Drewry: Ship Operating Costs Drop amid Weak Market Conditions

The cost of operating cargo ships has fallen for two successive years amid weak freight rates, declining asset values, eroded profitability and denuded cash balances, according to shipping consultancy Drewry.

As 2016 was another very difficult year for most shipowners and operators, the market conditions have forced shipowners to reduce costs wherever possible, and vessel operating expenses have been no exception.

Drewry’s assessment of 2016 operating costs across 44 different ship types and sizes shows that the average decline in total ship operating costs was 4.4%. This comes after a fall of 1.5% in 2015.

“In the short term, it is evident that the direction of the wider cargo shipping market will continue to shape trends in operating costs. That said, the scope for further significant cost reductions is limited. We are still of the opinion that costs will rise in 2017 and beyond, but perhaps at lower levels than previously anticipated,” Nikhil Jain, the editor of Ship Operating Costs Annual Review and Forecast 2016/17 report, said.

Drewry said that modest increases in manning costs are expected to rise as a result of international wage rate agreements and shortages in certain officer ranks.

Excess capacity in the insurance sector and competition among insurance providers will help offset the impact of rising asset values on the hull and machinery insurance (H&M) market.

“Although the cargo carrying fleet is relatively young, spending on repair and maintenance (R&M) is expected to rise. Recent legislation regarding the retrofitting of ballast water management systems will lead to increased expenditure, so it is safe to assume that expenditure on R&M  will rise at rates above typical inflation,” Jain added.

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