Moore Stephens: Ship Operating Costs Going Up

Vessel operating costs are expected to rise in both 2015 and 2016, according to the latest survey by international accountant and shipping consultant Moore Stephens.

Crew wages, repairs and maintenance, and drydocking are the cost categories likely to increase most significantly over that period.

The survey, based on responses from predominantly shipowners and managers in Europe and Asia, reveals that vessel operating costs are expected to rise by 2.8% in 2015 and by 3.1% in 2016.

Crew wages are expected to increase by 2.4% in 2015 and by 2.3% in 2016, with other crew costs thought likely to go up by 2.0% and 1.9% respectively for the years under review. The cost of repairs and maintenance is expected to escalate by 2.3% in 2015 and by 2.4% in 2016, while drydocking expenditure is predicted to increase by 2.6% and 2.3% in 2015 and 2016 respectively.

The cost of hull and machinery insurance is predicted to rise by 1.8% and by 1.9% in 2015 and 2016 respectively, while for P&I insurance the projected increases are slightly lower – 1.7% and 1.8% respectively, the survey shows.

The predicted overall cost increases for 2015 were highest in the offshore sector, where they averaged 3.4% against the overall survey increase of 2.8%. For 2016, it was the tanker sector which was predicted to experience the highest level of increases – 3.4% compared to the overall survey average of 3.1%. The container ship sector, meanwhile, was not far behind at 3.3%.

We expect costs generally to increase as charter rates creep up, although they will probably lag behind the latter. With charter rates generally low at present, the provision of services to the shipping industry needs to remain competitive, with suppliers reluctant to put up charges too soon for fear of losing business,” a respondent said.

Elsewhere it was noted that future operating costs will increase exponentially due to innumerable new regulations, the low competence of seafarers, the high bargaining power of the oil majors, stricter rules regarding maintenance and repairs carried out in ports, the advent of more sophisticated onboard machinery, and increasing consolidation in the marine equipment and services sector, resulting in more bargaining power for fewer, larger companies.

Another respondent highlighted: “Overcapacity within the markets is driving charter rates down, owners are facing higher costs to finance vessels, and operators are fighting much harder for cargo. Ship managers are now required to look after much more for the same management fees.”

‘Staggering’ cost increases due to redundancy in electronic navigation and communication equipment, and increased port dues, were among other issues deemed by respondents in the survey to be likely to result in an increase in operating costs.

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, the most significant factors identified by respondents were finance costs at 22% (compared to 21% in last year’s survey) and competition also at 22% (up from 18% last time). Crew supply was in third place with 17% (down 3 percentage points on last time), followed by demand trends (down by one percentage point to 16%) and labour costs, unchanged at 13%. The cost of raw materials was cited by 8% of respondents (compared to 10% in last year’s survey) 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 compare to an average fall in 2014 of 0.8% in operating costs across all main ship types recorded in the recent Moore Stephens OpCost report. Nevertheless, the level of increases anticipated for 2015 and 2016 are low in comparison with many we have witnessed in recent years. Shipping has seen much worse, and prevailed. For example, many of the companies which endured a 16% rise in operating costs in 2008 are still operating successfully today.

“It is no surprise that crew wages feature near the top of the predicted operating cost increases for both 2015 and 2016, not least because of the entry into force of the Maritime Labour Convention 2006, which mandates the manner in which seafarers must be paid. For shipping, as for every industry, investment in good people will always be money well spent,” he adds.

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