Ship Operating Costs Annual Review and Forecast  

Published by: Drewry Shipping Consultants Limited

Keeping the lid on operating costs

A year ago, ship owners were both asset and cash rich. With rates on the floor the change-about has been severe; cash management is the new mantra and the need to minimise operating costs has never been more crucial… a whole new ball game for many managers.

Operating Cost Data sheets for all major vessel types:
• Tankers
• Chemicals
• LPG
• LNG
• Dry Bulk
• Container
• General Cargo
• Reefer
• Ro-Ro

Drewry’s latest Annual Report offers an independent assessment of headline costs with five-year projections. Including:
• Manning and crewing
• Insurance – H&M, P&I and others
• Repairs and maintenance, including dry docking provisions
• Stores, spares and supplies
• Management and administration

Every year Drewry presents analyses of operating costs. We now have data for 9 different ship types/sizes covering the period 2000 to 2008, plus five year projections. The picture we can give is accurate, independent and covers all major shipping sectors – sector by ship type by size and ship type by size and age.

Recession – just a brief amnesty on rising costs

What a difference a year can make. Drewry’s 2008 Report warned of increasing operating costs but also the uncertainty to come. Cash rich ship owners may have put aside funds for a rainy day but some commentators doubt this. Deepening recession may have curbed cost increases but for how long. This 2009/2010 Report provides analysis of the figures and interpretation of what they mean.

Key questions:

• R&M – what is the best strategy? Spend, scrap or mend and make do?
• Insurance – there is pressure on premiums yet asset values are falling. Plus the fear of rising fraudulent claims is worrying marine insurers.
• Officer and skilled crew shortage – a feature of recent years but what is the current situation and how will it play out in the medium term?
• With ship owners having to tighten their belts what are the dangers of false economies with both stores and supplies?
• Managements that have grown up with demand excess are suddenly having to cope with a completely new set of business dynamics. How will they cope?

Manning

In the short term, manning costs should remain stable with wage costs static. There have been a number of warm lay-ups where crews have been retained. The increase in the overall number of vessels should means wages will at least be stable rather than decline and demand for seafarers stays ahead of supply. But the first signs of recovery will bring modest increases. Costs are predicted to be back on an upward trend by… read the Report to find out.

Insurance

The picture for marine insurance is hard to predict. Hull rates have risen but declared asset values have gone down alongside a strong P&I hike. Whereas insurers would like to raise premiums, owners will resist although Drewry predicts the insurers will have the upper hand in 2010. Two critical factors will make the owner’s position worse… find out more in the Report.

Repairs and maintenance

In the short term, R&M bills should reduce. Steel costs have dropped enabling repairers to be competitive on prices whilst retaining margins. Yet, cash-strapped owners are going to be very selective about the repairs and maintenance that is carried out. But, other factors could spoil the R&M party for owners…

Stores and supplies

Pursuing the cheapest options – tempting though they may appear to be - are likely to lead to false economies. The biggest element is lubes and so the cost of these will reflect the varying price of oil. Barring unforeseen substantial oil price hikes, the stores and supplies budget should stabilise and perhaps even become deflationary. The Report has the full analysis…

Management

Management’s current occupation should be the evaluation and containment of risk. Chief amongst risk factors are counterparty risk and the negotiation of credit. Cost reductions may be the order of the day but these need to be assessed and monitored carefully so the effect on crew, vessel and environment, not to mention customer service, is not detrimental. Drewry’s Report forecasts when costs may rise again with commentary on other factors that management needs to factor in…

1. Executive summary
• Operating cost components
• Recent trends in operating costs
• Forecast operating costs

2. Manning
• Introduction
• Labour overview and manning numbers
• The labour supply scene 1990, 2009 & 2013
• Current (2009) labour news
• International shipping framework
• Overview
• Commercial organisations
• Other bodies
• Manning costs and budgets
• Manning budgets / man-berth ratio
• Manning considerations
• Manning costs
• Direct costs
• Indirect budget costs
• Sample wage costs
• Manning budget wage trend
• Sample ship costs
• Exchange rate fluctuations
• The future

3. Insurance
• Overview
• Other key developments
• Piracy
• New European regulations
• Other conventions and liabilities
• Solvency II
• The manning crisis – what next?
• The spectre of lay-up
• Vessel values
• Hull and Machinery
• Hull and Machinery rate trend
• Protection and Indemnity
• Protection and Indemnity rate trend
• Other insurance
• Freight Demurrage and Defence (FDD)
• Trade Disruption and War risk
• War risk insurance
• Other considerations
• Marine insurance costs
• Vessel and operating variables
• General assumptions
• Cost trends and developments

4. Repairs and maintenance
• Overview
• The Repair & Maintenance regime
• The R&M workload – scheduled repairs
• Other repair work
• The shiprepair market
• Shiprepair demand – the impact of the shipping fundamentals
• Shiprepair market – recent supply developments
• Cost considerations
• Vessel age
• Steel prices
• Other factors
• Tariffs and pricing
• Budgeting and accounting for drydocking expenditure
• Regional price differentials
• Cost considerations

5. Stores, spares and supplies
• Marine purchasing
• The nature of the market
• Main budget elements
• Lubricating oils (lubes)
• Price drivers in the lubes market
• Current cost issues
• Paints, coatings and anti-foulings
• Current cost issues
• Purchasing, procurement and supply
• Cost trends and developments

6. Management and administration
• Management and strategy
• Risk management: the challenge of the hour
• Accounting and budgeting
• Commercial ship management
• Technical ship management
• Ship registry
• Administration
• Cost developments

Appendices
• Tankers – vessel operating costs
• Chemical – vessel operating costs
• LPG / LNG – vessel operating costs
• Dry bulk – vessel operating costs
• Container – vessel operating costs
• Other – vessel operating costs

Tables
• Total operating costs – 2008
• Total operating costs
• Total manning costs
• Total insurance costs
• Total repairs & maintenance costs
• Total stores and lube costs
• Total admin/other costs
• Tankers – daily operating costs – 2008
• Chemicals – daily operating costs – 2008
• LPG / LNG – daily operating costs – 2008
• Dry bulk – daily operating costs – 2008
• Container – daily operating costs – 2008
• Other – daily operating costs – 2008
• The evolution of the global marine and manning scene
• Analysis of seafaring population by region, 1990 and 2009
• Western European officers 1990 and 2009
• Eastern European officers 1990 and 2009
• ‘White List’ countries
• Sample dry cargo vessel wage rates for selected countries
• Sample tanker wage rates for selected countries
• ITF uniform “TCC” collective agreement
• IBF agreement
• Product tanker manning budget
• Chemical tanker manning budget
• LNG carrier manning budget
• VLCC manning budget
• Panamax bulk carrier manning budget
• Containership manning budget
• Ro-Ro vessel manning budget
• Reefer manning budget
• Pure car/truck carrier manning budget
• Offshore supply vessel manning budget
• Selected Lloyd’s performance data
• Reported marine performance at Lloyd’s
• IG Clubs’ performance and free reserves
• IG Clubs’ standard surcharge performance
• Pool claim trends
• Selected Hydra results
• Excess loss reinsurance rates
• Current War risks exclusion areas
• Indicative Insurance costs estimates based on market as of April 2009
• Class survey requirements – special survey elements
• Total bulk carrier fleet
• Total tanker fleet
• Total container fleet
• Overview of shiprepair supply side developments, 2008 – early 2009
• Estimated approximate R&M cost variations by vessel age
• ISSA members operating in Argentina
• ISSA members operating in Belgium
• Selected risk areas in shipping

Figures
• Ship cost and charter type relationships
• Bunker price trends
• Evolution of total operating costs
• Main seafarer supply countries, 2009
• Officer numbers: BIMCO/ISF Manpower updates, 1990, 2005 and
PAL/Drewry 2009
• Officer demand in 2013, incorporating contingencies
• Projected seafarer supply/demand imbalances, 2009-2013
• Typical onboard numbers by vessel type
• Croatia
• India
• Philippines
• Poland
• Romania
• Russia
• Ukraine
• United Kingdom
• Product tanker manning costs per month
• $ exchange rate against the Euro, 2002-2009
• UK£ exchange rate against the $ and the Euro, 2002-2009
• Indian rupee exchange rate against the $, 2002-2009
• Philippine peso exchange rate against the $ – 2002 to 2009
• Polish zloty exchange rate against the $ and the Euro, 2002-2009
• Exchange rates: Euro to $, $ to UK£, Euro to UK£
• Exchange rate: Indian rupee to $1
• Exchange rate: Philippine peso to $1
• Exchange rate: Polish zloty to $1
• Trend in secondhand tanker values
• Trend in secondhand bulk carrier values
• Tanker newbuilding prices
• Bulk carrier newbuilding prices
• Tanker values - annual average
• Bulk carrier values - annual average
• Contribution of individual members to Lloyd's sources of capital
• Relative hull rates 1990-2008 and forecast to 2012
• International Group reinsurance programme 2009-2010
• Class survey requirements – intervals and conditions
• World fleet development, start of year
• Freight rate trends and expectations in the main shipping sectors
• Trend in Asian steel plate prices
• Indicative trends in drydocking costs
• US dollar and SDR parity since 1995
• Indicative Euro per US$ trend
• Renminbi (Yuan):US$ changes since July 2005
• Trend in price averages, 1997 v 2000 v 2008
• Average of 'averages' 2000-2008
• Main stores and supplies budget elements
• Indicative crude oil price trends
• Recent trends in copper and zinc prices
• Management and administration overview
• Management and administration overview
• Administrative functions and cost areas