Economies of Scale in Shipping
The global shipping industry boasts a high degree of internationalisation, intensive capital and services. The international shipping market changes rapidly thus operation risks remain high. Economies of scale in container shipping are achieved by using larger containerships which reduce unit transport costs due to lower operating costs (measured in dollars per TEU of capacity per day). In the late 1990s, the cutting point was around 4,000 TEU for long distances and nowadays this threshold has been extended to about 8,000 TEU as global trade generates more cargo compelling maritime shipping companies to induct larger containerships, particularly over long distance haul. The fundamental limitation is the capacity of port terminals to handle larger ships since this requires substantial investments in transshipment and port side facilities. Depending on the distances at which containers are carried, which is related to trade routes such as transpacific or transatlantic this will result in different total shipping costs. Of particular interest is the Singapore to Rotterdam route on account of the intensity of its maritime traffic frequently used as a frame of reference for container shipping costs. Assuming normal operating speeds operating costs per TEU decline with larger ship classes. Even slow steaming involves lower operating costs per day but adds additional shipping days particularly over long distances.
Type of Charter
Shipping settlement refers to the payment management based on various costs incurred by transport ships. Since the ship , agent, charterer, shipper and consignee all have their own pain points and knowledge blind areas disputes take place. Whether online or offline services, the current shipping settlement services cannot completely meet the needs of the parties involved in the transaction for settlement services. A time charter grants the charterer the use of a vessel and its crew for a specified period from a shipowner. The ship owner and the charterer will agree on the exact period the lease will run without any condition on ports of call and destinations, as the charterer has complete discretion over this. The charterer can direct the vessel’s movements and cargo operations within agreed and imposed contractual limits. The shipowner retains responsibility for the vessel’s operational aspects, including maintenance (ensuring the vessel meets all necessary maritime safety standards) and crewing however the charterer pays for fuel and supply costs, as well as the cost of cargo operations and port charges. The charterer is not concerned about long-term maintenance and retains the the flexibility to choose routes and destinations. Ship owners generally prefer vessels to be leased on a time charter. This is because time charters guarantee income for a long period giving the ship owner increased security.
Voyage Charter
A voyage charter focuses on the transportation of a specific cargo on a single voyage between designated ports.The most common way to pay for this type of charter is on a per-ton basis. In the voyage charter the charterer pays a set price for every ton of cargo they transport and is preferred when the amount of cargo they’re transporting is significantly less than the vessel’s gross maximum cargo tonnage. The second most common payment method is a lump sum meaning a one payment that allows the charterer to transport as much cargo as they desire. It is the ship owner’s responsibility to ensure the cargo weight does not exceed the gross maximum tonnage of the vessel. This type of payment is preferred by charterers when they’re carrying a higher weight of cargo. Under this contract, the ship owner is tasked with delivering the cargo and handling all nuances of the voyage itself. Nearly all costs are covered by the ship owner and include costs relating to staffing, berthing, loading, unloading and fuel. They cover these costs by charging the charterer a fee for leasing the vessel.Prior to any charter contract the parties need to agree on the end destination, any ports of call, laytime, and whether there will be any restrictions on cargo. The ship owner pays for all costs at the port of call. If the charterer exceeds the agreed time he is responsible to compensate and pay demurrage to the ship owner. This type of vessel chartering is generally preferred by charterers having competitive prices and avoiding long-term commitments
Major Cost Contributors
Oil is a major cost for both shipowners or charterers and on an average the world’s largest transport ships can carry more than 6,000 tons of low-sulfur heavy oil and more than 1,000 tons of low – sulfur light oil. When the price of fuel oil is USD $ 800/MT full fuel tanks for this type of transport ship cost around USD $ 5 million. The current cost of fuel oil of a standard Panamax ship is around USD $1 million and is 35-40% of the cost of a voyage. For general bulk cargo carriers in international routes, with chefs and waiters, there are about 20 crew members on a ship, so the daily living expenses and salaries of crew members are also a large amount of expenditure comprising almost 18-20% of the operating cost of the voyage. As ocean-going ships call at docks and ports another reoccurring expenses is port disbursement referred to as the various payments and charges produced by the ship which is operated by a shipping company at the port of loading and discharging. During the period when a ship enters or leaves or berths at a port, the various fees to be paid for the use of port waters, waterways, berths, wharfs, buoys, anchorages, loading and discharging and applying for various services provided by the relevant port agencies, such as pilotage, tugboat are collectively referred to as “port disbursement”. Such port disbursement charges make up 15-20% of the voyage cost. Other voyage costs include navigation, weather, return ship inspection, warehouse clearance, security, voyage repair, ship parts supply costs which constitute the basic consumption cost of a ship during its voyage.
Types of cargo , situation of ports , ship type and documentation vary as the shipping business involves many links of circulation and the subjects involved in each transaction include shipper, consignee, carrier, shipping agent, international freight forwarder, port service provider, fuel oil supplier, customs broker and fleet warehouse. This in turn involves documentation costs hence two roles of freight forwarder and shipping agent are significant as these two assume the responsibility of maintaining a relationship between the consignor, the consignee and the shipping company and conduct settlements.
Operating Costs Vessel Type/Category
Blended costs on an average if owned and chartered on a daily P/L cost excluding G&A overheads may be US$ 8,160 and US$ 10,170 (FY2018: US$ 8,260 and US$ 10,740) for Handysize fleet and Supramax fleet respectively. The one-day cost of operating a 4,250-box ship fluctuated from about US$ 30,200 per day in mid-June 2020 to about US$ 151,400 a day , reflecting a 400% increase .In the scenario of a 10 day delay at any Australian port the cost incurred by the shipping company may be almost US$1.5 million for each day the ship is delayed. Cost range , are as under;
VLCC average daily operating costs in USD $ = 9950
Panamax avarage daily operating costs in USD $ = 8040
Aframax avarage daily operating costs in USD $ = 7832
Main Liner (2,000 to 6,000 TEUs) average daily operating costs in USD $ = 6830
Panamax Bulker average daily operating costs in USD $ = 5529
Port and Canal Costs
Courtesy ; Daily Sabah
Some ports publish rates while others especially in the Gulf region are less transparent. Port dues can range from $0.50 to $10 per gross ton (GT) or net ton (NT) of the vessel. At Singapore Port anchorage fees are USD $4 per 100 GT for stays of less than five days. So for a 10,000 TEU container ship the cost to anchor in Singapore is roughly USD $4,000 per day.
The schedule of tolls published by the Panama Canal Authority depicts that commercial ships are charged $12,000 to $100,000 just to reserve the passage, depending on their size and the passage itself can cost $300,000 before they start adding additional fees per ton based on the number of containers the ships are carrying. When ships exit the other side of the Panama Canal that transit may add $300,000 to $500,000 to the cost of the goods on the ship. Before the Panama Canal expansion the record was $461,000 paid by one ship which at one stage rose to a phenomenal $800,000 (for a large cruise ship on a tight schedule) and even exceeded $ 1.1 million. In the year 2023 a record was set because the country experienced a period of low rainfall and ships were stacked up waiting for entry to the canal. One liquified natural gas company paid $ 2.4 million to jump the que to the front of the line incurring a total charge of almost $ 3 million. This was followed by a Japanese natural gas ship that paid $ 4 million to break the que and exit the canal to the other ocean.
Naval Ships Operating Costs
Naval vessels and offshore structures have severe and stringent safety requirements and phenomenal investments ranging from millions to even billions of euros are seen in military and commercial sector ships with such high costs attributable to their construction and day-to-day service requirements. A littoral combat ship annually incurs a cost of almost $70 million to operate . In comparison, the cost of operating an Arleigh Burke-class destroyer ,being an established design program may run into say $ 81 million. The US Navy’s lightly armed, 3,400-ton small surface combatant designed for maximum operational availability may cost as much to operate as its heavily armed, 9,400-ton large surface combatant. Costs are high compared to a guided-missile destroyer persuading the US Navy to move from a contractor-centric maintenance model to a sailor-centric maintenance model.
U.S.-flag fleet in Foreign Commerce
In the year 2010 the U.S.flag fleet in foreign commerce comprised of 60 ships participating in the Maritime Security Program and roughly 50 other ships carrying commercial and preference cargo on various routes. The number of U.S. owned vessels registered in 31 foreign countries was 540 , a business practice commonly referred to as flying a flag of convenience. The Marshall Islands, Singapore, and Liberia represent the top three registries, accounting for 31, 11 and 10 % of U.S.owned vessels, respectively. These registries are termed “open” registries. A registry is considered “open” when more than 90 percent of its vessels are foreign-owned. Almost 75-80 % of the world fleet is operating under a flag of convenience from an open registry. Open registries are preferred as they provide vessel owners with more operating flexibility and lower operating costs than U.S. and other national-flag registries. Typically, open registries offer favorable operating conditions including the ability to transfer vessels in and out at will, no tax on income, no manning requirements, vessels can be built or repaired anywhere in the world, no government safety inspections of vessels (safety here being the domain of the classification society and insurance underwriters).
Chartering tankers dynamics yield high profits accompanied by high risks. Whether the product being transported is crude oil, refined products or chemicals, the complexities of the market demand sharp decision-making and a deep understanding as various factors are at play. Chartering tankers can range from $ 25,000 to over $ 50,000 per day, depending on market conditions and vessel availability. Port dues divergence may be $5,000 to $50,000 per port, depending on the location and service complexity. Daily overhead costs attributable to a Capsize bulk carrier 200,000 DWT vessel can average USD $ 15,000 daily.
Daily Operating Costs of Ships and Insurance/War Risk Premiums
Around 23,000 ships pass annually through the narrow Bab al-Mandab Strait connecting the Red Sea and the Gulf of Aden. The London insurance market lists the southern Red Sea as a high risk area and ships need to notify their insurers when sailing through such areas and incur an additional premium typically for a 7 day cover period.War risk premiums in the Red Sea region fluctuate between 0.07 % , 0.1% – 0.15% to 0.2% of the value of a ship despite applying various discounts and the financial burden may reach tens of thousands of dollars of additional costs for a 7 day voyage. Average daily rates for supertankers, which carry a maximum of 2 million barrels of crude, wildly fluctuate from $60,000 a day to around $40,000 a day .
By Nadir Mumtaz
Trade Mark (Registered) Blue Economy
Courtesy/Credit ;
https://www.voyagerportal.com/resources/voyage-charter/
https://medium.com/shipping-intel/voyage-cost-port-charges-55a0a5db3eed
https://www.sciencedirect.com/science/article/abs/pii/S0305054819301637
https://www.globalmaritimehub.com/wp-content/uploads/attach_751.pdf
https://www.handybulk.com/ship-chartering-costs/
https://www.gao.gov/assets/b-136209.pdf
https://transportgeography.org/contents/chapter3/transport-costs/operating-costs-containerships/
Leave A Comment