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

Moore Stephens says ship operating costs are set to increase for 2017 and 2018

Vessel operating costs are expected to rise in both 2017 and 2018, according to the latest survey by international account and shipping consultant Moore Stephens. Repairs & maintenance and spares are the cost categories which are likely to increase most significantly in each of the two years.

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 likely to rise by 2.1% in 2017 and by 2.4% in 2018.

The cost of repairs & maintenance is expected to increase by 2.0% in both 2017 and 2018, while expenditure on spares is predicted to rise by 2.0% in 2017 and by 1.9% in 2018. Drydocking expenditure, meanwhile, is expected to increase by 1.7% and 1.8% in 2017 and 2018 respectively.

The survey revealed that the outlay on crew wages is expected to increase by 1.7% in each of the years under review, with other crew costs thought likely to go up by 1.6% in 2017 and 1.5% in 2018.

The increase in expenditure for lubricants is expected to be 1.6% in both 2017 and 2018. Meanwhile, projected increases in stores are 1.5% and 1.7% in the two years under review, while management fees are expected to rise by 0.7% and 1.0% in 2017 and 2018 respectively.

The cost of hull and machinery insurance is predicted to rise by 0.5% and 1.0% in 2017 and 2018 respectively, while for P&I insurance the projected increases are 0.7% and 1.1% respectively.

The predicted overall cost increases were highest in the offshore sector, where they averaged 4.8% and 3.8% respectively for 2017 and 2018. By way of contrast, predicted cost increases in the container ship sector were just 1.1% and 0.8% for the corresponding years.

Operating costs for bulk carriers, meanwhile, are expected to rise by 1.9% in 2017, and by 2.4% the following year, while the corresponding figures for tankers are 2.1% and 2.7%.

Respondents to the survey highlighted various areas of concern likely to result in increased operating costs over the next two years. Crew costs were high on the list, with one respondent noting, “Crew costs are 60% of our operating expenditure, and weigh heavily when there is high demand for – but a limited supply of – manpower and when employers are required to meet increasingly onerous requirements.” Another noted, “Crew and insurance related expenses are the two major factors in our operating expenses but, while we expect insurance costs to fall over the next two years, we anticipate that crew costs will remain the same.” Another still said, “Most shipping companies, but especially those operating tankers and chemical and gas carries, are facing the prospect of increases in costs through 2018 for hiring qualified crew.”

The increasing cost of regulatory compliance was referenced by a number of respondents, one of whom said, “New regulations are certainly going to have a major impact on our operating costs.” Elsewhere it was noted, “Retrofitting vessels with technology which has not been fully vetted for compliance with existing and new regulation can destroy cashflow.”

One respondent in the offshore sector, meanwhile, emphasised, “There is a constant trend in terms of charter hire, whereby earnings are gradually going down while expenses under different heads are following an upward trend.”

Another respondent commented, “We do not expect income to increase significantly over the next 12 months, which in turn will limit the available budget for operating expenses.” Other respondents, too, expressed doubts about factors which are likely to constrain their earning capacity at a time when operating costs are increasing. Areas of concern included such familiar items as continued tonnage overcapacity in some trades and the cost of finance.

One respondent said, “Excess capacity, and the amalgamation and acquisition of existing operators and assets, could lead to a market which is shared by a small number of operators.” Another complained, “Over-supply of tonnage, most notably that built in China, has caused a significant fall in charter hire.” Other, more general, comments, included, “Markets across the board will be nervous, with sharp ups and downs,” and: “Prospects look gloomy, with no clear horizon in sight.”

Respondents were asked to identify the three factors that would most affect operating costs over the next 12 months., Overall, 21% of respondents (similar to last year’s survey) identified finance costs as the most significant factor, followed by crew supply, which stood at 19% and displaced competition in second place. Competition itself was down from 19% to 15% and from second to equal third place, which it shared with the cost of new regulations, which was included in the survey for the first time. Demand trends and raw material costs, meanwhile, shared fourth place at 10%, with labour costs fifth at 9%, all significantly down on the figures in last year’s survey, which were respectively 17%, 11% and 13%.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says, “The predicted 2.1% and 2.4% increases in operating costs for 2017 and 2018 respectively compare to an average fall in actual operating costs in 2016 of 1.1% across all main ship types recorded in the recent Moore Stephens OpCost study.

“One year ago, expectations of operating cost increases in 2017 averaged 2.5%, so the fall now in that expectation to 2.1% must be regarded as good news. Predicted increases in operating expenditure are a matter of concern for any industry, and particularly one such as shipping in which a range of factors have conjoined in recent years to inhibit (and, in some cases, eradicate) profit margins. But shipping has seen a lot worse. If it does transpire that operating costs rise by 2.4% in 2018, for example, that will still be less than one-sixth of the actual operating cost increases absorbed by the industry ten years previously.

“It is significant that, for the first time, new regulations were included in the list of factors which respondents could cite as most likely to influence the level of operating costs over the next 12 months. It was even more significant, perhaps, that 15% of respondents did indeed identify the cost of regulatory compliance as a major consideration when weighing future operating cost increases. The Ballast Water Management convention, now with an extended implementation window, is still potentially the most expensive item on the menu, but by no means the only one. Tellingly, one respondent referred to new regulations which ‘most of the time are unclear and indefinite.’

“The fact that repairs & maintenance and spares emerged as the items with the largest projected cost increases in both 2017 and 2018 was perhaps unsurprising in that they are two items of expenditure on which owners and operators might conceivably have economised or delayed in previous years, and such economies cannot be sustained over longer periods without impacting safety.

“Elsewhere, there were some interesting predicted cost increases in the individual market sectors. The offshore industry, for example, is predicted to be facing increases of 3.5% in crew wages for 2018, compared to the 1.4% predicted for bulkers and the 0.7% for container ships. Indeed, the offshore sector is facing the biggest increases in operating costs in the next two years in every category of expenditure covered by the survey.

“Offshore is going to be a challenging sector for operators and investors alike for some time to come, and the survey reveals exactly why a year can be a long time in shipping. In last year’s Future Operating Costs report, the container ship sector led the way in terms of the highest predicted overall cost increases for 2016 and 2017, with the offshore sector returning the lowest figures. Now, the position is completely reversed, with container ships expected to have to bear increased costs in 2017 which are little more than one-fifth of those expected to be encountered by offshore operators.

“It was evident from the responses to our survey that the shipping sector is concerned about the conflation of higher operating costs and the potential reduction in revenue earning opportunities which it faces over the next two years. As one respondent succinctly observed: “The problem with shipping is not so much costs, but income.” There is certainly some truth in that. Shipping has gone through – and is still navigating – a prolonged downturn. It is a cyclical industry, but cycles imply movement both up and down, and there has not been enough of the former in recent years. The cyclical nature of the industry also increases volatility in the likes of charter rates and vessel values which may adversely affect earnings.

“There is however, evidence to support the view that an appetite still exists for ongoing investment from both traditional and external investors, supported by a number of recent indicators of positive sentiment. This is in an industry whose attractions currently include low prices and comparatively limited ordering of new tonnage. That is good news, because it is such investment that shipping will need if it is to meet the rising cost of operating in the industry.”

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

Moore Stephens reports fourth 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 2.4% in 2015. This compares with the 0.8% average fall in costs recorded for 2014, and is the fourth successive overall year-on-year reduction in such costs. All categories of expenditure were down on those for the previous 12-month period. This suggests continued pragmatic management of costs by ship owners and operators, as well as a reduction in active trading for some owners as a result of the prolonged worldwide economic downturn.

The findings are set out in OpCost 2016 (www.opcostonline.com), Moore Stephens’ unique ship operating costs benchmarking tool, which reveals that that total operating costs for the tanker, bulker and container ship sectors were all down in 2015, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 4 points, or 2.2%, while the bulker index fell by 6 points, or 3.6%. The container ship index, meanwhile, was also down by 6 points, or 3.7%. The corresponding figures in last year’s OpCost study showed falls of 2 points in both the tanker and container ship index, and of 1 point in the bulker index.

There was a 1.2% overall average fall in 2015 crew costs, compared to the 2014 figure, which itself was 0.1% down on 2013. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.3% on average, compared to the 0.4% fall recorded in 2014. All categories of tankers reported a reduction in crew costs for 2015 with the exception of Panamaxes and VLCCs, which recorded increases of 1.4% and 1.2% respectively, compared to reductions for 2014 of 2.2% and 0.6%. The most significant reduction in tanker crew costs for 2015 was the 3.6% recorded by Product Tankers.

For bulkers, meanwhile, the overall average fall in crew costs in 2015 was 1.1%, having stabilised 12 months ago at 2013 levels. The operators of Handysize Bulkers paid 2.3% more on crew costs than in 2014, but the operators of other categories of bulker paid less, in the case of Panamax Bulkers to the tune of 3.2%.

Expenditure on crew costs was down 3.3% in the container ship sector, having stabilised in 2014 at the previous year’s level. The biggest fall in crew costs in this category was the 3.6% reduction recorded for vessels of between 2,000 and 6,000 teu.

Expenditure on stores was down by 4.3% overall, compared to the fall of 2.4% in 2014. The biggest fall in such costs was the 8.5% recorded by operators of Capesize Bulkers, with Panamax Bulkers (8.2%) not far behind. Other significant reductions included 2,000-6,000 teu Container Ships (8.0%) and Handymax Bulkers (7.5%). For bulk carriers overall, stores costs fell by an average of 7.7%, compared to a fall of 3.7% in 2014, while in the tanker and container ship sectors the overall reductions in stores costs were 4.3% and 5.5% respectively, compared to the corresponding figures of 0.7% and 3.0% for 2014. The only rise in stores expenditure by any category of vessel was the 1.5% increase recorded by Tankers 5,000 to 10,000 dwt.

There was an overall fall in repairs and maintenance costs of 4.3%, compared to the 0.6% reduction recorded for 2014. Only VLCCs and Container Ships of between 1,000 and 2,000 teu recorded increased expenditure on repairs and maintenance, of 0.1% and 1.3% respectively. Otherwise it was a case of reduced spending everywhere, the most significant example being the 7.9% fall recorded for Coastal Dry Cargo ships.

The overall drop in costs of 3.2% recorded for insurance compares to the 0.4% fall recorded for 2014. No vessels in the bulker category paid more for their insurance in 2015 than in 2014. Handysize Bulkers paid considerably less (5.7%) as did Panamax Bulkers (5.3%). Product Tankers and Tankers 5,000 to10,000 dwt were the only vessels in the tanker category to pay more for their insurance in 2015 than in the previous year, to the tune of 1.3% and 0.6% respectively. The biggest increase in insurance costs, however, was the 2.6% recorded by LPG carriers in the 10,000 to 40,000 cbm range. Perversely, gas carriers are historically regarded as among the safest vessels afloat, perhaps reflecting the effect on premium levels of the cost of potential claims rather than the legacy of claims records.

Richard Greiner, Moore Stephens Partner, Shipping & Transport, says: “This is the fourth successive year-on-year reduction in overall ship operating costs. The reduction is three times that recorded 12 months ago, and a reduction at this level had not been widely anticipated. The fall in operating costs is likely to be due in part to continuing good husbandry in a difficult operating environment for many, and partly to an extremely difficult market and wider economic climate.

“The biggest cost reductions were predictably those in the Stores and Repairs and Maintenance categories. Falling world oil prices continued to have a knock-on effect on lube oil costs in 2015, while increasing numbers of owners were looking to strategic short-term lay-up rather than spending on maintenance and repair.

“The fall in crew costs arguably came as more of a surprise to an industry which has over the years absorbed increases of this type in excess of 20% and lived to tell the tale, but it was doubtless largely a consequence of reduced levels of trading. The fall in insurance costs, meanwhile, will come as no surprise to anybody in the light of warnings from the London market that hull rates for many major fleets continue to reach new lows.

“Last year was a particularly difficult one for shipping. Confidence reached its lowest level for seven years, according to the Moore Shipping Confidence Survey. Operators were not overly optimistic about making new investments in the short-term, while finance costs were predicted to rise. Nobody was expecting good news on dry bulk freight rates, and the outlook for tanker and container ship earnings was little better. The Baltic Dry Index, meanwhile, was getting ready to plumb the depths. It was not an auspicious time to be planning new ventures; rather, it was a time for taking stock. In short, for many, it was a time for keeping operating costs to a minimum.

“Against a background of declining confidence in 2015, oil prices were on a steady downward trend, and the slowdown in the Chinese economy was becoming increasingly evident. Neither of these factors was wholly good news for shipping and both, in different ways, served as a brake on 2015 operating costs.

“A fall in operating costs is good news for shipping, particularly at a time when earnings from the freight market, for many, are so disappointing. But the portents are not so encouraging. Oil prices are predicted to start recovering significantly in the second half of 2017, while the price of steel, the bedrock of the shipbuilding industry, could increase much sooner. The cost of manpower, meanwhile, is only likely to move in an upward direction under the terms of the Maritime Labour Convention 2006.

“While the Ballast Water Management Convention still seemed a long way away from entering into force in 2015, it wasn’t! Now the convention has been ratified, the cost of trying to achieve compliance should become clearer over the next 12 months, as should the cost of making shipping safer and more secure against threats from the likes of cyber-attacks and fraud.

“In conclusion, shipping can draw some comfort from a fourth successive annual fall in operating costs. But it should remember that costs can move both ways. OpCost records that, at year-end 2001, for example, the average daily operating cost for a Handymax Bulk Carrier was US$3,578. In 2015, it was US$ 5,604. For a Suezmax Tanker, the comparable figures are US$4,916 and US$9,170.

“The indications from the freight markets are that shipping is still selling itself too cheaply. Inflationary pressures on operating costs will remain, so maintaining the status quo will not be a viable option. For many, the freight markets will remain challenging and so to remain competitive, shipowners need to continue to improve efficiency, innovate with new technology and harness the considerable benefits of ‘big’ data without delay.”

Bone fide journalists can request an electronic copy of OpCost 2016 by emailing chris@merlinco.com

OpCost, the Moore Stephens vessel operating cost benchmarking study, is now in its 16th year of publication. The 2016 edition is available online, on a new website, providing optimum reporting functionality and tools, creating an easier experience 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 2016 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, 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 657 offices of independent member firms in 106 countries, employing 27,613 people and generating revenues in 2015 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 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