Short term prospects show costs rising

The cost of finance, competitive pressures and crew costs are all likely to rise during the next two years, a survey of vessel operating costs by shipping consultant Moore Stephens has estimated. Ship operating costs in general are likely to rise by nearly 3%, both this year and next, with wages and repair costs likely to increase the most, says the report, which has been compiled following a survey from industry “key players”.

There seems little argument about the direction of pretty well all operating costs, while the abilities of owners to control these is clearly limited, in an industry suffering from over-capacity in most major sectors. But should owners be necessarily despondent about these matters?

In that these cost rises will affect all shipping across the board, there is perhaps some reason to regard them with a degree of equanimity. It is probably unlikely that one’s major competitors will be able to source cheaper quality crews, or third party managers, dry-docking or spare parts. But will it be possible to pass on these costs to the “customers” – the users of ships, whose resistance to rate increases is becoming the stuff of legend? That is very much open to question. At a time when too many ships are chasing the cargoes, when the scrutiny of competition authorities is increasingly sharp and when the industry faces considerable regulatory unknowns, prospects for profit would appear to be hazy!

Respondents to the Moore Stephens survey would seem to be sensitive to the extraordinary uncertainty posed by a whole slew of regulations that currently face the industry. The implementation of the Maritime Labour Convention 2006 will make its presence increasingly felt in the area of crewing costs, while for those whose ships will be trading in and around SECAs, the increased costs of compliance, from whatever method of mitigation is chosen, will clearly be considerable.

Just about the biggest area of uncertainty surrounds the matter of water ballast treatment, with decisions having to be made about the type of equipment that must be chosen for both new and existing ships. And whatever expensive equipment is chosen to treat the ballast, there will be operating cost implications that are very hard to predict, no matter what glowing tributes to their equipment might be provided by manufacturers.

Despite these cost increases being applied to the whole industry, there are always winners and losers as the situation changes. The real winners will be those who can identify meaningful operating efficiencies, as opposed to merely saving “costs” through short term economies that may prove less than effective.

It might be possible, for instance, to hire a cheaper crew, but will they be able to operate sophisticated ships? It would not be the first time that the hirer of a “bargain” crew realised it was not such a good bargain when the new people found they couldn’t start the engine, or contributed to a massive hike in “crew negligence” claims! Science-based, properly researched and ship-specific efficiencies are rather different, and are to be recommended.
Source: BIMCO