Drewry: After Sharp Rise Ship Operating Costs Expected to Moderate

Singapore freight forwarders – Star Concord
02-Dec-2020

Vessel operating costs rose in 2020 at their fastest pace in over a decade, according to a new analysis from the global shipping consultancy Drewry. They attribute the sharp increases to the expenses of higher insurance premiums and COVID-19 related expenses, while forecasting that ship operating costs will moderate beginning in 2021.

“Like many aspects of merchant shipping, vessel operating costs have been severely impacted by the COVID-19 pandemic,” said Drewry’s director of research products Martin Dixon. “Its effects cut opex spend through the first half of the year as economic lockdowns and social distancing restrictions closed dry-docking and repair yards, while owners reacted to the resultant trade downturn by postponing anything except essential spend. However, costs have jumped through the second half of the year as repair facilities reopened, unleashing pent-up demand, while manning costs escalated due to disruption to crew repatriation arrangements.”

Detailed in the latest Ship Operating Costs Annual Review and Forecast 2020/21 report published Drewry, they estimated a 4.5 percent jump in 2020 average daily operating costs across the 47 different ship types and sizes. This compares with underlying increases of 2 and 2.5 percent in 2018 and 2019.  Prior to that Drewry reports that opex spending stagnated or contracted by 8 percent in the three years between 2015 and 2017.

Manning costs were particularly impacted they report, climbing 6.2 percent in 2020 compared to underlying rises of 1.3 percent, while hull and machinery (H&M) and protection and indemnity (P&I) cover costs jumped 4.5 percent on a hardening insurance market. Meanwhile, disruption to supplies and labor availability caused by the pandemic pushed stores & spares and repair & maintenance cost inflation to around 3 percent, while dry-docking spend leaped 5 percent.

The rise in costs was broad-based Drewry reports across all the main cargo carrying sectors for the third consecutive year, as all ship types took the hit from COVID-19. The latest assessments include vessels in the container, chemical, dry bulk, oil tanker, LNG, LPG, general cargo, reefer, roro and car carriers’ sectors.

Looking ahead, “Ship operating costs are expected to moderate in 2021, as some one-off COVID-19 related costs unwind in response to containment responses, offsetting inflationary pressures elsewhere,” added Dixon. “Thereafter, we expect opex inflation to return to past trend, rising below the general rate of price inflation and so representing cost stagnation in real terms, although there will be variations by cost head.”

While they conclude that trading conditions are expected to remain challenging, dominated by COVID-19 induced trade uncertainties and continued overcapacity in many sectors, Drewry forecast that costs are expected to moderate beginning in 2021 as pandemic related spend unwinds.

Go to Source
Author: