International accountant and shipping consultant BDO says total annual operating costs in the shipping industry fell by an average of 1.8% in 2018, compared to the 1.3% fall for 2017. All categories of expenditure in 2018 were down overall on those for the previous 12-month period, with the exception of repairs and maintenance costs.
The findings are set out in OpCost 2019 (www.opcostonline.com), BDO’s unique ship operating costs benchmarking tool, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2018, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 4 points, or 2.4%, compared to the 3 points (1.7%) fall the previous year. The bulker index, meanwhile, fell by 4 points, or 2.6%, compared to the 3 points (1.9%) fall recorded in last year’s OpCost. The container ship index was down by 2 points, or 1.3% - identical to the fall recorded for the previous 12 months.
There was a 1.1% overall average decrease in 2018 crew costs, compared to the 2017 figure of 0.1%. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 1.8% on average, compared to the 0.5% fall recorded last year. All categories of tankers reported a reduction in crew costs for 2018 with the exception of Panamax Tankers, which recorded an increase of 0.1%, compared to a reduction for 2017 of 0.7%. The most significant reduction was the 2.7% recorded by Aframax Tankers, which also recorded the biggest reduction in 2017 at 1.7%.
For bulkers, meanwhile, the overall average fall in crew costs in 2018 was 1.1%, compared to 0.6% recorded for the previous year. Handymax Bulkers recorded a 2.3% fall in 2018, with a 1.7% fall for Panamax Bulkers and 0.1% for Handysize Bulkers. Capesize Bulkers were the only category of bulker to record an increase in crew costs, of just 0.1%, compared to the fall the previous year of 0.8%.
As was the case in 2017, there was zero overall increase in expenditure on crew costs in the container ship sector in 2018. The last overall movement for this category of ship was the 1.1% fall recorded for 2016. With the exception of vessels of between 2,000 and 6,000 teu, all categories of container ships recorded a fall in crew operating costs in 2018. In the case of ships between 6,000 and10,000 teu, the fall was 2.7%, equalling the figure recorded by Aframax Tankers as the largest reduction in crew costs recorded in OpCost 2019.
Expenditure on stores was down by 4.9% overall, compared to the fall of 3.5% in 2017. Mirroring the results in the previous year, all vessels in all categories recorded a fall in stores costs for 2018, none bigger than the 7.6% recorded by container ships of between 2,000 and 6,000 teu. In the tanker sector, the most significant fall was the 6.4% posted by Aframax Tankers. Panamax Bulkers and Capesize Bulkers led the way in the bulker sector, each recording a 6.7% reduction in stores expenditure.
For tankers overall, stores costs fell by an average of 4.8%, compared to the 4.5% recorded for 2017, while in the bulker sector the reduction was 6.1%, compared to a fall of 3.6% in 2017. In the container ship sector, meanwhile, there was a 5.7% fall in stores expenditure, compared to a drop of 3.4% the previous year.
There was an overall increase in repairs and maintenance costs of 0.6% in 2018, compared to the reduction of 1.7% in 2017. Both categories of chemical tanker posted increases, led by the 1.6% increase posted by Chemical Tankers 40,000 to 50,000 dwt. There were also significant increases in the container ship sector, most notably in the case of ships of between 1,000 and 2,000 teu and between 2,000 and 6,000 teu (3.1% and 2.9% respectively).
In the tanker sector, Suezmax owners spent 2.3% more on repairs and maintenance in 2018 than they did in the previous year, while increases were also posted for Tankers 5,000 to 10,000 dwt (1.2%) and Handysize Product Tankers (1.1%). Repairs and maintenance costs were also up in the bulker sector for Capesize Bulkers (1.5%) and Handysize Bulkers (0.3%). Product Tankers, meanwhile, recorded the largest fall of 1.6% across all categories.
For tankers and bulkers overall, there was zero overall increase in repairs and maintenance costs in 2018, compared to the falls of 3.4% and 1.5% recorded in 2017. In the container ship sector, however, there was a 3.2% overall increase in repairs and maintenance costs in 2018, compared to zero movement the previous year.
The largest overall drop in operating costs in 2018 was the 7.1% fall recorded for insurance, compared to the 4.1% fall in 2017. Ro-Ros were the only category of vessel to record any increase in insurance costs (1.7%). Everywhere else, there were sizeable reductions in insurance outgoings, none bigger than the 9.9% posted for Handysize Product Tankers. Not far behind were Chemical Tankers 15,000 to 40,000 dwt (9.8%), Panamax Bulkers (9.7%) and container ships of between 1,000 and 2,000 teu (9.3%).
For tankers overall, there was an 8.3% fall in insurance costs in 2018, compared to the 3.4% reduction in 2017. For bulkers, the reduction was 8.5%, compared to 6.0% the previous year, and for container ships the corresponding figures were 7.6% and 5.8%.
Richard Greiner, Partner, Shipping & Transport at BDO, says, “This is the seventh successive year-on-year reduction in overall ship operating costs recorded by OpCost, and will doubtless be regarded as good news throughout the industry. However, at the same time, the solitary overall increase across all categories of operating costs in 2018, that in respect of repairs and maintenance, should be regarded as encouraging news on a number of levels. It indicates an ongoing commitment to the increasing imperative of regulatory compliance, to maintaining safety and protecting the environment, and to continued operation. Moreover, it does nothing to confound the incipient belief that shipping may be displaying signs of a slow recovery to improved profitability. Nobody spends money on repairs and maintenance for vessels that are not expected to trade. Increasingly, vessels that do not meet industry standards will find it difficult to continue trading as regulation bites harder and more comprehensively on a global scale.
“In 2018, as was the case the previous year, the biggest cost reductions were to be found in insurance, reflecting, among other things, the intense competition for business in insurance markets throughout the world. The next biggest level of reductions came, as was again the case in 2017, in the stores category, a trend largely driven by the fall in the cost of lube oils.
“The smallest of the reductions in operating expenditure in 2018, as was the case in the previous year, came in the crew costs category, down by just over 1% on the previous year. Crew costs have been one of the most volatile elements of operating expenditure in the modern shipping industry, but there are reasons to believe that such volatility is likely to decrease. There are a variety of factors impacting crew costs, including fluctuating trade levels, the improved bargaining position enjoyed by seafarers under the MLC 2006 Convention, the emergence of professionally trained crews from dedicated institutions in developing countries, technological advances resulting in reduced manpower requirements, and the continuing difficulty of finding sufficient numbers of certain specialist officers and crew. These factors should balance each other out over time so that increases of more than 20% in crew costs are at least unlikely to be seen - increases the industry has witnessed and survived in previous years.
“Shipping is used to fluctuations in costs and industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Panamax Bulker was US$6,321; in 2018, it was US$5,472. For a Handysize Product Tanker, the comparable figures are US$7,908 and US$7,285.
“Shipping’s fortunes will continue to fluctuate, but confidence is holding up well, notwithstanding the impact of political and economic issues. It should continue to do so, given a favourable wind and a continuing appetite for investment in an industry which is increasingly embracing technological innovation and environmental awareness as a means to increase efficiency and improve cost-efficiency. Whilst there remains the need to fund the costs of technological improvements, over time that investment should lead to improved profitability.”
BDO (formerly Moore Stephens LLP) Shipping & Transport team has extensive experience delivering accountancy, tax and advisory services to the sector worldwide. BDO delivers key information and insights to the shipping community, including the annual OpCost report, the quarterly Shipping Confidence Survey and a host of thought leadership on topical issues, such as regulatory developments and market conditions.
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