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September 26, 2006

Shipowners spending more on repair and maintenance

Shipowners are using cash generated by strong freight rates to upgrade their fleets. But other costs are also rising of shorelines, waterways and the outer continental shelf closer to the impacted area. as those strong freight rates start to sap financial discipline.

London-based shipping accountant and business consultant Moore Stephens has just released OpCost 2005, the latest edition of its annual operating cost benchmarking tool.

Chris Chasty, head of the firm's shipping group, says, "Overall, total costs for owners increased in almost every area, pushing up total outgoings by around 12%. Encouragingly, the biggest rise has been in repairs and maintenance spending, which points to owners upgrading tonnage and keeping ships trading."

Increases in total crew costs, stores and insurance are more moderate, but still significant. Rises in the three categories range from 7% to 9%. Chasty warns, "When freight rates are high it is tough to keep to financial disciplines. But in shipping, the down cycle always comes, and only the owners who keep a tight grip on outgoings will survive that when it arrives."

The OpCost 2005 report is extracted from Moore Stephens' database of actual running costs of over 1,200 ships for the year ended 31 December 2004, predominantly taken from financial statements audited by Moore Stephens.

This year's report covers 20 common vessel types. Operating costs are shown for each vessel type, broken down into five main groups of crew costs, stores, repairs and maintenance, insurance and administration. The report also includes an analysis of changes since last year and information on drydocking costs and duration.

Running cost information in OpCost is obtained on a confidential basis from shipping company clients of Moore Stephens, and from shipowners and managers who voluntarily submit data for inclusion.

Clients and voluntary contributors receive free reports, while third parties can purchase the report for US$ 750 per copy. Special reports on details within the database can be tailored to individual needs.

"OpCost has become a primary tool for benchmarking shipping costs, forensic accounting and preparing or checking business plans," says Chasty. "The input data has grown from around 500 ships to more than 1,200 over the five past years. This year our sample of vessels has grown by over 25%, much of it from third party contributors, and we have seen demand for its use grow strongly too. There is simply no other way for owners and managers to see if they are paying out the right amounts or not. This is real data, from real ships, and gives a real comparison."

Moore Stephens London, founded in 1907, is a member firm of Moore Stephens International, an accounting and consulting network with 481 offices of member firms in 90 countries.