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Ship operating costs set to rise further

November 1 - Vessel operating costs are expected to rise by 1.9 percent in 2016 and 2.5 percent in 2017, according to the latest survey by shipping consultant Moore Stephens.

Repairs, maintenance and spares are the cost categories which are likely to increase most significantly in each of the two years, said Moore Stephens.

The cost of repairs and maintenance is expected to increase by 1.7 percent in 2016 and by 1.9 percent in 2017, while expenditure on spares is predicted to rise by 1.7 percent in 2016 and by 1.8 percent in 2017. The cost of drydocking expenditure, meanwhile, is predicted to increase by 1.5 percent and 1.8 percent in 2016 and 2017 respectively.

The predicted overall cost increases for 2016 were highest in the container ship sector, where they averaged 3.3 percent against the overall survey increase of 1.9 percent.

Moore Stephens explained that the mood of respondents was "quite pragmatic" with many noting the need to address familiar problems, such as overtonnaging, excessive competition, a lack of finance, rising fuel costs and growing regulation and legislation.

"An even greater discrepancy is expected between operating costs and freight rates," said one respondent. "Owners will manage to make ends meet, but barely."

A number of respondents were concerned about rising operating costs in light of the ballast water management convention coming into force in 2017, as well as international standards for limiting gas emissions.

More than one respondent emphasised the need to keep down labour and management costs, without sacrificing quality.

One noted: "Operating budgets have been pushed further and further south, with numerous managers willing to 'low-ball' operating budgets to catch the eye of new and existing owners.

"This can cause severe risk to the operating condition of vessels, but it appears that owners are willing - or have no choice but - to accept operating budgets, which include unattainable assumptions and to fund additional cash call requirements where they become necessary."

Taking into consideration factors affecting operating costs over the next 12 months, 20 percent of respondents identified finance costs as the most significant factor, followed by competition at 19 percent.

"Shipping is an industry suffering from an imbalance in supply and demand, illustrated by the chronic overcapacity in many trades, never mind that BIMCO recently reported that the shipbuilding sector faces its lowest level of newbuildings for 20 years," commented Richard Greiner, Moore Stephens partner, shipping and transport.

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