The 2009 edition of HSH Nordbank’s “Operating Costs Study” was written by HSH Nordbank in collaboration with Econum Unternehmensberatung and Ernst & Young and is the 5th publication in the series.

The study shows that personnel costs are the biggest driver. Crew pay, which accounts for around 50 percent of operating costs, has been the largest cost item for years. In 2008, personnel costs recorded exceptionally strong growth of 18 percent. The 5,500 to 7,500 TEU (standard container measurement, short for ‘twenty foot equivalent unit’) size category aside, costs have gone up by a double-digit percentage figure. “Generally speaking, the increase in crew costs results from the short supply of ship personnel”, said Harald Kuznik, Global Head of Shipping at HSH Nordbank. In particular, there are not enough qualified officers.

Even unused ships and those new to the market must be equipped with staff. This outranges the effect of recession in shipping with it’s typical downside effects. For example, it takes many years to receive a captain’s license; consequently, the bottleneck in crewing can only be overcome in the medium term. Accordingly, the rise in personnel costs is expected to continue this year, although it is likely to be less steep than it was in 2008.

Although insurance costs were, in general, also on the up, they show a very heterogeneous performance in the 8 clusters, which are distinguished by size class: the increasing danger potential resulting from piracy also serves to heighten costs – this is the explanation provided by HSH Nordbank’s research. Moreover, insurance companies take greater account of the difference in the incidence of loss over time between shipping companies. Then again, the competing ship insurers offered better rates that prompted some shipping companies to switch insurers. Furthermore, there is a continuing trend toward pooling insurance risks between different ships and shipping companies, not least in order to avoid the profit surcharges of insurance companies.

In hull and machinery insurance, however, premiums should go down in the short term in view of declining ship values.

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Trends in operating costs
since 2000 by ship type

The business performance analysis that was published for the second time in the "Operating Costs Study 2009" shows that in 2008 all clusters generated good (smaller ships) to very good (larger ships) operating earnings (before depreciation/amortization, interest and taxes). However, a substantial drop in net earnings is projected for 2009 and 2010 on account of lower charter rates. This effect is likely to be intensified by the temporary or permanent laying-up of container ships. Already, a substantial percentage of the fleet – around 700 out of a total of about 4,800 ships - are laid up.

For the first time in more than three years, ship maintenance costs are down. The ships in the categories of 1,300 to 1,999 TEU and 3,000 to 3,999 TEU aside, a drop in maintenance costs has been recorded, in some cases even a sharp one. Compared to last year, ship maintenance costs have on average decreased by around 9.3 percent. This was due to the declining costs for lubricants as a result of the oil price. Furthermore, maintenance costs can be influenced directly by the shipping company: cost-intensive technical measures can be postponed, provided that this does not have an immediate effect on the safety and functionality of the ships.

Shipyard, dock and classification costs (the latter is a type of "vehicle inspection for ships") are by their nature subject to strong, but regular fluctuation. The influence exerted by these costs, which generally recur only once every five years, is presented in the Study in a smoothed form.

Administrative costs were up by an average of 4.7 percent in comparison with the previous year and were thus only slightly below their long-term trend recorded since 2000.

Across all cost categories, costs rose by around 9.5 percent from 2007 to 2008.

The Study collected data from 259 annual financial statements for 2008 and subjected them to an empirical evaluation. This corresponds to a share of around 16 percent of the German container-ship fleet.

The “2009 Operating Costs Study" can be obtained from bettina.voss@hsh-nordbank.com at HSH Nordbank. The Study is priced at EUR 350; subscription price EUR 250; plus VAT.