Ship operating costs expected to rise in 2018 and 2019
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.”