment of such fines.

www.londonpandi.com