The financial crisis has not eliminated inflationary pressures on operating costs

Despite the sharp downturn in shipping markets, operating costs continue on the rise. The main factor is crew costs but there are also other problems as well like rising liability insurance expense and management fees. With falling freight markets and declining cargo volume, this continued cost inflation puts owners in a very unpleasant situation. Earning margins are in an inexorable press between falling revenue and rising expense.

The large orderbook overhang is not only contributing to overcapacity in already softer freight markets. It also expands needs for manning in an increasingly tight market for qualified seafarers. There has been no relief on crew wage inflation - especially for qualified officers - despite the market downturn. The most acute area is the tanker sector because so much new tonnage requires STWC chemical tanker certification. Pressures in the LPG/ LNG sector are also severe due the small pool of experience labor and fleet expansion.

Another area of excalating costs is marine insurance, especially protection and indemnity (PANDI) liability insurance. For some time now insurance markets have been caught with falling premium from 'churning' where newer tonnage at lower rates is replacing older tonnage that was paying higher rates. Claims have been on the rise. The market meltdown in the equity markets has had disasterous results for the investment portfolios of the major PANDI Clubs. The result has been a barrage of supplementary calls to make up for the shortfall at the same time that owners are faced with declining revenues and charter party defaults.

The only relief has been a relative improvement in the value of the US Dollar and the fall in bunker prices. Fuel costs are the major cost element in voyage expenses. Agency costs are another area that has gone up considerably the last few years. Dollar improvement helps to absorb these agency increases and keeps pressure down on oil prices. Unfortunately the fall in freight rates has wiped out any overall benefits.

Time charter equivalents are considerably lower and operating expense continues to rise.