Crew Expenses Big Factor, Ship Operating Costs Set to Rise

According to Moore Stephens LLP, a shipping and insurance adviser, vessel operating costs are expected to rise by 3.2 per cent in 2010 and by 3.5 per cent in 2011, with crew costs identified as the category most likely to produce the highest levels of increase, according to a new survey by international accountant and shipping consultant Moore Stephens.

The survey is based on responses from key players in the international shipping industry, predominantly ship owners and managers in Europe and Asia. And those responses revealed an overall expectation that crew costs would rise by 2.7 per cent in 2010 and by 3.0 per cent in 2011. “It’s all about crew,” noted one respondent. “With fewer experienced crew available for worldwide fleet expansion, labour costs will rise”. Another commented, “In order to keep the present pool of seafarers and improve performance, we will need to look at increases in wages and other benefits for seafarers so that they are attracted to work on board, rather than take up lucrative jobs ashore.”

Responses to the survey indicated that the cost of lubricants is expected to increase by 2.4 per cent and 2.7 per cent in 2010 and 2011 respectively, with repair and maintenance expenditure likely to rise by 2.6 per cent in each year. The category deemed most likely to produce the lowest level of increases in both 2010 and 2011 was management fees, at 1.6 per cent and 1.8 per cent respectively.

Respondents also expressed concern over rising insurance costs. “The dark horse is insurance costs,” remarked one respondent, “due to the fact that ordinary planned maintenance in many cases will be either reduced or ignored as vessel income cannot finance the costs, and banks will not provide or extend credit lines. More incidents will be reported to insurers, with a consequential increase in premiums.”

There were also concerns that operating costs would increase due to the weakness of the dollar.  “Operating costs over the next two-to-three years may not show any substantial increase as the world economy continues to stagnate,” said one respondent, “but costs will increase due to the devaluation of the dollar, which inflates overall costs”.

Asked to nominate the three factors most likely to influence the level of vessel operating costs over the next twelve months, 43 per cent of respondents identified crew supply as the most significant, followed closely by finance costs at 39 per cent and then by demand trends, at 22 per cent. Crew supply and finance costs were also the top two factors in Moore Stephens’ 2009 survey, although then finance costs led the way at 26 per cent, with crew supply at 22 per cent. The third most significant factor in 2009 was competition, at 16 per cent.

Moore Stephens shipping partner Richard Greiner says, “Ship operating costs have been running at increasingly high levels in recent years but our OpCost benchmarking tool shows that, in 2009, total annual operating costs fell – for the first time in eight years - across all the main ship types by an average of 2.0 per cent. It is no surprise now to find that the industry is expecting costs to increase this year and next, nor to learn that crew costs are likely to lead the way in this regard. But it does seem that some of the volatility of recent years has gone out of ship operating costs, and that is good news for shipping. Any repeat of the huge increases recorded in recent years would be unsustainable in the current economic climate.”