LONDON: Underlying vessel operating cost inflation accelerated
moderately in 2019 on higher repair & maintenance and insurance
spend, while looking ahead costs are expected to continue rising at a
similar pace in 2020 on a hardening insurance market before receding in
subsequent years, according to the latest Ship Operating Costs Annual
Review and Forecast 2019/20 report published by global shipping
consultancy Drewry.
Costs rose for a third consecutive year following marked declines in the capacity ravaged years of 2015-16.
Opex costs are heavily linked to developments in the wider shipping
market as some, such as insurance, are connected to asset values and
others impacted by the ability of shipowners to pay.
Drewry estimates that average daily operating costs across the 46
different ship types and sizes covered in this report increased 2.2% in
2019, compared to underlying increases of 1.1% and 0.7% respectively in
the previous two years. This followed a period in which opex spending
contracted over two consecutive years by almost 9% in 2015-16 (see
chart).
Spend rose across all six of the main opex cost heads for the second
consecutive year in 2019, indicating how broad based inflation continues
to be.
“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,”
said Drewry’s Director of research products Martin Dixon. “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 rose for a second successive year, up 1.3% in 2019,
despite the easing officer shortage, while insurance costs increased
3.4% having flatlined the previous year. Spend on stores, spares and
lubricants rose for the third year in succession, though with the
exception of lubes cost inflation remains very moderate.
But expenditure on repair and maintenance and dry docking accelerated
to 3.1% in 2019 on tighter repair yard capacity as a result of a spike
in retrofit activity, while costs relating to management and
administration increased just 1%.
The rise in costs was broad-based across all the main cargo carrying
sectors for the second consecutive year, as continued recovery across
most cargo shipping markets and rising regulatory compliance
requirements lifted cost inflation. The latest assessments include
vessels in the container, chemical, dry bulk, oil tanker, LNG, LPG,
general cargo, reefer, roro and car carriers sectors. But 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 recedes.
“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,” added Dixon. “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 & 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.
