Moore Stephens: Crew Wages Continue to Drive Surge in Ship Operating Costs

Ship operating costs surged by almost 16 percent last year, mainly as a consequence of soaring crew wages, according to the latest OpCost report.

OpCost 2009, Moore Stephens’ unique ship operating costs benchmarking tool, shows an annual average increase of 15.8 percent in total operating costs for the range of vessel types covered in 2008, the financial year covered by the survey. And the average rise in crew wages over that period peaked at 21.4 percent, the highest level since OpCost was first published, in October 2000, and more than double the increase (10.3) recorded the previous year. In almost every vessel category, crew costs accounted for the single largest increase in expenditure. For bulkers and tankers, the average increase in crew costs was between 22 and 23 percent.

All vessel categories experienced an increase in total operating costs over the twelve-month period and, generally speaking, the increases were more marked than in any previous year. The OpCost bulker index saw the largest overall increase of 27 index points, or 18.6 percent, on a year-on-year basis. The OpCost tanker index, meanwhile, experienced a 24 index point, or 15 percent, rise. In contrast to the previous year, when it produced the highest overall increase of any vessel type, the OpCost container ship index this time recorded the lowest increase, of 16 index points, or 10.2 percent.

In the Stores total category, the increase in costs came out at just 7 percent, well down on the previous year’s average of 16 percent, and almost two-thirds lower than the 20 percent increase recorded in OpCost 2007. The comparatively large increases for 2007 and 2006 were principally accounted for by a sharp rise in lube oil costs, which eased in 2008. Indeed, in all vessel categories other than reefers and ro-ros, increases in lube oil costs dropped, and the average year-on-year increase for this item was just over 7 percent, compared to the 25 percent recorded the previous year.

Owners continued to spend on Repairs and Maintenance in the year under review. The increase in costs in this category averaged 13.5 percent, compared to 12.8 the previous year. Factors contributing to the increased costs include the generally healthy freight markets for a significant part of 2008, during which owners and operators were keen to effect repairs in order to keep their vessels trading, and an increase in the price of steel. However, there were significant variations between the different vessel types. The increases were most pronounced in the reefer, ro-ro and bulker sectors, but less so in the container ship sector.

In the Insurance category, it was a year of relatively small increase, averaging 8 percent across the various vessel types, just slightly more than the previous year. Once again, there were variations here between the different vessel types – for example, 15 percent for bulkers, and just 5 percent for tankers.

Moore Stephens partner Richard Greiner says, “For the first time, the OpCost indicator has broken through the 15 percent barrier. This is sobering news at a time of depressed freight markets, and creates something of a double-whammy for owners struggling to survive in a climate of falling revenues and increased costs.

“It is no surprise to find that crew costs remain the most significant element of the increase in operating expenditure. We often hear industry comments about the adverse effect which cheap crews have on safety and efficiency, but we see no evidence of such crews in the responses received from the owners and managers of more than 2,100 ships whose details are included in OpCost 2009 - rather the opposite.”

“This year we have two new vessel types in OpCost – LPG carriers of 3-8,000 cbm, and VLGCs of 70-85,000 cbm, thus further endorsing the relevance of our statistics. OpCost is firmly established as the primary source of operating cost information for the international shipping industry. It is built from real data from real ships and so gives an accurate picture of the costs facing shipowners and ship managers for most major ship types and sizes. It sets an industry average for specific costs, and thereby provides owners and managers with a relevant benchmark against which to measure the performance of their internal and external management. Using that information, they can, for example, budget for new projects with increased confidence.”

Running cost information is obtained on a confidential basis from the accounts of shipping clients of Moore Stephens, and from other shipowners and ship managers who submit accounts for inclusion. OpCost is widely used for benchmarking running costs, the preparation and ongoing monitoring of business plans and in forensic accounting.

Copies of the OpCost 2009 report are available free to owners who submit their accounts for inclusion, or can be purchased by contacting Richard Greiner at Moore Stephens London.