Lecture 4: Shipping Cost & Revenue

Question 1

What are the 5 broad categories of Shipping Cost?

Answer 1

1. Voyage Cost (40%)
2. Operational Costs (14%)
3. Capital Cost (42%)
4. Cargo Handling Cost (Absorbed in port charge)
5. Periodic Maintenance Cost (4%)

Question 2

What are the components of operating costs represented by the formula OC = M + ST + MN + I + AD?

Answer 2

M = Manning, ST = Stores & Consumables, MN = Maintenance & Repair, I = Insurance, AD = Administration

Question 3

What does “manning” cover in operating costs?

Answer 3

Costs incurred by the crew, such as wages, social insurance, and pensions.

Question 4

What are examples of stores and consumables on a ship?

Answer 4

Cabin stores, domestic items, and lubricants for reducing friction in the diesel engine.

Question 5

How often is dry docking conducted?

Answer 5

Every 2 years

Question 6

What does VC = FC + PD + TP + CD represent?

Answer 6

Voyage costs = Fuel cost + Port dues + Towage and Pilotage + Canal dues.

Question 7

What is the most influential component of voyage costs?

Answer 7

Fuel cost, which can account for up to 76% of voyage costs.

Question 8

What do port charges cover?

Answer 8

Charges for using port facilities, such as wharfage, cargo handling, pilotage, and towage.

Question 9

How can fuel costs be reduced?

Answer 9

Through slow steaming, improving energy efficiency, and enhancing hull design.

Question 10

What are the two types of maintenance costs?

Answer 10

1. Routine maintenance (e.g., maintaining the main engine)
2. Breakdown repairs (e.g., mechanical failure).

Question 11

What are the ways to reduce voyage cost?

Answer 11

a. Slow Steaming (e.g reduce the operating speed of the ship→ Lesser friction→ Less fuel consumption)
b. Improve hull design and smoothness
c. Optimize route planning to minimize distance and avoid high-cost ports/canals
d. Use fuel-efficient technologies and regular maintenance
e. Negotiate better port rates for regular routes
f. Consider fuel hedging to manage price volatility, avoid spot market

Question 12

What consists of Cargo Handling costs? Hint: CHC= L + DIS + CL

Answer 12

Absorbed in port charges
CHC= L + DIS + CL
L= Cargo Loading Charge
DIS= Cargo discharge Charge
CL = cargo claim
→ Can be reduced by investment in improved ship design with advanced onboard cargo handling gear

Question 13

What consists of periodic maintenance cost?

Answer 13

→ 4% of overall shipping costs
→Dry docking conducted every 2 years
→Special Survey conducted every 5 years in dry dock
→ Involves all inspection of machinery, thickness of the hull and comparison against acceptable standards
→ Costs are normally higher in older vessels (e.g corrosion of steel)