Vessel OPEX to rise

Nov 02 2014

Vessel operating costs are expected to rise by almost 3% in both 2014 and 2015, according to the latest survey by accountant and shipping consultant Moore Stephens.

Based on the normal format of sounding out the views of owners and managers based in Europe and Asia, the survey revealed that vessel operating costs are expected to increase by 2.9% this year and next, with crew wages and repairs & maintenance costs likely to increase the most.

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

P&I insurance is expected to go up by 2% in 2014 and by 2.2% in 2015, compared to the increases of 1.6% and 1.8%, respectively, predicted for hull & machinery insurance.

Drydocking costs are expected to rise by 2.1% this year and by 2.2% in 2015, while expenditure on spares is expected to increase by 2.1% and 2.2%, respectively.

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% and 1.5%, 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 theme in the survey responses. “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,“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 observed, “There is no light at the end of the tunnel. At present, earnings are negligible, and operating costs keep going up.”

In a slightly more optimistic mood, it was also noted, “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 predicted that owners and operators “will look at possibilities to reduce their cost base by looking at alternative shipmanagement 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% of respondents (compared to 21% in last year’s survey) identified finance costs as the most significant factor, followed closely by competition (19%).

Crew supply was in third place, at 18%, followed by demand trends (17%) and labour costs (13%). The cost of raw materials was also cited by 11% of respondents as a factor that would account for an increase in operating costs.

Moore Stephens shipping partner Richard Greiner said, “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% across all the main ship types in 2013. But the level of increases anticipated for 2014 and 2015 are, at just under 3%, still way below many of those we have seen in recent years. In 2008, for example, operating costs rose by 16%. But there are a number of factors, which are likely to drive up costs both this year and next.

“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,” he said..


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