Total annual operating costs in the shipping industry fell by 1.3% in 2017, which compares with the 1.1% average fall in costs recorded for 2016, according to Moore Stephens consultants. 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.
Namely, on a year-on-year basis:
- The tanker index was down by 3 points, or 1.7%,
- The bulker index also fell by 3 points, or 1.9%,
- decline in both indices repeated 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 was down by 2 points, or 1.3%, compared to the fall in the previous year of 1 point, or 0.6%.
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 IUMI recently called for a better understanding by underwriters of the assets being insured in the marine market,
…says Richard Greiner, Partner, Shipping and Transport.
Crew costs
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.
For tankers
- 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
- 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.
For container ships
- 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%.
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.
Stores
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.
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,
…added Mr. Greiner.
Repairs and maintenance
- 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%,
- 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 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.
Insurance
- 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 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%).
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,
….he concluded.