Operating Costs

These are the fixed costs associated with the acquisition of a vessel and for the purposes of this lesson, these are assumed to be fully within the control of the owner. The costs could include pre-delivery expenses, loan repayments and interest, leasing charges, initial registration fees, and in certain cases, taxes. Where a vessel is taken on bareboat or demise charter, the charter hire is the equivalent of capital costs. Where the owner has been able to purchase the vessel out of the company’s own financial resources, the directors will have decided upon an annual rate of depreciation together with an appropriate return on capital employed.  Where the vessel has been purchased by means of a mortgage, loan repayment and interest will form the principal fixed cost. These are the costs that are the fundamental responsibility of the ship manager. The costs could be considered to be “semi variable”, some elements being more or less fixed over a fairly long period of time while others are variable and relate closely to the employment of the ship. However, it is the primary task of the ship manager to arrange for operating costs to be accurately budgeted.  They can be averaged on a daily basis and are usually referred to as the Daily Operating or Running Cost (DOC or DRC) (sometimes also as “cost per day” or “daily cost” items) so that the owner can easily estimate his voyage or charter profitability.  Included in operating costs are the crewing, storing, maintenance, insurance and administration of the vessel. These are variable costs associated with the particular employment in which the ship is engaged from time to time.  Specifically, voyage costs include bunkers, port and canal charges, pilotage, harbour tug hire, port agency fees and any loading and discharging expenses.  Voyage costs fall within the control of the ship’s commercial operator. If the owner lets the vessel out on time charter almost all the voyage costs become the responsibility of the time charterer.