For the third successive year, all categories of expenditure in 2017 were down on those reported for the previous 12-month period, most notably for insurance and stores.
The findings are set out in OpCost 2018, Moore Stephens’ ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and containership sectors were all down in 2017, the financial year covered by the study.
As for tankers, on a year-on-year basis, the index went down by three points, or 1.7%, the same as recorded in the previous year.
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 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 crewing costs for 2017 with the exception of those in the 5,000 to 10,000 dwt bracket 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 in the Aframax segment.
Expenditure on stores was down by 3.5% overall, compared to the fall of 2.9% in 2016. All vessels types recorded a fall in these costs for 2017, none bigger than the 8.4% drop recorded by VLGCs of between 70,000 and 85,000 cu m.
In the tanker sector, the most significant fall in such costs was the 5.5% posted by VLCCs.
For tankers overall, stores costs fell by an average of 4.5%, compared to the 2.2% recorded for 2016.
There was an overall fall in repairs and maintenance costs of 1.7%, compared to the reduction of 0.8% in 2016. The biggest fall in R&M costs was the 4.9% recorded by chemical tankers of 40,000 to 50,000 dwt, followed by VLCCs (4.8%), and Handysize product tankers (4.5%).
For tankers overall, R&M costs fell by 3.4%, compared to the 2016 figure of 1.7%.
As for insurance costs, the overall drop of 4.1% recorded compares to the 3% fall recorded for 2016. Suezmaxes were high on the list, falling by 6.2%, while VLCC insurance costs fell by 6%.
Richard Greiner, Moore Stephens partner, Shipping and Transport, said, “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, re-insurers, 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 10 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 0.5% global limit on the sulfur content of fuel oil used on board ships from 1st January, 2020. Compliance with this regulation can be achieved either by switching to low-sulfur 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 $5,139. In 2017, it was $4,929. For an Aframax tanker, the comparable figures are $8,374 and $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,” Greiner concluded