E-commerce is king, and it shows no signs of slowing down. The consumer demand for faster shipping is having a major impact on supply chains, specifically shipping. E-commerce has increased expectations among consumers, ushering in a new era of shipping speed. However, the costs of maintaining a cargo or marine vessel, including fuel, repairs, and maintenance, play a major role in a vessel’s ability to remain competitive. As a result, the cost of maritime freight operating costs has risen again for the third year in a row.
Brian Ladin of Dallas, Texas, is the Chief Executive Officer for Delos Shipping and provides maritime assets and financing for end users. With years of experience providing maritime assets and financing for end users, Brian knows the impact that rising costs can have on a shipping company and the industry as a whole.
Transportation of goods by sea is one of the most cost-efficient ways of moving cargo from point A to point B. Recent estimates have found that moving goods by ocean container can be 17 times more fuel-efficient than transporting the same goods by air; it is estimated that more than 90% of world trade is carried by sea. Brian Ladin explains that many shipping companies are seeking to cut their costs and overhead as a result of the 2008 financial crisis. Many big and small owners have had to sell their ships as they were not able to run them profitably due to lower freight rates and higher operating costs. The costs involved in running a ship are fairly complex, which is not limited to the confines of the ship but transcend across continents.
One of the biggest expenses of a marine vessel is fuel. Brian Ladin explains that fuel costs can represent as much as 50–60% of total ship operating costs, depending on the type of ship and service. Shipping vessels use vast amounts of fuel, up to 100,000 liters a day across the industry. A cargo ship can use anywhere from 1 ton per hour to 16 tons for the largest ships travelling at 23 knots. So, a large ship could cost as much as $5,500 per hour, and up to $130,000 per day. Of course, these numbers vary depending on the scale and capacity of the ship, but it clearly showcases how expensive running a cargo or marine vessel can be.
In addition to considering the costs of fuel, shipping companies also have to consider the average lifespan of their cargo or marine vessels. The average lifespan of a steel-hulled welded ship is between 15 to 40 years. That low estimate represents large tankers that are driven hard to wear out quickly. The high estimate represents a very well built and excellently maintained utility ship or a top-level small cruise ship. Given these varying life spans, it has never been more important for shipping companies to invest in maintenance, raising costs even more.
Final Thoughts from Brian Ladin
With the International Maritime Organization declaring that they will reduce greenhouse gas emissions by 50% by 2050, Brian Ladin explains that there is additional pressure on the industry to invest in sustainable and clean energy sources. From exploring electric power to slowing down ship speeds, shipping companies are going to need to get inventive to be able to reach these ambitious goals.
In addition, the annual cost of operating a container ship rose 3.1 percent in 2011, primarily due to rising wages for crews and higher repair and maintenance costs. This rising trend is expected to continue through 2020 before receding in the future. Statistics published by the Drewry shipping consultant firm identify that on average, daily operating costs across the 46 different ship types and sizes covered in its report increased 2.2% in 2019. Brian Ladin explains that whether you work in the shipping industry or are just a regular consumer, the rising costs in shipping will inevitably affect everyone, making it more important than ever to be informed.