Ship Management Pressure on OPEX: How to optimize Running Costs? Costas Kontes BEng, MSc, Ceng, MRINA Business Development Manager Greece Ltd. Propeller Club: Port of Piraeus Board Governor
What we have seen since last year in the market? Consolidation of shipping fleets under the support of the big PEs Further investments of PEs in shipping Old traditional shipping families coming back in shipping purchasing ships on the second hand market Energy chart changing with US becoming an exporter of energy $ / exchange rate dropped by 10% Oil Barrel price dropped 33% - IFO 380 indication US$368 / mt MGO 0.1% - US$632 / mt 2
Global Economy statistics 3
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How developments in Global economy affect shipping? Positive balance in US and EU will increase manufacturing imports from Emerging economies Need for raw material will increase from Emerging markets Higher utilization of existing fleet of ships US becoming first time an exporter in energy will increase transportation from US Offshore charter rates will significantly fall A number of expensive investments for exploration will be put back Some explorations might become redundant Crew from offshore will source other alternatives and made available Natural Gas might become an expensive energy option thus reducing demand and cause a significant amount of LNG ships that are on the spot market to be laid up Drop on the operating costs through a reduction on the Lubricant costs. Higher speed used by containers delivering final products faster?????????? 5
What is Ship management s task? Operational Management Business Ship Management translates market rate and days into profit Financial Commercial 6
Operating costs challenges Little research on ship operating costs Very limited number of widely used forecasting tools with Most significant the Moore Stephen s annual report. Ship opex costs overshadowed by financing and voyage (especially fuel) costs. Forecasting is difficult because cost components are influenced by various socio-economic, market, geographical factors and ship management performance. Manning typically gets most attention as the largest cost component and often most volatile. Our intention today is to look at the cost drivers for each main component and provide some indicative costs. Ship opex has been seen as easy forecastable but affects of regulatory (especially) environmental change need to be considered. 2009-2014 were untypical years costs squeezed in direct response to poor freight markets.. Knock on effect? 7
Four basic functions of ship owning business Financial Commercial Technical Crewing Sourcing finance (equity & debt) Employment strategy Insurance Sourcing Optimising WACC Spares & stores Surveys & services Selection & engagement Fixing Crew management Profit delivery Risk management Commercial management Repairs Safety & Risk Administration & management Travel & administration Victualling 8
Operating cost breakdown COST ALLOCATION 1% 3% 8% 7% 6% 9% 4% 9% 53% 1. PAYROLL/CREW COST 2. INSURANCE 3. PROVISION 4. LUBRICATING OIL 5. STORES/WATER 6. REPAIRS AND MAINTENANCE 7. RADIO AND TELECOMMUNICATION 8. MISCELLANEOUS 9. MANAGEMENT FEE 9
Example of summarized Budget for Opex Indicative Budget Year 1 Year 2 Year 3 Year 4 Year 5 NB Guarantee Year DD DD 2015 2016 2017 2018 2019 Crew Account Code Description Indicative Budget Indicative Budget Indicative Budget Indicative Budget Indicative Budget Insurance Technical Stores Deck Stores Engine Stores General Stores Total Crew Costs 1,623,520 1,671,923 1,723,266 1,776,188 1,830,737 Total Insurance 245,500 253,093 260,920 268,990 277,309 DeckStores Total Deck Stores 65,500 71,613 73,828 76,112 78,466 Total Engine Stores 32,500 33,505 34,541 35,610 36,711 Total General Stores 36,600 37,732 38,899 40,102 41,342 Total Technical Stores Deck Stores Total Combined Stores 134,600 142,851 147,269 151,823 156,519 Spares Total Spares 142,000 180,546 186,130 191,887 197,822 Surveys & Services Repairs & Maintenance Safety &Risk Total Luboils 184,000 189,691 195,557 201,606 207,841 Total Surveys & Services 79,000 90,948 93,761 96,661 99,651 Total Repairs 78,500 122,258 126,039 129,937 133,956 Total Safety & Risk 45,050 41,804 43,097 44,430 50,804 Administration/Overheads Expenses Total Administration & Overheads 207,000 208,544 220,046 221,594 228,189 Total Operating Cost 2,739,170 2,901,658 2,996,086 3,083,116 3,182,827 Daily Running Cost 7,505 7,928 8,208 8,447 8,720 Drydocking Total Drydock 0 0 850,000 0 1,250,000 10 Grand Total 2,739,170 2,901,658 3,846,086 3,083,116 4,432,827 Grand total per day $ 7,504.57 $ 7,949.75 $ 10,537.22 $ 8,446.89 $ 12,144.73
8000 7500 7000 6500 s r l a 6000 o D S 5500 U 5000 4500 4000 Ukr Fil Wage Trend Trend of Master's Scales on Bulk Carrier from Jan 2008 to Jan 2014 12500 12000 11500 11000 s r 10500 l a o D 10000 S U 9500 9000 Ιαν-08 Αυγ-08 Ιαν-09 Ιαν-10 Ιαν-11 Ιουν- 11 Ιαν-12 Trend of Master's Scales on Tankers >80K DWT from Jan 2008 to Jan 2014 Performance Related bonus [KPI] was introduced from Jan 2010 without any increase in wages Μαϊ- 12 Ιαν-13 Ιαν-14 Indian 10030 10830 10830 11430 11430 11900 11900 11900 11900 11900 Russain 9650 10630 10630 11230 11230 11230 11230 11530 11530 11530 12500 12000 11500 11000 s r 10500 l a o 10000 D S U 9500 9000 Trend of Master's Scales on Tankers >80K DWT from Jan 2008 to Jan 2014 Ιαν-08 Αυγ- 08 Performance Related bonus [KPI] was introduced from Jan 2010 without any increase in wages Ιαν-09 Ιαν-10 Ιαν-11 Ιουν- 11 Ιαν-12 Μαϊ- 12 Ιαν-13 Ιαν-14 Indian 10030 10830 10830 11430 11430 11900 11900 11900 11900 11900 Russain 9650 10630 10630 11230 11230 11230 11230 11530 11530 11530 13000 12500 12000 11500 s 11000 r l a 10500 o D 10000 S U 9500 9000 Trend of Master's Scales on Chemical Tankers from Jan 2008 to Jan 2014 Performance Related bonus [KPI] was introduced from Jan 2010 without any increase in wages Ιαν-08 Αυγ-08 Ιαν-09 Ιαν-10 Ιαν-11 Ιουν- 11 Ιαν-12 Μαϊ- 12 Ιαν-13 Ιαν-14 Indian 10420 11250 11250 11850 11850 12350 12350 12350 12350 12350 Russain 10600 11670 11670 12270 12270 12270 12270 12570 12570 12570 11
Seafarer Shortfall Global Pool of Seafarers 12
Reasons Long periods away from home Loss of home comforts including media resources Criminalisation of seafarers Piracy / security Global economic growth has created alternative employment opportunities 13
5 Pillars of Crew Management Recruitment Planning and Logistics Training Pay and Benefits Performance Management 14
Crew Training. meeting training & development needs... Investment in seafarers training & development is essential to: comply with statutory requirements, meet industry specific needs, satisfy Owners requirements, improve job performance, improve team working, build management and leadership skills, keep pace with changing technology, offer improved career opportunities, enable continuous professional development, enhance opportunities for following a shore-based career. Seafarer training plays a pivotal role in the successful and safe delivery of our services to the ship owner and the industry. 15
Cadet Training Recruiting and training of cadets within a structured program of career development both ashore and at sea. Cadet training programme, which helps ensure a supply of well trained, high quality seafarers is essential for the future of any Company. Recognise the importance of the development of skills, knowledge and experience, through planned and progressive training, during periods of seagoing service and in maritime academies. Contribute in increasing the worldwide Seafarers pool
Crew Retention The Basics Assignments Planned in Advance 17
Spare Parts Business Process Changing our business processes to accommodate the changes in personnel Trend towards automation of processes Ability to retain safeguards and control NOTE (1): Due to the plethora of different systems / technologies available and need for personnel to handle these different technologies and philosophies NOTE (2): This is not about the inexperience of but the expectation we have for them to grasp new concepts and ways of working in a rapidly changing environment 18
Spare Parts Business Process Aggregation of Spares and Services Consolidate volumes into market leading contracts showing owners cost effective pricing Requires aggregation within a large fleet Suppliers looking for volume and commitment Planning of large spares in advance 19
Can you manage without measuring? Do you know:- how well you are performing? if you need to improve? if your competitors are performing better than you? where you need to improve? and Do you WANT to improve? If so, HOW? Continuous Improvement That which you don t measure You can t control That which you don t control You can t improve 20
Any Links??? 120 Equipment Failures & Damage Baltic Dry Index 100 80 60 40 20 0 Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 21
Operational Upgrading Condition Based Maintenance Component Quality and Analytical Tooling have raised equipment reliability to a level beyond the traditional Comfort Zone of Time Based Maintenance. Consequently, CBM will promote:- Longer Running Hours between Maintenance Schedules Less Off hire time Reduced Capital Spending for Spares In Stock Consolidation of Fleet Spares Reduced Numbers of Operational Crew and Attending Specialists Reduced potential of After Repair Damage Improved Budget Predictability 22
Operational Upgrading Energy Efficiencies The International Energy Agency estimate a spending of some US $45 Trillion, to half the levels of CO2 Emissions by 2050 as called for by World Leaders (Poten & Partners) Punitive emission controls Need to maximise recovery of waste heat energy, embraces design and effective operational management Inspired new build design consideration to embrace proven shore-based technology (simple halogen light bulbs, heat pumps etc) all promote ergonomic design considerations Will this lead to the development of Energy Efficiency Management as a Ship Management tool? 23
Major Issues - Ballast Water Treatment Capital costs of the majority of approved BWT systems are similar Need to consider opex of system for ships in service is now paramount Power consumptions can vary to the power of ten Installation footprint may impact upon operational and safety requirements Promote careful consideration of system selection beyond basic price. 24
The USA No Change! Bottigliera Challenger 5th August 2012 $1.3M Fine 4 Years probation Environmental Compliance Plan (ECP) Chief Engineer Jailed Whistleblower 25
Superintendents role review Freeing up MSQ/Fleet Supt time to focus on the quality of the operation without taking any responsibility away Improving the quality of certain oversight functions, internal audit, vessel certification, PMS, Oil Major database etc Consistency across fleets Increase profitability margins on the overhead, i.e. increase to 10 ships per MSQ or 4/5 ships per Fleet Supt depending on the type of unit/trade What can be done without compromising responsibility / safety? What / where is best practice? Should we focus in developing further a software that provides awareness and better control? Help with entering data? Carry out training individual basis? 26
Drydock and Repair Costs Ship repair business market under pressure Increasing competition - the price level today lower than previous years Clients drastically cut budgets and only necessary works carried out The conversion business situation is not the same, prices stood steady / partially increased Some Yards have invested to service increased demand for the Offshore Sector bringing higher cost lower availability Trend towards conversion and upgrading compared with new buildings 27
Conclusion Cost EFFICIENT MANAGEMENT = RELIABLE OPERATION A VERY TEDIOUS PROCESS REQUIRING COMMITMENT AND HANDS ON MANAGEMENT BE PROACTIVE BE AWARE BE INNOVATIVE 28 INVEST IN HUMAN RESOURCES AND TECHNOLOGY
Take the time to become a member of the Propeller Club. Enroll in AMVER today (Automated Mutual Assistance Vessel Rescue System) The Automated Mutual Assistance Vessel Rescue System, sponsored by the United States Coast Guard, is a computer-based voluntary global ship reporting system used worldwide by by search and rescue authorities to arrange for assistance to persons in distress at sea. BLUE pennant for a vessel completing its first year of participation and being honored for the first time. GOLD pennant for a vessel completing five consecutive years of eligibility for an Amver award. PURPLE pennant for a vessel completing ten consecutive years of eligibility for an Amver award. 29
THANK YOU 30