Establishing economic viability

Establishing economic viability

Expenses

In general, it can be stated that there are three different cost involved in budgeting/estimating, as given below

  • Capital costs 
  • Voyage costs and 
  • Operating or Running Costs

CAPITAL COSTS: Are fixed costs associated with the ships purchase.They include:

  1. Pre-delivery expenses
  2. Loan repayment/Depriciation – borrowed & own capital
  3. Interest payment-different rates of interest applied for both borrowed/own
  4. Leasing charges if not an owned asset
  5. Initial registration fees

These costs are generally the owners responsibility. In general Capital costs are as follows:Interests to be paid for mortgage loans procured for the said vessel, if any Depreciation
VOYAGE COSTS: These are variable costs associated with commercial employment of the ship. Voyage costs cover:

  • Port charges and fees; these are normally to the ship owner’s account, but some port costs and fees could be to the charterer’s account.
  • Loading, discharging, stevedoring and trimming costs, to the charterer’s account if on FIO (Free in and out) terms, as are stowage and trimming costs if these are on FIOST (free in and out  stowed and trimmed), FIOT or FIOSPT terms (see 3.3).
  • Despatch and demurrage costs despatch costs are to the charterer, while demurrage is extra revenue for the ship owner.
  • Canal dues if the vessel is required to pass through the Suez, Panama or Keel canal, the ship owner will have to pay canal toll transit charges.
  • The ship owner may have to pay extra insurance premiums if the vessel is contracted to trade outside the Institute Warranty Limits of her Hull and Machinery insurance policy.
  • There could be miscellaneous taxes that may applicable to certain trades, or there could be taxes levied against freight earned. The estimator can get details of these taxes from the Baltic and International Maritime Council (BIMCO).
  • Brokerage commissions.

In short they include:

  1. Port and Canal charges
  2. Pilotage
  3. Tug hire
  4. Agency fees
  5. Stevedoring charges (loading, discharging expenses).

These are the responsibility of the ship’s commercial operator for example if the ship is on a time charter then the charterer is liable for the voyage costs.

OPERATING OR DAILY RUNNING COSTS: These are semi variable costs which fall between capital and voyage costs. These include:

  1. Crewing
  2. Storing
  3. Maintenance
  4. Insurance and
  5. Administration 

Daily Operating costs cover:

  • Office and other administration costs ashore.
  • Wages and other costs (Protection and Indemnity calls, training costs, etc.) for shipboard personnel.
  • Ship maintenance, spares and repairs, drydocking, renewal of statutory and other trading certificates as required.
  • Insurance premiums and claims.
  • Bunkers, provisions and freshwater

These are the responsibility of the ship owner/manager as the case may be. In preparing voyage estimates, normally voyage cost and operating cost are considered. Some companies do take Capital cost also into consideration.

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