Vessel operating costs expected to rise over the next two years

Vessel operating costs are expected to rise by 3.0 per cent in both 2012 and 2013 according to a new survey by international accountant and shipping consultant Moore Stephens. Lube expenditure and crew costs are the categories most likely to produce the highest levels of increase.

The survey is based on responses from key players in the international shipping industry, predominantly shipowners and managers in Europe and Asia. As was the case twelve months ago, those responses identified lubricants as the cost category likely to increase most significantly – by 2.9 and 2.8 per cent in 2012 and 2013 respectively.

Crew wages, meanwhile, are expected to increase by 2.3 per cent in 2012 and by 2.4 per cent in 2013, with other crew costs thought likely to increase 2.1 per cent for both years under review. The cost of spares, meanwhile, is expected to escalate by 2.2 per cent in each of the two years covered by the survey. Expenditure on stores is expected to increase by 2.1 per cent in both 2012 and 2013, while the cost of repairs and maintenance is expected to increase by 2.1 per cent and 2.2 per cent in the same years. The increase in P&I costs for 2012 and 2013 is estimated by respondents at 2.1 per cent and 2.2 per cent respectively, while for hull and machinery insurance the respective figures are 1.9 per cent and 2.0 per cent. Dry-docking costs over the same period are expected to rise by 1.9 per cent and 2.0 per cent. As was the case in the 2011 survey, management fees were deemed likely to produce the lowest level of increase in both 2012 and 2013, at 1.3 per cent and 1.4 per cent respectively.  

“With crude oil prices hardening, lube costs will go up,” said one respondent, while another observed, “Fuel and lube suppliers are very aware that there is an oversupply of tonnage on the market, and take advantage of that in their dealings with owners.” Another still said, “There is ongoing pressure to reduce operating costs by means of improving vessel fuel efficiency, and in practice there might be a gap between expectations and what can be achieved as fuel and lube costs are likely to increase at a steady pace.” Elsewhere it was noted, “There is no alternative to lube oil, and costs are already very high, making it very difficult to operate a ship.”

A number of respondents cited crew costs as a major cause for concern. One said, “As long as there is stiff competition on crew costs amongst managers, with wages being increased at random, the situation will not settle down.” Another noted, “The volume of new vessel deliveries and short contracts will put pressure on crew supply, and crewing costs will go up.” Neither were respondents convinced that more expensive crews would actually mean better crews. “Crew competence and skill is declining,” said one, “with a trend towards short contracts and fast promotion. This is leading to more accidents and to extraordinary unbudgeted expenses.” Another remarked, “The shortage of qualified crews is steadily getting worse. A lot of the new crews are of a very low standard.” Elsewhere it was noted, “Crews from countries that offer lower wages will play a very important role in the cost of operating vessels. With low freight earnings, owners will try to save on crew wages.” Meanwhile, one respondent claimed, “The biggest single factor in operating cost increases these days is the scarcity of Filipino and Chinese seamen.”

Several respondents expressed concern about overtonnaging. “The market has been very shaky in 2012, and will continue to be so next year, because of the oversupply of tonnage and the shortage of motivated and qualified crews,” noted one, adding, “Below-break-even voyages are being undertaken in order to avoid sending ships into lay-up or being sold at very low prices.” Another pointed out, “The shipping markets will only get more difficult, as a result of overcapacity,” while another still predicted, “Due to the over-supply of ships, we face a major crisis, and an increase in the amount of laid-up tonnage.”

The difficulty of obtaining finance, declining freight rates, and the cost of increasingly stringent regulatory compliance were among other concerns cited by respondents to the survey. “Legislation coming into force, including that affecting labour conditions and the environment,” said one, “will have a major impact on operating costs for older tonnage.”

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, 27 per cent of respondents identified finance costs as the most significant factor, followed closely by crew supply (20 per cent). Competition was in third place, with 18 per cent, followed by demand trends (17 per cent). In last year’s survey, 26 per cent of respondents identified finance costs as the most significant factor, followed closely by crew supply (25 per cent). Demand trends were in third place last year, with 14 per cent.

Labour costs, competition and raw materials costs were other significant influencing factors which featured in the responses to the survey.

Moore Stephens shipping partner Richard Greiner says, “Ship operating costs increased by an average of 2.1 per cent across all the main ship types in 2011, and it is unsurprising that our latest survey anticipates that costs will rise by a greater margin in both 2012 and 2013. Although they will be difficult for owners, operators and managers to absorb in a struggling economic environment and a depressed freight market, these increases still represent a continuation of less volatile cost movements than those we saw just a few years ago.

“Once again, lubes and crew costs are predicted to increase most significantly, and it was concerns in respect of these which dominated the comments made by respondents to the survey. Given projected increases in the price of oil, and the entry into force next year of the Maritime Labour Convention 2006, it would be a surprise if the same were not true of next year’s survey.”

Bone fide journalists can request an electronic copy of the Future Operating Costs survey by emailing chris@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 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

For more information:                                                       

Richard Greiner                                                 

Moore Stephens LLP                                                 

Tel: +44 (0)20 7334 9191                                           richard.greiner@moorestephens.com            

London P&I Club warns on unsafe Sierra Leone iron ore cargoes

The London P&I Club has warned that ships are being offered iron ore cargoes for loading in Sierra Leone which are unsafe, and that limited local expertise and technology, together with poor communications, are exacerbating the problems.

In the latest issue of its StopLoss Bulletin, the club notes that, following the end of the country’s ten-year-long civil war, two shippers have resumed exports of iron ore from Sierra Leone. Some of these cargoes are Group A (capable of liquefying) under the International Maritime Solid Bulk Cargoes (IMSBC) Code.

The club recounts a number of recent cases in which independent consultant Brookes Bell, acting on behalf of London Club members, has confirmed that ships can be offered cargo which is unsafe because their actual moisture content exceeds their transportable moisture limit (TML). The IMSBC Code requires representative samples of Group A cargoes to be properly analysed so that appropriate information/certification on TML and actual moisture content is available to the master prior to loading. But Brookes Bell has learned that, while there are local laboratories which can measure the moisture content, there is no facility in Sierra Leone with the equipment necessary to establish the TML of a sample.

According to Brookes Bell, “One attempt at confirming compliance with the IMSBC Code involved a surveyor sampling the cargo for the first time during transhipment at anchor and then seeking to establish the moisture content by drying out the samples in an oven in the ship’s galley. The resultant uncertainty over the characteristics of the cargo and whether it was safe to load led to very extensive delays during loading.

“At a simple level, where owners/charterers have felt compelled to verify the condition of apparently wet cargo offered for shipment, there are significant logistical problems in accessing the stockpiles either at the mines or at river terminals. The long and difficult journeys can involve both road and river transport and, because of the lack of on-site accommodation, these journeys may need to be repeated frequently.”

Both Sierra Leone shippers are now aware of their obligations under the IMSBC Code and appear to be trying to avoid offering wet cargo and/or inadequate certification. However, the London Club says it expects some difficulties to persist, particularly as both shippers plan to increase their export volumes. Owners and charterers considering fixing iron ore loadings from Sierra Leone are therefore advised to give early notice to the club, which can help to establish whether proper sampling and testing has been conducted.

www.londonpandi.com

Persistence pays off for shipbroker in recovering charter party commission

International Transport Intermediaries Club (ITIC) has illustrated how persistence can pay off for shipping intermediaries looking to pursue legitimate claims in today’s difficult financial climate.

In the latest issue of its Claims Review, ITIC recounts the case of a shipbroker owed outstanding commission by time-charterers who were widely thought to be in financial difficulties. The charter party provided that the time-charterers were obliged to deduct the broker’s commission from the hire and pay this directly to the broker. The charterers had deducted commission of Euros 50,514 from the hire, but had only paid Euros 20,000 to the broker. Thereafter, payments had suddenly ceased without explanation. ITIC wrote to the time charterers on behalf of its shipbroker client on two occasions and was advised that payment was to follow. But no money was ever received.

The charterer was then warned that ITIC would consider a ship arrest should the next instalment not be promptly received. This prompted the payment of a further Euros10,000 - leaving Euros 20,514 still owing. Payments ceased again. ITIC was advised that it was not possible to arrest the ship against which the commission had been incurred because the debtors were only the time-charterers. However, the charterers had their own fleet of ships, one of which was due to arrive in a jurisdiction where it could be arrested for shipbrokers’ commission. An arrest order was obtained, and this produced another payment of Euros 10,000.

Unfortunately, no further payments were received and it became apparent that the ship on which the arrest order had been obtained was held up at the previous port, so the arrest order could not be served. An arrest order was therefore obtained to arrest another of the charterer’s fleet. This arrest was effective and the charterer paid the balance owed. The legal costs were paid by ITIC.

“Persistence pays,” says ITIC.

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             

RINA GROUP launches sailing rig guidelines and certification

International classification society RINA has developed guidelines for yacht sailing rig analysis, manufacturing and maintenance. The scheme includes full certification of the rig and a verifiable planned maintenance scheme.

Paolo Moretti, General Manager Marine, RINA Group, says, “This is a new approach to a challenging engineering problem. Until now, sailing yacht classification has focused on the hull and machinery. We think that this is illogical, as sailing yachts depend on their rig. So we are extending class service to cover the rig, from plan approval to in-service regular surveys exploiting the results of an innovative dynamic strength analysis. We see strong demand for this from the increasing number of large sailing yachts built for charter and commercial use, and from flag states that need our expertise to oversee the rig properly. But it is not just for commercial charter yachts, this is for any yacht and we know many private owners want to extend classification to cover this vital part of the yacht.”

The new guidelines for sailing rigs have been developed using a bottom–up philosophy, studying rig failures and researching relevant solutions to achieve cost-effective reliability improvement. A database of recorded dis-mastings has been examined using reliability engineering methods. Typical failure modes have been determined. High-risk priority items have been identified. Ad-hoc dynamic strength analyses have been calibrated and actions have been taken to achieve a significant reduction in rig failure rate.

Moretti says, “We class more yachts than anyone and we have long experience with yachts. We have learned, for example, that a high percentage of dis-mastings are associated with standing rigging failures. As with every complex system, failure rate of sailing rigs usually depends on time, varying over the life cycle, and insufficient knowledge about the rig response to the at-sea behaviour of units, sometimes coupled with lack of proper maintenance, is one of most common root causes of failures. In many cases, captains and crews are not aware of critical information relevant to their rigs and this often leads to wrong sail reduction manoeuvres that overstress the system. As far as the mast calculation is concerned, wave-induced inertial loads are sometimes of the same order of magnitude as aerodynamic loads and have to be taken into account during rig design. Our analysis criteria address those issues and we believe this is a unique service which will see a very high uptake.”

Under RINA requirements for sailing rigs, critical rig items will be surveyed and tested under surveyor attendance. A planned maintenance scheme will be required, and scheduled periodic surveys will be witnessed by class surveyors, supported by approved manufacturers as required. To support the crew and captain, RINA will approve a rig booklet giving guidance for rig maintenance and handling. A feasibility study for onboard accelerometers has been carried out to be used for crew guidance and data recording purposes.

One of the central aspects of RINA certification will be the use of a dedicated computational tool that has been developed to support rig structural design. This software, based on CFD and FEM analysis, is the most advanced in this field and also facilitates the calculation of inertial loads due to hull motion in severe weather conditions.

Owners and yards may opt for different levels of certification schemes. Rig plan approval is available as a stand-alone service. Rig type approval is available for CE yachts under 24 m. There is an additional class notation for yachts L>24 and a mandatory class notation for sailing charter yachts. These are backed by periodic class survey, outfitting testing and type approval certification, manufacturer-certified quality assurance, and manufacturer-certified planned maintenance schemes and certified compliance to statutory requirements.

RINA currently classes over 1,250 yachts and is supervising over 200 newbuilding yachts.

RINA is a multi-national group which delivers verification, certification, conformity assessment, ship classification, environmental enhancement, product testing, site and vendor supervision, training and engineering consultancy across a wide range of industries and services. RINA Group operates through a network of companies covering Marine, Energy, Infrastructures & Real Estate, Transport & Logistics, Food & Agriculture, Environment & Sustainability, Finance & Public Institutions and Business Governance. With a turnover of around 300 million Euros in 2012, over 2,100 employees, and 140 offices in 49 countries worldwide, RINA is recognized as an authoritative member of key international organizations and an important contributor to the development of new legislative standards. www.rina.org

For more information:

Claudia Filippone

Head of Communication RINA Group

Ph. +39 010 5385643

claudia.filippone@rina.org

Giulia Faravelli

Media Relations Manager RINA Group

Ph. +39 010 5385505

Giulia.faravelli@rina.org

Boat action on line

Launching and recovering boats offshore is exciting. Vestdavit can share that excitement now with a film of its PLAR-3600 extreme lightweight davit in action during crew training on board the Royal Swedish Navy’s corvette HMS Malmø. The PLAR-3600 davits had recently been installed. The shooting took place on a day of windy and rainy weather outside Karlskrona. The PLAR-3600 davit is custom made for the Swedish navy and is skid-mounted for plug and play installation. The whole installation with HPU, hydraulic oil and skid weighs just over 3000 kg. See the film at: http://bit.ly/S56tHP

 

Vestdavit designs, supplies and supports tailor-made solutions for launching and recovering boats in difficult conditions at sea.

Our range of boat handling systems and davits are the first choice of navies, coastguards, seismic survey operators, pilot authorities and offshore operators who need to be able to operate small boats safely from larger vessels.

www.vestdavit.no

Moore Stephens says FSA client money rule changes will cause problems for intermediaries

LEADING accountant and insurance consultant Moore Stephens says that the FSA’s proposed new rules on client money are certain to cause concern among insurance intermediaries, who could be asked to spend more time and money on their obligations in this regard.

The FSA’s consultation paper – CP12/20 – Review of the client money rules for insurance intermediaries – seeks intermediaries’ views on proposed changes to the client assets (CASS) rules, which are meant to ensure that clients’ monies are protected in the event of a firm’s failure.

Stuart Markley, a partner with the Moore Stephens insurance team, says, “It is fair to say that the FSA has never been entirely comfortable with the way insurance intermediaries hold client money under the CASS rules. It believes that insurance brokers have a poor understanding of the current rules. This is borne out by the results of FSA thematic compliance reviews which show evidence of poor compliance practices and widespread record-keeping errors involving missing or incomplete documentation. This puts at risk the objective of protection in the event of failure.”

The FSA has invited firms to comment on its proposals by 30 November 2012. The proposals cover a number of topics, including client money calculations, bank reconciliation, the advancing of credit, and unallocated client money. Markley says, “The FSA would like to see client money calculations undertaken much more frequently than every 25 days, which the current rules mandate. This will be of concern to firms with limited IT resource or man-hours. The FSA has also proposed that time limits are placed on the credit extended by firms to clients or insurers and that, after these limits have expired, the money must be replaced. This will force brokers to look more closely at their credit arrangements, particularly with regard to prompt collection. Even though brokers may already have systems in place to deal with this, these would have to be updated to ensure that no credit provided breached the rules.

“Another of the FSA proposals requires firms to undertake reconciliation of client money with their bank accounts two days after the client money calculation, as opposed to the ten days allowed under the existing rules. Again, this has potential to cause concern for those brokers with limited resources. The FSA is also proposing that any unallocated client money should only be held by intermediaries for a maximum of 90 days, after which time the cash should be returned to the sender or, of that is not possible, to the remitting bank. This constitutes another layer of checks and controls for intermediaries to deal with.”

Moore Stephens urges firms to respond to the FSA consultation paper. It adds that, while the paper is aimed at insurance intermediaries, some of the elements of consultation are very relevant to insurers – in particular, the focus on terms of business agreements and risk transfer elements. Stuart Markley says, “The changes proposed by the FSA are sure to stir some debate and bring about some concern, not least because they could result in further time and expense being spent on client money obligations, with additional checks and controls being put in place. If brokers and other intermediaries fail to respond to the FSA by the due date, they will lose an important opportunity to state their case.”

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 networks, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

For more information:
Stuart Markley, Moore Stephens LLP
Tel: +44 (0)20 7334 9191
email: stuart.markley@moorestephens.com

Moore Stephens calls for rethink on capital gains exchange rate distortions on ships

International accountant and shipping consultant Moore Stephens has urged the UK government to remove exchange rate distortions when calculating capital gains on ships.

Moore Stephens tax partner Sue Bill explains, “Currently, all capital gains and losses subject to UK corporation tax are calculated by reference to sterling, with the result that capital gains and losses arising on non-sterling assets, including certain ships, can be significantly distorted by exchange rate fluctuations. For example, even where there is no increase in the dollar or euro value of a ship, a taxable capital gain can arise solely as a result of a fall in the value of sterling. 

“In order to avoid such distortions, the UK government has now proposed changes to these rules so that capital gains and losses in some cases can be calculated in a currency other than sterling. Under the proposed changes, where a company has a non-sterling functional currency, capital gains and losses will in future be calculated in the company’s functional currency. But this will only apply to shares and not to physical assets.   

“UK resident shipowning companies are subject to potentially very large distortions due to exchange rate fluctuations when calculating capital gains or losses on their ships, although this is less of an issue if there is a capital loss, because relief is likely to be available by way of capital allowances rather than in the form of a capital loss.

 “These rule changes are not relevant for UK shipowning companies whose ships have all been within the tonnage tax regime throughout the period of ownership by that company. But they are relevant for UK companies that are not in the UK tonnage tax regime, or that have some ships wholly or partly outside tonnage tax. They will also be relevant for companies owning chargeable assets other than ships which are subject to exchange rate fluctuations by reference to sterling.” 

The closing date to comment on the UK government’s proposals is 15 October 2012. Moore Stephens has made representation to the government that the proposed changes to the existing rules should apply to ships as well as to shares, so that any calculations are made in the company’s functional currency.

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 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

For more information:                                                            

Sue Bill

Moore Stephens LLP                                                                

Tel: +44 (0)20 7334 9191                                                           

sue.bill@moorestephens.com