Shippers buffeted by commodity and insurance costs

25 August 2011

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25 August 2011 | Adam Leach

Operating costs in the shipping industry will rise by up to 6 per cent this year, but these extra costs should not end up being passed on to buyers.

Rising steel prices and increased insurance premiums will force costs up, according to Ship operating costs 2011/12, published by Drewry Shipping Consultants. Steel increases will raise the cost of carrying out maintenance and repairs. Some companies though have been able to limit the impact of this by carrying out maintenance in China and taking advantage of its lower prices.

But due to an influx of new ships, especially in China, buyers should still be able to take advantage of competitive pricing thanks to excess capacity.

Nils Smedegaard Andersen, chief executive at A.P Moller-Maersk, said this week: "Our competitors are very nervous. They've bought a lot of new ships at a time where it was expensive, and now they are nervous that they won't be able to fill them. That means they are very aggressive with their pricing on the Asia to Europe and Asia to US routes."

High oil prices will also push up costs for fuel and lubricants that are a big expense for ship operators. The report also said a number of forward contracts, which had been signed to reduce risk against rising oil prices, will run out this year leaving operators more exposed to the volatile market.

Paula Puszet, managing editor at Drewry, said in a statement: “In 2011 commodity price increases will push up lube, repair and maintenance costs. With some owners having to take additional insurance cover for kidnap and ransom, overall costs are forecast to rise by between 4 per cent and 6 per cent, depending upon vessel sector.”

In addition to having to take out kidnap and ransom insurance, it is also forecast shipping companies will face increased premiums as a result of the hit taken by insurance companies after the earthquakes in Japan and New Zealand.

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