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Led by higher insurance costs, the shipping industry expects overall vessel operating costs to rise by 2.5% in 2019 and by 2.7% in 2020. Industry responders to the latest annual Future Operating Costs Survey by international accountant and shipping adviser BDO revealed the anticipated rises after an average fall in actual operating costs in 2018 of 1.8%.

In the case of protection and indemnity insurance, the predicted increase is 2% for each of the years, while hull and machinery insurance costs are expected to rise 1.9% each year.

The cost of dry docking, repairs and maintenance is expected to increase 1.8% in 2019 and 1.9% in 2020, while expenditure on crew wages is predicted to rise 1.9% in 2019 and 1.8% in 2020. Other crew costs are expected to increase 1.8% and 1.7% respectively.

The increase in expenditure for spares is expected to be 1.6% in 2019 and 1.8% in 2020. Meanwhile, projected increases in lubricants are 1.6% in each of the two years, while those for stores are 1.3% and 1.4% respectively.

Predicted overall cost increases for 2019 were highest in the container ship sector, where they averaged 3.7%. These are heavily influenced by expected increases in both P&I and hull and machinery insurance costs. Predicted cost increases in the bulk carrier market in 2019, meanwhile, were 2.3%, as opposed to 2.5% in the tanker market and 2.6% in the offshore sector.

A slightly different pictured emerges in respect of 2020, where the highest operating cost increases are those amounting to 3.8% which are expected in the offshore sector. Operating costs for container ships, meanwhile, are expected to rise 3%, and for bulk carriers and tankers by 2.7% and 2.1% respectively.

The cost of regulatory compliance was high on the list of concerns cited by respondents, along with crew costs. The cost and availability of finance was another issue raised by a number of respondents, with a number commenting the market is being eroded by capital providers and hedge fund managers who shun efficiency in favour of scale.

Richard Greiner, partner, Shipping & Transport at BDO, noted: “One year ago, overall expectations of operating cost increases for 2019 averaged 3.1%. The fall now to an estimated 2.5% must be regarded at first blush as good news. But this must be tempered by the knowledge that some significant items of big-ticket expenditure – notably those relating to the cost of complying with new regulations - are waiting in the wings.

“It is clear shipping is well aware of the need to achieve regulatory compliance on a scale not previously envisaged or encountered by previous generations of the industry. This is only the third time that the cost of new regulations has been included in our Future Operating Costs Report, but for the second successive year it has emerged as the factor deemed most likely to have a significant influence on operating costs.

 “This is not surprising, given that the immediacy of Imo‘s Sulphur 2020 regulation is enshrined in the name of the regulation itself, while the time is fast approaching for owners to make a decision on the respective merits of Ballast Water Management Convention compliance solutions.

 “Shipping and its regulators have demonstrated their ongoing commitment to improving the industry’s carbon footprint, but it is clear that this will come at a price, as will the continuing drive towards greater innovation and technical excellence.”  However, he said: “Experienced owners and managers are well-used to optimising operating cost efficiencies.”

“Shipping faces some major challenges over the next two years as it seeks to position itself as an environmentally-aware, technically-savvy industry. It must expect fluctuations in the level of operating costs caused by a variety of factors ranging from movements in oil prices to shifts in levels of manpower, from fluctuations in the value of the dollar to the ramifications of geopolitical developments around the world.

“One thing is clear. The cost of operating effectively and profitably in the modern shipping industry must be met chiefly by revenues generated from day-to-day operations. Shipping remains an optimistic industry but, if the evidence of the freight markets is to be believed, it may not be charging enough for the unique service that it provides.”

Filed: 2019-11-04