Ship costs continue to fall

Malcolm Latarche
Malcolm Latarche

01 October 2018


A decline in ship operating costs for the sixth successive year is highlighted in the latest version of Moore Stephens’ operating costs benchmarking tool OpCost.

Moore Stephens says total annual operating costs in the shipping industry fell by 1.3% in 2017. This compares with the 1.1% average fall in costs recorded for 2016. 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.

The findings are set out in OpCost 2018 (which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2017, the financial year covered by the study. 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. Expenditure on stores was down by 3.5% overall, compared to the fall of 2.9% in 2016 and there was an overall fall in repairs and maintenance costs of 1.7%, compared to the reduction of 0.8% in 2016. 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 included in OpCost paid less on average for their insurance in 2017 than in 2016.

Richard Greiner, Moore Stephens partner, Shipping and Transport, says, “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.

“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 0.50% global limit on the sulphur content of fuel oil used on board ships from 1 January 2020. 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 US$5,139. In 2017, it was US$ 4,929. For an Aframax Tanker, the comparable figures are US$8,374 and US$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.”