Tankers, cargo and container ships, passenger liners, fishing vessels—there are as many types of ships as there are costs involved in their onshore or onshore operations.
But whatever these costs are, these are predicted to rise this year. However these may increase, shipping companies hope they would still generate profits. This can be done as long as they can manage their expenses.
A positive bottom line on an enterprise’s financial statements will help sustain its operations. This is true in every sector, shipping included. If shipping lines expect to continue thriving despite intense competition, they must exert considerable effort to steady themselves on the business environment’s often-turbulent waters.
But navigating these waters successfully would largely depend on how these maritime companies manage their expenses, even during tough situations, and still attain operational efficiency. Their financial performance must be constantly and diligently monitored in order for them to endure the many challenges they face, onshore and off.
According to a report by global accounting and consulting company Moore Stephens, the shipping sector is expected to post an average increase of 2.4 percent in operational costs this year, with offshore accounting for the highest expected rates at 3.8 percent and container shipping for the lowest at 0.8 percent.
Moore Stephens said the operational costs seen to moderately or significantly rise this year included those for repairs and maintenance, as well as supplies and spare parts. Labor and manpower costs, as well as drydocking, will also contribute to the increases.
The firm based its forecast on information gathered through a survey, whose respondents were either managers or authorized officials connected to international shipping lines in Asia and Europe.
The respondents predicted that operating costs would likely increase by an average of 2 percent, with individual costs rising from 1 percent to 2.4 percent.
Vessels’ operating costs mainly include supplies, such as fuel, oil, and lubricants; stores and spare parts for repairs and maintenance; insurance (protection and indemnity); administrative expenses; and manpower.
Expenditures for supplies (e.g. spare parts) may vary, depending on the ships’ general condition. The older they are, the greater their chances of spending more on stores and supplies to repair or replace parts. Needless to say, a bigger budget is given to older ships to maintain and, if needed, repair them.
Crewing plays an important role in ship management and operations. The quantity and quality of labor should be given great consideration. While there is a surplus on ratings, there is reportedly a shortage on masters and other officers’ posts.
This means big companies are scrambling to hire for and retain competent, qualified and seasoned seafarers in top-level positions. They do so by offering high compensation packages. Respondents in the Moore Stephens survey said crewing expenditures made up 60 percent of their operating costs.
Other costs, including registration and management fees, also contribute to rising operating costs. The Moore Stephens report indicated that regulatory compliance fees were factored in by ship operators (15 percent of respondents) as contributing to future cost increases.
Emerging trends in the shipping industry show that it is shifting to the latest technologies and digital solutions in manufacturing “smart” ships. Such technologies may require more capital and increase costs for ship owners and operators in such areas as administrative, maintenance, and manpower.
But in the long run, these smart solutions are expected to simplify processes, improve operational efficiency and ultimately minimize costs. New ships are being calibrated to accommodate more modern equipment, which may initially require additional investments, but will eventually lower overhead costs.
When times are rough or business is slow, some ship owners resort to shutting down operations temporarily, or what’s commonly called “laying up.” During such times, ships are removed from active operation or service. Ship owners prefer this move than selling their vessels. This way, the compaies are given time to reduce their overheads, including manpower costs, during times of non-profitability.
The waiting may take as short as a few weeks to as long as five years, not only for the ship owners, but also for the crew who are forced to return to land.
A housewife from Cavite province complained that her husband had been on indefinite leave, as his ship was “laid up” almost a year ago: “Halos ubos na ang ipon namin, pero hanggang ngayon di pa siya tinatawag sa agency (Our savings are almost gone, but until now his manning agency has not yet notified him to return).” Her husband is worried that the owner may sell the ship if the lean period continues, she said.
Economies of scale
Recently, the leaders and top players in the shipping sector are also shifting to economies of scale. Some are acquiring bigger ships or megaships that can transport millions of goods in one haul. This enables them to reduce overhead costs and, at the same time, maximize services and increase profits.
However, this may affect ports’ capacities, as some may lack the infrastructure to accommodate these megaships. This may delay the unloading of goods and lead to incurring additional yet unnecessary costs. In turn, this may negatively impact clients’ loyalty, which is dependent on the timely and reliable delivery or shipment of these goods.
Meanwhile, the recent implementation of the Tax Reform for Acceleration and Inclusion (Train) Act is seen to have an impact on the maritime sector. The rise in fuel costs may affect freight rates, which may be passed on to the consumers of the goods being hauled.
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