Moore Stephens: Operating Costs Down for 6th Year in a Row

Total annual operating costs in the shipping industry fell by 1.3% in 2017, according to international accountant and shipping consultant Moore Stephens.

This compares with the 1.1% average fall in costs recorded for 2016.

For the third successive year, all categories of expenditure in 2017 were down on those for the previous 12-month period, most notably for insurance costs and stores, the consultant said.

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%, with the decline in both indices repeating that seen in the previous year at 3 points, or 1.7%, for tankers and 3 points, or 1.9%, for bulkers. The containership index, meanwhile, was down by 2 points, or 1.3%, compared to the fall in the previous year of 1 point, or 0.6%.

“This is the sixth successive year-on-year reduction in overall ship operating costs. The biggest cost reductions were once again to be found in the insurance category. This may be due in part to a significant reduction in the overall incidence of large, expensive casualties over the past couple of years. But the size and frequency of the cost reductions is still worthy of note, given the cumulative cost of comparatively smaller but still expensive claims routinely fielded by hull and machinery underwriters,” Richard Greiner, Moore Stephens partner, Shipping and Transport, said.

The overall drop in costs of 4.1% recorded for insurance compares to the 3.0% fall recorded for 2016.

Year-on-year, bulkers paid 6.0% less overall , tankers paid 3.4% less, and containerships paid 5.8% less.

There was an 0.1% overall average fall in 2017 crew costs, compared to the 2016 figure, which itself was 0.4% down on the previous year, data from the consultancy shows.

Expenditure on stores was down by 3.5% overall, compared to the fall of 2.9% in 2016, and there was an overall fall in repairs and maintenance costs of 1.7%, compared to the reduction of 0.8% in 2016.

“There are some big challenges ahead for the industry which will test owners, operators, charterers and investors alike. Planning must continue for implementation of the Ballast Water Management Convention, and decisions made on how to finance it. Measures to detect and eliminate cyber-crime will come at a price in terms of hardware, software and manpower.”

“Meanwhile, owners and operators are still pondering the optimum way to meet the challenge of complying with the IMO’s 0.50% global limit on the sulphur content of fuel oil used on board ships from 1 January 2020. Compliance with this regulation can be achieved either by switching to low-sulphur fuel or by installing the likes of scrubbers. The first option is expensive. The second is both expensive and disruptive and moreover will be accompanied by an increase in operating costs. Decisions will be influenced by individual risk profile and commercial strategy, but will undoubtedly be costly.

“The likelihood is that operating costs will increase when the markets improve significantly.  Such increases must, however, be balanced against the technological advances which have already started to make shipping markedly more efficient and more cost-efficient,” Greiner said.