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Shipping costs continue to decline

October 20 - Accountant and shipping consultant Moore Stephens says total annual operating costs in the shipping industry fell by an average of 2.4 percent year-on-year in 2015.

This is the fourth successive year where costs have fallen. In 2014, average costs fell by 0.8 percent.

Moore Stephens suggests that continued pragmatic management of costs by ship owners and operators, as well as a reduction in active trading for some owners as a result of the prolonged worldwide economic downturn, were responsible for the fall.

Richard Greiner, Moore Stephens partner, shipping and transport, stated: "This is the fourth successive year-on-year reduction in overall ship operating costs. The reduction is three times that recorded 12 months ago, and a reduction at this level had not been widely anticipated. The fall in operating costs is likely to be due in part to continuing good husbandry in a difficult operating environment for many, and partly to an extremely difficult market and wider economic climate."

Greiner added that 2015 was a challenging year for the shipping industry: "Last year was a particularly difficult one for shipping. Confidence reached its lowest level for seven years, according to the Moore Shipping Confidence Survey. Operators were not overly optimistic about making new investments in the short-term, while finance costs were predicted to rise."

He added: "Against a background of declining confidence in 2015, oil prices were on a steady downward trend, and the slowdown in the Chinese economy was becoming increasingly evident. Neither of these factors was wholly good news for shipping and both, in different ways, served as a brake on 2015 operating costs."

He said that a fall in operating costs was good news for shipping at a time when earning from the freight market are so low, but the future could be tumultuous. "Oil prices are predicted to start recovering significantly in the second half of 2017, while the price of steel, the bedrock of the shipbuilding industry, could increase much sooner. The cost of manpower, meanwhile, is only likely to move in an upward direction under the terms of the Maritime Labour Convention 2006.

"While the Ballast Water Management Convention still seemed a long way away from entering into force in 2015, it wasn't! Now the convention has been ratified, the cost of trying to achieve compliance should become clearer over the next 12 months, as should the cost of making shipping safer and more secure against threats from the likes of cyber-attacks and fraud."

Greiner said that the sector is likely to come under increasing pressure in 2017: "The indications from the freight markets are that shipping is still selling itself too cheaply. Inflationary pressures on operating costs will remain, so maintaining the status quo will not be a viable option. For many, the freight markets will remain challenging and so to remain competitive, shipowners need to continue to improve efficiency, innovate with new technology and harness the considerable benefits of 'big' data without delay."

Richard Greiner

www.moorestephens.co.uk

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