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SHIPCOST - VESSEL AND VOYAGE COSTING MODEL
Arnold, Jr., John; Panagakos, George
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Marine Technology
Publication date:
1991
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Citation (APA):
Arnold, Jr., J., & Panagakos, G. (1991). SHIPCOST - VESSEL AND VOYAGE COSTING MODEL. Marine
Technology, 28(1), 46-53.
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Marine Technology, Vol. 28, No. 1. Jan. 1991, pp. 46-53
SHIPCOST: Vessel and Voyage Costing Model
J o h n A r n o l d , Jr., 1 a n d G e o r g e
Panagakos I
The paper describes SHIPCOST, a computer-based method developed first in 1984 by the World Bank,
and subsequently refined, to evaluate vesset and voyage costs. The economics of vessel ownership and
operation are examined and examples given of typical fleet voyage and trade costs, including a comparison
between the use of newbuildings and secondhand ships. The separate fleet, ship and voyage modules
included in the SHIPCOST model are discussed and typical applications given.
1. Introduction
2. E c o n o m i c s of vessel ownership and operation
THE DETERMINATIONof vessel costs involves the consideration of a r a n g e of issues. Some of the most f u n d a m e n t a l
Work on the subject was by Zannetos in 1966, who looked
specifically at t a n k e r s [1].2 More recently J a n s s o n a n d
Shneerson made i m p o r t a n t contributions to liner shipping
economics [2]. In between these two came our own efforts,
which cover a broader range of vessels, b u t are still focused
on the way in which the m a r k e t values vessels.
SHIPCOST is a methodology and a computer-based model
for the e v a l u a t i n g vessel and voyage costs. It was developed
in 1984 for use by the World B a n k staff and its borrowing
countries in performing financial and economic appraisals of
projects related to m a r i t i m e ports and shipping. SHIPCOST
was prepared as part of a c o n t i n u i n g effort which dates back
to 1972 when consultants were contracted to prepare a report
on the capital and operating costs of various types and sizes
of vessels. Subsequent reports of the same n a t u r e were prepared in 1976 and 1980. 3 While the data provided in these
reports were widely used by the Bank staff, they had certain
limitations, namely:
(i)
(ii)
(iii)
the data were not easily updated,
the conditions of the m a r k e t for shipping services
were ignored, and
the vessel configurations examined were very limited
in n u m b e r .
SHIPCOST was designed so as to remedy these drawbacks.
The purpose of the paper is to provide a synopsis o f the
model, to outline the theory behind it, and to present some
of its applications. The following two sections present the
theoretical basis for the m o d e l - - t h e relationship between the
costs to the owner of operating a vessel and the costs to the
user of m a r i t i m e transportation. Section 4 describes how the
model represents costs. Section 5 elaborates on ~he general
model structure, its inputs and outputs, and its applications
in m a r i t i m e port and shipping projects.
1The World Bank. Washington, D.C.
2Numbers in brackets designate References at end of paper.
3Previous reports were prepared by Appledore and Microconsultants.
The World Bank does not accept responsibility for the views expressed
herein, which are those of the authors and should not be attributed to the
World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank;
they do not necessarily represent official policy of the Bank.
Presented at the January 13, 1988 meeting of the Chesapeake Section
of THE SOCIETYOF NAVAl,ARCIIITECTSANDMARINEENGINEERS.
46
JANUARY1991
The cost of a vessel depends upon your point of view. From
the owner's perspective, vessel costs include the costs for purchase of the vessel, for the wages and benefits of the crew,
for the fuel at sea a n d in port and for the operating and
a d m i n i s t r a t i v e overheads. From the shipper's point of view,
the cost of a vessel is the price paid for use of the vessel
whether it be the c h a r t e r rate or the freight tariff less rebate.
Each shipping company has its own method of accounting
for vessel costs. These are determined by the accounting practices and tax regulations of the c o u n t r y in which the company
is incorporated. In addition, the vessel owner m a y use a separate method of accounting for vessel operating costs and for
m a k i n g decisions about the profitability of a l t e r n a t i v e uses
of the vessel.
The cost of m a r i n e t r a n s p o r t a t i o n to the shipper is determined in the marketplace. The supplier attempts to earn a
r e t u r n on his i n v e s t m e n t and the purchaser tries to obtain
an acceptable level of service at m i n i m u m cost. Clearly, the
cost of construction a n d operation will affect the price for
m a r i n e transportation, b u t the conditions in the m a r k e t will
have a n equally i m p o r t a n t impact. It is the relationship between the two which forms the conceptual basis for our model.
Let us now consider how this m a r k e t works.
If we begin with the simplest situation, we might imagine
that all vessels of a specific class compete on a single route.
Because of differences in age, crew size, type of propulsion,
these vessels would have operating costs which vary as shown
in Fig. 1. I n this graph, the vessel operating costs are shown
for the entire fleet, b e g i n n i n g with the least-cost vessel and
concluding with the highest-cost vessel. In terms of classical
economics, the price set by the m a r k e t for t r a n s p o r t i n g a
volume of cargo Vo (in ton-miles) would be Co (in S/ton-mile).
In this situation, all vessels with operating costs less t h a n Co
would be employed. The vessels with operating costs well
below Co would operate with a considerable surplus. Vessels
with operating costs above Co would not be employed.
How exactly are these operating costs defined? Clearly
these costs would include all avoidable costs such as fuel
costs, crew costs, 4 and variable m a n a g e m e n t costs. Would the
operating costs include capital costs? No, because the owner
of a vessel would continue to operate r a t h e r t h a n lay up his
vessel if the price in the m a r k e t covered his avoidable costs.
As the demand increases to V1, additional vessels will be
employed on the route. These vessels will have higher op• e r a t i n g costs and this will push the m a r k e t price up to C1. If
4Assuming the crew does not have to be paid if the vessel is not being
operated•
0025-3316/91/2801-0046500.41/0
MARINE TECHNOLOGY
C5
/
C1
/,"
/
,+ ~,"
,÷C
Fig. 1 Vessel fleet short-run marginal costs
the d e m a n d increases further, t h e n the available £1eet will be
fully employed and new vessels will have to be built. In this
case, the m a r k e t price would rise to a level where one or more
companies would be willing to p u r c h a s e new vessels with the
expectation t h a t the rates will r e m a i n in effect long enough
to recover t h e capital costs after paying all variable costs.
This point is shown as C in Fig. 1.
If, while t h e m a r k e t waits for the newbuildings to be delivered, t h e volume of traffic continues to rise, then the price
will rise above C2 as the available capacity is r a t i o n e d among
those willing to pay t h e highest price. This increase will cause
additional investors to contract for new vessels. Once the
newbuildings a r e delivered, the fleet operating cost curve
will move to the right as shown in Fig. 1 and t h e price will
moderate. If too m a n y investors were t e m p t e d into t h e market, or if the d e m a n d should fall slightly, then the m a r k e t
price could easily fall below C2 and t h e more optimistic investors would be unable to recover t h e i r capital costs.
So far we have assumed a single route and a single class of
vessels. If we broaden the a r g u m e n t to include m a n y different
routes, the results would be the same. If each route is served
by more t h a n one class of vessels and these vessels can easily
be t r a n s f e r r e d from one route to another, then the e x t r e m e
movements in price would occur only when the overall dem a n d exceeds the overall supply.
The preceding sequence of events is f a m i l i a r to those who
operate in the c h a r t e r m a r k e t , but w h a t about the liner market? In the liner m a r k e t , t h e shipping conferences operate
according to monopolistic principles. They constrain t h e supp l y of t r a n s p o r t so as to insure the m a x i m u m profit to the
shipowners. A l t h o u g h this discipline has been difficult to enforce, most conferences have tried to r e g u l a t e t h e supply to
the e x t e n t t h a t the highest cost o p e r a t o r will e a r n enough to
p a y all o p e r a t i n g costs and to cover the capital costs for t h e i r
vessel and t h e fixed costs for vessel m a n a g e m e n t . The failure
of the conferences to achieve this less ambitious goal on the
major A t l a n t i c and Pacific routes has been obvious over the
last decade.
3. N e w b u i l d i n g v e r s u s r e s a l e v e s s e l c o s t s
Most t r a n s p o r t a t i o n studies a r e concerned with the cost of
supplying t r a n s p o r t a t i o n u n d e r the assumption t h a t the
prices for t r a n s p o r t in a competitive m a r k e t will be in line
with the costs. In the past, most t r a n s p o r t a t i o n studies have
e s t i m a t e d vessel costs by t a k i n g the operating costs of a newJANUARY 1991
building and adding the capital costs amortized over its expected life. W h i l e this a p p r o a c h might be justified in a situation where a specialized vessel is being introduced to serve a
new trade, it is h a r d to justify the a p p r o a c h in a competitive
market.
How should we allow tbr the effects of changes in supply
and d e m a n d when m a k i n g long-term i n v e s t m e n t plans which
require the use of m a r i n e t r a n s p o r t a t i o n ? Let us r e t u r n to
the m a r k e t p l a c e for a clue, specifically the secondhand market. The buildup of capacity in all types of vessels in the last
decade has resulted in a r e l a t i v e l y active secondhand m a r k e t
not only for t a n k e r s and bulkers, b u t also for b r e a k - b u l k and
c o n t a i n e r vessels.
How does the secondhand m a r k e t set its price? The purchaser is looking for a vessel which, when employed, will e a r n
sufficient revenue to cover its o p e r a t i n g costs and to pay for
the purchase price. His assessment must t a k e into account
the time value of money. Theretbre, the basis for setting the
price is the discounted value of t h e expected net cash flow
over t h e r e m a i n i n g life of the vessel. While the resale m a r k e t
cannot provide perfect i n t o r m a t i o n about the future, it does
reflect the collective wisdom of the buyers and sellers in t h a t
m a r k e t W h e r e the m a r k e t is active, with m a n y buyers and
sellers, it offers a very useful e s t i m a t e of t h e price for m a r i n e
transportation.
Despite the a p p e a l of the resale m a r k e t ' s assessment of the
future cost of m a r i n e t r a n s p o r t a t i o n over the m e d i u m term,
t h e r e r e m a i n s a nagging desire to r e t u r n to the comfort of
the newbuilding cost. This desire is buttressed by the argum e n t t h a t e v e n t u a l l y the vessels in the fleet m u s t be replaced.
Therefore, in t h e long run, the m a r g i n a l vessel m u s t be obt a i n e d through construction. While the concept of long-run
m a r g i n a l costs is well established, the use of newbuilding
costs to e s t i m a t e this value has t h r e e weaknesses.
First, new vessels have very different cost s t r u c t u r e s from
t h e typical vessel in the fleet. Their h i g h e r capital costs a r e
compensated for by lower o p e r a t i n g costs due to a u t o m a t i o n ,
m o r e efficient propulsion systems, and better-utilized cargo
storage. W h e n e s t i m a t i n g m a r i n e t r a n s p o r t a t i o n costs based
on new vessels, it is necessary to include these savings in t h e
o p e r a t i n g costs.
Second, t h e newbuilding costs themselves fluctuate with
demand. In the last decade, t h e r e has been a considerable
s h a k e o u t in the shipbuilding industry. Less efficient y a r d s
have been closed. Korea, with its lower labor costs and access
to modern technology, has e m e r g e d as t h e price setter. During
t h e s a m e period, ship construction costs have declined in real
t e r m s in all b u t v e r y specialized markets. In periods of peak
demand, when construction capacity is s t r e t c h e d and delays
increase, t h e price of newbuildings will rise as less efficient
y a r d s a r e employed and new vessels are constructed on a fastt r a c k schedule. Thus the s h o r t - t e r m cycle in t h e r a t e s will
cause c o m p l e m e n t a r y fluctuations in newbuilding costs.
Third, d u r i n g periods of excess capacity t h e principal
source of vessels is t h e secondhand m a r k e t . The newbuilding
m a r k e t provides vessels mostly for specialized uses where
these vessels a r e not a v a i l a b l e in the secondhand m a r k e t .
The prices for these special-purpose vessels a r e not represent a t i v e of the price for the typical vessels used to provide marine t r a n s p o r t a t i o n .
In most situations, the secondhand m a r k e t will provide a
b e t t e r source of information on the m e d i u m - t e r m costs of
m a r i n e t r a n s p o r t a t i o n . The exception occurs in periods when
t r a d i n g in t h e secondhand m a r k e t is r e l a t i v e l y slack even
t h o u g h t h e r e is no shortage of capacity.
4. H o w S H I P C O S T e s t i m a t e s v e s s e l c o s t s
The model g e n e r a t e s five categories of vessel costs computed for t h e vessel at sea a n d in port. The first category is
MARINE TECHNOLOGY
47
avoidable costs and includes all variable operating costs less
the cost of layup. This cost p a r a m e t e r can be used to estimate
c h a r t e r costs in a m a r k e t with a reasonable level of excess
capacity. Obviously, the actual charter rate could also be
used, but those rates would depend on the c u r r e n t m a r k e t
equilibrium whereas the model would compute the rate t h a t
would apply if the m a r g i n a l vessel being employed was the
typical vessel. The layup charges are deducted because the
vessel owner would incur this cost if the vessel was not being
operated.
The second category, operating costs, is similar to the first
except t h a t layup costs are not subtracted. This cost parameter is useful when trying to determine the i n c r e m e n t a l cost
for m a k i n g a n additional voyage or adding a leg to a n existing
voyage. The r e m a i n i n g categories include the operating cost
b u t add a capital charge.
The third category adds the cost of depreciation to the
operating costs. The initial purchase price is estimated based
on the age of the vessel as well as its size and type, and this
price is depreciated using the declining-balance method. The
resulting vessel cost can be used to estimate the cost t h a t
would appear on a ship operator's accounts.
The fourth category uses the resale value of the vessel as
the capital cost. The resale price is adjusted for the age of
the vessel as well as the deadweight a n d type. This price is
amortized over the life of the vessel. The resulting vessel costs
represents the m a r g i n a l cost of providing additional capacity
to serve an increased level of traffic or the m a r g i n a l savings
which results as a reduction in the level of traffic.
The fifth category uses the newbuilding price for the capital
cost. The newbuilding price is amortized over the life of the
vessel. The resulting cost can be used to estimate the cost of
increasing a dedicated fleet or the cost which will apply in a
tight market.
L
F
- Input
_1_
-I~
Computer
Hodel
M7~
5. M o d e l
structure
SHIPCOST has been prepared in four configurations, each
one corresponding to a vessel type. The vessel types covered
include tankers, dry-bulk carriers, general cargo vessels, and
containerships.
The major differences among these configurations are the
i n t e r n a l data tables within the model which describe the
ship's physical characteristics and capital a n d operating
costs. W i t h i n each configuration there are three modules:
(i) the fleet module, which contains the characteristics
of the world fleet for t h a t type of vessel;
(ii) the ship module, which determines the costs of ope r a t i n g a vessel of specific size and age; and
(iii) the voyage module, which determines the costs of using a specific vessel on a particular voyage or trade.
The n o r m a l sequence is to use the fleet module first to select
typical vessel sizes a n d ages t h a t would be appropriate for
the analysis. Next the ship module is used to determine the
daily a n d a n n u a l costs of operating these vessels. Finally, the
voyage module is used to d e t e r m i n e the cost of using these
vessels on specific routes carrying selected cargoes. The interaction between modules is shown in Fig. 2.
F l e e t module
The fleet module does not perform any analysis. It only
accesses tables which describe the size and age distribution
of the i n t e r n a t i o n a l oceangoing fleet of vessels. The output is
presented in either t a b u l a r or graphical form (see Fig. 3).
Ship module
The ship module is the core of the model and can be used
to d e t e r m i n e the daily costs of a vessel at sea and in port, as
well as a n u m b e r of non-cost characteristics of the vessel.
Sensitivity
Analysis
-I~
-]~ ,,
Output
i. I
....
Sensltlvlty Analvsis
I
DWT, A C E , ROR
"7 Costs
T I me
~-[Comparison
between
I N
~ J
Cost-based and
[ H a r k e t Rates
Charter
Rates
IExogenous
Vesset
Costs
A~nalysis
Handllng Ratesj Speedp
DWT, ROR
Sensitivity
Voyage
Data
Comparison between
Cost-based and
Harket Rates
I Vnyage
Charter
Rates
Fig. 2
48
JANUARY 1991
Interactions between model components
MARINE TECHNOLOGY
DAILY COSTSFOR GENERAL CARGOVESSEL, DWT I0,000
1986 VESSELCOSTING MODULE FOR GENERAL CARGOVESSELS,
30
TYPE OF DATA
25
VALUE
FORM I
UNITS
REQUIRED INPUT DATA
20
DEAD,EIGHT
15
YEAR BUILT
VESSEL UTILIZATION
NATIONALITY OF OFFICERS
10.00 IXXX.X THOUSANDS OF DEADWEIGHT TONNES
DAYS PER YEAR
I.U.S.A. 2. EUROPE 3. GREEK
NATIONALITY OF CREW
3 Ix
4.KOR/SING/PHIL5.1NDIA
ENGINE/FUEL TYPE
I IX
I . MSD 2. LSD 3. STEAM4. GAS
LOADED SPEED
FUEL COST
10
1980 J19XX
315 JXXX
3 JX
16.0 IXX
KNOTS
84 IXXX.X I$ PER TONHE
EXPECT. RATEOF RETURN
EXPECT. RATEOF RETURN
CURRENT SCRAPPRICE
8 IXX.X I% FINANCIAL RATE EXCL.INFLATION
14 IXX.X J% FINANCIAL RATE INCL.INFLATION
115 IXXX
I$ PER TONNE
. . . . . . . . . . ASSUMED VALUES. . . . . . . . . . .
0
REPLACEMNT COSTOF VESL
7
10
13
4
9
11
15
[F.~DV,E~T OCO'STONS(BT~4 X AND X+l)
Fig. 3 Sample output of fleet module: distribution by size for general cargo
vessels
REMAINING LIFE OF VESSL
RESALE VALUE OF VESSEL
ORIGINAL COSTOF VESSEL
NO. OF OFFICERS
5 It has been assumed that on average 30 days per year are needed for
maintenance, and for about 20 days the vessel remains idle.
Gas turbines were originally included but have since been dropped
from consideration.
JANUARY 1991
1.09 IXX.XXXIMILLIONS OF $
11.51 IXX.XXXIMILLIONS OF $
12 IXX
NO. OF RATINGS
}NO. OF OFFICERS IN SHIP'S CREW
21 IXX
INO. ABLE-BODIED SEAMEN IN CREW
17.7 IXXXXXXI$ OO0'S/YEAR FOR ONE CREWSLOT
COST PER OFFICER
COST PER RATING
LENGTH (LOA)
Figure 4 displays the data input used by the module in screen
format. Among these data items, the size of the vessel specified in DWT and the year built are the only essential pieces
of information. For containerships the size of the vessel is
specified in twenty-foot equivalent units (TEU's). The model
then converts TEU's into DWT unless DWT is specified by
the user along with the TEU capacity.
The remaining entries are optional in the sense that the
model provides default values which can be used whenever
the user does not have precise information. The vessel utilization rate is specified as the average number of days per year
that the vessel is actually used. The default value is 315 days
per year. 5 The next two entries describe the nationality of the
crew. The user has a choice of American, North European,
Greek, East Asian or Indian officers and ratings. The Greek
crew is the default parameter. The information on crew nationality together with the type of the vessel and its size
determines the staffing levels and the wage rates for the
officers and ratings. The relationship among crew nationality, crew number and wages was determined from various
sources and is contained in a set of internal tables.
Engine type is the next input to be specified. The available
options are medium-speed diesel, low-speed diesel, and steam
turbine2 Medium-speed diesel engine is the default value.
The next entry is the loaded speed of the vessel, which is
specified in knots. The default value is the typical design
speed for vessels of the specified type and size. If the user
specifies a loaded speed higher than the default value, then
the vessel will be configured with a larger (than typical) propulsion system and higher fuel consumption. If the speed is
lower than the default value, then the propulsion system will
be configured for the default value, but the fuel consumption
will be calculated assuming slow-steaming at the specified
loaded speed.
The entry for type of propulsion is used to compute fuel
consumption. The model assumes that medium-speed diesel
engines use a mix of 20 percent marine diesel oil (MDO)
and 80% high-viscosity oil (HVO), low-speed diesel propulsion
systems use a mix of 5 percent marine diesel oil and 95 per-
II.40 {XX.XXX{MILLIONB Of $
14 Ixx
IREMAININGYEARSOF USEFUL LIFE
10.9 IXXXXXXlINCL. BENEFITS,ASUME 2 MEN/SLOT
159 IXXXX IMETERS(IFFEET THEN f t . / 3.28)
21 IXXX IMETERS(IFFEET THEN f t . / 3.28)
BEAM
SUMMER DRAFT
8.5 lXX
IMETERS(IFFEET THEN f t . / 3.28)
16.0 IXX.X IKNOTS
DESIGN SPEED
ACTUAL LOADED SPEED
ACTUAL SPEED IN BALLAST
SHP (SHIP HORSEPOWER)
INSUR. COST (P&I + H&M)
REPAIR AND MAINTENANCE
STORES
PROVISIONS (DAILY)
ADMINISTRATION
VESSEL UTILIZATION
VESSEL LIFE
FUEL CONS-AT SEA LOADED
-IN PORT
Fig. 4
16.0 IXX.X IKNOTS
17.5 Jxx.x JKNOTS
6497
1.2
1.4
1.0
10.0
10.0
315
20
IXXXXX
IXX,X
IXX.X
JXX.X
IXXX
JXX.X
lXXX
JXX
IS.H.P. FOR MAIN PROPULSION SYST
IANNUAL COST AS % OF REPLAC.COST
IANNUAL COST AS % OF REPLAC.COST
IANNUALCOSTAS %OF REPLAC.COST
l$ PER CREWMEMBERPER DAY
JANNUALCOSTAS % CREWAND R&M
IAVERAGENUMBER OF DAYSPER YEAR
INO. OF YEARSOF ECONOMIC LIFE
28.9 IXX.X ITONNESFUEL PER DAY (24 HOURS)
1.8 IXX.X ITONNESFUEL PER DAY (24 HOURS)
Sample input for vessel module
cent high-viscosity oil, and steam turbines use only highviscosity oil. The model computes the current fuel price per
ton based on the above specified mixing ratio. The prices of
MDO and HVO can be easily updated; however, if the calculated price per ton of fuel appears unrealistic for the longrun, then the user can enter a different value.
The next two inputs are the expected rate of return with
and without inflation. These values refer to the rates of return which are expected in the m a r i t i m e shipping industry
over the long run. They are used to estimate the financial
costs to the owners and operators of the vessels. The default
value for the expected rate of return in constant terms was
assumed to be 8 percent in 1986. The default value for the
long-term inflation rate was assumed to be 6 percent, m a k i n g
the default value for the expected rate of return with inflation
14 percent. In the current economic outlook, the inflation
rate might be adjusted to 4.5 percent.
The final input for the vessel module is the price of scrap
steel. This input is multiplied by the light ship weight of the
vessel to determine the vessel's scrap value. Different rates
occur depending on the country in which the vessel is being
broken and the age and type of the vessel. For the purposes
of this model a single rate is sufficient. The model's default
rate is the average rate for Far Eastern yards in mid-1986
($115/LDT).
The output of the ship module is produced in the format
shown in Fig. 5. The daily fuel cost at sea is obtained by
multiplying the daily fuel consumption rate by the fuel price
MARINE TECHNOLOGY
49
DAILY COSTS FOR GENERAL CARGOVESSEL, DWT 10,000
OUTPUT VALUES
EXPECTED
FUEL COSTS - IR PORT
LOW
0.1
THOUS. OF $ PER DAY
0.2
2.4
TH(YJS. OF $ PER DAY
3.2
1.9
ANNUALCOSTOF CREW
441
TH~JS. OF $ PER YEAR
485
397
ANNE. COSTOF PROVISION
104
]TRCWJS. OF $ PER YEAR
149
66
ANNL. COSTOF INSURANCE
137
THOU$. OF $ PER YEAR
170
107
ANNL. COSTOF R & M
160
THOUS. OF $ PER YEAR
210
87
ANNL. COSTOF STORES
114
TH(:WJS. Of $ PER YEAR
157
87
- AT SEA LOADED
ANNL. COSTOF ADMIN.
60
ARNL. NON-CAPITALCOSTS
THOUS. OF $ PER YEAR
1016
TH(XJS. OF $ PER YEAR(EXCL
0.1
104
24
1277
FUEL)
i'69
VESSEL CAPITAL COSTS
IN FINANCIAL TERMS
IN THOUSANDSOF U.S.
1378
DOLLARS PER YEAR
132
BASED ON THE
1.FIXED DEPRECIATION-DECLIN BAt
1161
1171
1584
2.ANNUALIZEO RESALE VALUE
201
77
3.ANNUAL[ZED REPLACE VALUE
1532
861
METHODS LISTED
IN COLUMN G
.......................
I .........
LAYUP COSTS
l
22 ]
SCRAPPING PRICE
I
0.38 I
I .....................................
RETURN ON SALVAGE
I
30 ]
THOOSANDS
OF $ PER MONTH
I .....
I
I ......
26 ]
17
MILLIONS OF $ (LESS 15% DELIVEl 0.42 j 0.34
THOUSANDSOF $ PER YEAR
I
$9 I
48
SENSITIVITY TEST FOR GENERAL CARGOVESSEL, DWT I0,000
VESSEL COST SUMMARYTABLE
(THOUSANDS OF US$ PER DAY AT SEA
......
AT S E A - I - - - I N
PORT-J . . . . . .
m a i n t e n a n c e a n d repairs, o b t a i n i n g insurance, m a r k e t i n g
vessel services, p l a n n i n g vessel routes a n d personnel travel,
billing for services, m a i n t a i n i n g a c c u r a t e accounts, a n d m a n aging t h e c o m m u n i c a t i o n s between t h e vessel a n d staff.
The costs for a d m i n i s t r a t i o n a r e difficult to e s t i m a t e since
t h e y depend on a v a r i e t y of factors, including t h e size o£ t h e
fleet being managed, t h e e x t e n t to which ships' agents a r e
used, a n d t h e size of the overseas offices and staff. The t h r e e
p r i m a r y factors a r e t h e type of t r a d e (liner services have
m u c h h i g h e r a d m i n i s t r a t i v e costs t h a n c h a r t e r services prim a r i l y due to m a r k e t i n g requirements), t h e c o u n t r y in which
the a d m i n i s t r a t i o n is conducted, a n d t h e e x t e n t to which t h e
m a n a g e m e n t of t h e vessel is contracted out.
In addition, t h e a d m i n i s t r a t i v e costs will increase will increase with vessel size to t h e e x t e n t that:
(i) more supplies, fuel, a n d stores m u s t be ordered a n d
accounted for;
(ii) m o r e m a n p o w e r is required d u r i n g drydockings, surveys, a n d repairs; and
(iii) the a r e a over which t h e vessel operates is larger.
F o r the purposes of the model, it was assumed t h a t administ r a t i v e costs are p r o p o r t i o n a l to t h e a n n u a l costs of crew a n d
r e p a i r s and m a i n t e n a n c e . This percentage can be adjusted
based on the type of trade.
The r e p l a c e m e n t cost (newbuilding price) of the vessel was
e s t i m a t e d from the reported sales d a t a using t h e following
g e n e r a l relationship:
Price per DWT = a • (DWT) b
METHOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I
2.8
0.5
5.7
3.4 ]2. OPERATING COSTS
~.0
] 1 . AVOIOA8LE
COSTS - LAYUP ( EXCLUDES CREW )
7.7 ~3. FIX DEPRED. (DECEIN BAL.) + OPER. COSTS
6.1
3.8 14. ANNUALIZEDRESALE VALUE + OPER. COSTS
9.3
7.1
IS-
ANNUALIZEDREPLACE VALUE + OPER. COSTS
I
Fig. 5 Sample output from ship module
described above. The fuel consumption r a t e is calculated
based on the vessel's DWT a n d a c t u a l loaded speed. The form u l a used for this calculation is:
V 3 (DWT) a
r =
b *f( V/Vo)
.c
where
r = daily fuel consumption r a t e
Vo = design speed
V = actual loaded speed
f ( x ] = t h e r m a l efficiency ratio, as a function of the V / V o
ratio
a,b -- regression coefficients r e l a t i n g speed and vessel
size to fuel consumption
c = s t a n d a r d unit consumption factor r e l a t i n g type of
engine and fuel consumption.
T h e daily fuel consumption r a t e in port is obtained as a function of the vessel's type and size, based on information collected from various sources and stored in the model's d a t a
tables.
The a n n u a l costs of i n s u r a n c e (including P&I and H&M
insurance, b u t not cargo insurance), r e p a i r a n d m a i n t e n a n c e
(R&M), and stores (excluding provisions) a r e calculated as a
p e r c e n t a g e of t h e vessel t y p e and its r e p l a c e m e n t cost. The
cost of provisions depends on the crew size and its nationality.
A d m i n i s t r a t i v e costs can r e p r e s e n t a major cost of providing m a r i t i m e t r a n s p o r t a t i o n . The a d m i n i s t r a t i v e responsibilities for a single vessel or a fleet include r e c r u i t i n g and training crews, o r d e r i n g supplies and spare parts, a r r a n g i n g for
50
JANUARY 1991
Resale prices a r e derived by discounting t h e newbuilding
prices for the vessel. The discounting is done using a fixed
percentage per year. This factor was derived by regression
analysis of the p u r c h a s e a n d sales d a t a published in the maritime literature.
In addition to t h e cost figures shown in Fig. 5, t h e model
o u t p u t includes the physical dimensions of the vessel, t h e
n u m b e r of officers a n d ratings in the crew, a n d t h e size of t h e
m a i n propulsion unit. A m o n g these non-cost p a r a m e t e r s , only
the size of the crew is used directly in e s t i m a t i n g costs. The
effects of t h e v a r i a t i o n in the o t h e r physical p a r a m e t e r s is
accounted for by e s t i m a t i n g high and low values for capital
and o p e r a t i n g costs (refer to Fig. 5).
The size of the m a i n propulsion unit is given by t h e f o r m u l a
B H P = a . (DWT) 2/3. V ~ + b
w h e r e a and b a r e regression coefficients e s t i m a t e d from a
large s a m p l e of d a t a obtained from vessel statistical data.
The most i m p o r t a n t f e a t u r e of t h e SHIPCOST model is the
v a r i e t y of capital and o p e r a t i n g costs computed. The model
calculates these costs for typical vessels, but it can provide a
more precise e s t i m a t e of a vessel's o p e r a t i n g cost if t h e user
provides additional d a t a for a specific vessel. The second most
i m p o r t a n t feature is the ability to perform sensitivity analysis. This analysis d e t e r m i n e d the change in t h e capital a n d
o p e r a t i n g cost of a vessel as a function of its size, age a n d
speed. S a m p l e results of these tests a r e p r e s e n t e d in e i t h e r
g r a p h i c a l or t a b u l a r form as shown in Fig. 6.
Voyage module
The voyage module computes t h e costs for o p e r a t i n g a specific vessel over a designated route c a r r y i n g a single type or
form of cargo on each leg of the voyage. D a t a on t h e daily
costs of t h e vessel can be e n t e r e d by the user or can he obt a i n e d from the ship module. The user specifies t h e route as
a two- or three-legged voyage. The voyage is defined by t h e
type of cargo on each leg, the h a n d l i n g r a t e s a t t h e o r i g i a
and d e s t i n a t i o n of each leg, t h e fixed delays for each cargo
t r a n s f e r operation, and the t a r i f f r a t e s for each cargo hanMARINE TECHNOLOGY
¢--!
~:bt~MEN7 I
Ir
t
-
/
/
,/
r.I
I
I
I
I
60
80
109
iiO
14-0
DWI~3'S T}Nt4ES
Fig. 6
Output of vessel module sensitivity tests: DWT versus operating +
capital costs for general cargo vessels, Greek crews
dling operation. The screen format for the input is shown in
Fig. 7.
The voyage module computes not only the vessel capital
and operating costs, but also the financial costs of the cargo
in transit and, if wanted, the port changes. The cargo-related
costs are determined by specifying the type and value of the
cargoes being transported. The port charges are determined
by entering a simplified version of the port tariff to account
for vessel and cargo-related charges.
The vessel costs at sea are determined by first specifying
TEST
OF THREE LEGGED VOYAGE
1986 VOYAGE COSTING MODEL
..........................................................
VESSEL DATA
SIZE
35750
XXXXX DEADWEIGHT; XXXX TEU I
UTILIZATION
315
DAYS PER YEAR;
R&M DAYS/YR I
LOADED SPEED
18
KNOTS;
IDLE DAYS/YEAR
VESSEL CAPITAL COST
9.43
US$ 000'S/DAY;BALL~ST
SPEED
-CREW COST
2.67
US$ 000'S
PER DAY
-OTHER COST
4.30
US$ O00'S
P E R DAY
-FUEL COST AT SEA
6.87
US$ 000'S
PER DAY
- F U E L C O S T IN P O R T
0.21
US$ 000'S
PER DAY
..........................................................
VOYAGE
~ ...........
~ov~::::::_::= . . . . . . . . . . . . . .
ORIGIN PORT
DESTINATION
DISTANCE
23
23
410
PORT
DATA
~ ............
23
23
628
~ ......
23
I
I
I
23
5000
i
I.E. c o a s t U S A 2. W. c o a e t U S A 3. C a r l b b e a n / G u l f c o a m t lIRA
5. W. c o a s t C e n t r a l A m e r i c a 6. S.W. S o u t h A m e r i c a 7. w. c o
8. N.E. S o u t h A m e r i c a 9. U . K . / N . W . E u r o p e
lO.Persian Gulf 1
12. E. M e d i t e r r .
13. N.E. A f r i c a
14. W. A f r i c a
]5. S . W .
16. S.E. A f r i c a
17. S. A f r i c a
18. S o u t h A s i a (India) 19.
20. E. A s i a ( J a p a n / K o r e a ) 21. E. A u s t r a l i a
22. W. A u s t r a l
................... I--LEG 1 ...... LEG 2--- ..... LEG 3---CARGO COMMODITY
]
12
12
12
MAXIMUM CAPACITY
2250
2250 I
2250 I
VALUE OF CARGO
2635
2635 I
2635 I
i. c r u d e 2. o i l p r o d u c t s 3. g r a i n 4. i r o n o r e 5. c o a l 6 . b a
7. a l u m i n a 8. o t h e r m i n e r a l 9. o t h e r d r y b u l k I0. o t h e r li
ii. b r e a k b u l k 12. c o n t a i n e r i z e d
c a r g o 1 3 . e m p t y l e g - in b a
PORT
AMOUNT LOADED
AMOUNT UNLOADED
N~T LOADING
RAT~
NET UNLOADING RATE
FIXED ACCESS TIME
-LOADING FACILITY
-UNLOADING FACILIT
Fig. 7
JANUARY 1991
I
I
1->2
i000~
400|
t
12oo/
I
1200|
I
I
1.5 I
1.5 i
PORT
2->3(1)
500
750
12oo
1200
1.5
1.5
Input format for voyage module
PORT
3->1
75O
1100
1200
1200
1.5
1.5
I
which of the five categories of the vessel costs is to be used.
The selected cost is then computed for the designated type,
size, and operating speed. This cost is then multiplied by the
transit time for each leg of the voyage.
The vessel costs in port are determined from the time spent
in port, which includes the access/egress t i m e and the t i m e
spent loading and unloading the cargo. The port charges are
determined from the simplified port tariff, the amount of
cargo transferred and the t i m e the vessel spends in port.
The cargo inventory costs are determined from the daily
interest charges on the cargo carried on each leg. This figure
is multiplied by the time spent transiting the leg and the
t i m e spent in the origin port loading the cargo and in the
destination port unloading the cargo.
A sample of the voyage module input and output are shown
in Fig. 8 for a typical triangular voyage. The costs incurred
while in transit are identified separately from those incurred
while in port. The total voyage costs are computed by summing the costs on each leg of the route. Once the voyage costs
have been determined, the annual cost of a vessel dedicated
to this route can be estimated by calculating the number of
voyages that could be completed in a year. Since different
cargoes would be carried on the individual legs and different
load factors would apply, it does not m a k e sense to determine
an overall cost per ton carried. Therefore the model computes
are per-ton transport costs for each leg of the voyage.
The voyage module can be used as a stand-alone model
without the vessel module. In this configuratibn, the user
specifies the daily cost parameters shown at the top of Figure
8 for a specific vessel.
The type of transportation service represented in the voyage module can be a single voyage, multiple voyageS or an
annual service. This module also performs sensitivity tests on
voyage cost relative to cargo handling rates. When combined
with the ship module, the voyage module can also perform
sensitivity analysis with respect to vessel size and speed.
TEST OF THREE LEGGED VOYAGE
VOYAGE DESCRIPTION - FROM
TO
TO
FINANCIAL COSTS
TRAVEL TIME
PORT TIME
-LOADING FACILITY
-UNLOADING FACILITY
VESSEL COST
-IN TRANSIT
-LOADING FACILITY
-UNLOADING FACILITY
TOTAL VESSEL COSTS
PORT CHARGES
-AT LOADING PORT
-AT UNLOADING FORT
TOTAL PORT CHARGES
CARG.INVENTORY
COST
DURING VOYAGE WITH
LEG 1
0.95
LEG
2
1.45
LEG
3
11.57
0.90
0.40
0.48
0.69
0.69
0.98
22.08
14.88
6.57
43.53
33.81
7.96
11.42
53.19
269.22
11.42
16.26
296.90
0.00
0.00
0.00
2.26
14.00%
........ TOTAL FINANCIAL VOYAG
TOTAL VESSEL COST
393.61
TOTAL PORT CHARGES
0.00
TOTAL VOYAGE COST
393.61
TOTAL VOYAGE TIME
18.10
VOYAGES PER YEAR
17.0
T O N S L O A D E D P E R YR.
-LEG1
17000
-LEG2
8500
-LEG3
12750
TOTAL COST PER YEAR
6.81
(LESS CARGO INVENT)
TOT.COST/TOT.LOADED
5178
(LESS CARGO INVENT)
Fig. 8
New York
Baltimore
Savannah
RATE
0.00
0.00
0.00
2.65
OF INTEREST
0.00
0.00
0.00
13.38
COSTS .......
$000's/VOYAGE
$000's/VOYAGE
$000's/VOYAGE
DAYS/VOYAGE
TEU
TEU
TEU
MILLIONS OF
$
$ PER TEU
Sample output for voyage costs
MARINE TECHNOLOGY
51
6. Model applications
The model has been used for a wide variety of projects
involving t r a n s p o r t a t i o n projects as well as analyses of transport costs. The basic application has been in port development
projects where the model is used to estimate the cost of vessel
time i n port. This cost is t h e n used to compute the value of
the savings in port time which will result from the i n v e s t m e n t
of new berths, better cargo h a n d l i n g e q u i p m e n t or other inf r a s t r u c t u r e which reduces the time a vessel spends in port.
Prior to the introduction of this model, the vessel costs were
d e t e r m i n e d from a small sample of vessel costs which were
generated from ship m a n a g e m e n t records. These estimates
used n e w b u i l d i n g costs to estimate the capital costs. Now
resale value is being used to d e t e r m i n e the capital cost. This
change is i m p o r t a n t because the i n v e s t m e n t in port facilities
or other t r a n s p o r t i n f r a s t r u c t u r e m u s t consider the m a r k e t
which is being served. I n periods of excess capacity when
vessels are slow s t e a m i n g to reduce fuel costs, it is u n l i k e l y
t h a t a reduction in port t u r n a r o u n d time will be t r a n s l a t e d
into additional e m p l o y m e n t for the vessels calling at the port.
If a n y t h i n g it will add to the excess capacity and in this
way m a y reduce shipping rates. In periods of peak demand,
congestion charges are introduced as a m e a s u r e of the cost of
delay to a vessel, b u t a more accurate m e a s u r e can be obtained using the SHIPCOST model.
The SHIPCOST model has also been used to look at dedicated services p r i m a r i l y for bulk and neo-bulk cargoes. In
these situations, the model provides a quick estimate of the
m a r i n e t r a n s p o r t costs which can then be used to d e t e r m i n e
the economic viability of t r a n s p o r t i n g the cargo. The model
can also be used to d e t e r m i n e the combination of vessel size,
operating speed a n d port cargo-handling rates which will result in the lowest t r a n s p o r t cost.
The model's capacity for computing voyage costs using different definitions of vessel costs has been very useful when
analyzing shipping tariffs. The operating costs by themselves
provide the m i n i m u m rate appropriate for backhaul cargoJ
The operating cost plus depreciation represents the conference rate for median-value cargo a s s u m i n g t h a t the calculation is made for the crew and vessels of the high-cost operator
in the conference. High-value cargo will be charged at a
higher rate. If the rates rise above the newbuilding cost plus
operating costs, t h e n it is likely that there will be new ent r a n t s and rates will be forced down.
The SHIPCOST model is also useful for evaluation port
tariffs. The development of effective port tariffs requires a
knowledge not only of the costs of port operations but also of
the vessel operators serving the port. The simplified port
tariff included in the voyage model allows for a n estimate to
be made of the m a g n i t u d e of port charges relative to the rest
of the voyage costs. Alternatively, a more detailed analysis
of port charges can be prepared by port m a n a g e m e n t and
combined with the voyage cost estimates provided by the
SHIPCOST model. This analysis can be p a r t i c u l a r l y useful
when a port is introducing a new service or improving a n
existing service a n d wants to estimate the value of the resulting savings to the vessel operators in port and voyage
time.
A final use of the SHIPCOST model is the calculation of
the additional vessel costs incurred in m a k i n g a port call. The
model is used first to compute the voyage costs for the existing
route a n d t h e n to compute the voyage costs with the new port
added to the route. The decision of a vessel owner to make a n
additional port call depends on the difference between the
additional cost of diverting the vessel to the port and the
7A more appropriate measure would be the marginal cost of carrying
additional cargo, but the model is not set up to estimate this cost.
52
JANUARY 1991
increase in revenues resulting from the additional volume of
cargo which would be obtained by calling at the port.
This analysis becomes more complex where there is a n
option for t r a n s p o r t i n g the cargo, albeit at higher cost,
t h r o u g h a port which is already on t.he route. A s s u m i n g t h a t
no additional cargo would be generated by calling at the port,
the tradeoff is between the savings in land t r a n s p o r t costs by
h a n d l i n g the cargo through the new port a n d the additional
cost of calling at this port. The SHIPCOST model is used to
estimate the diversion cost. If the c u r r e n t fleet is underutilized, t h e n only the operating costs for the vessel would be
used. If the fleet is utilized to the point where the additional
time spent calling at the port would have to be made up by
c h a r t e r i n g additional capacity, t h e n the resale value can be
used for the capital charge.
As a n example of the diversion problem, we would like to
consider the cost of adding Baltimore to a container service
to North Europe which presently calls at Elizabethport a n d
S a v a n n a h . The cost of diverting to Baltimore includes the
cost of moving up and down the Chesapeake at 17 knots a n d
the costs of access a n d egress to the port of Baltimore. It is
assumed t h a t the total time spent t r a n s f e r r i n g boxes would
not be significantly different. For a typical 2500-TEU vessel
with North Europe crew a n d officers, the round-trip voyage
costs would be as shown in Table 1. The access a n d egress
time at Baltimore, which includes berthing, u n b e r t h i n g a n d
preparing the ship before and after cargo h a n d l i n g operations, is assumed to be three hours.
Other costs are incurred due to the delays associated with
waiting for the s t a r t of a shift. Also, there are the charges for
stevedoring as well as port services. We have not included
these items because they require a more precise knowledge
of the vessel schedule a n d the relative charges at the three
ports. The results in Table 1 indicate that for a fleet with
excess capacity the cost of the diversion per voyage would be
only about $15 000. Assuming that 500 TEU were transferred
on each call, then the port call would appear to be justified if
the additional cost to t r a n s p o r t these boxes to either Savann a h or Elizabethport is greater t h a n $30. However, this cost
does not include the additional a d m i n i s t r a t i v e costs of providing shipping and receiving services in Baltimore. Also, even
if the differential l a n d t r a n s p o r t cost is higher t h a n $30 per
TEU, the ship operator still might not call at Baltimore if the
resulting increase in total voyage time introduced costs which
were greater t h a n the potential savings in land t r a n s p o r t
costs.
Table 1
Marginal costs of vessel call at Balitmore
ASSUMPTIONS
• 2500-TEU container vessel
• Built in 1982, valued at resale value
• 18-knot loaded speed
• North European Crew and Officers
• Handling Rates are the Same in All Ports
• European Leg Simulated by 5000 mile loop
• Port Charges Not Included
N E W YORK-SAVANNAH-EuRoPE
Trip Time-17.4 days
Trip Cost-$378.7 thousand
N E W YORK-BALTIMORE--SAvANNAH--EuROPE
Trip time-18.1 days
Trip cost-$393.6 thousand
Marginal Cost for 500 TEU-$30/TEU
Marginal cost if full day added to voyage-$41/TEU
MARINE TECHNOLOGY
7. General specifications
SHIPCOST is designed to operate on an IBM PC or compatible micro-computer. It is w r i t t e n in LOTUS 1-2-3 (release 2.0),
b u t knowledge of the software package is not required since
t h e model is menu-driven. D a t a e n t r y is u n d e r t h e control of
t h e program. It requires one disk drive a n d at least 384K of
R A M memory. The c o m p u t a t i o n time for each module is five
seconds or less.
The model is designed for periodic updating. F o r t h e most
frequent updates, such as the price of fuel and scrap steel,
t h e user can e i t h e r change the values each time t h e model is
used or change t h e default values and store t h e m with the
program. F o r those p a r a m e t e r s which change y e a r l y such as
crew wages, newbuilding costs, resale factors, a n d inflation
JANUARY 1991
indexes, an a n n u a l u p d a t e is performed by modifying t h e
d a t a tables in t h e model. F o r long-term changes, such as
reductions in fuel consumption a n d m a n n i n g requirements,
changes in a v e r a g e o p e r a t i n g speeds, and a d j u s t m e n t s in fleet
and vessel characteristics, a n u p d a t e is p r e p a r e d every two
to four years. This u p d a t e involves a review of t h e l i t e r a t u r e
a n d statistical a n a l y s i s of t h e data. The results of this analysis
a r e used to revise the constants in t h e p r o g r a m ' s formulas as
well as the values in the d a t a tables.
References
1 Zannetos, Z., The Theory ofOil Tankship Rates. An Economic Analysis of Tankship Operations, The MIT Press, Cambridge, Mass., 1966.
2 Jansson, J. O. and Shneerson, D., Liner Shipping Economics, Chapman and Hall, New York, 1987.
MARINE TECHNOLOGY
53