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Institute of Chartered Shipbrokers, Greek Branch, Chapter 5, Dr. K. Galanis

Dr. Konstantinos GalanisOperations & Technical Senior ManagerSeanergy Maritime Holdings Corp.


Practical shipmanager’s approachGeneral description of accounting in shippingAddress the way in which shipmanagers are accountable for their work & how the ship management function relates to the overall picture of ship finance


Capital or Fixed costsAcquisition of the vessel, (pre-delivery expenses, loan repayments & interest, leasing charges, initial registration fees, taxes, etc.)Vessel is taken on bareboat or demise charter, the charter hire is the equivalent of capital costsIf purchase out of company’s own financial resources, an annual depreciation rate to apply together with an appropriate return on capital employedIf the purchase is by means of a mortgage, loan repayment & interest will form the principal fixed cost

Operating costsSemi-variableRelate closely with the employment of the shipDaily Operating or Running Cost (DOC or DRC) Crewing, storing, maintenance, insurance, administration, etc.

Voyage costsVariable costs associated with the particular employmentBunkers, port & canal charges, pilotage, harbor tug hire, port agency fees, loading/discharging expenses, etc.


In-house or independent entity under management agreementAssumption: SM is a separate entity on a full management package basisAccounting issues

BudgetingProcessingReporting

Cash flow forecasting


Ship characteristics (size, type & age of the vessel, type of Main Engine & Aux. Engines, intended registry, crew, trading pattern, etc.)Part of a managed fleetNew or newly-acquired shipTechnical inspectionExamination of Class records


Budget Proposal

Next is a budget proposal for a N/B 58,000 dwt Supramax Bulk carrier.For budget purposes, costs are on the basis of- Marshall Island registry - Full Indian crew Sheet - 1: Monthly Operating cost for 1st year of management; Sheet - 2: Assumptions for 1st year operating costs; Sheet - 3: Crew wages breakdown;Sheet – 4-5: Crew expenses Breakdown with ITF cover;Sheet - 6: Lube oil expenses;The crew wages include good service bonus for senior staff and hold cleaning / scavenge space cleaning allowance for crew.

Singapore has been assumed for purpose of Lube Oil supply and Crew change.Cost of forthcoming regulations, such as ECDIS, etc. are excluded from the budget.Docking and pre-delivery estimates are excluded.





Number of crew members and nationalitiesBudget the main elements of crew costsOwners are looking for general figures, i.e. annual salaryLeaves, overlappingDue allowance: crew bonuses, social costs, insurance contributions, pension funds, etc.TrainingTravel and repatriationSundry medical expenses


Include victualing or provisioning of the shipPer person per day in USDProperly supervise the ship chandlersQuality of food, invoicingStores vs. Spares: ConsumablesWires & ropes for mooring or cargo handling gear, lashing material, packing material and gases or chemicals used for refrigerating plant, boiler or tank cleaning treatments, paints, cabin stores, ship’s stationary, laundry and fresh water suppliesLubricants & greases (consumption)


Spare partsRepairs (shore labour or riding teams)Survey and classification feesDry-dockings (spread the cost over a period of years on an accrual basis or as a special item)


Insurance premiums and estimated P&I calls (quotations & renewal negotiations)Slight variance with the actual cash positionDeductibles to be decided


Superintending expenses, renewable dues, subscriptions and fees (including agency costs where applicable for owner’s items) and communication costsManagement fees


Cash flow forecast to be prepared based on budgetMonthly periodsMonthly funding requirement


Budget versus Actual analysis statementMonthly or quarterly as a record of management performance (Appendix)-percentage varianceMonthly statements containing cumulative analysisReasonably detailed documentary on all significant variances


Cyclical nature of international trade ad the shipping marketDepression leads to vessels’ withdrawn from service (laid up)Maintaining the asset valueCost associated with proper care and preservationCrew, Class, Salvage AssociationDaily costReactivation expenses (involving drydocking and extra survey)Slow steaming as an alternative


Assumption for independent shipmanager with full packageContractCrewCommercial operations and chartering


Case Study IYou have been asked to advise the costs associated with ship ownership.(a) Explain what costs would be incurred in acquiring a vessel.(b) Explain the difference between voyage costs and daily operating costs providing as fully as possible a list of each of these.(c) How would you allocate the following costs for a vessel under your management?

Crew travel and repatriationPilotage costsLight duesRepair of boilerWar risk insuranceAdditional war risk premiumCanal duesTugs going into drydockRegistration feesSupply of fresh vegetables


Case Study IIYou have been asked to brief potential investors on the various types of costs associated with ship-owning. a) Using examples, explain the difference in detail between voyage costs and daily operating costs. b) Explain all the costs an owner would probably incur with the acquisition of a vessel. c) The following invoices have been presented to you. Under which headings would you allocate the following costs?

Pilotage fees Crew travel and repatriation Port dues Supply of Provisions Draft survey Supplementary P & I Call Initial registration fees Repair of Radio equipment


Case Study IIIYou have been asked to prepare a budget for a client with a fleet of five Capesize bulkers. a) Describe in detail the typical costs included in a budget estimate of the daily operating costs. b) Explain how you would monitor all these costs during the management of the vessel and what circumstances might arise that could make significant variations to the figures.


Case Study IIIExaminers report:

Another popular question which generally was well-answered, with some candidates giving quite detailed costs to be included in a budget.

Merely listing the costs with only a brief explanation is not sufficient. Some candidates included bunkers in the daily operating cost (DOC) and while a small amount of hotel bunkers would be used for the vessel this is generally allowed for in the voyage cost estimate, as are port costs.

The second part of the question was less well covered with some candidates focussing on controlling and reducing costs which, while admirable, was not what was required. You were asked to monitor the cost which means checking regularly through cash flow forecasts, monthly statements and noting and explaining variances.

Significant variations might arise due to an accident to the vessel, a point made by some candidates, but so would a change to the trading pattern of the vessel, particularly if embarking on shorter voyages in a more expensive region.

You would also be affected by changes in the exchange rates. The UK pound has strengthened against the US$ in the last few months before the exam which could make a significant difference to the purchasing value of your earnings.


Attempt the following and check your answers from the text:Prepare a budget estimate showing also daily cost and a cash flow forecast from the following information. CrewOfficers and ratings pay, leave pay and overtime $25,000 per monthCrew insurance and pensions $1,500 per monthCrew establishment and travel $48,000 per yearCrew sundries $5,000 per yearThe main crew change is expected in March at a cost of $21,000 the remaining costs will accrue evenly over the year.StoringProvisions allowance $4.00 per day for 20 crew plus 5% allowance for extra mealsAll deck and engine stores $52,000 per yearLubricants $56,000 per year assuming 295 days at seaOthers $15,000 per yearMain storing takes place quarterly commencing January.MaintenanceAll maintenance $165,000 per year accrued evenly each monthInsuranceHull & machinery $90,000 per year paid quarterly commencing JanuaryP&I $40,000 per year advance call paid April, supplementary call of 20% payable October.LOE/War risk $20,000 paid February.AdministrationAll admin costs total $108,000 accrued in equal monthly installments. No dry-docking or special surveys need to be budgeted.

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Dr. Konstantinos Galanis - Squarespace · Dr. Konstantinos Galanis. ... Voyage costs Variable costs associated with the particular employment Bunkers, ... Using examples,