UK-based shipping analyst Drewry has published its annual analysis of ship operating costs, covering nine ship types and over 35 different sizes of vessels.
"What is important to realise in all this is that recession for many shipping business managers is a new phenomenon," commented Drewry Managing Director Nigel Gardiner. "For the last few years all they have known is cost increases but these have been more than covered by continuous and robust rate increases.
"All this has changed; the upward pressure on costs has been halted, if not reversed. However, at Drewry, we have been compiling and analysing operating cost data for decades and we believe that this only a brief respite. Cost inflation will return, and we forecast it will hit 4.5 percent in 2012. The big unknown at the moment is the timing of recovery and when economic stimulus packages will kick-in. Owners and managers need to be ready to deal with cost inflation or run the risk of costs spiralling out of control.
"Overall, owners need to minimise costs but in a well managed way to avoid false economies. At the same time they need to have plans in place to deal with inflation's return, particularly when interest rates rise, as inevitably they will."
In summary, Drewry's outlook for the key cost components is as follows:
Manning: in the near term, manning costs should remain stable after years of high upward pressure due to the shortage of skilled seafarers. Crew numbers have already been cut so there is not much scope for further reductions. But, as the total fleet size grows, cost increases could be back as soon as 2012 and so the shortage of crews will once again manifest itself. Wages being the largest component, inflation here will not be good news.
Insurance: a difficult area to predict. Hull rates have risen in 2009 but declared values have gone down alongside a strong P&I hike. Hull values should go up next year although premium increases will be met with strong owner resistance. Despite this, the longer term is for insurance rate rises.
Repairs and maintenance: in the short term, costs will fall, particularly as steel costs have declined. Repairers should be able to cut prices while retaining margins. Parts of the fleet are ageing and so repair bills will inevitably rise. Owners are likely to be selective about work carried out to vessels. However, this area will be made worse by labour cost and raw material inflation.
Stores and supplies: barring unforeseen hikes in oil prices this category should stabilise even possibly becoming deflationary – the cost of spares and lubes has fallen.
Management: owners who normally use third-party providers may see advantages in bringing vessel management in-house. Lack of management experience could also be a serious factor in containing costs as a generation of managers has grown up with rate and cost inflation – deflation and recession will be novel experiences for many.