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Ship Operating Costs under sustained pressure

Drewry Maritime Research’s latest Ship Operating Costs Annual Review and Forecast report highlights that 2013 was another difficult year most ship operators and with weak freight earnings there was pressure to keep any increase in ship operating costs to a minimum. Judging by the findings of the latest Drewry report ship operators were able to keep increases in operating costs in 2013 quite low – with increases in total costs typically ranging between 1.0-2.5% depending on the sector in question. New international maritime conventions on safety, manning and the environment are no doubt placing upward pressure on some cost elements, but 2013 generally saw depressed hull values and static or weaker commodity prices, which helped keep expenditure on insurance, lubricating oils and repairs (steel) in check.

Commenting on the latest findings Nigel Gardiner, Managing Director, stated:

“Poor freight markets have forced ship operators to keep any increases in ship operating costs to a minimum and our provisional data for 2013 suggests some success in this area. But looking ahead and given the expected outlook for the world economy and international shipping markets we expect to see operating costs rise by 2-3% per annum in the next couple of years”.

Overview of the main finding

Manning

With the exception of LNG, manning costs increased by 1-2% in 2013, as overall fleet growth moderated and pressure was eased on officer supply. Looking ahead as the world comes out of recession and shipping markets improve, upward pressure on manning costs is expected to return with increases being of a higher nature than seen in 2013.

Insurance
Shipowners and operators have certainly made a concerted effort to resist any increase in insurance premiums and they have been helped in this respect by weak assets values. But with some markets showing signs of revival in late 2013, and with a general recovery in asset values underway we expect insurance costs to rise in 2014.

Stores, Spares & Lubricating Oils

Expenditure on items such as lubricating oils has been held in check by weak or static commodity prices, but if the world economy picks up in 2014 and commodity prices rise, we expect costs in this sector to rise as well.

Repairs & Maintenance

Four years of weak freight markets and in many cases minimum maintenance regimes point to rises in repair and maintenance expenditure. In 2013 weak steel prices helped to keep increases low, but with new regulations and an element of catch-up in repair due, we expect repair and maintenance expenditure to rise by at least 2.5 to 3% per annum over the next couple of years.

Management & Administration

Increases in this element of expenditure appear to have been quite low in 2013 – typically less than 1.0% on 2013 and we are of the opinion that operators will do they best to keep increases to a similar figure in the short term.
Source: Drewry Maritime Reserach