Ships expected to contain operating costs to below 3% in next 2 years

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ship crewThe global shipping industry expects vessel operating costs to increase by 2.9 percent in both 2014 and 2015, with crew wages and repairs & maintenance the cost categories likely to increase most significantly, according to a new survey.

Ship owners and managers in Europe and Asia said they expect crew wages to rise by 2.4 percent in 2014 and by 2.6 percent in 2015, with other crew costs thought likely to go up by 1.9 percent and 2.1 percent, respectively, for the years under review, said Moore Stephens in its latest survey.

The cost of repairs & maintenance, meanwhile, is expected to escalate by 2.3 percent in 2014 and by 2.4 percent in 2015.

Protection & indemnity insurance costs are expected to go up by 2 percent in 2014 and by 2.2 percent in 2015, compared to increases of 1.6 and 1.8 percent, respectively, predicted in the cost of hull & machinery insurance.

Drydocking costs are expected to rise by 2.1 percent in 2014 and by 2.2 percent in 2015, while expenditure on spares is expected to increase by 2.1 percent and by 2.2 percent over the same period.

Meanwhile, respondents anticipate increases of 1.7 percent and 2 percent, respectively, in the cost of lubricants in the two years under review.  The cost of stores is expected to increase by 1.7 percent and 1.9 percent, respectively, for 2014 and 2015.

Management fees are deemed likely to produce the lowest level of increases in both 2014 and 2015, at 1.2 percent and 1.5 percent, respectively.

The combination of low freight rates and increased operating costs dominated the thinking of a number of respondents, said Moore Stephens. One noted, “Owners are hard-pressed to cut costs and lower operating expenses because of poor freight markets.”

Another said, “Operators are keeping any increases in operating expenses to a minimum due to low freight rates,” while still another  observed, “There is no light at the end of the tunnel. At present, earnings are negligible, and operating costs keep going up.”

Asked to identify the three factors that were most likely to influence the level of vessel operating costs over the next 12 months, 20 percent of respondents identified finance costs as the most significant factor, followed closely by competition then crew supply, demand trends, labor costs, and cost of raw materials.

The consultancy’s shipping partner Richard Greiner said that the predicted increases in ship operating costs for this year and next are, at just under 3 percent, “still way below many of those we have seen in recent years. In 2008, for example, operating costs rose by 16 percent.”

But he cited a number of factors which are likely to drive up costs both this year and next, including the gradual global economic recovery now under way, noting it will not only result in improved earnings for shipping but also in increased costs.

“More ships in the water, and more cargo on board, entails more handling, transportation and other costs,” he explained.

He also pointed to the pending bill for regulatory and legislative compliance as another potential cost increase factor should it be implemented, as well as to investments in eco-friendly ships that will have long-term benefits but entail additional costs.

On the plus side, oil and gas prices are falling, which should translate into savings for owners and operators, and shipping continues to attract new money from both internal and external investors, said the report.

“The projected increases in vessel operating costs for the next two years will be difficult for owners, operators and managers to absorb,” said Greiner. “History shows, however, that good husbandry, sound business planning, experience, patience and the right amount of entrepreneurialism are likely to carry the day.”

Photo: gailf548