Vessel operating costs are expected to rise in both 2017 and 2018, according to the latest survey by international account and shipping consultant Moore Stephens.
The survey is based on responses from key players in the international shipping industry, predominantly shipowners and managers in Europe and Asia. Those responses revealed that vessel operating costs are likely to rise by 2.1 percent in 2017 and by 2.4 percent in 2018.
Richard Greiner, Moore Stephens partner, shipping and transport, said: "The predicted 2.1 percent and 2.4 percent increases in operating costs for 2017 and 2018 respectively compare to an average fall in actual operating costs in 2016 of 1.1 percent across all main ship types recorded in the recent Moore Stephens OpCost study.
"One year ago, expectations of operating cost increases in 2017 averaged 2.5 percent, so the fall now in that expectation to 2.1 percent must be regarded as good news. Predicted increases in operating expenditure are a matter of concern for any industry, and particularly one such as shipping in which a range of factors have conjoined in recent years to inhibit (and, in some cases, eradicate) profit margins. But shipping has seen a lot worse.
"If it does transpire that operating costs rise by 2.4 percent in 2018, for example, that will still be less than one-sixth of the actual operating cost increases absorbed by the industry ten years previously."
Repairs and maintenance and spares are the cost categories which are likely to increase most significantly in each of the two years, says Moore Stephens. The cost of repairs and maintenance is expected to increase by 2 percent in both 2017 and 2018, while expenditure on spares is predicted to rise by 2 percent in 2017 and by 1.9 percent in 2018.
According to the survey, other expenditures which will also rise in both years include crew wages, lubricants, management fees, and hull and machinery insurance.
The increasing cost of regulatory compliance was referenced by a number of respondents, says Moore Stephens, one of whom noted: "Retrofitting vessels with technology which has not been fully vetted for compliance with existing and new regulation can destroy cashflow."
Greiner commented "the Ballast Water Management convention, now with an extended implementation window, is still potentially the most expensive item on the menu, but by no means the only one."
Other areas of concern included continued tonnage overcapacity in some trades and the cost of finance.
Greiner concluded: "It was evident from the responses to our survey that the shipping sector is concerned about the conflation of higher operating costs and the potential reduction in revenue earning opportunities which it faces over the next two years.
"Shipping has gone through - and is still navigating - a prolonged downturn. It is a cyclical industry, but cycles imply movement both up and down, and there has not been enough of the former in recent years. The cyclical nature of the industry also increases volatility in the likes of charter rates and vessel values which may adversely affect earnings.
"There is, however, evidence to support the view that an appetite still exists for ongoing investment from both traditional and external investors, supported by a number of recent indicators of positive sentiment. This is in an industry whose attractions currently include low prices and comparatively limited ordering of new tonnage. That is good news, because it is such investment that shipping will need if it is to meet the rising cost of operating in the industry."