Moore Stephens: Shipping Is Watching the Pennies

Total annual operating costs in the shipping industry fell by an average of 0.8% in 2014, according to findings released by international accountant and shipping consultant Moore Stephens.

This compares with the 0.3% average fall in costs recorded for 2013.

“All categories of expenditure were down on those for the previous 12-month period, confirming that ship owners and operators continued to manage costs sensibly and to watch their cash carefully in 2014,” the shipping consultant said.

The findings are set out in OpCost 2015, Moore Stephens’ ship operating costs benchmarking tool.

On a year-on-year basis, the tanker index was down by 2 points, or 1.1%, while the bulker index fell by one point, or 0.6%. The container ship index, meanwhile, was down by 2 points, or 1.2%. The corresponding figures in last year’s OpCost study showed a rise of 2 points in the tanker index, and falls of 2 points in the bulker and container ship indices.

There was an 0.1% overall average fall in 2014 crew costs, compared to the 2013 figure, which itself was 0.2% down on 2012. Tankers overall experienced a fall in crew costs of 0.4% on average, compared to the 1.8% increase recorded in 2013.

For bulkers, meanwhile, crew costs were unchanged, having recorded an 0.5% average fall for the previous year.

Moore Stephens partner Richard Greiner says: “This is the third successive year-on-year reduction in overall operating costs. This comes as something of a surprise, and is contrary to earlier forecasts. Shipping is clearly watching the pennies, and it may also be the case that more competitive pricing for goods and services has had a part to play in holding down expenditure. Beyond that, as always, the impact of exchange rate changes cannot be determined readily.

“By far the biggest reduction in operating costs, for example, was seen this time in the Stores category. This can be largely explained by the knock-on effect which the fall in oil prices has had on lube oil costs. Such ‘benefits’ do not come often to any industry, and are usually not without a downside, as has been the case in shipping.”

According to Greiner,the drop in crew costs could be an indication of a higher level of idle tonnage during the period under review, but is nevertheless welcome news as the industry has seen crew cost increases of more than 20% at their peak.

Expenditure on stores was down by 2.4% overall, compared to the fall of 1.9% in 2013. The biggest fall in such costs was the 5.3% recorded by operators of Handysize Bulkers, closely followed by container ships in the 1,000 – 2,000 teu range (5.1%).

There was an overall fall in repairs and maintenance costs of 0.6%, compared to the 0.4% reduction recorded for 2013. The most significant cost reductions here were those recorded for tankers of between 5,000 and 10,000 dwt (3.3%), and for 1,000 – 2,000 teu Container Ships (3.2%). Bucking the trend, VLCCs recorded an increase in repairs and maintenance costs of 2.5%, and Capesize Bulkers of 1.8%, the study shows.

“The challenge for shipping is how to build the cost of operation into freight rates in a way which allows for a reasonable profit margin in an industry which is driven by competition and characterised by overtonnaging.

Given that, over the next few years, annual seaborne trade is projected to grow at a reasonable rate, and that the cost of regulatory compliance is likely to increase significantly, one would expect operating costs to rise over the same period. Two things are certain. Firstly, the business of operating ships will remain a costly undertaking. Secondly, the impetus for higher freight rates will not come from the shipping industry’s customers,” he concluded.