Transcript MARITIME TRANSPORT SYSTEM - Univerza v Ljubljani

ORGANIZATION AND
ECONOMICS OF
SHIPPING COMPANY
Marina Zanne, M.Sc.
[email protected]
Introduction
Development:
• ship owner = ship operator = trader = captain
• ship owner = ship operator = trader
• ship owner is not necessarily a ship operator
Ship operator = shipping company = a company that
provides maritime transport of goods or passengers =
the most important component in seaborne trade
provision
Introduction
The company is formed to fulfill the needs that are
recognized in our living environment.
Shipping company faces a challenging environment 
market cycles
Key variables that shipowner/shipoperators must monitor:
• the revenue received from chartering/operating the ship,
• the costs of running the ship,
• the method of financing the business.
Shipping company
Shipping company is an open, dynamic, complex, partially
autonomous, goals driven social system that tries to
combine the limited resources in a best possible way in
order to achieve the most rational production and in this
way to use the given possibilities to the max.
Main elements in managing ships
Drewry; Ship management (2006), p. 2
Shipping company
A bigger organization will normally consist of the head
office, the ships, offices abroad and a network of
business connections such as shipbrokers, agents,
stevedores, etc. These companies are usually
independent companies with whom the big company has
fixed contracts.
Functional organization
...
Such organization is not good for big companies working in
a dynamic market, which martime market for sure is.
Functional organization
Unstable crews, lack of communication (or too slow
communication), poor overall efficiency
Matrix type organization
• Decentralisation of management  higher motivation
and initiative aboard the ships  free and interactive
relations, fleet leader on shore-side
• Better control of expenses
Branch type organization
...
...
Much better for
big companies
where profit
centers can be
organized.
Board of
managers
addresses the
issues that are
important for
the entire
company.
Shipping company
Smaller companies usually outsource majority of “common”
activities (ikn big companies), such as crewing,
accounting, technical issues or even fleet development.
Major shipping companies
http://www.onelasvegas.com
Ship’s costs
• capital costs
• loan repayment
• depreciation
• operating costs
• crew costs
• stores
• repair & maintenance
• insurance
• administration
Ship’s costs
• voyage costs
• fuel costs
• port / canal charges
• service charges (tugging, pilotage,cargo handling etc)
Costs’ structure
Costs
included in
the charter
fee/freght rate
$/day
$/t
Stopford M. (2009): Maritime economics, p. 182
Capital costs: Cost of loan
Capital costs (depend on how the ship is financed):
Financed by a loan:
• size of loan
• source of loan
• interest rate
• terms of loan
Final price  Cash price  Interests  Cash price  n  Instalment
Capital costs: Cost of loan (Example)
Question: What is cheaper for a company buying a ship?
Cash price = 45.000.000 $. Terms of loan:
a)
• down payment: 1/3 of cash price
• interest rate: 8% (per year)
• paying period: 6 years, repayments once per year, fixed instalment
b)
•
•
•
down payment 12.000.000 $
interest rate: 8% (per year)
paying period: 5 years, repayments twice per year, fixed instalment
Capital costs: Cost of loan (Formulas)
Loan  Cash price  Dow npayment
r  1 r 
Capital recoveryfactor CRF  
1 r n  1
n
Instalment  CRF  Loan
Final price  Cash price  Interests  Cash price  n  Instalment
where
r – interest rate (for adeqaute period of time)
n – number of instalments
Capital costs: Cost of loan (Example)
a)
r = 8%, n = 6
CRF = 0,216315386
Instalment = 6.489.461,59$
Final price = 53.936.769,52$
Interests = 8.936.769,52$
Capital costs: Cost of loan (Example)
Repayment scheme:
No.
Principal
Instalment
Interests
Partial
principal
0
30.000.000,00
1
25.910.538,41
6.489.461,59
2.400.000,00
4.089.461,59
2
21.493.919,90
6.489.461,59
2.072.843,07
4.416.618,51
3
16.723.971,90
6.489.461,59
1.719.513,59
4.769.947,99
4
11.572.428,07
6.489.461,59
1.337.917,75
5.151.543,83
5
6.008.760,73
6.489.461,59
925.794,25
5.563.667,34
6
0,00
6.489.461,59
480.700,86
6.008.760,73
38.936.769,52
8.936.769,52 30.000.000,00
Capital costs: Cost of loan (Example)
b)
r = 4%, n = 10
CRF = 0,123290944
Instalment = 4.068.601,16$
Final price = 52.686.011,63 $
Interests = 7.686.011,63 $
Capital costs: Cost of loan (Example)
No.
Principal
Instalment
Interests
Partial
principal
0 33.000.000,00
1 30.251.398,84
4.068.601,16
1.320.000,00
2.748.601,16
2 27.392.853,63
4.068.601,16
1.210.055,95
2.858.545,21
3 24.419.966,61
4.068.601,16
1.095.714,15
2.972.887,02
4 21.328.164,11
4.068.601,16
976.798,66
3.091.802,50
5 18.112.689,51
4.068.601,16
853.126,56
3.215.474,60
6 14.768.595,93
4.068.601,16
724.507,58
3.344.093,58
7 11.290.738,60
4.068.601,16
590.743,84
3.477.857,33
8
7.673.766,99
4.068.601,16
451.629,54
3.616.971,62
9
3.912.116,50
4.068.601,16
306.950,68
3.761.650,48
10
0,00
4.068.601,16
156.484,66
3.912.116,50
40.686.011,63
7.686.011,63 33.000.000,00
Capital costs: Cost of loan (Example)
Answer:
Second option is cheaper.
Capital costs: Depreciation
Depreciation refers to two very different but related
concepts:
• decline in value of assets, and
• allocation of the cost of tangible assets to periods in
which the assets are used.
Depreciation costs depend on:
• cost of the asset,
• expected salvage value of the asset,
• estimated useful life of the asset, and
• a method of apportioning the cost over such life.
Capital costs: Depreciation
There are plenty ofdepreciation methods, e.g.:
• straight-line depreciation
• declining-balance method
• sum-of-years' digits method
• activity depreciation
Straight line depreciation
Book value at
beginning of year
Depreciation
expense
Accumulated
depreciation
Book value at
end of year
Original value
Scrap value
Book value = Original value - Accumulated depreciation
Straight line depreciation (Example 1)
Using the straight line depreciation check the
competitiveness of shipping company buying the ship for
cash (45.000.000$) comparing to the compnay buying it
with the loan (52.686.011,63$).
The ship’s displacement is 12.500 tons and the scrap metal
value is 150 $/t.
According to accounting standards, the useful life of ship is
20 years, with 350 days of exploitation per year.
If a company buys an used ship, the amortization period
(utilization life) is shorter for this ship’s age.
Straight line depreciation (Formulas)
Annual depreciation expenseADE 
Daily depreciation expenseDDE  
Cost of ship  Salvable value
Useful life of shipyears
ADE
350 days
Salvable valueSV   Displaceme nt  Price of scrapmetal
Straight line depreciation (Example 1)
Salvable value is in both cases the same:
Salvable valueSV   Displaceme nt  Price of scrapmetal 
 12.000t  150 $ t  1.875.000$
a) Final price = Cash price = 45.000.000$
ADE 
45.000.000$  1.875.000$
 2.156.250$
20 years
DDE 
2.156.250$
 6.160,71$
350 days
b) Final price = 52.686.011,63$
ADE 
52.686.011,63$  1.875.000$
 2.540.550,58$
20 years
DDE 
2.540.550,58$
 7.258,72 $
350 days
Straight line depreciation (Example 2)
What is the annual and daily depreciation expense for a
newly bought 15 years old ship at the price of
11.000.000$.
The ship’s displacement is 9.600 tons and the scrap metal
value is 150 $/t.
Prepare the depreciation plan!
Straight line depreciation (Example 2)
Utilization life = 5 years
Salvable valueSV   9.600 t  150 $ t  1.440.000$
ADE 
11.000.000$  1.440.000$
 1.912.000$
5 years
DDE 
1.912.000$
 5.462,86$
350 days
Straight line depreciation (Example 2)
Book value at
beginning of year
11.000.000
9.088.000
7.176.000
5.264.000
3.352.000
Depreciation
expense
1.912.000
1.912.000
1.912.000
1.912.000
1.912.000
Accumulated
depreciation
1.912.000
3.824.000
5.736.000
7.648.000
9.560.000
Book value at
end of year
9.088.000
7.176.000
5.264.000
3.352.000
1.440.000
Operating costs
•
•
•
•
•
•
crew costs
stores
repairs
maintenance
insurance
administration
Operating costs: Crew costs
There are several direct and indirect costs incurring when
crewing of the vessel:
- wage costs
- travel costs
- on board victualling
- training
- (union fees)
- recruitment/selection and processing
- medical tests
- social dues
- communication/bank charges
- crew accident insurance payment
- sick pay
- (standby pay)
- port expenses
- agency fees
Operating costs: Crew costs
Depend on:
• size of the crew,
• employment policy of the owner/operator,
• ship’s flag  Flag of convenience  ITF  minimal
wages for ranks on board
Crew costs: Wages
Bulk carriers
Master
Cheif
engineer
Chief officer,
2nd (1st
asst)
engineer
2nd officer,
3rd (2nd asst)
engineer
UK
9.000-13.000
9.000-13.000
7.000-10.000
5.500-7.000
Italy
7.000-9.000
6.500-8.500
6.000-8.000
4.500-6.000
Croatia
4.900-5.500
4.800-5.400
3.400-3.800
2.150-2.350
Poland
4.600-8.000
4.400-7.000
3.470-5.000
2.750-4.000
Romania
3.800-4.120
3.600-3.910
2.880-3.180
2.060-2.340
Ukraine
3.500-5.000
3.300-4.500
2.560-3.700
1.850-2.400
India
4.300-6.000
4.000-5.700
3.200-4.200
2.000-2.400
Philipines
3.700-6.000
3.300-4.800
2.300-3.700
1.950-2.600
Drewry; Ship management (2006), p. 112
Crew costs: Wages
Tankers
Master
Cheif engineer
Chief officer,
2nd (1st
asst)
engineer
2nd officer,
3rd (2nd asst)
engineer
UK
11.00016.000
10.000-15.000
8.000-11.000
6.000-8.000
Italy
8.000-10.000
7.500-9.500
6.500-8.500
5.000-6.500
Croatia
7.500-8.900
7.400-8.800
6.000-6.500
2.500-2.800
Poland
7.000-10.000
7.000-9.000
3.900-4.900
3.200-3.800
Romania
5.500-7.500
5.500-7.200
4.200-5.700
2.500-3.100
Ukraine
5.000-7.000
4.300-6.900
3.500-5.500
2.450-2.850
India
6.000-8.000
6.000-7.800
4.800-5.800
2.400-3.000
Philipines
4.500-6.500
3.700-4.800
2.580-3.700
2.250-2.600
Drewry; Ship management (2006), p. 113
Crew costs – depending on nationality
Indian crew (8+10)
Filipino crew(8+10)
Wages
43.000 $/month
38.300 $/month
Victualling
3.720 $/month
3.720 $/month
Miscellaneous
4.300 $/month
3.830 $/month
SKUPAJ
51.020 $/month
45.850 $/month
Tours of duty – Officers
4-6
8-10
Tours of duty – Ratings
9-10
9-12
Normal working week - Ratings
40-44
44
Guaranteed overtime per month – 103-109
Ratings
85
Leave per month served - Officers 15-22
6-10
Leave per month served - Officers 7
6-10
Drewry; Ship management (2006), p. 118
Crew costs –
depending on
ship’s age
Stopford M. (2009):
Maritime economics,
p. 228
Operating costs: Repairs & maintenance
• routine maintenance; maintenance of engine and
equipment, painting jobs, renewal at the hold… while the
ship is at sea
• breakdowns; mecanical failures resolved in repair yards
 loss of trading time
• spares; replacement parts
• periodic maintenance; regular maintenance at repair
yards in order to maintain sea worthiness (class) and
obtain certifications (necessary for insurance)
classifcation societies (dry dock every 2 year, special
survey every 4 years)
Repairs & maintenance
 regular maintenance  less breakdowns
 these costs increase with ships’s age and in average
accumulate for 14% of operating costs
Operating costs: Insurance
• vary from ship to ship
• 2/3 insurance of the hull and machinery  protection
of owner against physical loss or damage  depend
on claimed value of tehe vesswl and previous claim
records  obtained from marine insurance company
• 1/3 thirs party insurance  covers against third party
liabilities (injury of death of crew members or
passengers, damage to cargo, collision damage,
pollution etc.)  obtained from P&I club
Operating costs: General costs /
Administration
•
•
•
•
shore-based administrative and management charges
communication costs
agents in ports
flag state fee
Voyage costs
• fuel costs
• port charges
• port dues
• service charges (e.g. tugs, pilotage, cargo handling)
• canal charges
Voyage costs: Fuel costs
Depend on:
• fuel price
• engine power and efficiency  only cca 23% of
energy consumed is applied to propelling the vessel
(the rest is lost for cooling the engine, lost as exhaust
emissions, lost at the propeller and hull friction)
• design and state of the hull  hydrodynamics
• ship’s speed
Voyage costs: Fuel costs
Consumption for a Panamax bulk carrier
Speed [knots] Main engine
consumption
[t/day]
16
44
Main engine
consumption
[t/day]
55
15
36
45
14
30
37
13
24
29
12
19
23
11
14
18
http://www.bunkerworld.com/pr
ices, 30.10.2010
Singapore
Rotterdam
Houston
Fujairah
Los Angeles
Stopford M. (2009): Maritime
economics, p. 235
IFO380 IFO180
468.50 477.50
453.50 471.50
460.50 473.50
474.50 493.00
476.50 493.50
MDO
681.00
738.50
757.50
MGO
689.50
706.50
732.50
757.50
Fuel prices
http://www.bunkerworld.com/prices, 30.10.2010
Voyage costs: Port charges
Fees for the use of facilities and services provided by the
port
port dues
service charges
(pilotage, towage, cargo handling)
• general use of port facilities (e.g. docking, wharfage for
provision of the basic infrastructure), based on:
• volume of cargo
• weight of cargo
• gross (registered) tonnage fo the vessel
• net (registered) tonnage fo the vessel
Port charges: Cargo handling costs
• costs of loading and discharging cargo (shipowners are
concerned about this costs especially in liner service
operations)
CHCtm  Ltm  DIStm  CLtm
CMC – cargo-handling costs
L – loading charges
DIS – cargo discharge costs
CL – cargo claims
Voyage costs: Canal charges
• Suez & Panama canal
• Suez; charges are calculated in terms of the Suez
Canal net ton (roughly corresponds to cargo-carrying
space below the deck)and Special Drawing rights (not
commonlyused measures)  charges vaey for
different types and sizes of ships
• Panama; flat rate per Panama Canal net ton is used
Bulk carrier’s costs depending on ship’s age
100%
11%
90%
5%
80%
39%
47%
70%
60%
50%
3%
40%
2%
capital
maintenance
voyage costs
40%
35%
operating costs
33%
30%
20%
10%
31%
18%
22%
0%
5 years
10 years
20 years
Stopford M. (2009): Maritime economics, p. 222
Revenues
Shiponwers earn revenues in several different ways 
different distribution of risk and apportionment of costs
between shipowner and charterer.
Voyage charter
Shipowner pays all costs (except maybe cargo handling)
and is responsable for managing and running the ship,
as well as of planning and execution of voyage.
Calculation involves:
• determining how much cargo the vessel can carry
• establishing what price of freight rate can be charged
per unit transported
Revenues: Voyage charter
Shipowner pays all costs (except maybe cargo handling)
and is responsable for managing and running the ship,
as well as of planning and execution of voyage.
Calculation involves:
• determining how much cargo the vessel can carry
• establishing what price of freight rate can be charged
per unit transported
Ship’s productivity
Ptm  24  Stm  LDtm  DWUtm
P – productivity in ton miles of cargo per annum
S – everage operating speed per hour
LD – number of loaded daysat sea per annum
DWU – deadweight utilization
t – time period
m – ship type
R – revenue per dwt per annum
Ptm  FRtm
Rtm 
DWTtm
FR – freight rate per ton mile of cargo
transported
Revenues: Time charter
• fixed daily or monthly payment for hiring the vessel
• The owner still takes the operational risk and the
charterer takes the market risk;
• The charterer pays the fuel, port charges, stevadoring
and other cargo related costs
Revenues: Bare boat charter
• the owner (e.g. a bank) finances (interests, depreciation)
the ship and receives a charter payment to cover the
expenses (and desired profits)
• charterer covers all operating costs, voyage costs and
cargo related costs
• charterer takes operational and market risk
Profit / loss account
Profit / loss:
revenues – costs
Stopford M. (2009):
Maritime economics,
p. 248
Example: Optimizing the ship’s speed
Calculate the optimal ships’s speed for the following voyage:
Distance: 7.200 miles
Bunker costs (IFO): 475 $/t
Bunker costs (MDO): 740 $/t
Consumption (MDO) at sea and in ports: 1,5 t/day
Port days: 5 days
Penalities (per day): 27.000 $/day if cargo is not delivered
within 26 days
Fixed daily costs: 14.500 $
DWT: 60.000 t
Freight rate: 17 $/t
Port charges: 74.000 $ (cargo handling costs excluded)
Example: Optimizing the ship’s speed
Consumption at sea is as follows:
Speed [knots] Main engine
consumption
[t/day]
16
44
15
36
14
30
13
24
12
19
11
14
What is the profit at optimal speed?
Costs & revenues: Summary
Stopford M.
(2009):
Maritime
economics,
p. 220
Distinction between profit and cash
Profit is a concept used to measure financial return from
business.
The cashflow of a company represents the difference
between cash payments and receipts.
Some costs are not paid in cash at the time of occurance
(for example the purchase of the ship; cash transaction
takes place when the ship is built, whilst the ship loses a
proportion of its value by the each passing year – this is
represented as depreciation in a profit / loss account).
Sources & further reading
• Stopford M.: Maritime economics, London, Routledge
(2009), Chapter 6
• Bielic - Influence of shipping company organization on
ship's team work effectiveness
• The organisation of a shipping company, Charter parties,
General average by Galvagnon/Pearson ENMM
Marseille 2002