Drewry: Ship operating costs likely to rise in 2017 and beyond

The London-based shipping research and consulting firm said expenses have been cut to the bone in the past two years, so increases would not be unexpected.    The cost of operating cargo ships has fallen for two successive years, but is forecast to rise in 2017 and beyond, according to Drewry, which has just released its latest Ship Operating Costs Annual Review and Forecast 2016/17 report.
   “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 London-based shipping research and consulting firm said.
   Drewry’s assessment of 2016 operating costs across 44 different ship types and sizes shows that shipowners have trimmed costs in 2016 for the second successive year. The average decline in total ship operating costs among the vessel categories covered was 4.4 percent. This comes after a fall of 1.5 percent in 2015.
   “In the short term, it is evident that the direction of the wider cargo shipping market will continue to shape trends in operating costs,” Drewry Report Editor Nikhil Jain said. “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.”
   Looking ahead, Drewry said it expects “modest increases in manning costs as a result of international wage rate agreements and shortages in certain officer ranks. 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.”
   Although the cargo carrying fleet is relatively young, Jain said spending on repairs and maintenance is 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 repair and maintenance will rise at rates above typical inflation,” he added.