Fifth suc­ces­sive year of de­cline in op­er­at­ing costs, says Moore Stephens

Financial Mirror (Cyprus) - - FRONT PAGE -

In­ter­na­tional ac­coun­tant and ship­ping con­sul­tant Moore Stephens says to­tal an­nual op­er­at­ing costs in the ship­ping in­dus­try fell by an av­er­age of 1.1% in 2016. This com­pares with the 2.4% av­er­age fall in costs recorded for 2015. For the sec­ond suc­ces­sive year, all cat­e­gories of ex­pen­di­ture were down on those for the previous 12-month pe­riod, most no­tably for in­sur­ance costs and stores.

The find­ings are set out in OpCost 2017 (www.op­cos­ton­line.com), Moore Stephens’ unique ship op­er­at­ing costs bench­mark­ing tool, which re­veals that to­tal op­er­at­ing costs for the tanker, bulker and con­tainer ship sec­tors were all down in 2016, the fi­nan­cial year cov­ered by the study. On a year-on-year ba­sis, the tanker in­dex was down by 3 points, or 1.7%, while the bulker in­dex also fell by 3 points, or 1.9%. The con­tainer ship in­dex, mean­while, was down by 1 point, or 0.6%. The cor­re­spond­ing fig­ures in last year’s OpCost study showed falls of 6 points in both the bulker and con­tainer ship in­dex, and of 4 points in the tanker in­dex.

There was a 0.4% over­all av­er­age fall in 2016 crew costs, com­pared to the 2015 fig­ure, which it­self was 1.2% down on 2015. 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 1.3% fall recorded in 2015. All cat­e­gories of tankers re­ported a re­duc­tion in crew costs for 2016 with the ex­cep­tion of Afra­max Tankers and Suez­max Tankers, which recorded in­creases of 0.8% and 0.2% re­spec­tively, com­pared to re­duc­tions for 2015 of 1.9% and 2.6%. The most sig­nif­i­cant re­duc­tions in tanker crew costs for 2016 were the 2.8% and 2.7% recorded by Tankers 5,000 to 10,000 dwt and by Handy­size Prod­uct Tankers, re­spec­tively.

For bulk­ers, mean­while, the over­all av­er­age fall in crew costs in 2016 was 0.6%, com­pared to 1.1% recorded 12 months ago. All cat­e­gories of bulk­ers re­ported a re­duc­tion in crew costs, the big­gest fall be­ing the 1.2% re­duc­tion in spend­ing by the own­ers of Cape­size Bulk­ers.

Ex­pen­di­ture on crew costs in the con­tainer ship sec­tor, mean­while, was up by 1.1% com­pared to the fall of 3.3% recorded for 2015. The big­gest in­crease in this cat­e­gory was the 2.1% recorded for ships of be­tween 2,000 and 6,000 teu, which in 2015 led the re­duc­tions in the con­tainer ship crew costs cat­e­gory with a fall in ex­pen­di­ture of 3.6%.

Ex­pen­di­ture on stores was down by 2.9% over­all, com­pared to the fall of 4.3% in 2015. The big­gest fall in such costs was the 5.1% recorded by own­ers of con­tainer ships of be­tween 100 and 1,000 teu. In the same ton­nage cat­e­gory, the fall in stores costs for own­ers of con­tainer ships of be­tween 1,000 and 2,000 teu was 4.9%, the same fig­ure as that recorded in the tanker sec­tor for Afra­max Tankers. Other sig­nif­i­cant re­duc­tions in­cluded Handy­size Bulk­ers (4.8%) and Pana­max Bulk­ers (4.4%).

For bulk car­ri­ers over­all, stores costs fell by an av­er­age of 4.2%, com­pared to a fall of 7.7% in 2015, while in the tanker and con­tainer ship sec­tors the over­all re­duc­tions in stores costs were 2.2% and 5.2% re­spec­tively, com­pared to the cor­re­spond­ing fig­ures of 4.3% and 5.5% for 2015. The only rise in stores ex­pen­di­ture by any cat­e­gory of ves­sel was the 0.3% Coastal Tankers.

There was an over­all fall in re­pairs and main­te­nance costs of 0.8% in 2016, com­pared to the 4.3% re­duc­tion recorded for 2015. The big­gest fall in such costs was that recorded by Pana­max Bulk­ers (3.2%), closely fol­lowed by Cape­size Bulk­ers (3.1%). All ves­sels in the bulker cat­e­gory recorded re­duced re­pairs and main­te­nance ex­pen­di­ture, but there were in­creases in the tanker sec­tor, most no­tably the 2.4% ad­di­tional out­lay by Pana­max Tankers com­pared to 2015. There were ex­am­ples of small in­creases in re­pairs and main­te­nance ex­pen­di­ture in the con­tainer ship sec­tor, while for Ro-Ros the in­crease amounted to 2.2%.

The over­all drop in costs of 3.0% recorded for in­sur­ance com­pares to the 3.2% fall recorded for 2015. No ves­sel types in any of the ton­nage and size cat­e­gories in­cluded in OpCost paid more for their in­sur­ance in 2016 than in 2015.The big­gest re­duc­tion in such costs was the 5.2% recorded by con­tainer ships of be­tween 2,000 and 6,000 teu. Not far be­hind were Handy­size Bulk­ers and Pana­max Bulk­ers (4.7% and 4.6% re­spec­tively), while in the tanker cat­e­gory it was Afra­max Tankers which led the way in terms of re­duced in­sur­ance ex­pen­di­ture (4.6%). Ro-Ro own­ers, mean­while, paid 4.0% less for their in­sur­ance in 2016 than in 2015, in which year they spent an ad­di­tional 2.4% in pre­mi­ums com­pared to the previous year.

“This is the fifth suc­ces­sive year-on-year re­duc­tion in over­all ship op­er­at­ing costs, although the re­duc­tion this time is less than half the fig­ure recorded 12 months ago for 2015,” said Richard Greiner, Moore Stephens Part­ner, Ship­ping and Trans­ports. “The big­gest cost re­duc­tions were those the In­sur­ance cat­e­gory. In­sur­ance is a

in

in­crease

recorded by ma­jor item of ex­pen­di­ture for all own­ers and operators, with­out which most would not be able to op­er­ate on an in­ter­na­tional ba­sis. The fact that such costs con­tinue to fall may be due in part to a re­duc­tion in the in­ci­dence of ma­jor ca­su­al­ties. Most of the larger re­duc­tions in in­sur­ance costs tracked by OpCost, how­ever, were recorded by bulk car­ri­ers, which are no strangers to the pages of the ca­su­alty re­ports. So cheaper in­sur­ance must also say much about the fierce com­pe­ti­tion for busi­ness which ex­ists through­out ma­rine un­der­writ­ing mar­kets world­wide.

“The next big­gest cost re­duc­tion was in the Stores cat­e­gory, where the slower than an­tic­i­pated im­prove­ment in world oil prices doubt­less had a continuing ben­e­fi­cial knockon ef­fect on lube oil costs in 2016.

“The re­duc­tion in Re­pairs and Main­te­nance costs in 2016 was 3.5% down on the fig­ure for the previous year. This con­firms that main­te­nance can only be post­poned for so long by own­ers and operators who ac­cept the need to in­vest in their abil­ity to com­pete for busi­ness in a highly com­pet­i­tive mar­ket which is more tightly reg­u­lated than ever be­fore. Strate­gic short-term lay-up is a way­point rather than a des­ti­na­tion.

“Over the years, the OpCost study has recorded an­nual av­er­age crew cost in­creases of more than 20%, but there was a re­duc­tion in such costs this time of less than half of one per­cent com­pared to the fig­ure for 2015. The continuing chal­leng­ing ship­ping mar­kets are doubt­less a sig­nif­i­cant fac­tor.

“Although 2016 was an­other dif­fi­cult pe­riod for ship­ping, the year closed on a note of ris­ing con­fi­dence, ac­cord­ing to the Moore Stephens Ship­ping Con­fi­dence Sur­vey. Own­ers and char­ter­ers were more con­fi­dent, than for some time pre­vi­ously, of mak­ing new in­vest­ments, and there were im­proved ex­pec­ta­tions of higher freight rates in all three main ton­nage cat­e­gories. The ex­pec­ta­tion, too, was that oil prices and the Baltic Dry In­dex could only go up.

“That in­creased con­fi­dence, which has car­ried over into 2017, should log­i­cally lead to greater ac­tiv­ity, which will mean higher op­er­at­ing costs. When freight rates al­low own­ers to ab­sorb such in­creased costs, the numbers start to look healthy. At present, how­ever, own­ers and operators are not earn­ing what they should be, or would like to be, from most of the mar­kets in which they op­er­ate. Pos­i­tive net sen­ti­ment is good, but it is not enough. Some­thing has to change.

“It is also true that in ship­ping – as else­where – what goes down must come up. For ex­am­ple, OpCost records that, at yearend 2008, the av­er­age daily op­er­at­ing cost for a Cape­size Bulker was US$ 7,512. In 2016, it was US$ 6,691. For a VLCC, the com­pa­ra­ble fig­ures are US$ 10,812 and US$ 9,950, re­spec­tively.

“Fu­ture OpCost stud­ies are likely to re­flect the start of spend­ing – or plan­ning for – the in­tro­duc­tion of the likes of the Bal­last Wa­ter Man­age­ment Con­ven­tion, the new global limit on SOx emis­sions from 2020 and ini­tia­tives to con­tain cy­ber-crime, which are as­sum­ing in­creas­ing i mpor­tance in the in­dus­try.

“The re­sults will also re­flect, al­beit sub­tly, the ef­fect of geopo­lit­i­cal de­vel­op­ments, which can sel­dom have been in a greater state of flux than they are today.

“Ship­ping can cer­tainly find en­cour­age­ment in a fifth suc­ces­sive an­nual fall in op­er­at­ing costs. But noth­ing is for ever, and noth­ing is more cer­tain than that the ship­ping in­dus­try will con­tinue to be char­ac­terised by un­cer­tainty, which can be both its strength and its weak­ness.”

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