08.05.2008 - Operating costs bleeding owners
Tonnage suppliers are under pressure with forced sales a potential outcome.
Market sources say rising operating costs that are strangling shipowners' profits could lead to some forced sales.
Pure tonnage suppliers in Japan with domestic and northern European clients have been hit the worst and are now considering offering their charterers early purchase options in a bid to escape losses.
Using handysize bulkers as a benchmark, brokers say many owners who took delivery of vessels last year were working on a operating-cost calculation of $3,000 per day.
However, after crew, insurance, dry-docking, survey and spare-parts costs rocketed, the actual average operating cost is closer to $5,000 per day.
To make matters worse, the ships, fixed well before the current rates boom, will be earning a maximumof $12,000 per day, from which financing costs will have to be serviced, based on a 52,000-dwt bulker, as compared with current long-term charter rates of closer to $20,000 per day.
But many vessels ordered in 2002 are chartered out at between $7,000 per day and $ 9,000 per day.
One player said: "If you are looking over a 15-year charter period, an owner could be losing around $10m in income."
The one get-out clause owners have is to persuade operators to take up purchase options early. But this is likely to be at a substantial discount to current newbuilding prices, which have risen tremendously over recent years.
A number of charterers in Europe and Japan are set to benefit from the current situation. Brokers suggest Danish operator Norden has a significant number of ships on long-term time charter with purchase options from Japanese principals as do the big three Japanese companies NYK Line, Mitsui OSK Lines (MOL) and K Line.
One potential problem is that poor profitability on these contracts will restrict the ability of traditional tonnage suppliers in Asia to reinvest. Not only have newbuilding prices risen but banks are asking for higher deposits in the credit crunch with some yards seeking down payments of 60% ( see story, page 8 ).
Under Japanese tax laws, shipowners must reinvest profits from ship sales within two years which will not allow them to wait for prices to fall or the credit crunch to pass.
The rise in operating costs shows no sign of slowing down with a shortage of qualified crew an increasing problem for the industry.
Earnings announcements from publicly listed companies suggest that crewing costs, which represents the largest single operating cost, are currently rising by 10% annually.
A survey of operational costs undertaken by UK accountancy firm Moore Stephens found that insurance costs are surging by as much as 19% per year in the case of small bulkers. It also discovered that repair and maintenance costs are increasing by 9.7% annually.
Tradewinds
