Operating Costs Hit by Insurance and Crew Expenditure

Tuesday, October 17, 2006
Last year, shipowners experienced an average increase of just under four per cent in their total operating costs, compared to the previous year. And OpCost 2006, Moore Stephens' operating cost benchmark tool, confirms that the biggest increases were recorded in respect of insurance and crew costs. All vessel categories experienced an increase in total operating costs, but the increases were not as marked as in the previous year, when owners were using the cash generated by a period of strong freight rates to upgrade their ships. This year, overall operating costs in the tanker market, for example, were up by 5.4 percent on a year-on-year basis, while a smaller increase - of 3.7 per cent - was recorded in the bulk carrier sector.

Moore Stephens Shipping Industry Group partner Richard Greiner says, "Although the percentage increases in total operating expenditure, overall, were down on the previous year, the significant increases shown in certain categories emphasise the need for owners and operators to keep a tight rein on costs. OpCost 2006 shows that repair and maintenance costs were down by an overall 1.2 per cent on the previous year. There were, however, significant variations across different vessel types. Dry cargo vessels, for example, showed a near-twenty per cent increase in expenditure on repairs and maintenance. But there was a drop of 18.7 per cent in the same area for container ships, where big is increasingly becoming beautiful.

Although the percentage increase in expenditure on crew costs was actually down on last year, it still came in at an average 9.2 per cent. These costs were up for almost all vessel types, and VLCCs recorded one of the highest increases - almost twenty per cent - proving that there remains a premium for experienced, specialist crew. Lube oil costs, unsurprisingly given the crises in that market, were significantly up, but the single biggest increase - of 10.6 per cent - was recorded in respect of insurance. Dry cargo ships, the workhorses of the market, recorded the biggest increase, at 31.2 per cent. Cut-throat competition for business between underwriters in the marine markets has traditionally served to keep premiums down, but the insurance market may have gained some courage from a series of big losses. In P&I, meanwhile, increasing claims costs, higher reinsurance outgoings and generally uninspiring investment returns saw most of the clubs call for significant general increases. The OpCost 2006 report is extracted from Moore Stephens' database of actual running costs of over 1,300 ships for the year ended 31 December 2005. This year's report covers the twenty most common vessel types. Operating costs are shown for each vessel type, broken down into five main groups of crew costs, stores, repairs and maintenance, insurance and administration. The report also includes an analysis of changes since last year and information on dry-docking costs and duration. Running cost information in OpCost is obtained on a confidential basis from shipping company clients of Moore Stephens, and from shipowners and managers who voluntarily submit accounts for inclusion. Clients and voluntary contributors receive free reports, while the report is available for sale to third parties at US$750 per copy. Special reports on details within the database can be tailored to individual needs.

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