Ship oper­at­ing costs ex­pected to rise in 2018 and 2019

Financial Mirror (Cyprus) - - SHIPPING -

the cost of lu­bri­cants over the two-year pe­riod, mean­while, are to­wards the higher end of the sur­vey scale, which is in line with a pre­dicted rise in oil prices this year and next.

“Ex­pected in­creases in the price of hull and ma­chin­ery in­surance are up on es­ti­mates made 12 months ago but, due to the highly com­pet­i­tive na­ture of the mar­ket, can­not be re­garded as an en­tirely reli­able bell­wether.

“Es­ti­mates of pro­tec­tion and in­dem­nity cost in­creases are also up, per­haps re­flect­ing in­creased man­age­ment costs and the pos­si­bil­ity that the mar­ket’s re­cent be­nign large claims ex­pe­ri­ence may not be re­peated over the next cou­ple of years.

Off­shores face big­gest in­creases

“Else­where, there were some in­ter­est­ing pre­dicted cost in­creases in the in­di­vid­ual mar­ket sec­tors. The off­shore in­dus­try, for ex­am­ple, is pre­dicted to be fac­ing in­creases of 3.1% in re­pairs and main­te­nance for 2019, com­pared to the 1.9% pre­dicted for tankers. In­deed, the off­shore sec­tor is ex­pected to face the big­gest in­creases in oper­at­ing costs in 2019 in ev­ery cat­e­gory of ex­pen­di­ture cov­ered by the sur­vey.

“One could ar­gue that the level of pre­dicted oper­at­ing cost in­creases for 2018 and 2019 ought to be man­age­able in a com­pet­i­tive, vi­able in­dus­try en­vi­ron­ment. No­body doubts ship­ping’s es­sen­tially com­pet­i­tive na­ture, but the is­sue over vi­a­bil­ity is less clear-cut.

“Ship­ping has held up well dur­ing a tenyear eco­nomic down­turn, and in­vestors con­tinue to ex­press con­fi­dence in the in­dus­try’s po­ten­tial for profit. Sadly, some good com­pa­nies have gone to the wall over the past decade but, over­all, the in­dus­try has be­come leaner by virtue of hav­ing let mar­ket forces func­tion as they should. Yet mar­ket in­tel­li­gence and com­mon sense sug­gest that freight rates still need to im­prove sig­nif­i­cantly in or­der for ship­ping to start mak­ing the sort of money it should com­mand in light of the vi­tal role it plays in in­ter­na­tional trade and com­merce.

“The more money that ship­ping makes, the more com­fort­ably it can meet its oper­at­ing ex­penses. In­creases in oper­at­ing costs must be ex­pected, and bud­geted for. Those costs may change in na­ture, be­cause new tech­nol­ogy is al­ready help­ing to re­duce out­go­ings in some ar­eas, while on the other side of the coin there is the ev­i­dent need for tech­no­log­i­cal in­vest­ment to com­bat the likes of cy­ber-crime.

“There are more Ifs in­volved in the ship­ping in­dus­try than there are in Ki­pling’s poem. If freight rates go up, if world trade in­creases, if po­lit­i­cal ten­sions and trade wars al­low, if China con­tin­ues to flour­ish, if oil prices rise, if stock mar­kets hold their nerve, if Brexit means Brexit, if Brexit means some­thing else, then ship­ping will be in a po­si­tion to reap the ben­e­fits. It will re­quire good man­age­ment, good judge­ment, good re­search, good ad­vice and good luck. And it will re­quire good hus­bandry.

As Ben­jamin Franklin said, “Be­ware lit­tle ex­penses; a small leak will sink a great ship.”

www.moorestephens.co.uk/ship­ping-

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