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Thursday, October 27, 2016

Lube Oil & Crew Costs Most Likely to Increase Operating Costs

November 2, 2012

Moore Stephens shipping partner Richard Greiner

Moore Stephens shipping partner Richard Greiner

Vessel operating costs are expected to rise by 3.0 per cent in both 2012 & 2013 according to a new Moore Stephens survey.

Lube expenditure and crew costs are the categories most likely to produce the highest levels of increase.


The survey is based on responses from key players in the international shipping industry, predominantly shipowners and managers in Europe and Asia.


As was the case twelve months ago, those responses identified lubricants as the cost category likely to increase most significantly – by 2.9 and 2.8 per cent in 2012 and 2013 respectively.


Crew wages, meanwhile, are expected to increase by 2.3 per cent in 2012 and by 2.4 per cent in 2013, with other crew costs thought likely to increase 2.1 per cent for both years under review. The cost of spares, meanwhile, is expected to escalate by 2.2 per cent in each of the two years covered by the survey.


“With crude oil prices hardening, lube costs will go up,” said one respondent, while another observed, “Fuel and lube suppliers are very aware that there is an oversupply of tonnage on the market, and take advantage of that in their dealings with owners.” Another still said, “There is ongoing pressure to reduce operating costs by means of improving vessel fuel efficiency, and in practice there might be a gap between expectations and what can be achieved as fuel and lube costs are likely to increase at a steady pace.” Elsewhere it was noted, “There is no alternative to lube oil, and costs are already very high, making it very difficult to operate a ship.”


A number of respondents cited crew costs as a major cause for concern. One said, “As long as there is stiff competition on crew costs amongst managers, with wages being increased at random, the situation will not settle down.” Another noted, “The volume of new vessel deliveries and short contracts will put pressure on crew supply, and crewing costs will go up.” Neither were respondents convinced that more expensive crews would actually mean better crews. “Crew competence and skill is declining,” said one, “with a trend towards short contracts and fast promotion. This is leading to more accidents and to extraordinary unbudgeted expenses.”


Moore Stephens shipping partner Richard Greiner says, “Ship operating costs increased by an average of 2.1 per cent across all the main ship types in 2011, and it is unsurprising that our latest survey anticipates that costs will rise by a greater margin in both 2012 and 2013. Although they will be difficult for owners, operators and managers to absorb in a struggling economic environment and a depressed freight market, these increases still represent a continuation of less volatile cost movements than those we saw just a few years ago.


“Once again, lubes and crew costs are predicted to increase most significantly, and it was concerns in respect of these which dominated the comments made by respondents to the survey. Given projected increases in the price of oil, and the entry into force next year of the Maritime Labour Convention 2006, it would be a surprise if the same were not true of next year’s survey.”

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