Drewry Maritime Research's latest Annual Review and Forecast – Ship Operating Costs 2012-2013 – highlights why owners and managers need to remain vigilant about ship overheads. Demand in the shipping markets has not recovered and ship operators are now in a third year of low returns.
Drewry points out that some opex costs have retreated in 2012, falling by up to seven per cent compared with 2011 (which saw a 2%-5% increase depending on vessel sector). Commodity prices have also started to fall, particularly in maintenance, and 2013 should see further falls.
But, as Drewry's findings predict, cost increase are on the skyline.
Commenting on the latest findings, Paula Puszet, managing editor commented: "There is some temporary overhead relief for operators but they need to resist the temptation to push profits by cutting corners, as this is likely bite back later. Oil prices are unpredictable and steel, still volatile. Zinc, copper and chemicals – all used in repairs and maintenance – are set to rise again. Paints and hull treatments, as well as machinery parts, are likely to go the same way. "
"Added to which, tighter regulations and new international maritime conventions on safety, manning and the environment will continue to exert pressure on budgets post 2013."
Market intelligence
As in past years, Drewry's report provides in-depth assessments of costs across the major cost headings – Manning, Insurance, Repairs and Maintenance, Stores and Administration to keep operators up to date with changing cost dynamics. Furthermore, it also presents operating cost budgets for all major shipping sectors – oil tankers, chemical tankers, dry bulk, containers and gas carriers.
One of the key features is a four-year forecast that takes into account the potential impact of current trends and the possible effects of planned events. For operators, investors, legal teams, insurers and bankers, Drewry offers what could be the most comprehensive study of vessel and fleet cost dynamics.
Overview of main findings
Manning – lack of growth has kept wage levels in check ensuring 2011-2012 will see manning costs stabilised for next year. The gap between demand and supply of officers narrowed in 2011 to 16,000 owing to market uncertainty and declining vessel supply.
Insurance – H and M (Hull and Machinery), premiums remained static. Owners, anticipating worse trading conditions to come, resisted premium hikes. The Protection and indemnity (P&I) sector found itself with high levels of free reserves. With the claims picture looking hopeful, investment income increased. Consequently, average general increases were modest in comparison with the volatility of earlier years.
Repairs and Maintenance – strong commodity prices, particularly in metals, adversely affected R and M budgets in 2011. Rising oil prices meaning more expensive paints and coatings didn't help. But falling prices this year (even though steel is still volatile) coupled with increases in yard capacity has given operators some breathing space.
Stores and Lubes – the fear that lube prices would be disconnected from oil prices was, once again, unfounded. But owners and managers still need forward contracts in lubes in case of future price hikes.
Management and Administration – in 2012 – 2013 this area will require particular scrutiny as regulatory issues will force costs up. SOLAS Chapter V stipulates that the Electronic Chart Display and Information System (ECDIS), along with the Bridge Navigational Watch Alarm System (BNWAS), must be fitted to all new vessels immediately and will in time be compulsory for all ships. The Energy Efficiency Design Index (EEDI) enters into force in 2013. Higher costs have led to some owners relocating their fleet management operations.