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Future of Operating Costs of Vessels in the Shipping Industry and Should you be worried?

The total vessel operating costs in the shipping industry are expected to rise by 2.7% in 2018 and 3.1% in 2019, according to International accountant and shipping consultant Moore Stephens.

A detailed study of the firm’s annual Future Operating Costs Survey will show that Dry-Docking is the expense header which is likely to increase the most significantly in 2018 and 2019, supported in the latter by repairs and maintenance. The cost of dry-docking is expected to increase by 2.1 percent in 2018 and by 2.3 percent in 2019, while expenditure on repairs and maintenance is predicted to rise by 2.0 percent in 2018 and by 2.3 percent in 2019.

More alarmingly for ship owners, the increase in expenditure for lubricants is expected to be 1.9 percent in 2018 and 2.1 percent in 2019. Meanwhile, projected increases in spares are 1.9 percent and 2.2 percent in the two years under review, while those for stores are 1.6 percent and 1.9 percent respectively. The survey also revealed that the outlay on crew wages is expected to increase by 1.3 percent in 2018 and by 1.9 percent in 2019, with other crew costs thought likely to go up by 1.5 percent in 2018 and by 1.8 percent in 2019.

The cost of hull and machinery insurance is predicted to rise by 1.3 percent and 1.6 percent in 2018 and 2019 respectively, while for protection and indemnity insurance the projected increases are 1.2 percent and 1.4 percent respectively. Management fees, meanwhile, are expected to increase by1.0 percent in 2018, and by 1.2 percent in 2019.

The estimated overall cost increases were once again highest in the offshore sector, where they averaged 4.1 percent and 4.2 percent respectively for 2018 and 2019. In contrast, predicted cost increases in the bulk carrier sector were 1.8 percent and 2.6 percent for the corresponding years. Operating costs for tankers are expected to rise by 2.4 percent in 2018, and by 2.9 percent the following year, while the equivalent figures for container ships are 4.2 percent and 3.8 percent.

There are other factors of concern as well - Regulation was high on the list, with one respondent noting: “New regulations will lead to extra costs for all owners, for example the Ballast Water Management Convention and IMO’s 0.50 percent global limit on the sulfur content of fuel oil used on board ships.”

Fuel costs were referenced by a number of respondents. “The cost of fuel treatment equipment will increase in the next two years,” said one, while another remarked, “The sulfur 2020 rules will have a significant impact.” A landmark decision to implement the 0.50% Sulphur limit for marine fuels in use on ships operating outside Sulphur emissions control area (ECA-SOx) from 1 January 2020 has the industry scrambling for solutions.

One respondent noted, “Maintenance in general has been somewhat on hold, and we will see a correction in that in 2018 and 2019,” while another said, “We will see an increase in costs for automation and communications, not least because electronics have a shelf life.”

On a more general level, respondents voiced concerns about environmental issues, trade wars, the cost of securing finance, and the global economic recession, all of which were perceived to have the potential to result in increased operating costs.

Overall, the cost of new regulation was identified as the most influential factor likely to affect operating costs over the next 12 months, at 23 percent, up from equal third place at 15 percent last year. 18 percent of respondents identified finance costs in second place, down from 20 percent and first place last year. Competition ranked in third place at 15 percent as it had last year. On the other hand, crew supply fell to 12 percent compared to 19 percent and second place in last year’s survey.

In the times to come, ship owners will be scrambling for cost-effective solutions and at Alphard Maritime, we’ve envisaged our vision in offering quality deliverables at competitive costs. Please visit http://www.alphardmaritime.com/index.php/home/services to learn more about the plethora of services that our arsenal boasts of.