Drewry: cargo ship operating cost to rise

Drewry: cargo ship operating cost to rise

The cost of operating cargo ships is expected to increase in 2017 and beyond, shipping consultancy Drewry has claimed.

In its Ship Operating Costs Annual Review and Forecast 2016/17 report, the analyst argued that while the cost of operating cargo vessels fell for two consecutive years, the room for additional significant cost reductions is limited.

According to Drewry, the average decline in total ship operating costs among 44 different vessel types and sizes covered in its assessment amounted to 4.4% in 2016.

This showed that shipowners cut costs for the second successive year, with a 1.5% fall in the average decline in total ship operating costs among the vessel categories covered recorded in 2015.

A statement by the consultancy noted that 2016 was “another very difficult year for most shipowners and operators”.

“Weak freight rates, declining asset values, eroded profitability and denuded cash balances have forced shipowners to reduce costs wherever possible, and vessel operating expenses have been no exception,” the statement continued.

Nikhil Jain, report editor at Drewry, said that in the short term the direction of the wider cargo shipping market will continue to shape trends in terms of operating costs.

However, he added: “That said, the scope for further significant cost reductions is limited. We are still of the opinion that costs will rise in 2017 and beyond, but perhaps at lower levels than previously anticipated.”

Drewry expects a modest rise in manning costs due to international wage rate agreements and shortages in certain officer ranks.

The analyst added that “excess capacity in the insurance sector and competition among insurance providers will help offset the impact of rising asset values on the H&M (hull and machinery insurance) market”.

According to Jain, despite the relatively young age of the cargo carrying fleet, spending on repair and maintenance (R&M) is also expected to rise.

“Recent legislation regarding the retrofitting of ballast water management systems will lead to increased expenditure, so it is safe to assume that expenditure on R&M will rise at rates above typical inflation,” he elaborated.