Survey finds repairs and maintenance costs up but overall costs down for seventh year
International accountant and shipping consultant BDO (ex Moore Stephens) says total annual operating costs in the shipping industry fell by an average of 1.8% in 2018, compared to the 1.3% fall for 2017. All categories of expenditure in 2018 were down overall on those for the previous 12-month period, with the exception of repairs and maintenance costs.
The findings are set out in OpCost 2019 (www.opcostonline.com), BDO’s unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2018, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 4 points, or 2.4%, compared to the 3 points (1.7%) fall the previous year. The bulker index, meanwhile, fell by 4 points, or 2.6%, compared to the 3 points (1.9%) fall recorded in last year’s OpCost. The container ship index was down by 2 points, or 1.3% - identical to the fall recorded for the previous 12 months.
There was a 1.1% overall average decrease in 2018 crew costs, compared to the 2017 figure of 0.1%. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.8% on average, compared to the 0.5% fall recorded last year. All categories of tankers reported a reduction in crew costs for 2018 with the exception of Panamax Tankers, which recorded an increase of 0.1%, compared to a reduction for 2017 of 0.7%. The most significant reduction was the 2.7% recorded by Aframax Tankers, which also recorded the biggest reduction in 2017 at 1.7%.
Richard Greiner, Partner, Shipping & Transport at BDO, said, “This is the seventh successive year-on-year reduction in overall ship operating costs recorded by OpCost, and will doubtless be regarded as good news throughout the industry. However, at the same time, the solitary overall increase across all categories of operating costs in 2018, that in respect of repairs and maintenance, should be regarded as encouraging news on a number of levels. It indicates an ongoing commitment to the increasing imperative of regulatory compliance, to maintaining safety and protecting the environment, and to continued operation. Moreover, it does nothing to confound the incipient belief that shipping may be displaying signs of a slow recovery to improved profitability. Nobody spends money on repairs and maintenance for vessels that are not expected to trade. Increasingly, vessels that do not meet industry standards will find it difficult to continue trading as regulation bites harder and more comprehensively on a global scale.
“In 2018, as was the case the previous year, the biggest cost reductions were to be found in insurance, reflecting, among other things, the intense competition for business in insurance markets throughout the world. The next biggest level of reductions came, as was again the case in 2017, in the stores category, a trend largely driven by the fall in the cost of lube oils.
“The smallest of the reductions in operating expenditure in 2018, as was the case in the previous year, came in the crew costs category, down by just over 1% on the previous year. Crew costs have been one of the most volatile elements of operating expenditure in the modern shipping industry, but there are reasons to believe that such volatility is likely to decrease. There are a variety of factors impacting crew costs, including fluctuating trade levels, the improved bargaining position enjoyed by seafarers under the MLC 2006 Convention, the emergence of professionally trained crews from dedicated institutions in developing countries, technological advances resulting in reduced manpower requirements, and the continuing difficulty of finding sufficient numbers of certain specialist officers and crew. These factors should balance each other out over time so that increases of more than 20% in crew costs are at least unlikely to be seen - increases the industry has witnessed and survived in previous years.
“Shipping is used to fluctuations in costs and industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Panamax Bulker was US$6,321; in 2018, it was US$5,472. For a Handysize Product Tanker, the comparable figures are US$7,908 and US$7,285.
“Shipping’s fortunes will continue to fluctuate, but confidence is holding up well, notwithstanding the impact of political and economic issues. It should continue to do so, given a favourable wind and a continuing appetite for investment in an industry which is increasingly embracing technological innovation and environmental awareness as a means to increase efficiency and improve cost-efficiency. Whilst there remains the need to fund the costs of technological improvements, over time that investment should lead to improved profitability.”