Ship operating costs decline for seventh year in succession

International accountant and shipping consultant BDO says total annual operating costs in the shipping industry fell by an average of 1.8% in 2018, compared to the 1.3% fall for 2017. All categories of expenditure in 2018 were down overall on those for the previous 12-month period, with the exception of repairs and maintenance costs.

The findings are set out in OpCost 2019 (www.opcostonline.com), BDO’s unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2018, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 4 points, or 2.4%, compared to the 3 points (1.7%) fall the previous year. The bulker index, meanwhile, fell by 4 points, or 2.6%, compared to the 3 points (1.9%) fall recorded in last year’s OpCost. The container ship index was down by 2 points, or 1.3% - identical to the fall recorded for the previous 12 months.

There was a 1.1% overall average decrease in 2018 crew costs, compared to the 2017 figure of 0.1%. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.8% on average, compared to the 0.5% fall recorded last year. All categories of tankers reported a reduction in crew costs for 2018 with the exception of Panamax Tankers, which recorded an increase of 0.1%, compared to a reduction for 2017 of 0.7%. The most significant reduction was the 2.7% recorded by Aframax Tankers, which also recorded the biggest reduction in 2017 at 1.7%.

For bulkers, meanwhile, the overall average fall in crew costs in 2018 was 1.1%, compared to 0.6% recorded for the previous year. Handymax Bulkers recorded a 2.3% fall in 2018, with a 1.7% fall for Panamax Bulkers and 0.1% for Handysize Bulkers. Capesize Bulkers were the only category of bulker to record an increase in crew costs, of just 0.1%, compared to the fall the previous year of 0.8%.

As was the case in 2017, there was zero overall increase in expenditure on crew costs in the container ship sector in 2018. The last overall movement for this category of ship was the 1.1% fall recorded for 2016. With the exception of vessels of between 2,000 and 6,000 teu, all categories of container ships recorded a fall in crew operating costs in 2018. In the case of ships between 6,000 and10,000 teu, the fall was 2.7%, equalling the figure recorded by Aframax Tankers as the largest reduction in crew costs recorded in OpCost 2019.

Expenditure on stores was down by 4.9% overall, compared to the fall of 3.5% in 2017. Mirroring the results in the previous year, all vessels in all categories recorded a fall in stores costs for 2018, none bigger than the 7.6% recorded by container ships of between 2,000 and 6,000 teu. In the tanker sector, the most significant fall was the 6.4% posted by Aframax Tankers. Panamax Bulkers and Capesize Bulkers led the way in the bulker sector, each recording a 6.7% reduction in stores expenditure.

For tankers overall, stores costs fell by an average of 4.8%, compared to the 4.5% recorded for 2017, while in the bulker sector the reduction was 6.1%, compared to a fall of 3.6% in 2017. In the container ship sector, meanwhile, there was a 5.7% fall in stores expenditure, compared to a drop of 3.4% the previous year.

There was an overall increase in repairs and maintenance costs of 0.6% in 2018, compared to the reduction of 1.7% in 2017. Both categories of chemical tanker posted increases, led by the 1.6% increase posted by Chemical Tankers 40,000 to 50,000 dwt. There were also significant increases in the container ship sector, most notably in the case of ships of between 1,000 and 2,000 teu and between 2,000 and 6,000 teu (3.1% and 2.9% respectively).

In the tanker sector, Suezmax owners spent 2.3% more on repairs and maintenance in 2018 than they did in the previous year, while increases were also posted for Tankers 5,000 to 10,000 dwt (1.2%) and Handysize Product Tankers (1.1%). Repairs and maintenance costs were also up in the bulker sector for Capesize Bulkers (1.5%) and Handysize Bulkers (0.3%). Product Tankers, meanwhile, recorded the largest fall of 1.6% across all categories.

For tankers and bulkers overall, there was zero overall increase in repairs and maintenance costs in 2018, compared to the falls of 3.4% and 1.5% recorded in 2017. In the container ship sector, however, there was a 3.2% overall increase in repairs and maintenance costs in 2018, compared to zero movement the previous year.

The largest overall drop in operating costs in 2018 was the 7.1% fall recorded for insurance, compared to the 4.1% fall in 2017. Ro-Ros were the only category of vessel to record any increase in insurance costs (1.7%). Everywhere else, there were sizeable reductions in insurance outgoings, none bigger than the 9.9% posted for Handysize Product Tankers. Not far behind were Chemical Tankers 15,000 to 40,000 dwt (9.8%), Panamax Bulkers (9.7%) and container ships of between 1,000 and 2,000 teu (9.3%).

For tankers overall, there was an 8.3% fall in insurance costs in 2018, compared to the 3.4% reduction in 2017. For bulkers, the reduction was 8.5%, compared to 6.0% the previous year, and for container ships the corresponding figures were 7.6% and 5.8%.

Richard Greiner, Partner, Shipping & Transport at BDO, says, “This is the seventh successive year-on-year reduction in overall ship operating costs recorded by OpCost, and will doubtless be regarded as good news throughout the industry. However, at the same time, the solitary overall increase across all categories of operating costs in 2018, that in respect of repairs and maintenance, should be regarded as encouraging news on a number of levels. It indicates an ongoing commitment to the increasing imperative of regulatory compliance, to maintaining safety and protecting the environment, and to continued operation. Moreover, it does nothing to confound the incipient belief that shipping may be displaying signs of a slow recovery to improved profitability. Nobody spends money on repairs and maintenance for vessels that are not expected to trade. Increasingly, vessels that do not meet industry standards will find it difficult to continue trading as regulation bites harder and more comprehensively on a global scale.

“In 2018, as was the case the previous year, the biggest cost reductions were to be found in insurance, reflecting, among other things, the intense competition for business in insurance markets throughout the world. The next biggest level of reductions came, as was again the case in 2017, in the stores category, a trend largely driven by the fall in the cost of lube oils.

“The smallest of the reductions in operating expenditure in 2018, as was the case in the previous year, came in the crew costs category, down by just over 1% on the previous year. Crew costs have been one of the most volatile elements of operating expenditure in the modern shipping industry, but there are reasons to believe that such volatility is likely to decrease. There are a variety of factors impacting crew costs, including fluctuating trade levels, the improved bargaining position enjoyed by seafarers under the MLC 2006 Convention, the emergence of professionally trained crews from dedicated institutions in developing countries, technological advances resulting in reduced manpower requirements, and the continuing difficulty of finding sufficient numbers of certain specialist officers and crew. These factors should balance each other out over time so that increases of more than 20% in crew costs are at least unlikely to be seen - increases the industry has witnessed and survived in previous years.

“Shipping is used to fluctuations in costs and industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Panamax Bulker was US$6,321; in 2018, it was US$5,472. For a Handysize Product Tanker, the comparable figures are US$7,908 and US$7,285.

“Shipping’s fortunes will continue to fluctuate, but confidence is holding up well, notwithstanding the impact of political and economic issues. It should continue to do so, given a favourable wind and a continuing appetite for investment in an industry which is increasingly embracing technological innovation and environmental awareness as a means to increase efficiency and improve cost-efficiency. Whilst there remains the need to fund the costs of technological improvements, over time that investment should lead to improved profitability.”

The BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide.

BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.

https://www.bdo.co.uk/en-gb/industries/shipping-and-transport


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Failure to check charterparty wording catches ship manager off guard

International Transport Intermediaries Club (ITIC) has urged ship brokers and managers to check the terms of their charterparty agreements closely before signing, in order to avoid costly mistakes further down the line.

By way of illustration, ITIC cites the case of the manager of a tanker entering West African waters who believed that the terms of a charterparty provided that armed guards were to be appointed at the charterer’s expense. The manager duly appointed the guards for the voyage at a cost of $170,000, but the charterer refused to pay the invoice.

The terms of the charterparty did in fact include provisions relating to the appointment of armed guards, but their deployment was not mandatory. In addition, the charterparty provided that the charterer was only liable for up to $20,000 of any such costs. The charterer offered to pay that $20,000, and the owner demanded that the managers pay the shortfall.

The owner pointed out that it had sent the manager voyage orders stating that the decision to appoint armed guards was one for the owner to make. It had in fact only appointed armed guards for one out of the last ten calls to the area and on
that occasion the charterparty required the charterer to pay the security bill in full.

ITIC says it has seen a number of claims caused by ship brokers and managers acting on their recollection of a charterparty wording, as opposed to checking what the charterparty actually says. On this occasion, ITIC reimbursed the full claim of $150,000.

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
charlotte.kirk@thomasmiller.com

ITIC warns on the potential cost of being an expert

International Transport Intermediaries Club (ITIC) has warned that the role of expert witness should not be undertaken lightly and that all professionals acting in this capacity should be aware that they could face legal action for negligence.

In the latest issue of its online newsletter, The Wire, ITIC cites a case involving an explosion on board a yacht at a marina which resulted in an insurance claim being made against the owner. An expert appointed by the insurers to investigate the cause of the loss concluded that the explosion and fire were the result of a deliberate act by the owner.

The insurers rejected the claim for a number of reasons, and the owner challenged the insurer’s decision in the local court, which found in favour of the insurers because the owner had been working on the vessel without the requisite authority. Therefore, irrespective of the allegation of arson, the policy did not have to respond to the loss.

The owner then claimed €650,000 in damages for defamation in respect of the allegations of arson raised in the expert’s report. Proceedings were issued against the insurers and the expert.

The insurers wanted the expert to pay the costs of the defence of the defamation claim, based on the fact that it was the allegation in the expert’s report that had given rise to the issue. ITIC, however, persuaded the insurers that they should support their expert, especially since they were, in part, relying on the report to reject the claim. ITIC said that, if it turned out that the report was negligent, the insurers could make a claim against the expert which would fall under their ITIC cover but, until then, the insurers should defend the expert. The insurers accepted that position and the claim was ultimately rejected by the courts.

ITIC says, “In addition to potential liabilities, even an ‘innocent’ expert can face substantial legal costs dealing with a claim. At best, only a proportion of these costs will ever be recovered.”

ITIC recently held an expert witness panel discussion at its London offices where the subjects under discussion included the liability of the expert, the incorporation of standard terms and conditions, and effective report writing. The latest edition of The Wire includes articles on these and other issues, as well as a list of ten golden rules of loss prevention for expert witnesses. These include not allowing the desire to help a client blind one to the evidence, not allowing oneself to be bullied, challenging inadequate or misleading instructions, not accepting instructions if it means an inability to remain independent, and not straying outside areas of expertise. “To err is human,” concludes ITIC, “ - the answer is insurance.”

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

Owner claims against manager for failure to update ballast water management plan

FAILURE to keep a proper onboard record of regulatory and legislative changes can have costly consequences for shipowners and their intermediaries, as evidenced by a claim recently handled by International Transport Intermediaries Club (ITIC).

The crew of a ship which frequently traded to US ports found themselves in contravention of state legislation when they conducted deballasting operations enroute to California more than 50 nautical miles out from the California coast. Such an operation had been permissible - and had indeed been performed by the crew - under the regulations in force when the ship had previously traded to California. But, on this occasion, such deballasting was in violation of new regulations which had entered into force in July 2017, requiring ships entering from international waters to deballast more than 200 nautical miles from the coast of California.

The Californian authorities had disseminated this change to the shipping community by way of circulars. Information had also been published by the ship’s P&I club, but the change had not been not picked up by the ship’s managers. As a result, the ship’s ballast water plan had not been updated to reflect the new rules.

The master admitted to the Californian authorities that the crew were not aware of the change in legislation, and the authorities duly issued a fine of $280,000 against the owner. This was subsequently negotiated down to $215,000, which the owner claimed from the ship managers on the basis that they should have been aware of the change in law and should have updated the ballast water plan. The claim was settled by ITIC.


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

All cost types contribute to ship operating costs decline for sixth successive year

International accountant and shipping consultant Moore Stephens says total annual operating costs in the shipping industry fell by 1.3% in 2017. This compares with the 1.1% average fall in costs recorded for 2016. For the third successive year, all categories of expenditure in 2017 were down on those for the previous 12-month period, most notably for insurance costs and stores.
The findings are set out in OpCost 2018 (www.opcostonline.com), Moore Stephens’ unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2017, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 3 points, or 1.7%, while the bulker index also fell by 3 points, or 1.9%, with the decline in both indices repeating that seen in the previous year at 3 points, or 1.7%, for tankers and 3 points, or 1.9%, for bulkers. The container ship index, meanwhile, was down by 2 points, or 1.3%, compared to the fall in the previous year of 1 point, or 0.6%.
There was an 0.1% overall average fall in 2017 crew costs, compared to the 2016 figure, which itself was 0.4% down on the previous year. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 0.5% on average, compared to the 1.8% fall recorded in 2016. All categories of tankers reported a reduction in crew costs for 2017 with the exception of Tankers 5,000 to 10,000 dwt, and VLCCs, which recorded increases of 1.9% and 0.5% respectively, compared to reductions for 2016 of 2.8% and 0.5%. The most significant reduction in tanker crew costs was the 1.7% recorded by Aframax Tankers.
For bulkers, meanwhile, the overall average fall in crew costs in 2017 was 0.6%, the same as the figure recorded for the previous year. Panamax Bulkers and Handysize Bulkers each reported increases in crew costs, of 0.5% and 0.4% respectively, while for Capesize Bulkers and Handymax Bulkers there were reductions in spending compared to 2016 of 0.8% and 0.6% respectively.
There was no overall increase in expenditure on crew costs in the container ship sector in 2017, this compared to the 1.1% fall recorded for 2016. Smaller vessels in this category reported an increase in crew costs for 2017 (1.0% for container ships of between 100 and 1,000 teu and 1.2% for ships of between 1,000 and 2,000 teu). But for ships of between 2,000 and 6,000 teu there was a fall in such costs of 1.7%.
Expenditure on stores was down by 3.5% overall, compared to the fall of 2.9% in 2016. All vessels in all categories recorded a fall in such costs for 2017, none bigger than the 8.4% drop recorded by VLGCs of between 70,000 and 85,000 cbm. In the tanker sector, the most significant fall in such costs was the 5.5% posted by VLCCs. Handymax Bulkers led the way in the bulker sector with a 5.2% reduction in stores expenditure, while in the container ship sector vessels of between 6,000 and 10,000 teu spent 5.8% less on stores than they did in 2016.
For tankers overall, stores costs fell by an average of 4.5%, compared to the 2.2% recorded for 2016, while in the bulker sector the reduction in such costs was 3.6%, compared to a fall of 4.2% in 2016. In the container ship sector, meanwhile, there was a 3.4% fall in stores expenditure, compared to a drop of 5.2% the previous year.
There was an overall fall in repairs and maintenance costs of 1.7%, compared to the reduction of 0.8% in 2016. The only vessels to record increases in such costs were Capesize Bulkers and Panamax Bulkers (2.4% and 1.4% respectively), Tankers 5,000 to 10,000 dwt (2.6%), and container ships of between 1,000 and 2,000 teu (2.7%). The biggest fall in such costs was the 4.9% recorded by Chemical Tankers 40,000 to 50,000 dwt, followed by VLCCs (4.8%), and Handysize Product Tankers (4.5%).
For tankers overall, repairs and maintenance costs fell by 3.4%, compared to the 2016 figure of 1.7%, while in the bulker sector the reduction in such costs was 1.5%, compared to a fall of 2.2% in 2016. In the container ship sector, meanwhile, there was no increase in repairs and maintenance outlay, compared to the 1.6% fall recorded last time.
The overall drop in costs of 4.1% recorded for insurance compares to the 3.0% fall recorded for 2016. As was the case last year, all vessels in all tonnage and size categories included in OpCost paid less on average for their insurance in 2017 than in 2016. Bulkers paid 6.0% less overall (compared to 5.0% last year), tankers paid 3.4% less (2.6% in 2016), and for container ships the insurance outlay was down by 5.8%, as opposed to a fall in 2016 of 4.9%. The biggest reduction in insurance costs was the 6.5% recorded by container ships of between 6,000 and 10,000 teu and by Capesize Bulkers, followed by Suezmax Tankers (6.2%), and Handymax Bulkers, container ships of between 2,000 and 6,000 teu, and VLCCs (all at 6.0%).
Richard Greiner, Moore Stephens partner, Shipping and Transport, says, “This is the sixth successive year-on-year reduction in overall ship operating costs. The biggest cost reductions were once again to be found in the Insurance category. This may be due in part to a significant reduction in the overall incidence of large, expensive casualties over the past couple of years. But the size and frequency of the cost reductions is still worthy of note, given the cumulative cost of comparatively smaller but still expensive claims routinely fielded by hull and machinery underwriters. It is perhaps not surprising, then, that the International Union of Marine Insurance recently called for a better understanding by underwriters of the assets being insured in the marine market.
“Expenditure on Protection and Indemnity insurance was also down, which is again a reflection of the relative dearth of major casualties over the course of the year. The International Group through its pooling agreement, reinsurers, and owners themselves will have felt the benefit of that in their pockets.
“The next biggest level of cost reductions came, as was the case in 2016, in the Stores category. This is likely to change in the near future, however, if shipping markets continue to display signs of a recovery - if not to the heady days of ten years ago, then at least to more profitable levels. The tangible uptick in world oil prices will also have a knock-on effect on lube oil costs.
“The third biggest reduction in 2017 operating costs was in the Repairs and Maintenance category. Again, this is likely to change sooner rather than later. Shipping remains a highly competitive industry, but one where tighter regulation and better oversight by the likes of Port State Control should mean that there are fewer sustainable employment opportunities than at any time in recent memory for poorly maintained vessels.
“The smallest reduction in operating costs in 2017 came in the crew costs category – just 0.1%, this in a study which over the years has recorded increases of 20% and more. In some sectors, a weaker trading environment in 2017 could be one of the reasons behind this. So, too, may be the emergence of a new era of reportedly impressive seafarers entering the market from new training institutes in developing countries. A more pressing concern may be the difficulties being experienced by owners and operators in finding experienced crews for specialist ships, which will clearly come at a price. It is perhaps significant, for example, that crew cost increases for 2017 were recorded by the owners of both chemical tankers and LPG carriers.
“Overall, confidence in the shipping industry held up well in 2017, and has continued to do so this year. There remains an appetite for investment, and recourse to the necessary finance. Oil prices are going up, and the Baltic Dry Index, although somewhat volatile, is gradually leaving the really bad days behind. Given a favourable geopolitical wind, that should lead to increased activity, and most likely to higher operating costs.
“There are some big challenges ahead for the industry which will test owners, operators, charterers and investors alike. Planning must continue for implementation of the Ballast Water Management Convention, and decisions made on how to finance it. Measures to detect and eliminate cyber-crime will come at a price in terms of hardware, software and manpower.
“Meanwhile, owners and operators are still pondering the optimum way to meet the challenge of complying with the IMO’s 0.50% global limit on the sulphur content of fuel oil used on board ships from 1 January 2020. Compliance with this regulation can be achieved either by switching to low-sulphur fuel or by installing the likes of scrubbers. The first option is expensive. The second is both expensive and disruptive and moreover will be accompanied by an increase in operating costs. Decisions will be influenced by individual risk profile and commercial strategy, but will undoubtedly be costly.
“Shipping is used to fluctuations in costs and in industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Handysize Bulker was US$5,139. In 2017, it was US$ 4,929. For an Aframax Tanker, the comparable figures are US$8,374 and US$7,640.
“The likelihood is that operating costs will increase when the markets improve significantly. Such increases must, however, be balanced against the technological advances which have already started to make shipping markedly more efficient and more cost-efficient. There will be more significant operating efficiencies - and more fluctuations in overall operating costs - to come. That is what makes shipping such a challenge.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport

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

AKD appoints new partner to Transport & Energy team

Leading Benelux law firm AKD has appointed Vivian van der Kuil a partner in its Transport & Energy team with effect from 1 June 2018.

Vivian joined AKD in 2015. She is an international litigation specialist with wide experience as a lawyer of complex proceedings in the Dutch Civil and Criminal Court. She is also a former judge and public prosecutor. Before joining the legal profession, Vivian completed officer training at the Royal Dutch Institute for the Navy and subsequently worked as an officer in the Operations/Navigation Service with the Royal Dutch Navy.

Vivian specialises in emergency response in the shipping and energy sectors, including salvage, total loss, collisions, fire and explosion, limitation of liability, wreck removal, piracy, ship arrest and both civil and criminal pollution liability involving seagoing vessels, inland waterway vessels, and yachts. She acts for charterers, traders, shipowners, hull & machinery underwriters and P&I clubs on charter party, bill of lading, offshore and general maritime issues. Vivian deals with insurance coverage and other shipping and energy-related commercial and contractual disputes. She also advises on public international law including the law of the sea.

Vivian is a Legal 500 first-rate recommended lawyer and a member of the legal committee of IVR, the international association of national organisations representing, among others, the inland navigation, insurance and surveying sectors. She says, “Transport and energy are volatile and complex areas, and I have been able to use - and to add to – my experience of these sectors since joining AKD. I am delighted to have been made a partner and to continue my development as part of an outstanding team.”

Jos van der Meché, head of AKD’s Transport & Energy team, says, “Vivian will be a great asset to our partner team. She has a wealth of experience of different areas of the industry at the highest level, as well as an impressive pedigree as an advocate and judge. She has all the experience and expertise necessary to improve still further the ability to find innovative solutions to complex issues which is the hallmark of the AKD Transport & Energy team.”

AKD’s Transport & Energy team provides a full range of legal services. AKD is a full-service Benelux firm with over 250 lawyers, civil-law notaries and tax advisers.

AKD: Law Firm of the Year: Benelux | The Lawyer European Awards 2018

www.akd.nl

ITIC settles dispute after Turkey bars entry to vessel with Cyprus connections

International Transport Intermediaries Club (ITIC) recently settled a dispute between a shipowner and its Turkish agent for losses arising from the refusal of Turkish port authorities to allow a vessel to berth because of its connection to Cyprus.

Turkish regulations prohibit any vessel directly or indirectly related to the Republic of Cyprus from calling at Turkish ports. The owner was an existing customer of the agency group appointed to handle the ship’s call in Turkey, but had not called at this particular Turkish port before.

In the agent’s pre-arrival messages to both owners and charterers, it mentioned that anything linking the vessel to Cyprus could lead to the ship not being allowed to berth. In spite of the agent’s express warning to its principal, a document was sent to the agent showing the address of the Panamanian-registered owning company as being ‘care-of’ a company in Cyprus. The agent failed to notice the address and the documentation was forwarded to the authorities.

After the vessel was refused permission to berth, the agent maintained that the owner had been warned about the embargo of all things Cypriot, and had failed to take the necessary action. The owner, meanwhile, claimed that the agent should have carefully reviewed the document. Accordingly, it deducted its alleged losses from other sums due to the agency group.

Although the owner ultimately agreed to accept 50 percent responsibility for the incident, this still left the agency group with a shortfall of $50,000, which was reimbursed by ITIC.


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

Moore Stephens reports fifth successive year of decline in operating costs

International accountant and shipping consultant Moore Stephens says total annual operating costs in the shipping industry fell by an average of 1.1% in 2016. This compares with the 2.4% average fall in costs recorded for 2015. For the second successive year, all categories of expenditure were down on those for the previous 12-month period, most notably for insurance costs and stores.

The findings are set out in OpCost 2017 (www.opcostonline.com), Moore Stephens’ unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2016, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 3 points, or 1.7%, while the bulker index also fell by 3 points, or 1.9%. The container ship index, meanwhile, was down by 1 point, or 0.6%. The corresponding figures in last year’s OpCost study showed falls of 6 points in both the bulker and container ship index, and of 4 points in the tanker index.

There was a 0.4% overall average fall in 2016 crew costs, compared to the 2015 figure, which itself was 1.2% down on 2015. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.8% on average, compared to the 1.3% fall recorded in 2015. All categories of tankers reported a reduction in crew costs for 2016 with the exception of Aframax Tankers and Suezmax Tankers, which recorded increases of 0.8% and 0.2% respectively, compared to reductions for 2015 of 1.9% and 2.6%. The most significant reductions in tanker crew costs for 2016 were the 2.8% and 2.7% recorded by Tankers 5,000 to 10,000 dwt and by Handysize Product Tankers respectively.

For bulkers, meanwhile, the overall average fall in crew costs in 2016 was 0.6%, compared to 1.1% recorded 12 months ago. All categories of bulkers reported a reduction in crew costs, the biggest fall being the 1.2% reduction in spending by the owners of Capesize Bulkers.

Expenditure on crew costs in the container ship sector, meanwhile, was up by 1.1% compared to the fall of 3.3% recorded for 2015. The biggest increase in this category was the 2.1% recorded for ships of between 2,000 and 6,000 teu, which in 2015 led the reductions in the container ship crew costs category with a fall in expenditure of 3.6%.

Expenditure on stores was down by 2.9% overall, compared to the fall of 4.3% in 2015. The biggest fall in such costs was the 5.1% recorded by owners of container ships of between 100 and 1,000 teu. In the same tonnage category, the fall in stores costs for owners of container ships of between 1,000 and 2,000 teu was 4.9%, the same figure as that recorded in the tanker sector for Aframax Tankers. Other significant reductions included Handysize Bulkers (4.8%) and Panamax Bulkers (4.4%).

For bulk carriers overall, stores costs fell by an average of 4.2%, compared to a fall of 7.7% in 2015, while in the tanker and container ship sectors the overall reductions in stores costs were 2.2% and 5.2% respectively, compared to the corresponding figures of 4.3% and 5.5% for 2015. The only rise in stores expenditure by any category of vessel was the 0.3% increase recorded by Coastal Tankers.

There was an overall fall in repairs and maintenance costs of 0.8% in 2016, compared to the 4.3% reduction recorded for 2015. The biggest fall in such costs was that recorded by Panamax Bulkers (3.2%), closely followed by Capesize Bulkers (3.1%). All vessels in the bulker category recorded reduced repairs and maintenance expenditure, but there were increases in the tanker sector, most notably the 2.4% additional outlay by Panamax Tankers compared to 2015. There were examples of small increases in repairs and maintenance expenditure in the container ship sector, while for Ro-Ros the increase amounted to 2.2%.

The overall drop in costs of 3.0% recorded for insurance compares to the 3.2% fall recorded for 2015. No vessel types in any of the tonnage and size categories included in OpCost paid more for their insurance in 2016 than in 2015.The biggest reduction in such costs was the 5.2% recorded by container ships of between 2,000 and 6,000 teu. Not far behind were Handysize Bulkers and Panamax Bulkers (4.7% and 4.6% respectively), while in the tanker category it was Aframax Tankers which led the way in terms of reduced insurance expenditure (4.6%). Ro-Ro owners, meanwhile, paid 4.0% less for their insurance in 2016 than in 2015, in which year they spent an additional 2.4% in premiums compared to the previous year.

Richard Greiner, Moore Stephens Partner, Shipping & Transports, says: “This is the fifth successive year-on-year reduction in overall ship operating costs, although the reduction this time is less than half the figure recorded 12 months ago for 2015.

“The biggest cost reductions were those in the Insurance category. Insurance is a major item of expenditure for all owners and operators, without which most would not be able to operate on an international basis. The fact that such costs continue to fall may be due in part to a reduction in the incidence of major casualties. Most of the larger reductions in insurance costs tracked by OpCost, however, were recorded by bulk carriers, which are no strangers to the pages of the casualty reports. So cheaper insurance must also say much about the fierce competition for business which exists throughout marine underwriting markets worldwide.

“The next biggest cost reduction was in the Stores category, where the slower than anticipated improvement in world oil prices doubtless had a continuing beneficial knock-on effect on lube oil costs in 2016.

“The reduction in Repairs and Maintenance costs in 2016 was 3.5% down on the figure for the previous year. This confirms that maintenance can only be postponed for so long by owners and operators who accept the need to invest in their ability to compete for business in a highly competitive market which is more tightly regulated than ever before. Strategic short-term lay-up is a waypoint rather than a destination.

“Over the years, the OpCost study has recorded annual average crew cost increases of more than 20%, but there was a reduction in such costs this time of less than half of one percent compared to the figure for 2015. The continuing challenging shipping markets are doubtless a significant factor.

“Although 2016 was another difficult period for shipping, the year closed on a note of rising confidence, according to the Moore Stephens Shipping Confidence Survey. Owners and charterers were more confident, than for some time previously, of making new investments, and there were improved expectations of higher freight rates in all three main tonnage categories. The expectation, too, was that oil prices and the Baltic Dry Index could only go up.

“That increased confidence, which has carried over into 2017, should logically lead to greater activity, which will mean higher operating costs. When freight rates allow owners to absorb such increased costs, the numbers start to look healthy. At present, however, owners and operators are not earning what they should be, or would like to be, from most of the markets in which they operate. Positive net sentiment is good, but it is not enough. Something has to change.

“It is also true that in shipping – as elsewhere – what goes down must come up. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Capesize Bulker was US$ 7,512. In 2016, it was US$ 6,691. For a VLCC, the comparable figures are US$ 10,812 and US$ 9,950 respectively.

“Future OpCost studies are likely to reflect the start of spending – or planning for – the introduction of the likes of the Ballast Water Management Convention, the new global limit on SOx emissions from 2020 and initiatives to contain cyber-crime, which are assuming increasing importance in the industry. The results will also reflect, albeit subtly, the effect of geopolitical developments, which can seldom have been in a greater state of flux than they are today.

“Shipping can certainly find encouragement in a fifth successive annual fall in operating costs. But nothing is for ever, and nothing is more certain than that the shipping industry will continue to be characterised by uncertainty, which can be both its strength and its weakness.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


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

ITIC launches cyber liability insurance extension

 

International Transport Intermediaries Club (ITIC) has launched a cyber liability extension to ITIC policies to protect its existing professional indemnity members against the growing threat posed by hackers.   ITIC has always provided cover for damage arising from the loss of or damage to computer records in its members’ custody. But it says that a new threat has emerged in the form of third parties misusing the systems of its members to cause damage to data held by others. Hacking into systems operated by service providers, says ITIC, can be used by criminals as a gateway to gain illegal access to information systems.   ITIC Underwriting Director Alistair Mactavish says, “The use of information technology and electronic communication is a central feature of the activities carried out by ITIC’s members. Any business can be the subject of an attack by hackers. For example, hackers could use a liner agent’s system to obtain the release of cargo which they then steal. In covering their tracks, the hackers might destroy all data relating to rates, container numbers and dates and places of loading”.   “In another example, a shipbroker’s computer system might be accessed by fraudsters who use it to send messages to charterers, altering the banking details for hire payments. Or malware could be inserted onto a ship manager’s network, disrupting operation of the ship and resulting in claims for delay.”   It is in response to such threats that ITIC has developed an extension to its existing cover, which will protect against liabilities arising from the unauthorised use of its members’ computer networks. This will provide insurance to cover, among other things, misuse of computers operated by ITIC’s members, together with any software and peripheral devices necessary to make those computers function - including servers, networking equipment and data storage devices.   The cover will respond in respect of acts by people who gain access to members’ computer networks without their permission, or people who are granted access for a legitimate purpose but misuse that access to cause harm. The policy will cover a member’s liability to pay compensation to a third party damaged by the unauthorised use of the member’s computer network and all associated legal and experts’ costs incurred by that member.

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      

ITIC reports on costly transhipment errors by ship agents

International Transport Intermediaries Club (ITIC) says it continues to deal on a regular basis with claims resulting from errors by agents involving transhipment cargoes.

In one case, an agent in Argentina failed to declare a cargo as transhipment cargo within fifteen days of the vessel’s arrival at Buenos Aires. This was the result of a simple oversight in the agent’s office. The obligation to make the declaration was strictly enforced and an automatic penalty of one per cent of the value of the goods was immediately imposed, amounting to $122,204. The agent who had failed to make the necessary declaration had to pay the sum demanded by the authorities.

In another case, an agent in the Dominican Republic was involved in the transhipment of two containers arriving from Cuba with a final destination of Haiti. Under Dominican customs law, in common with many customs regimes, cargo awaiting re-exportation can only be held in storage without paying the relevant customs duties if time limits and other regulations are complied with.

The agent maintained regular contact with the shipper, who was waiting for relevant documentation to be provided by the consignee in Haiti. The agent also obtained an extension of the time limit for storage of the containers, but unfortunately made a typographical error in an email sent to the shipper which noted that the extension expired on 26 January, when it should have stipulated 6 January. As a result, the cargo was impounded by customs when the containers were not exported before the deadline. Ultimately, a penalty of just over $25,000 was settled by the agent.

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

Moore Stephens reports small decline in 2014 ship operating costs

International accountant and shipping consultant Moore Stephens says total annual operating costs in the shipping industry fell by an average of 0.8% in 2014. This compares with the 0.3% average fall in costs recorded for 2013. All categories of expenditure were down on those for the previous 12-month period, confirming that ship owners and operators continued to manage costs sensibly and to watch their cash carefully in 2014.

The findings are set out in OpCost 2015 (www.opcostonline.com), Moore Stephens’ unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2014, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 2 points, or 1.1%, while the bulker index fell by one point, or 0.6%. The container ship index, meanwhile, was down by 2 points, or 1.2%. The corresponding figures in last year’s OpCost study showed a rise of 2 points in the tanker index, and falls of 2 points in the bulker and container ship indices.

There was an 0.1% overall average fall in 2014 crew costs, compared to the 2013 figure, which itself was 0.2% down on 2012. (By way of comparison, the 2008 report revealed a 21% increase in this category.) Tankers overall experienced a fall in crew costs of 0.4% on average, compared to the 1.8% increase recorded in 2013. Within the tanker sector, Suezmax Tankers reported an overall increase of 1.6% in crew costs, while for operators of Handysize Product Tankers the increase was 0.2%. All other vessels in the category showed a fall in crew costs for 2014.

For bulkers, meanwhile, crew costs were unchanged, having recorded an 0.5% average fall for the previous year. The operators of Handymax Bulkers and Handysize Bulkers paid 2.3% and 0.5% more, respectively, in crew costs than in 2013, but there was a 2.0% fall in this respect for Capesize Bulkers, and an 0.5% drop for Panamax Bulkers.

Expenditure on crew costs was unchanged in the container ship sector, having stabilised in 2013 at the previous year’s level. The 2.5% increase in crew costs recorded for Container Ships in the 1,000 - 2,000 teu category contrasted with the 1.4 % fall in such costs for bigger Container Ships (2,000 - 6,000 teu).

Expenditure on stores was down by 2.4% overall, compared to the fall of 1.9% in 2013. The biggest fall in such costs was the 5.3% recorded by operators of Handysize Bulkers, closely followed by container ships in the 1,000 - 2,000 teu range (5.1%). For bulk carriers overall, stores costs fell by an average of 3.7%, compared to a fall of 4.1% in 2013, while in the tanker and container ship sectors the overall reductions in costs were 0.7% and 3.0% respectively. The only increases in stores expenditure were those recorded by Panamax Tankers and Suezmax Tankers (each 1.2%), and by the operators of Dry Cargo vessels in the 5,000 - 25,000 dwt range (0.8%).

There was an overall fall in repairs and maintenance costs of 0.6%, compared to the 0.4% reduction recorded for 2013. The most significant cost reductions here were those recorded for tankers of between 5,000 and 10,000 dwt (3.3%), and for 1,000 - 2,000 teu Container Ships (3.2%). Bucking the trend, VLCCs recorded an increase in repairs and maintenance costs of 2.5%, and Capesize Bulkers of 1.8%.

The overall drop in costs of 0.4% recorded for insurance compares to the 0.3% fall recorded for 2013, and is the lowest in this category for a number of years. There were wide divergences, even within general tonnage categories. Whereas operators of Capesize Bulkers paid 5.1% more for their insurance in 2014, Panamax Bulkers paid 3.8% less.

Moore Stephens partner Richard Greiner says: “This is the third successive year-on-year reduction in overall operating costs. This comes as something of a surprise, and is contrary to earlier forecasts. Shipping is clearly watching the pennies, and it may also be the case that more competitive pricing for goods and services has had a part to play in holding down expenditure. Beyond that, as always, the impact of exchange rate changes cannot be determined readily.

“By far the biggest reduction in operating costs, for example, was seen this time in the Stores category. This can be largely explained by the knock-on effect which the fall in oil prices has had on lube oil costs. Such ‘benefits’ do not come often to any industry, and are usually not without a downside, as has been the case in shipping.

“Crew costs were down, albeit marginally, for the first time in recent memory. This could be an indication of a higher level of idle tonnage during the period under review, but is nevertheless welcome news for an industry which has seen crew cost increases of more than 20% at their peak.

“Expenditure on repairs and maintenance was also marginally down on 2013, possibly attributable in part to weak steel prices and in part to the fact that poor freight rates arguably do not encourage owners and operators to engage in anything but the most essential repairs and maintenance. It is to be hoped that there is not a future price to be paid in this respect in terms of either safety or performance.

“The bill for insurance coverage was also down, which will come as little or no surprise in view of the high level of competition in the insurance market, which is arguably even fiercer than that in the shipping industry.

“A third successive annual fall in operating costs must be good news for an industry already facing serious financial challenges and preparing to meet still more. But a bigger-picture view provides an insight into just how much operating costs have increased in recent years. OpCost is now in its fifteenth year of publication. At year-end 2001, the average daily operating cost for a Panamax Bulk Carrier was US$3,565. In 2014, it was US$6,046. For a Handysize Product Tanker, the comparable figures were US$4,164 and US$7,931.

“The challenge for shipping is how to build the cost of operation into freight rates in a way which allows for a reasonable profit margin in an industry which is driven by competition and characterised by overtonnaging. Given that, over the next few years, annual seaborne trade is projected to grow at a reasonable rate, and that the cost of regulatory compliance is likely to increase significantly, one would expect operating costs to rise over the same period. Two things are certain. Firstly, the business of operating ships will remain a costly undertaking. Secondly, the impetus for higher freight rates will not come from the shipping industry’s customers.”


Bone fide journalists can request an electronic copy of OpCost 2015 by emailing chris@merlinco.com

OpCost, the Moore Stephens vessel operating cost benchmarking study, is now in its 15th year of publication. The 2015 edition is available online, providing optimum reporting functionality for users, wherever they may be. Running cost information is obtained on a confidential basis from clients of Moore Stephens, and from other shipowners and ship managers who submit data for inclusion. OpCost is widely used for benchmarking running costs, the preparation and ongoing monitoring of business plans and in forensic accounting. Access to OpCost 2015 is available free to owners who submit their data for inclusion, or can be purchased by contacting Richard Greiner at Moore Stephens.

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 626 offices of independent member firms in 103 countries, employing 26,290 people and generating revenues in 2014 of $2.7 billion. www.moorestephens.co.uk

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

Shipping experts identify realities of risk in ITIC panel debate

The need for proper training, sound risk management, and contractual expertise were among the issues identified as essential to commercial success in a panel debate following the annual board meeting of the International Transport Intermediaries Club (ITIC) in Athens on 24 September.

The panel, moderated by ITIC’s underwriter for Greece, Robert Hodge, and comprising Tim Jones of Barry Rogliano Salles (BRS), Bob Bishop of V Ships, Bjorn Tonsberg of Wilhelmsen Ships Service and Paul Herring of Ince & Co, was asked to debate The Realities of Risk, and what kept them awake at night.

Tim Jones referred to a case where a junior broker reportedly concluded a fixture using social media. A dispute arose post-fixture on the terms of the agreement but, since the broker had left the company by the time the dispute arose, it was not possible to obtain the necessary information from the social media site. Jones emphasised that BRS’s policy is to only use company emails when negotiating fixtures.

Bob Bishop observed that it was relatively easy to monitor the performance of machinery and that problems could be predicted and fixed. Monitoring the performance of staff was harder, but an essential task in managing a service company. He added that training is essential within any company, to ensure that the younger generation has the knowledge to avoid the mistakes of the past.

Bjorn Tonsberg emphasised that risk management is a key factor, an important part of which is to carry out due diligence, in order to establish exactly who one is dealing with. Commenting that he was aware of ship agents offering to act for agency fees far lower than commercial rates, Tonsberg stressed that it was essential for owners to carry out due diligence on the agent, including whether or not that agent had professional indemnity insurance in the event of a loss.

Paul Herring noted that good contractual management, including the use of standard trading conditions, enabled businesses to sleep better at night, a sentiment with which all the panel were in agreement.

Following questions from the audience, attendees retired to a drinks reception on the balcony of the Hilton Athens as the sun set over the Acropolis.

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

Shipbroker loses interest but secures commission on sale by rival broker

International Transport Intermediaries Club (ITIC) has recently successfully supported a claim for ship sale commission by a shipbroker wrongly accused by a shipowner of incompetence.

The shipbroker had entered into an exclusive commission agreement with a shipowner, which provided for commission of 5 per cent to be paid to the broker on the sale of any of its fleet of vessels, even if sold through another broker. The broker heard that two of the owner’s ships had been sold through another broker for Euros 3.3m each. The owner refused to pay the broker’s commission of Euros 303,000, lawyers were appointed, and the commission claim was brought before the courts in January 2013. The court found for the broker and awarded it the commission of Euros 303,000, plus interest and costs.

The owner appealed the decision to the supreme court, alleging that the broker who had initially handled the sale had been incompetent. The owner also involved the local shipbrokers’ association in an attempt to demonstrate that the broker’s employee had fallen short of industry standards. The local association responded in favour of the shipbroker to the allegations of incompetence posed by the shipowner.

Before the expense of a trial in the supreme court had been incurred, the owner approached the broker with an offer of settlement at the commission amount of Euros 303,000 without interest and without the payment of costs. The shipbroker was willing to forgo the interest, and settlement was agreed at the commission amount of Euros 303,000 plus the costs awarded by the first instance court of $32,300. The costs incurred in the early stages of the supreme court proceedings were waived.


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

London P&I Club increases entry at recent renewal

The London P&I Club increased its entry of both owners and charterers business following the recently completed renewal season.

Ian Gooch, chief executive of the club’s management team, says, “The renewal took place against a backdrop of another challenging year for our members, reflecting the depressed freight markets in many shipping sectors. The particularly difficult trading conditions intensified the focus on costs, including P&I rates. This led to some tough negotiations, and it proved impossible to agree renewal in a few cases. There were also a few instances where our underwriters took the decision not to offer terms.

“Notwithstanding this difficult renewal environment, however, the club recorded further steady growth in its shipowners’ business, of 700,000 gt, with additions from new as well as existing members based in countries which included China, Greece, Singapore, Turkey and the UK. The club’s charterers’ entry also grew by over 3m gt during 2014/2015.

“Moreover, the increase in income earned by the club during the 2014 year, together with rate increases at renewal, means that premium levels continued to move in the right direction.”

www.londonpandi.com

ITIC warns on pitfalls of confidentiality agreements

ITIC has advised shipbrokers, consultants and other advisers not to sign confidentiality agreements which restrict their ability to do business.

Noting that it is increasingly being asked to comment on confidentiality (or so-called non-disclosure) agreements, ITIC says, “The use of such agreements has always been common when parties are considering doing business but need to provide information to the other party before they enter into a formal contract. In these circumstances, the party providing the information will protect its interests by insisting that the receiving party signs a stand-alone confidentiality agreement. Historically, this has been associated with transactions such as the sale of corporations but, more and more, ITIC is seeing it in a wide range of circumstances involving its members.

“Consultants and other advisers needing access to information to enable them to provide their services are frequently asked to sign confidentiality agreements. Increasingly, too, shipbrokers providing valuation services receive the same request. The important thing is to ensure that the wording of the agreement does not unnecessarily restrict the member’s ability to do business with other clients.”

ITIC has created an e-learning seminar which will explain common provisions in confidentiality agreements, and some of the pitfalls to avoid. The seminar is accessible at http://www.itic-insure.com/knowledge-zone/e-learning-seminars


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

Moore Stephens expects vessel operating costs to rise over the next two years

Vessel operating costs are expected to rise by almost three per cent in both 2014 and 2015, 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 shipowners and managers in Europe and Asia. Those responses revealed that vessel operating costs are expected to increase by 2.9 per cent in both 2014 and 2015, with crew wages and repairs & maintenance the cost categories likely to increase most significantly.

Crew wages are expected to increase by 2.4 per cent in 2014 and by 2.6 per cent in 2015, with other crew costs thought likely to go up by 1.9 per cent and 2.1 per cent respectively for the years under review. The cost of repairs & maintenance, meanwhile, is expected to escalate by 2.3 per cent in 2014 and by 2.4 per cent in 2015

P&I insurance costs are expected to go up by 2.0 per cent in 2014 and by 2.2 per cent in 2015, this compared to the increases of 1.6 and 1.8 per cent respectively predicted in respect of the cost of hull & machinery insurance.

Drydocking costs are expected to rise by 2.1 per cent in 2014 and by 2.2 per cent in 2015, while expenditure on spares is expected to increase by 2.1 per cent and by 2.2 per cent over the same period. Meanwhile, respondents anticipate increases of 1.7 per cent and 2.0 per cent respectively in the cost of lubricants in the two years under review. The cost of stores is expected to increase by 1.7 per cent and 1.9 per cent respectively for 2014 and 2015.

As was the case in last year’s survey, management fees are deemed likely to produce the lowest level of increases in both 2014 and 2015, at 1.2 per cent and 1.5 per cent respectively.

A number of respondents commented on the impact of increased crew wages and costs. “Crew costs remain a critical factor,” said one. “There will continue to be a high level of demand for trained crew, especially for top-end ships.” Another predicted, “There will be further rises in crew costs, especially for officers and engineers, with a shortage of the latter in all sectors of the shipping industry.” Elsewhere it was noted, “The full implementation of the Maritime Labour Convention 2006 is likely to be a significant factor in higher labour and crewing costs.” Another respondent said, “Crew and labour costs will continue to increase due to the strong presence of labour unions in the shipping industry.”

The cost of regulatory and legislative compliance was a recurring topic in responses to the survey. “Most of the costs we have experienced are based on legislation and more and more government interference with doing business,” said one respondent. Another remarked on the cost of “the entry into force of new regulations such as the US ballast water treatment rules,” while another still emphasised, “The need for existing vessels to comply with new regulations will be a significant factor to consider.” Other comments included, “Recent legislation in Europe will push costs up dramatically, especially in the UK,” and, “SECAs will have a serious impact on ships’ equipment maintenance costs.”

The combination of low freight rates and increased operating costs dominated the thinking of a number of respondents, one of whom noted, “Owners are hard-pressed to cut costs and lower operating expenses because of poor freight markets. There is a particularly severe impact on running costs for ships bought prior to 2009.” In similar vein, another said, “Operators are keeping any increases in operating expenses to a minimum due to low freight rates.” Another still observed, “There is no light at the end of the tunnel. At present, earnings are negligible, and operating costs keep going up.” In slightly more optimistic mood, it was noted elsewhere, “Although operating costs are going up, the advent of bigger ships and the projected opening of the enlarged Panama Canal in 2016 should mean that profits will go up, too.”

A number of respondents to the survey felt that a surfeit of tonnage on the market would inevitably have the effect of increasing operating costs. “The recent increase in tonnage supply will add pressure to operating costs,” said one, while another observed, “Only those owners and managers who can trim their vessel operating costs will come out ahead.” Another still predicted that owners and operators “will look at possibilities to reduce their cost base by looking at alternative ship management options, or whatever else will result in cost reductions, in order to remain competitive.” Several respondents, meanwhile, noted that reductions in oil prices were likely to result in reduced operating and voyage expenses, respectively, in terms of lubes and fuel.

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, 20 per cent of respondents (compared to 21 per cent in last year’s survey) identified finance costs as the most significant factor, followed closely by competition (19 per cent). Crew supply was in third place, with 18 per cent, followed by demand trends (17 per cent) and labour costs (13 per cent). The cost of raw materials was also cited by 11 per cent of respondents 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 follow the findings in our recent OpCost report that ship operating costs fell by an average of 0.3 per cent across all the main ship types in 2013. But the level of increases anticipated for 2014 and 2015 are, at just under 3 per cent, still way below many of those we have seen in recent years. In 2008, for example, operating costs rose by 16 per cent. But there are a number of factors which are likely to drive up costs both this year and next.

“Firstly, the gradual global economic recovery now under way, notwithstanding the challenges placed in its way by political and social unrest in certain parts of the world, should result not only in improved earnings for shipping but also in increased costs. More ships in the water, and more cargo on board, entails more handling, transportation and other costs.

“Crew costs are once again the category of operating expenses predicted to rise most significantly. The only surprise would be if this were not the case. The bill for regulatory and legislative compliance, meanwhile, remains difficult to assess with any great accuracy. While the cost of complying with ECAs and other environmental initiatives can be gauged with reasonable accuracy, and business plans accordingly amended if deemed necessary, the cost of - and timeline for - complying with the BWM Convention continues to be the elephant in the room. Everybody knows it’s coming, and everybody knows it is going to be expensive, but until the discussions over different routes to compliance are concluded, and until the final signature bringing the convention into force is lodged at IMO, the item can remain, albeit uneasily, a little way down the list of priorities.

“Sensible owners with adequate funding are planning for the future by investing in eco-friendly ships and by weighing up the advantages of LNG propulsion. Such initiatives will bring long-term benefits but are likely to increase costs in the short term because new technology and associated research and development costs do not come cheap. On the plus side, oil and gas prices are falling, which should translate into savings for owners and operators, and shipping continues to attract new money from both internal and external investors.

“The projected increases in vessel operating costs for the next two years will be difficult for owners, operators and managers to absorb. History shows, however, that good husbandry, sound business planning, experience, patience and the right amount of entrepreneurialism are likely to carry the day.”

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 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


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

Moore Stephens reports small decline in 2013 ship operating costs

International accountant and shipping consultant Moore Stephens says total annual operating costs in the shipping industry fell by an average of 0.3 per cent in 2013. This compares with the 1.8 per cent average fall in costs recorded for the previous year. Crew costs was the only category this time to show an increase over the 12 month period, indicating that ship owners continued to focus on managing costs and conserving cash in 2013.

The findings are set out in OpCost 2014 (www.opcostonline.com), Moore Stephens’ unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker sector were up in 2013, the financial year covered by the study, but down in the bulker and container ship sectors. The tanker index was up by 2 points, or 1.1 per cent, while both the bulker index and the container ship index were down by 2 points, or 1.2 per cent, on a year-on-year basis. The corresponding figures in last year’s OpCost study showed falls of 5 points, 7 points and 3 points respectively in the tanker, bulker and container ship indices.

There was a 0.2 per cent overall average rise in 2013 crew costs compared to the 2012 figure, which itself was 0.2 per cent down on 2011. (By way of comparison, the 2008 report revealed a 21 per cent increase in this category.) Tankers overall experienced an increase in crew costs of 1.8 per cent on average, compared to the 2.3 per cent fall recorded in 2012. Within the tanker sector, Handysize product tankers reported an overall increase of 3.3 per cent in crew costs, while for operators of Suezmaxes and product tankers the increases were 2.5 per cent and 1.9 per cent respectively. The only tanker category to show a fall in crew costs was VLCCs, down by 0.9 per cent.

For bulkers, meanwhile, the overall average fall in crew costs was 0.5 per cent, the same as in the previous year. The operators of Panamax bulkers paid 2.3 per cent less in crew costs than in 2012, but there was a 1.2 per cent increase in this respect for Handysize bulkers, this following a 4.8 per cent reduction for 2012. Expenditure on crew costs remained unchanged over the 12 month period in the container ship sector, although operators of vessels of between 100 and 1,000 teu did record a 1.7 per cent increase in such costs for 2013.

Expenditure on stores was down this time by 1.9 per cent overall, compared to the fall of 2.1 per cent in 2012. The biggest fall in such costs was the 5.5 per cent recorded by VLCCs. For bulk carriers overall, stores costs fell by an average of 4.1 per cent, while in the tanker and container ship sectors the overall reductions in costs were 2.1 per cent and 3.4 per cent respectively. The most significant increase in stores expenditure was that recorded by the operators of tankers in the 5,000-to-10,000 dwt range (6.0 per cent).

There was an overall fall in repair and maintenance costs of 0.4 per cent, compared to the 1.9 per cent reduction recorded for 2012. The most significant cost reduction here was that recorded for bulkers of between 10,000 and 20,000 dwt (7.2 per cent), while the highest recorded increase was that for 40,000-to-50,000 cbm chemical tankers (3.6 per cent).

The overall drop in costs of 0.3 per cent recorded in respect of insurance compares to the 6.2 per cent fall recorded for 2012, and was the lowest in this category for a number of years. The operators of all categories of bulkers paid less for their insurance in 2013 than they did in 2012, in the case of Handysize bulkers to the tune of 4.1 per cent. In the tanker category, all but two types of vessel – 5,000-to-10,000 dwt tankers and Handysize product tankers – paid less than in 2012, while operators of 100-to-1,000 teu container ships paid 2.7 per cent more in 2013 than in 2012.

Moore Stephens partner Richard Greiner says: “This is the second successive year-on-year reduction in operating costs. The fall in costs for 2013, however, is 1.5 per cent below that recorded for 2012, and coincides with a period of slowly returning confidence in the shipping industry, according to the Moore Stephens Shipping Confidence Survey.

“Crew costs were the only category of expenditure to show an increase over the 12-month period covered by the survey. This time it was a comparatively small rise for an industry which had seen increases of more than 20 per cent at their peak. The fact that crew costs were the only category to show an increase for 2013 is perhaps a reflection of a diminution in the number of owners and operators exiting the industry and a reminder that investment in good people is a must.

“Expenditure on repairs and maintenance and on stores was down in 2013, but by a smaller margin than in 2012, so it is to be hoped that owners and operators are continuing to pursue the sort of sound husbandry which competition and regulation demand. Meanwhile, the fall in insurance costs this time of 0.3 per cent is significantly down on the 6.2 per cent decrease for 2012, suggesting that underwriters in the hull market are taking a harder line.

“Overall, the fall in operating costs recorded in OpCost 2014 must be good news for owners and operators. So, too, must the gradual and continuing improvement in the global economic climate, if not the current political unrest. Shipping operates on a global stage and must inevitably be affected by international events.

“Shipping is an expensive business in which to operate, and revenues earned in the freight markets must ultimately be sufficient not only to cover operating costs but also to generate a reasonable return. While slowly emerging from an extended global economic downturn, the industry remains under pressure to manage and reduce operating costs wherever possible, whilst making suitable budgetary provision for achieving forthcoming regulatory compliance, which is likely to be significant.”

Bone fide journalists can request an electronic copy of OpCost 2014 by emailing chris@merlinco.com

OpCost, the Moore Stephens vessel operating cost benchmarking study, is now in its 14th year of publication. The 2014 edition is available online, providing optimum reporting functionality for users, wherever they may be. Running cost information is obtained on a confidential basis from clients of Moore Stephens, and from other shipowners and ship managers who submit data for inclusion. OpCost is widely used for benchmarking running costs, the preparation and ongoing monitoring of business plans and in forensic accounting. Access to OpCost 2014 is available free to owners who submit their data for inclusion, or can be purchased by contacting Richard Greiner at Moore Stephens.

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 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


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

ITIC urges shipbrokers to put it in writing

Specialist transport intermediary insurer, ITIC, has warned shipbrokers that they face the risk of serious financial loss if they fail to ensure that all parties to fixture agreements are in possession of full, confirmed information prior to the conclusion of negotiations.

In the latest issue of its Claims Review, ITIC cites the case of a shipboker asked by a charterer to increase the volume of cargo already booked under a contract of affreightment. The broker, working from home, contacted the owner via text to ask if there was additional space available on the ship. The owner responded ‘Max load 18k’, whereupon the charterer, having initially booked 15,000 tonnes of cargo, sold an additional 2,500 tonnes to its client.

Once the sale was concluded and the ship nominated, it transpired that there was no extra space available on board. In fact, the extra space had never been available. The charterer had no option but to book the extra cargo with another ship on the spot market, at a freight rate approximately $80,000 higher than that under the original contract of affreightment.

The charterer held the owner responsible, but the owner rejected the claim on the basis that there was no formal offer/option given for the additional space. The charterer then looked to recover the additional cost from the broker, maintaining that the broker had not made it clear that it did not have a firm option to ship the additional cargo. The issue was ultimately settled with each party absorbing some of the costs, the broker’s contribution being reimbursed by ITIC.

In another case, a shipbroker was asked to find a suitable ship to transport a consignment of steel pipes. Shortly after negotiations had started, the charterer informed the broker of an additional dunnage requirement between each of the layers of pipes. But the broker failed to forward this new information to the owner, and it was only when the ship was fully fixed that it transpired that the dunnage requirement meant that the vessel was too small to carry the cargo.

The owner refused to accept the unilateral cancellation of the fixture and reserved its right to deadfreight in the absence of a full cargo. Efforts to find alternative employment were unsuccessful, and the claim was passed on to the shipbroker, on the grounds that it had not relayed the message. The claim was settled by ITIC.

ITIC says, “It is important to ensure that all parties have the correct information. If the broker is not clear as to what has been agreed, it is unlikely that the other parties will be any clearer. A short message, in writing, should be passed between all relevant parties in order to avoid any misunderstandings or incorrect assumptions.”

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

Failure to incorporate terms and conditions proves costly for marine surveyor

ITIC has emphasised the need for marine surveyors and other shipping and transport intermediaries to include their terms and conditions in all their business dealings in order to protect their position in the event of potential legal action.

In the latest issue of its Claim Review, ITIC cites the case of a marine surveyor instructed by the shippers of a cargo of wheat to survey and certify the holds of a bulk carrier as fit for loading. The surveyor issued a certificate of fitness to load, and 70,000 metric tonnes of wheat was loaded. Following the arrival of the ship at the discharge port, the local authorities ordered the stevedores to stop discharge operations because they suspected that the cargo was heat-damaged. A subsequent survey report, obtained by the shippers, indicated that the cargo was contaminated by de-laminating paint, rust, dirt and paint powder from the ship’s holds.

The shippers negotiated a reduction in price with the receivers as a result of the deterioration of the cargo, and pursued a claim against the shipowners under the terms of the contract of carriage. That dispute was resolved at mediation, but the shippers then brought a separate claim against the surveyor. They were seeking to recover alleged losses in excess of $1m, including loss of sale proceeds, additional hire paid to the owners, and costs, on the basis that the surveyor had negligently certified the vessel as fit for loading in circumstances when it was not.

ITIC appointed lawyers, and expert evidence was sought. That evidence suggested that the damage may have been caused by bobcats used in cargo discharge operations. The surveyor had terms and conditions which – if properly incorporated into its business dealings – would have reduced its liability to a fraction of the shipper’s claim. Unfortunately, the surveyor had not explicitly made the shipper aware of the terms and conditions, so it was unlikely that a court would find that these had been incorporated into the business dealing.

It also became apparent that, after the surveyor had inspected the vessel, customs inspectors had carried out their own inspection and had ordered that the vessel be cleaned prior to loading. This was both helpful and unhelpful for the surveyor: while it was a strong indication that the surveyor had failed to properly carry out its survey, it also arguably meant that it was not the surveyor’s report that the shippers were relying on, but rather customs’ approval to load.

A mediation took place, but the claim could not be settled. Negotiations continued nevertheless, and the matter was resolved with the surveyor contributing to around 30 per cent of the claim, which was covered by ITIC.

ITIC has written guidelines on the incorporation of terms and conditions, which can be found at: : http://www.itic-insure.com/rules-publications/article/guidelines-on-incorporating-standard-terms-and-conditions-129819/

Copies of the ITIC Claim Review can be requested from: chris@merlinco.com
If you wish to discuss your

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

Seacurus says seafarers should be protected now against risk of unpaid wages

Specialist marine insurance intermediary Seacurus says that reported doubts about the insurance industry’s ability to insure the liability for unpaid wages of abandoned seafarers under the Maritime Labour Convention 2006 are inaccurate and ill-founded.

It is already an agreed principle under MLC 2006, which came into force in August 2013, that liability for the unpaid wages of seafarers currently falls to the recruitment and placement services which help seafarers find employment at sea. Some have rightly argued that this is a misdirected arrow and that it is the shipowner/employer, and not the agent, that should assume this liability.

In a positive move, it is now understood that tripartite talks between owners, unions and governments scheduled for April 2014 at the ILO headquarters in Geneva will finally address this issue, with talks set to concentrate on the specific inclusion of unpaid crew wages in the shipowner’s MLC obligation to repatriate crew in cases of abandonment.

Thomas Brown, managing director of Seacurus, says, “It is time for clarity and certainty on this important issue. The fact is that any cover that does not provide for the indemnification of unpaid wages fails to adequately protect seafarers against the real risk of abandonment. Effective employment protection must include crew wages, without which seafarers risk becoming the cashflow casualties of their employers’ insolvencies.

“It has been suggested by some industry commentators that insurance to cover unpaid wages would be unfeasibly expensive for owners, and that in any case it is only those owners who are likely to default who will need the cover. This is wrong on both counts. Firstly, the CrewSEACURE policy launched earlier this year by Seacurus provides comprehensive cover at low cost, with premiums of as little as $50 per seafarer per year available today. Secondly, the point about only bad owners requiring cover in respect of unpaid wages is immaterial, since the proposed requirement for cover will be mandatory on all shipowners. Mandating the requirement in this way will force out of business those owners who - it is claimed - ‘need the cover’, as they will be unable to obtain the requisite financial security called for by MLC.

“If you cannot pay your crew, you should not put your ship to sea, it’s that simple. Any arguments to the contrary would serve to do our industry a disservice. Unfortunately, without the proposed amendments, there is currently no meaningful deterrent to this premise.

“The fact is that affordable cover in respect of the indemnification of unpaid wages is available, and it is available now. It is in the best interests of the industry and seafarers alike that responsible owners support the ratification and early adoption of the draft amendments to MLC in this regard.”

Seacurus Ltd is an FCA-regulated insurance broker, founded in 2004, specialising in bespoke revenue protection cover for the maritime industry. It is a market leader in the design and implementation of solutions to protect companies from unforecasted balance-sheet impacts, including credit default, charter party cancellations, hijackings and voyage disruptions caused by political events. Seacurus established the first delegated underwriting binding authority for marine kidnap insurance and is an approved Lloyd’s Coverholder. www.seacurus.com

Formed in 2007, Barbican Group Holdings is an insurance group writing business predominantly through its syndicates at Lloyd’s. It also has a non-Lloyd’s financial solutions business based in Guernsey which offers insurance and reinsurance programmes to the global market. Barbican Syndicates 1955 and 6113 at Lloyd’s has a stamp capacity of £227.5m for the 2013 year of account and underwrites cyber liability, financial and professional lines, healthcare liability, international casualty reinsurance, marine insurance, marine reinsurance, North American casualty reinsurance, property, property reinsurance and corporate, middle market and scheme/affinity group clients in the UK and Ireland. www.barbicaninsurance.com