Ship operating costs spike on repair maintenance, insurance
SHIP operating costs are forecast to increase at a similar pace next year on the 'hardening' of the insurance market before falling in following years, Drewry's Ship Operating Costs Annual Review and Forecast 2019/20 report shows
SHIP operating costs are forecast to increase at a similar pace next year on the 'hardening' of the insurance market before falling in following years, Drewry's Ship Operating Costs Annual Review and Forecast 2019/20 report shows.
Costs grew for a third straight year on the back of marked declines in the capacity ravaged years of 2015-16. Operational expenditures are closely tied to developments in the global shipping market, such as insurance, and connected to asset values, reports Hellenic Shipping News Worldwide.
Global shipping consultancy Drewry estimates that average daily operating costs across the 46 different ship types and sizes covered in the report rose 2.2 per cent in 2019, compared to underlying increases of 1.1 per cent and 0.7 per cent respectively in the previous two years. This followed a period in which opex spending contracted over two years in a row by nine per cent in 2015-16.
This year spending was up across all six of the main opex cost heads for the second consecutive year.
'While cost pressures remain, this trend confirms the end of the deflationary era that prevailed mid-decade, as the depressed state of shipping markets forced operators to slash costs in order to survive,' Drewry's research director Martin Dixon was quoted as saying.
'There are limits to cost cutting, beyond which the safety of the vessel and crew are put at risk, and as freight markets have recovered so pressure to reduce spend has lifted leading to modest acceleration in cost inflation.'
Manning costs grew for a second straight year, up 1.3 per cent in 2019, despite the easing officer shortage, while insurance costs rose 3.4 per cent. Spending on stores, spares and lubricants increased for the third year in succession, though - with the exception of lubes - cost inflation remains very moderate.
In 2019, expenditure on repair and maintenance and dry docking accelerated to 3.1 per cent as repair yard capacity shrank due to a surge in retrofit activity, while costs relating to management and administration increased by only one per cent.
The rise in costs was attributed to continued recovery across most cargo shipping markets and tighter regulatory compliance.
The latest assessments include vessels in the container, chemical, dry bulk, oil tanker, LNG, LPG, general cargo, reefer, roro and car carriers sectors.
Still, market conditions are expected to be challenging for many shipowners as the trade outlook remains uncertain and benign capacity conditions prove temporary when the current round of retrofits drops back.
'Hence, we expect the pressure on costs to remain which will dampen any likely inflation, particularly in areas where owners have greater control, such as manning, stores, spares and management and administration,' Mr Dixon said.
'Other cost heads, beyond the direct control of shipowners, will prove tougher to manage, particularly insurance where we expect costs to rise sharply in 2020.
'Continued attempts to clean up and decarbonise shipping will add to owner cost burdens, affecting management and administration, repair and maintenance and dry docking costs in particular, as retrofitted equipment adds to maintenance costs.'
However, any such increases will remain below the prevailing level of general price inflation and so represent cost stagnation in real terms.