Ship Operating Costs Decline for Sixth Successive Year


Total annual operating costs in the shipping industry fell by 1.3% in 2017. This compared to the 1.1% average fall in costs recorded for 2016. For the third successive year, all categories of expenditure in 2017 were down on those for the previous 12-month period, most notably for insurance costs and stores.

OpCost 2018

The findings are set out in OpCost 2018, a unique ship operating costs benchmarking tool programme, which reveals that total operating costs for the tanker, bulker and container ship sectors were all down in 2017, the financial year covered by the study. On a year-on-year basis, the tanker index was down by 3 points, or 1.7%, while the bulker index also fell by 3 points, or 1.9%, with the decline in both indices repeating that seen in the previous year at 3 points, or 1.7%, for tankers and 3 points, or 1.9%, for bulkers. The container ship index, meanwhile, was down by 2 points, or 1.3%, compared to the fall in the previous year of 1 point, or 0.6%.

There was a 0.1% overall average fall in 2017 crew costs, compared to the 2016 figure, which itself was 0.4% down on the previous year. By way of comparison, the 2008 report revealed a 21% increase in this category. Tankers overall experienced a fall in crew costs of 0.5% on average, compared to the 1.8% fall recorded in 2016. All categories of tankers reported a reduction in crew costs for 2017 with the exception of Tankers 5,000 to 10,000 dwt, and VLCCs, which recorded increases of 1.9% and 0.5% respectively, compared to reductions for 2016 of 2.8% and 0.5%. The most significant reduction in tanker crew costs was the 1.7% recorded by Aframax Tankers.

Fall in bulker rates

For bulkers, meanwhile, the overall average fall in crew costs in 2017 was 0.6%, the same as the figure recorded for the previous year. Panamax Bulkers and Handysize Bulkers each reported increases in crew costs, of 0.5% and 0.4% respectively, while for Capesize Bulkers and Handymax Bulkers there were reductions in spending compared to 2016 of 0.8% and 0.6% respectively.

Increase in crew costs

There was no overall increase in expenditure on crew costs in the container ship sector in 2017, this compared to the 1.1% fall recorded for 2016. Smaller vessels in this category reported an increase in crew costs for 2017 (1.0% for container ships of between 100 and 1,000 teu and 1.2% for ships of between 1,000 and 2,000 teu). But for ships of between 2,000 and 6,000 teu there was a fall in such costs of 1.7%.

Decrease in storage cost

Expenditure on stores was down by 3.5% overall, compared to the fall of 2.9% in 2016. All vessels in all categories recorded a fall in such costs for 2017, none bigger than the 8.4% drop recorded by VLGCs of between 70,000 and 85,000 cbm. In the tanker sector, the most significant fall in such costs was the 5.5% posted by VLCCs. Handymax Bulkers led the way in the bulker sector with a 5.2% reduction in stores expenditure, while in the container ship sector vessels of between 6,000 and 10,000 teu spent 5.8% less on stores than they did in 2016.

Tanker statistics

For tankers overall, stores costs fell by an average of 4.5%, compared to the 2.2% recorded for 2016, while in the bulker sector the reduction in such costs was 3.6%, compared to a fall of 4.2% in 2016. In the container ship sector, meanwhile, there was a 3.4% fall in stores expenditure, compared to a drop of 5.2% the previous year.

There was an overall fall in repairs and maintenance costs of 1.7%, compared to the reduction of 0.8% in 2016. The only vessels to record increases in such costs were Capesize Bulkers and Panamax Bulkers (2.4% and 1.4% respectively), Tankers 5,000 to 10,000 dwt (2.6%), and container ships of between 1,000 and 2,000 teu (2.7%). The biggest fall in such costs was the 4.9% recorded by Chemical Tankers 40,000 to 50,000 dwt, followed by VLCCs (4.8%), and Handysize Product Tankers (4.5%).

For tankers overall, repairs and maintenance costs fell by 3.4%, compared to the 2016 figure of 1.7%, while in the bulker sector the reduction in such costs was 1.5%, compared to a fall of 2.2% in 2016. In the container ship sector, meanwhile, there was no increase in repairs and maintenance outlay, compared to the 1.6% fall recorded last time.

The overall drop in costs of 4.1% recorded for insurance compares to the 3.0% fall recorded for 2016. As was the case last year, all vessels in all tonnage and size categories included in OpCost paid less on average for their insurance in 2017 than in 2016. Bulkers paid 6.0% less overall (compared to 5.0% last year), tankers paid 3.4% less (2.6% in 2016), and for container ships, the insurance outlay was down by 5.8%, as opposed to a fall in 2016 of 4.9%. The biggest reduction in insurance costs was the 6.5% recorded by container ships of between 6,000 and 10,000 teu and by Capesize Bulkers, followed by Suezmax Tankers (6.2%), and Handymax Bulkers, container ships of between 2,000 and 6,000 teu, and VLCCs (all at 6.0%).

Reduction in overall shipping cost

Richard Greiner, Partner, Shipping and Transport, says, “This is the sixth successive year-on-year reduction in overall ship operating costs. The biggest cost reductions were once again to be found in the Insurance category. This may be due in part to a significant reduction in the overall incidence of large, expensive casualties over the past couple of years. But the size and frequency of the cost reductions are still worthy of note, given the cumulative cost of comparatively smaller but still expensive claims routinely fielded by hull and machinery underwriters. It is perhaps not surprising, then, that the International Union of Marine Insurance recently called for a better understanding by underwriters of the assets being insured in the marine market.”

Fall in insurance expenditure rates

The Expenditure on Protection and Indemnity insurance was also down, which is again a reflection of the relative dearth of major casualties over the course of the year. The International Group through its pooling agreement, reinsurers, and owners themselves will have felt the benefit of that in their pockets.

The next biggest level of cost reductions came, as was the case in 2016, in the Stores category. This is likely to change in the near future, however, if shipping markets continue to display signs of a recovery – if not to the heady days of ten years ago, then at least to more profitable levels. The tangible uptick in world oil prices will also have a knock-on effect on lube oil costs.

The third biggest reduction in 2017 operating costs was in the Repairs and Maintenance category. Again, this is likely to change sooner rather than later. Shipping remains a highly competitive industry, but one where tighter regulation and better oversight by the likes of Port State Control should mean that there are fewer sustainable employment opportunities than at any time in recent memory for poorly maintained vessels.

The smallest reduction in operating costs in 2017 came in the crew costs category – just 0.1%, this is a study which over the years has recorded increases of 20% and more. In some sectors, a weaker trading environment in 2017 could be one of the reasons behind this. So, too, may be the emergence of a new era of reportedly impressive seafarers entering the market from new training institutes in developing countries. A more pressing concern may be the difficulties being experienced by owners and operators in finding experienced crews for specialist ships, which will clearly come at a price. It is perhaps significant, for example, that crew cost increases for 2017 were recorded by the owners of both chemical tankers and LPG carriers.

Overall confidence of shipping industry looks bright

Moreover, the Overall confidence in the shipping industry held up well in 2017 and has continued to do so this year. There remains an appetite for investment and recourse to the necessary finance. Oil prices are going up, and the Baltic Dry Index, although somewhat volatile, is gradually leaving the really bad days behind. Given a favorable geopolitical wind, that should lead to increased activity, and most likely to higher operating costs.

There are some big challenges ahead for the industry which will test owners, operators, charterers and investors alike. Planning must continue for implementation of the Ballast Water Management Convention, and decisions made on how to finance it. Measures to detect and eliminate cyber-crime will come at a price in terms of hardware, software, and manpower.

Owners at loggerheads to meet deadlines

Meanwhile, owners and operators are still pondering the optimum way to meet the challenge of complying with the IMO’s 0.50% global limit on the sulphur content of fuel oil used on board ships from 1 January 2020. Compliance with this regulation can be achieved either by switching to low-sulphur fuel or by installing the likes of scrubbers. The first option is expensive. The second is both expensive and disruptive and moreover will be accompanied by an increase in operating costs. Decisions will be influenced by individual risk profile and commercial strategy, but will undoubtedly be costly.

Shipping is used to fluctuations in costs and in industry fortunes. For example, OpCost records that, at year-end 2008, the average daily operating cost for a Handysize Bulker was US$5,139. In 2017, it was US$ 4,929. For an Aframax Tanker, the comparable figures are US$8,374 and US$7,640.


The likelihood is that operating costs will increase when the markets improve significantly. Such increases must, however, be balanced against the technological advances which have already started to make shipping markedly more efficient and more cost-efficient. There will be more significant operating efficiencies – and more fluctuations in overall operating costs – to come. That is what makes shipping such a challenge.

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Source: Moore Stephens