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‘Ship operating costs to rise over next two years’

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Nigel Gardiner, Managing Director at Drewry

Nigel Gardiner, Managing Director at Drewry

THE cost of operating cargo ships is forecast to rise over the next two years after falling in 2015, according to the latest Ship Operating Cost Annual Review and Forecast 2015/16 report published by global shipping consultancy Drewry.

According to the report, the average decline in ship operating costs across the sectors covered in the report in 2015 was 1.0%, but for ships that are big consumers of lube oils, the decline in overall costs was closer to 2%. Weak freight markets have forced ship owners to trim costs, while they have also been able to take advantage of falling commodity prices and lower insurance costs.
“Operating costs are likely to rise in the future, as the scope for further cost cutting is in most cases quite limited.

However, the expected increases in 2016 and 2017 are likely to be modest in nature as we anticipate only small rises in the cost of lube oils and other commodities; with a relatively weak global economy inflation is also expected to remain low,” comments Nigel Gardiner, Managing Director at Drewry.

Modest increases in manning costs are in the pipeline given the uplifts that have been agreed in International Transport Workers’ Federation (ITF) wage scales for 2016 and 2017. If freight markets improve hull values for modern vessels will rise and this should lead to higher hull and machinery (H&M) premiums, but only small rises are expected in 2016 and 2017.
“Over the past few years of low economic growth, expenditure on repairs and maintenance has for many owners been cut back and when markets improve we expect some ‘catching up’ to take place. Hence, the expectation is that expenditure on R&M will rise faster than inflation”, concludes Gardiner.

Meanwhile, European shipowners organised recently a seminar on offshore shipping in the European Parliament. The event specifically targeted European policy makers in an effort to raise awareness about the diversity and importance of the European shipping industry’s fastest growing segment.
“I believe it was a very good first step in putting offshore shipping on the map. It emphasised the challenges faced by the sector as well as its specific needs” remarked Patrick Verhoeven, ECSA Secretary General.

The event follows a series of steps taken to bring this budding industry into the ECSA fold. As human activity expands and intensifies in the areas of offshore oil and gas and wind energy, offshore service vessels have proliferated to cater to the needs of this booming sector: Ships prospecting for oil; conducting oceanographic research; providing diving assistance; undertaking undersea work; laying and repairing cables or pipelines, ships servicing offshore wind farms as well as oil and gas platforms.

We are very pleased to be given the possibility to present offshore shipping in the European Parliament. Offshore shipping is a well-regulated industry characterized by highly advanced technology and a dedication to innovation. Its value creation and contribution to a knowledge-intensive European maritime cluster is significant” said Hanna Lee Behrens, Chairman of the dedicated ECSA offshore shipping working group.

Following a presentation of the different types of vessels engaged in offshore shipping as well as the markets in which they operate, participants discussed a variety of issues directly or indirectly affecting the industry. Particular attention was paid to market access restrictions in some countries and to the potential EU benefits if those restrictions are addressed.

The current TTIP negotiations between the US and the EU are a case in point. Europe stands to make significant gains by advocating that access to the US shipping market be facilitated on the basis of the principle of reciprocity. The US could equally benefit from the know-how and expertise of the EU offshore industry, breathing new life into its offshore activities.

Commenting on the event, hosting Bendt Bendtsen said: “The seminar successfully highlighted the importance of the sector – both in terms of growth in Europe and for the EU’s goals in other policy areas, such as energy and climate.

It was very satisfactory that the messages of the sector – to us as policy-makers – were so clear: We need a stable and well-coordinated regulatory framework, open markets and a trade agreement with US to enable competitiveness and further growth.”
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